On the similar time {that a} sturdy labor market might push rates of interest increased, Siegel added, “it additionally lowers the likelihood of a recession. So it’s extra seemingly that the earnings estimates are going to be realized than they had been earlier than.”

“Inventory costs are a struggle between the numerator, which is earnings, and the denominator, which is rates of interest,” he stated. “So the sturdy payroll report is wow, you understand, we might have a robust shopper, we might have the GDP going up rather more than the Fed expects, we might have earnings (for the S&P 500 index) actually be realized as a substitute of everybody saying, ‘Oh it’s going to go all the way down to $200 or $180.’”

The payroll report indicated the numerator went up, whereas the Fed may additionally increase rates of interest extra aggressively, Siegel famous. “You noticed nearly a standoff on the inventory market,” he stated.

He predicted that the PCE report this Friday “will likely be scorching” and that market analysts will say inflation isn’t below management and rates of interest are going up. However gasoline and oil costs, condominium leases and the Case-Shiller house value index are displaying continued disinflation that doesn’t present up in lagging inflation indicators, he stated.

“We all know that Powell is now acknowledging that [the PCE and CPI] comprise lagged knowledge,” Siegel added. “Keep in mind, the Fed solely began tightening 11 months in the past. To begin panicking as a result of (inflation is) not all the way down to 2% in 11 months, I believe, shouldn’t be ready for the cumulative impact of financial coverage that Powell and the Fed itself has admitted is but to be felt.”

(Picture: Bloomberg)