Top Economist: US Stock Market is Approaching a Watershed Moment

Renowned economist Jeremy Siegel believes that as interest rate cuts bring a little-known area in the market to the forefront, the U.S. stock market is about to reverse its long-term trend. The finance professor at the Wharton School pointed out that opportunities lie within value stocks. Compared to growth stocks, value stocks have performed poorly this year. According to S&P Global data, value stocks in the S&P 500 Index (SPX) have only risen by 8% so far this year, with much lower returns compared to growth stocks, which have surged 20% from January levels. The strong performance of growth stocks is partly due to Wall Street's artificial intelligence frenzy igniting investors' enthusiasm for growth stocks, such as large tech companies. Siegel mentioned that there are doubts about whether generative artificial intelligence is as revolutionary as initially estimated by investors. At the same time, he expects that the Federal Reserve will soon initiate its first interest rate cut, which could unleash more volatility in value stocks. In an interview with CNBC last Friday, Siegel said, "Value stocks won't change before the Fed cuts rates, and as you see the likelihood of the Fed cutting rates increasing, I think this narrative is likely to continue. But in terms of the trend where growth stocks have been outperforming value stocks for many months or even years, this could really be a turning point." Siegel noted that recent inflation data also provides a reason for the Fed to cut rates. As the Fed's preferred measure of inflation, the Personal Consumption Expenditures (PCE) index continued to cool off last month, increasing hopes among decision-makers to soon ease monetary policy. Looking ahead, Siegel said, "Inflation outlook looks very, very good," adding that unexpected price increases will not alter the path of rate cuts this year. "I don't think this will change Powell's announcement of a rate cut at the September meeting," he said. Federal Reserve officials will convene on Tuesday and Wednesday to discuss the next policy measures. According to CME's FedWatch tool, the market believes there is a 96% chance that the Fed will keep rates unchanged, but a 100% chance of at least a 25 basis point rate cut before September