The stock market is back on track to break fresh records, and the record-setting rally should get a sustained boost from a handful of positive catalysts.
That’s the view of Wharton finance professor Jeremy Siegel, who expressed confidence in the upward trend in stocks that propelled the Nasdaq 100 to a fresh record on Tuesday and pushed the S&P 500 just shy of all-time highs.
“The trend is up,” Siegel said, speaking to CNBC on his outlook for stocks on Wednesday. “I think all-time highs for the S&P 500 are virtually a foregone conclusion now, and further highs after that.”
Siegel said he saw “a lot of positives” that could continue to drive equity prices higher. Here are the catalysts he’s monitoring.
Israel-Iran cease-fire
Siegel pointed to the positive effects of the Israel-Iran conflict, which is likely to impede Iran’s progress in developing nuclear weapons, while the ceasefire lowers the probability of major oil supply disruptions.
Markets had been fretting for the past week that retaliation from Iran could involve oil shipments cut off from the Strait of Hormuz. If that were to happen, oil prices could potentially climb as high as $130 a barrel, JPMorgan analysts said in a note this week.
The deal the US brokered between Israel and Iran also benefits the US’ image as a power in world politics, Siegel said, which could also benefit it when it comes to relations with China.
“If the cease-fire holds — it looks good now — that’s a tremendous plus for the markets,” Siegel said.
Inflation outlook
There are also signs that inflation will keep cooling, Siegel suggested.
Oil prices, which spiked in the days following Israel’s first attack on Iran, have dropped significantly from their highs amid the conflict.
Brent crude, the international benchmark, traded around $64 a barrel on Wednesday, down 11% from its recent peak and down 14% year-to-date.
West Texas Intermediate crude, meanwhile, traded around $65 a barrel, down 13% from its latest peak and 12% from levels at the start of the year.
Siegel also pointed to the recent decline in home prices, with the Case-Shiller US National Home Price Index declining for the second month in a row in April.
“We’re beginning to see the declines on the top end that’s going to feed in the next 12 months, a negative rate of inflation,” Siegel said.
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Artificial Intelligence
AI is a major tailwind for the US economy, which could potentially offset some of the expected drag of President Donald Trump’s tariffs, Siegel said.
“If firms use AI — I’m not saying that can offset all the costs. I doubt that. That the Trump tariffs are going to impose. But I think they are going to offset some of them, and perhaps more than a lot of people expect, so that inflation fear is lessened.”
Interest rates
A cooler inflation outlook also spells good news for those hoping for lower interest rates.
Siegel pointed to recent comments from Fed officials that suggest some central bank members are in favor of lowering rates sooner than markets have priced in.
Fed Gov. Christopher Waller said the central bank should consider lowering rates as soon as next month.
Chicago Fed President Austan Goolsbee also suggested the Fed could lower rates if tariffs don’t lead to additional inflation.
Fed Chair Jerome Powell said the central bank was in no rush to cut rates when speaking at a hearing in Washington on Tuesday. But the Fed chief suggested rate cuts were in pipeline if inflation remained contained, though he didn’t give a concrete timeline as to when cuts could occur.
“I thought he tilted a bit more on the dovish side,” Siegel said of Powell’s comments.
Markets are pricing in a 77% chance the Fed could cut interest rates another two or three times by the end of the year, according to the CME FedWatch tool. Most investors, though, expect the Fed to hold rates steady at its July policy meeting.
