The S&P 500 closed above 7,800 for the first time, and Jeremy Siegel, senior economist at WisdomTree and professor emeritus at Wharton, says the Federal Reserve will likely skip a rate hike in September if oil holds near $80 a barrel. The index's rally, built on strong earnings and cooling inflation, got another push from this week's CPI and PPI reports, which trimmed the odds of a September move.
Why the Fed might hold
Oil has come down from $100 earlier this month, and Siegel argues that if it stays around $80, the Fed has room to pause. Before the CPI report, traders were split on a September hike, but the softer print tilted sentiment toward a hold. Siegel pointed to the recent leverage-driven liquidity scare, saying it exposed limited excess risk rather than a deeper problem, and stocks have since rebounded to new highs.
The PCE forecast and the portfolio effect
Goldman Sachs cut its forecast for the PCE price index after seeing the data, now expecting a 0.2% monthly rise. Siegel attributed part of that decline to rising equity values flowing into a portfolio management subcomponent, which pushed the index lower. That's a technical detail, but it helps explain why inflation measures are cooling faster than some expected.
The leverage scare and the rebound
Earlier this month, a leverage-driven liquidity scare rattled markets. Siegel said it exposed limited excess risk rather than a deeper problem, and the rebound to record highs supports that view. The S&P 500's move past 7,800 extends a rally that's been driven by earnings and the softer inflation data.
AI spending and the rotation to value
Siegel said AI spending is lifting earnings beyond the hyperscalers, with companies across sectors using AI to cut costs and widen margins. He doesn't think it's inappropriately bullish at this point. He flagged a rotation out of expensive growth stocks into cheaper value names trading around 15 times earnings. Many value companies haven't yet captured AI-driven efficiency gains, leaving room to catch up.
Traders will watch whether rate-hike odds for September keep falling as retail sales data and the full PCE report arrive later this month.
