Jeremy Siegel: Stock Market Shifting in New Direction

What You Need to Know

The stock market has tilted away from tech stocks since the Fed chairman’s comments last week signaling interest rate cuts would come soon.
Value, dividend-paying and smaller-cap stocks gained after Powell spoke.
Economist Jeremy Siegel expects the Fed to discuss the “endpoint” of rate cuts at its next meeting and says the next employment report will be key.

Investors may be shifting from erratic technology growth stocks toward dividend-paying equities as the market anticipates interest rate cuts, WisdomTree and Wharton School economist suggested in his weekly commentary Monday.

The stock market, responding to Federal Reserve Chairman Jerome Powell’s comments last week signaling interest rates will start coming down soon, made a “noticeable tilt towards value, dividend-paying and smaller-cap stocks after his talk,” Siegel wrote.

“This trend reflects a broader anticipation of decreasing interest rates, making bonds less attractive to stocks in comparison. It also suggests a potential shift in investor preference from high growth but volatile tech stocks, to more stocks paying good dividends, a realignment that could define the next phase of market behavior,” the economist added.

Powell, at a Fed meeting in Jackson Hole, Wyoming, said the upside risks to inflation have diminished and the downside risks to employment have increased.

“The time has come for policy to adjust,” the Fed chairman said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”

Powell’s comments “were more dovish than I anticipated,” Siegel said, noting the Fed was clearly heading toward a lower benchmark interest rate and its focus moving from inflation risk to employment.