I'm still very optimistic on the market, says Wharton's Jeremy Siegel

[00:00:00] Speaker 1: Joining us now, Jeremy Siegel, Professor Emeritus of Finance at University of Pennsylvania's Wharton School of Business and a Chief Economist at Wisdom Tree. I don't think, Professor, that sentiment is your favorite gauge, but could you just comment on the notion that, and I saw another article today, this is the most expensive market in history, was what I saw. [00:00:23] Speaker 2: And that is a ridiculous statement. I mean, 1999 and 2000 were far more expensive than we have today. [00:00:35] Speaker 1: Yeah, my point was, you're seeing people say that, though, and no one's saying, wow, what a great buy here. People are, there's a lot of trepidation right now, and I think I was making a point that probably the hardest thing to do would be to buy with both hands. Right now, don't you think? Yeah. We'd have to be crazy, but that means it's probably the right thing to do. [00:01:00] Speaker 2: Well, you know, I think there's three things we're in the market. First of all, obviously, what's going on in Iran. And by the way, if we do get a pause and we do get that straight opening, it's a 10 percent pop on the S&P, I think, without question. There is a lot of pause about, hey, what's going on in the AI situation? I mean, in the 5 a.m. hour, we had Dan Ives saying it's an arms race. And I'm saying, well, is an arms race always the best thing? But, I mean, it is a revolution of, you know, fundamental value. And, you know, I mean, everyone is debating, is the moonshots, Kimmy K3, you know, a wake-up call? How much will people pay for just that much better? And I kept on thinking about historical precedents. General Motors used to make more money per Cadillac versus its other cars, but it made most of its money on its Chevrolet's, who is going to pay for all that? But something that we should talk about, and that is the Fed this Wednesday. I've become a little more concerned about the growth of credit, about the growth of the money supply. In the last six months, it's grown at a 9 percent annual rate, which is the fastest since the explosion that Jay Powell wrongly implemented during the COVID crisis. And it's very hard not to worry about raising rates, and that's it. Now, I don't think there's going to be any rate increase at all on Wednesday. There may be a couple dissents on the high side. But if this credit continues to rise, it supports a scenario that inflation is above target. And so those are the three things, boy. I mean, if we get some resolution on all that, boy, it's, you know, the bull market is in the early stages. But I think that that's what's keeping these concerns, I think, are keeping the market at least a lid on it for now. [00:03:12] Speaker 1: Right. Maybe you're right. I don't, we go back and forth on AI, whether we're underestimating the power and what we're witnessing or whether we're already way out over our skis because the money doesn't exist right now for a lot of the buildouts that we're seeing. Is it somewhere in between? [00:03:35] Speaker 2: Well, I mean, you saw what happened last week. I mean, the word CapEx has become toxic, you know, and the problem is, is that history says that that often happens is excessive investment, lowers returns. I mean, we have a, we have detailed history going back that firms that do excessive or just more CapEx than other firms do not have the stock returns that those that are marshal their forces very, very closely. But again, I mean, as I've been saying that, you know, the hyperscalers, all the providers and, and, and the disk makers are all making money now. But the next revolution is everyone that could do what costs so much money before at a fraction of the cost. Those are the group that I think can explode in margins and profits. And I think we're seeing that rotation now. You know, the non-tech stocks, so to speak, have really held up extraordinarily well. And as you said early on, I mean, it's really quite amazing what's going on in the Mideast. And oil is not at 120 well supplied, I think, if we just get some of those ships through and something there. And then with the AI promise, I'm still very optimistic on the market. But I think there's this reassessment about how much CapEx and, quote, the arms race will rebound to the benefit of these companies that are spending so many billions. [00:05:24] Speaker 3: Hey, Professor Siegel, you're right about CapEx becoming a toxic term last week, just after we heard from Alphabet and saw the declines based on how much they'd be spending. But I started thinking about what would happen if some of those hyperscalers actually said, you know, we're not going to spend as much money. That, to me, seems like it would be much more cataclysmic for the market at this point if they all said we're not going to spend anywhere near what we had told you to this point. [00:05:49] Speaker 2: Well, it depends on how they phrase it. Is it because they see demand going down or that they see that they've achieved a degree of efficiency that they can supply, that increasing supply of compute, which is in such demand? That's a positive. If they say, I see demand going down on all mine, that's the negative. So I think it's totally how they phrase the reason for the CapEx. [00:06:25] Speaker 3: I don't know. Google said that it was spending more because its demand is never ending. [00:06:30] Speaker 2: Yeah. [00:06:30] Speaker 3: The market punished it anyway. [00:06:34] Speaker 2: That's a positive anyway. But the question is, you know, if we get the breakthrough on either the chips or the technology, that we don't have to spend as much dollars to really supply the increased compute that is necessary at these margins, I think that's a tremendous plus for society and really everyone. [00:06:58] Speaker 1: What if AI replaces all the lawyers? I mean, what is that good for with the stock market and just society in general, Professor? Is that that we can double? [00:07:07] Speaker 2: Joe, I heard your comments about all these ads everywhere. I am as disturbed about them as you are. I mean, it's like, you know, you can't make your money off of work, so we're going to just sue somebody to make money. And I've seen very few articles about him. Well, what explains this explosion in this sort of way of distributing the wealth of this country? Thank you.