The stock market will face a 'day of reckoning' this year when an inevitable inflation spike forces the Fed's hand, says Wharton professor Jeremy Siegel
Jeremy Siegelsaid the stock market will face a "day of reckoning" sometime this year as inflation spikes.
- He forecasts an uptick in inflation will force the Fed to change its accommodative policy and that will spook stocks.
- He also said inflation will rise cumulatively 20% over the next four years.
The stock market will face a reality check at some point in 2021 when a spike in inflation forces the
"For the month of May and June, we're going to be getting to see the inflation that's going to come from this prodigious monetary and fiscal policy," Siegel said.He added that Friday's disappointing jobs report only delayed the "day of reckoning" for the stock market, because it will give the Federal Reserve a little bit more time to continue its expansionary policy stance.
"There will be a day of reckoning down the road, there's no question about it," Siegel said. "I think later this year, we're going to get that Fed pullback. The market is going to ripple and act scared."Read more: A 48-year market vet breaks down why a 'fragile' and over-leveraged stock market is on the path toward a 65% drop or more - and warns that investors are misreading how the Fed could react to an overheating economy later this year To prepare for the "reckoning," the professor reiterated his recommendation of real assets, saying those will be the "best thing." Real assets tend to perform well during inflationary periods. He also said investors right now should be in stocks that hinge on a rise in economic activity, like
After Friday's jobs report signaled a weaker than expected economic recovery, investors piled into tech stocks, embracing the stay-at-home trade that dominated
But Siegel said that the spike in tech stocks that occured right after the jobs report was announced was just a temporary "little bounce back" as bond yields fell."The 10-year yield is now above where it was before the employment report came out, so I think the market's going to show it later," Siegel said. "I think inflation is in the works."
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