Wharton Professor Jeremy Siegel on why this upcoming FOMC meeting is important

Summary

Jeremy Siegel discusses the sharp recent rotation away from the Magnificent Seven, the significance of the upcoming FOMC meeting amid rising oil prices, and the stock-bond valuation relationship. He argues oil's spike to $90 is transitory and will reverse to $60 as surplus returns, while stocks still offer a real-yield edge over bonds at current levels.

• The Magnificent Seven recently had its biggest one-day drop versus the S&P in four years, with some analysts questioning the group's nickname due to competition and margin erosion.
• The upcoming FOMC meeting is important, with potential hawkish dissents possible as oil has jumped from $70 to $90.
• Siegel expects oil (WTI) to fall back to $60 once the war ends, as oil will be in surplus, making the current spike transitory.
• Long-term inflation expectations measured by 5-year/5-year forward have not widened much, supporting the transitory view.
• With the S&P 500 at roughly 20x earnings, the real earnings yield of 5% still exceeds the 10-year TIPS yield of 2.5%, giving stocks an edge over bonds, though that margin is historically thin and could disappear if real yields continue rising.