Jeremy Siegel said he's still invested in stocks because there is no alternative.
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Jeremy Siegel said that a correction in stocks is coming and that it may be triggered by another strong inflation print.
Siegel, finance professor at Wharton business school, told CNBC that hot-running inflation and the Federal Reserve's reaction to it are big risks for the equity market.
He told CNBC's "Trading Nation" on Friday that he was not sure if the market would be ready for a U-turn if the Fed were to get tougher.
Inflation rose to a 31 year high in October. The next inflation print will be on December 10.
The Fed has reduced its monthly bond purchases in response to the strong rate of price rises, but it is not expected to raise interest rates until the middle of 2022.
The Fed is behind the curve in terms of taking anti-inflationary actions, according to Siegel.
He said the central bank could be forced to change direction at its meeting in December. He said that there will be more volatility in the equity market.
Siegel did not say when a correction would come. How high stocks can get before then is a question. A correction is a fall in stocks of at least 10% from recent highs.
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The S&P 500 has risen 32% over the past year, and many analysts say a correction would be no surprise.
Siegel wasn't completely pessimistic about stocks. He said that he's still invested in equities because real returns on bonds are so low.
You have to be willing to hold real assets in this scenario even with a little bit of bumps in the stock market. He said that stocks are real assets.
The idea that there is no alternative to stocks helps explain why the stock market is still doing well despite high inflation and central banks considering turning off the stimulus taps.
Siegel predicted that strong inflation would cause investors to look at stocks that offer protection and yield.
He said the "conservative tech stocks" will probably perform well. Financial services companies could benefit if interest rates go up.
Business Insider has an original article.
