Siegel: Strong Economic Data 'Really Changed the Picture'

What You Need to Know

A strong U.S. economy suggests Wall Street consensus earnings estimates for 2023 may be conservative, according to the Wharton School economist.
If the jobs report this Friday is anything like January’s unexpectedly strong numbers, a 50-basis-point rise in interest rates could be possible.
While the number of CEOs worried about a recession has dropped, corporations are still taking a cautious approach to earnings estimates.

Even as a robust labor market raises expectations that the Federal Reserve will keep raising interest rates this year, a strong U.S. economy suggests Wall Street consensus earnings estimates for 2023 may be conservative, Wharton School economist Jeremy Siegel said.

Companies may be exercising caution with their financial forecasts out of concern over a recession and actually could report earnings beats in the second half, the emeritus finance professor said. Prospects for a strong job market and higher-than-expected GDP growth this year may account for the stock market’s resilience on Thursday and Friday, he suggested on CNBC’s “Closing Bell” on Friday.

“At the same time, the interest rate goes up, which is not good for stocks, the economy looks so much stronger. The number of CEOs that see a recession coming has been more than cut in half,” Siegel said.

“Remember at the end of last year we had a record number of forecasters forecasting a recession,” he added. “Never before, before a recession, had we had so many. That has been cut in half because of the strength of the job market, the strength of the first quarter.

“I’m not saying that the second half couldn’t be a lot weaker,” but now people are saying the S&P 500 might hit or exceed $220 average earnings this year, Siegel said.

Robust Payroll Numbers

If the jobs report this Friday is anything like January’s unexpectedly strong numbers, then a 50-basis-point rise in the Fed’s benchmark interest rate “would be on the table” for the central’s bank’s meeting later this month, Siegel said.