Market Outlook: Caution Advised

It might be wise for investors to hold off on diving into the stock market until summer, according to Jeremy Siegel, a well-known economist from Wharton University.

Siegel expressed concerns that the U.S. market will likely face challenges in the months ahead. He suggested that while a resolution to the conflict in Iran seems close, the ongoing war is contributing to rising inflation, particularly due to increasing oil prices.

“Honestly, I don’t see much of an advantage in the short term,” Siegel remarked during a conversation with CNBC. His advice for investors is to refrain from making new purchases right now.

He pointed out that without a resolution, there isn’t much room for growth, indicating it might be a stagnant period for a couple of months. The potential ripple effects from soaring oil prices also raise worries about rising costs for consumers.

For example, Delta Air Lines recently warned investors about an additional $2 billion in fuel expenses through June. Siegel questioned how the airline would manage these increased costs while remaining profitable. “The only way to cover it and maintain revenue is to raise fares,” he said.

He acknowledged that demand for air travel has been robust recently. However, that was when oil prices hovered around $60 a barrel—a situation that could soon change if costs continue to climb, which might dampen economic growth.

The stock market briefly rallied upon news of a ceasefire agreement involving the U.S., Israel, and Iran, yet oil prices remain elevated. Brent crude was trading around $95 a barrel as of Wednesday, reflecting a 34% rise since the conflict began.

Siegel also highlighted that expectations for Federal Reserve rate cuts have become less optimistic. He noted that inflationary pressures are now more pronounced than before the war, pointing to increased borrowing and a growing money supply as contributing factors.

Recent Federal Reserve data showed total consumer finance reached a record $5.1 trillion in February, while economic growth hit a historic $22.6 trillion in the same period.

He speculated that the Fed might refrain from changing interest rates until after Chairman Jerome Powell’s term ends in May, but hinted that rate hikes could be more likely by the year’s end, with cuts not on the horizon.

On investor sentiment, he suggested that his own family might be holding onto excess cash for now, though he remains optimistic about the long-term prospects for U.S. stocks.