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Let's continue that conversation; we are joined this morning by Jeremy Siegel from Wisdom Tree, a professor at Wharton. Happy Friday, Jeremy. It's nice to see you. It's nice to see you too. Sarah presented it quite well. In other words, an accommodative Fed, AI trading, and solid future margins . I mean, a seasonality that is not being fulfilled.
Can it stay this good for much longer? Yes, I mean, the upward trend is still there. We're past, you know, the middle of September. The end of August is usually seasonally bad, and we have held up extremely well. You know, all eyes, it's really important, isn't it? Next week's Fed: not only what they do, but we'll get the "dot plot" of what they intend to do in the next three meetings.
Because the September meeting is very important, they give a year-end forecast, and that meeting really means something ; Because, with September and the following two months, we'll see how many cuts they plan for the year. I think there will be a cut unless we have, uh, retail sales. That's the only data I think is really important that comes out before the Fed meeting.
Yes. We won't have those unemployment claims that increased until after the meeting, so they can't act on that. If it's very weak, we could push towards 50. I expect, by the way, that we'll see dissent from both sides. Maybe some will say no cuts, and others will say 50. Never, I mean, for a long time, I think this will be the most interesting meeting we've ever had.
Especially if Stephen Myron joins the Fed on Tuesday, as he is scheduled for that Senate vote on Monday. I wonder if he'll push for 50 basis points. We were discussing internally this morning what... well, a lot is already priced in regarding Fed rate cuts. So what would Powell say? What would it take for the market to keep rising and not just be a case of buying on the rumor and selling on the news?
And I do believe that more dissent around 50 could achieve that, because that would indicate that perhaps the center will be inclined to do more even sooner. Yes. What do you think? Yes. Well, I think...you know, a lot of people say that if they make 50, it will scare the market. It means there is a lot of weakness.
But, you know, as I've long argued, the Fed funds should be about 100 basis points below that 10-year bond. You've been talking about that 10-year bond, you know, just above four percent. That means we should be just above three percent, and we should be heading towards that. Obviously, three cuts in the next three meetings would take us down 75 basis points, towards three and a half, and a couple more next year.
I think, I think the market, many people say, is now discounting 50 points. I don't think so, but I think you could say maybe a moderate cut of 25, one of 25 that opens the door to more cuts. A moderate tone would be helpful. It's practically what they expect. Jeremy, about some of these winners so far this year, I mean, we've talked a lot about Micron this week, Oracle obviously, Tesla went up 5% today with no news.
Do you think that instead of a year-end loss-making environment , we'll see a scramble where real money simply can't afford not to participate? Yes, I mean, and you know, that end-of-year fear, a lot of people did the rotation. Ah yes, the " magnificent seven" ended and it didn't, or the AI will take a break and it's not true, and they might be very worried about how their performance will look in the year ending December 31.
So we could, you know, see AI and AI-related stocks remain very , very strong through the end of the year. That said , if the market believes there could be three cuts and a couple more next year, I think there's a really good argument for that to be extended as well . You'll see that small stocks, which are very, very closely tied to that interest rate expectation , will probably continue to perform well.
I mean , stagflation is like a forbidden word. Rick mentioned it regarding the sentiment at the University of Michigan, which is a weaker economy and higher inflation. Yes. How big do you see that risk to the market right now? You know, I think, you know, when that rate, a few months ago as Rick mentioned, went up, I said, "That's crazy." Even the most pessimistic forecasters were nowhere near that.
I mean, there was a lot of hype in the media. These tariffs are going to cause a lot of inflation . And a lot of people, you know, got scared and included it in their predictions. This is a consumer expectation. It is not an expectation of investors. It is not an expectation of the business owners. Um, I'm not saying it's irrelevant, but, you know, I would n't put so much emphasis on that.
Furthermore, I mean, basically what Powell said is that we can ignore the increases caused by tariffs as a one-off tax and not raise rates or tighten policy as a result. In other words, that was the turning point in Jackson Hole. So, you know, I'm not that worried about what we just saw in the University of Michigan data.
Yes, that is still a topic of debate . Abby Joseph Cohen this morning, well , she's not entirely convinced about the one-off impact. So that's still something we're going to look into. Jeremy, have a great weekend. Thank you, professor. It's a pleasure to see you. Jeremy Siegel.
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