Commemorating 45-Years: From the Classroom to the Markets

February 26, 2024

2 minute read

by Professor Jeremy J. Siegel, Senior Economist to WisdomTree and Emeritus Professor of Finance at The Wharton School of the University of Pennsylvania

Last week I spent two wonderful days in New York celebrating my retirement following 45 years at The Wharton School of the University of Pennsylvania. It was a great gathering of former students and alumni, and I am very thankful for all the interactions. I’ve taught over 10,000 students in my career at Wharton and I appreciated seeing them again. I look forward to continuing to write on the markets and the economy in this weekly commentary and in the media.

The economy is still strong and jobless claims inched down to 201,000. This is within my comfort zone of 200,000 to 240,000. It is a notoriously volatile week-to-week indicator, but it shows strength in the labor market. This, along with the hot inflation reports, prompted talk of a rate cut being delayed for a long time. But these data reports do not worry me as they signal a strong economy and a healthy earnings environment.

I am not worried about the hot Consumer Price Index (CPI) nor the Producer Price Index (PPI). Commodity indices, particularly the Bloomberg Commodity indices, are still near new their lows. Sensitive commodities are the early warning signals of inflation, and they are quiet.

Secondly, I expect a reversal in February of the above-expectations inflation report we had earlier, mainly because of quirks in the shelter index. Everyone is trying to predict when the Fed will make its first cut. But that is not critical—the Fed is dependent on the data and, if the economy weakens, they will cut rates.

Let's go on to NVIDIA's blowout earnings, which supported the entire tech sector. This has been a special company, and this is a special time when the demand for semiconductors is seemingly unlimited as the strong investment cycle is supporting chips and training new artificial intelligence (AI) models.

It is impossible to tell whether semiconductors action today is akin to 1997-98 and the internet—or more like 1995, like tech bulls think. Or 2000, like bears think. I do not think we are in a bubble now. Yes, tech stocks are much more expensive than value stocks. But tech is growing earnings quite nicely. I do not think NVIDIA is dramatically over- or under-valued. It can rise further, and I do think much of the tech momentum may continue for some time.

Eventually the tech stocks momentum will run dry. During these run-ups, it is helpful to focus on the long-term as it is very difficult to time exits. In a run such as this, the saying is “Stairs up, elevator down.” And that elevator ride can be quite swift! The beginnings of a speculative bubble may be forming but it is impossible to tell when it will end.