Wharton's Jeremy Siegel Sounds Recession Alarm Again — But Adds A Silver Lining For Savvy Investors

Wharton Professor Jeremy Siegel reiterated his concerns about an impending recession but suggested that a downturn may not be entirely negative for investors.

What Happened: In his weekly commentary for asset manager WisdomTree, Siegel pointed to last week’s weak economic data, including the sharp drop in job openings, soft ADP numbers, and weak ISM service sector reading and durable goods order data. 

Siegel noted that although the non-farm payroll numbers were as expected, the year-over-year earnings growth was a tenth lower than anticipated, and the labor force participation rate recovered to nearly March 2020 levels. 

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According to Siegel, last week’s data only reflects the situation before the Silicon Valley Bank collapse, and it will probably take four to six weeks before the full impact is observed, which is the basis for his recession prediction.

Siegel turned his attention toward Wednesday’s consumer price inflation report for March, noting that the core number, excluding housing, will serve as a “disinflationary pulse” to allow the Fed to pause rate hikes before cutting. 

He noted that the market is leaning toward a 25 basis point hike at the May meeting but suggested that it is close to being “a 50/50-coin flip.” He added there would be more data and reports that will alter probabilities in the next four weeks.

Silver Lining: Siegel believes that recessions are good opportunities to buy, and stated that he doesn’t sell equities in anticipation of a recession. However, he acknowledged the possibility of others selling, which could create more weakness in the equity markets.

“I do not see a crash, and I think last October’s low should hold,” Siegel said. The fact that the market has held up quite well despite some real hits shows that many are already positioned for very cautious and bearish outcomes, he added.

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