Jeremy Siegel: Investors will buy this dip as earnings remain strong

Key Concepts:

• Market sentiment, impact of potential Fed chair appointments (Waller vs. Warsh), continuing claims data, Treasury auctions, earnings reports, tariff impacts, Trump administration's tariff flexibility, UBS's market outlook, inflation, Fed policy response to tariffs, yield curve inversion.

Market Sentiment and Economic Indicators

• Professor Siegel acknowledges some market disappointments, including the Bloomberg report suggesting Christopher Waller as a leading candidate for Fed chair, as Waller is not perceived as dovish.
• A jump in continuing claims data indicates a situation where companies are not firing but also not hiring, creating uncertainty.
• Tepid Treasury auctions, particularly the 30-year and 10-year, contributed to a market pullback after a significant run.

Earnings and Guidance

• Despite the negative news, Siegel believes the market dip is a buying opportunity because earnings reports and guidance are strong.
• Companies are beginning to quantify the cost of tariffs, making the impact more manageable.

Tariffs and Trump Administration Policy

• Trump's announcement of new tariffs is tempered by his offer to chip manufacturers: build in the U.S. and avoid tariffs.
• This shows flexibility from the Trump administration regarding tariffs, suggesting deals are possible for those who negotiate.
• "Basically you come to the table, you're going to you're you're going to get a good deal. Those that don't, you know, will be put on those tariffs."

UBS's Market Outlook and Tariff Impact

• Siegel agrees with UBS's assessment that fundamentals support the market despite tariff impacts.
• UBS projects the U.S. effective tariff rate will settle around 15%, enough to weigh on growth and lift inflation, but not derail the economy or equity rally.

Inflation and Fed Policy

• Tariffs will likely cause inflation to rise, potentially reaching the 3% range.
• Waller, Bowman, and others have urged Fed Chair Powell to "see through these tariffs," viewing them as a one-time tax increase rather than demand-driven inflation.
• If this view becomes more prevalent within the Fed, interest rates could decrease, especially given the yield curve inversion.
• Siegel notes the inversion of the yield curve, with fed funds at 4.4 and the 10-year Treasury at 4.2.

Synthesis/Conclusion

Despite some concerning economic indicators and the potential for increased tariffs, Professor Siegel remains optimistic about the market. Strong earnings and guidance, coupled with the Trump administration's flexibility on tariffs, provide a positive outlook. The key is how the Federal Reserve responds to tariff-induced inflation; a measured approach that recognizes the one-time nature of the tax increase could prevent unnecessary rate hikes and support continued economic growth.