Last month, Wharton professor Jeremy Siegel found himself voicing caution on CNBC, where he was the most pessimistic person on the show "for the first time in his life."
Speaking today at TD Ameritrade Institutional's National LINC conference for RIAs, Siegel gave a detailed talk addressing the equity market from both a historical and near-term perspective.
Like many observers, Siegel took a generally positive view of tax reform, but warned that the front-loaded structure of the tax cuts could create issues that may produce headwinds for stocks in the second half.
In particular, he thinks many companies will take advantage of immediate expensing of capital equipment in the first half. As they move forward into the fall of 2019, their cash flow won't see the benefits of depreciation investors are accustomed to.
Other factors include rising interest rates and political uncertainty, Siegel told advisors. Low interest rates have made stocks more attractive in the current cycle, and while Siegel believes they are likely to remain low by historical standards, they are no longer a tailwind.
If the Democrats gain control of the House of Representatives as many expect, gridlock in the nation's capital is likely to reassert itself and nothing will get done. Add to that an extra dose of "realism about the future," and a meaningful correction is likely.
Nonetheless, Siegel is sticking with his prediction that equities will return between zero and 10 percent for the year. He added he sees no signs of a recession anytime soon.
The yield curve will be flatter, but "far from flat," he said. "I don't think we're inverting."
He expects the Fed to hike interest rates three or four times in 2018, depending on the data. Moreover, he believes the 30-year Treasury could climb to 3.25 percent. That will present a challenge for stocks as the current yield on the S&P 500 is below 2 percent.