Original title: economists warn: inflation risk exceeds Fed expectations the market is unprepared for this
Source: Wall Street
Wall Street may be on the verge of an unusually painful quarter.
Jeremy Jeremy Siegel, a finance professor at the Wharton School who is known for his aggressive market forecasts, warned of the market's ability to cope with inflation. "We are going to face some problems, generally speaking," he said on CNBC's "Trading Nation" program on Friday.Inflation will be a bigger problem than the Fed thinks.”
Siegel warned that rising prices pose serious risks. "the Fed will be under pressure to accelerate the reduction of bond purchases." "I don't think the market is ready to accelerate the exit from QE."
His cautious attitude is clearly different from his optimism at the beginning of January. On Trading Nation on January 4th, he correctly predicted Dow Jones.The industrial index will reach 35000 in 2021, up 14 per cent from the start of the year. On Aug. 16, the index hit an all-time high of 35631.19; on Friday, it closed at 34326.46.
Siegel believes that the biggest threat to Wall Street is that Federal Reserve Chairman Colin Powell withdrew from loose monetary policy earlier than expected because of a sharp rise in inflation.
We all know that many of the volatility in the stock market is related to the liquidity provided by the Fed. If the rate of reduction is faster, it also means that interest rates will be raised faster.Neither of these things is good for the stock market.
Siegel is particularly concerned about the impact on growth stocks, especially technology stocks. He believes that NASDAQ, which is dominated by technology stocks,The index is now only 5% from its all-time high and is likely to fall sharply.
"the market will tilt towards value stocks." He believes this background bodes well for companies that benefit from higher interest rates, have pricing power and pay dividends.
"yields are very low," he said. "you don't want to lock yourself in long-term government bonds. I think long-term government bonds will be hit hard in the next six months."
Siegel believes that against the backdrop of inflation, underperforming utilities and consumer goods companies known for paying dividends are likely to rise strongly.
They finally have a good day. If you have dividends, the company's share price can rise, and historically, dividends have been resistant to inflation. Of course, they are not as stable as government bonds. But they have inflation protection and positive returns. "