The most significant risk to that upside is the Fed ignoring those indicators and continuing to hike rates, which could overtighten the economy and tip the US into a recession, or worse, a depression, Siegel warned.
Investors feared that outcome last week when the September CPI clocked in above expectations and solidified views that the Fed will enact two more 75-basis-point rate hikes this year, triggering a sell-off in stocks.
“The fear of the Fed overtightening and recession is really what’s keeping [stocks] at bay right now,” Siegel said.
Currently, the fed funds rate is targeted at 3.00% to 3.25%, and the central bank estimates it will stop hiking once it reaches a peak range of 4.5% to 5%.
“For the long run, I think [US stocks are] marvelous, and for the short run it’s rocky. And if you can pick the bottom, all the more power to you,” Siegel added.
