Last month I was fortunate enough to hear one of our county's leading modern-day economists and Financial Authors, Jeremy Siegel, speak at a conference. Mr. Siegel is also the leading Finance professor at one of our country's best business schools, The Wharton School at the University of Pennsylvania, and the Chief Economist and a minority owner at WisdomTree Investments.
His main level of interest is Macro-Economics and Monetary Policy, so most of his keynote was on the topic of inflation, interest rates and Fed policy, the labor market, and stock market valuations. Interesting topics to me and the audience, BUT I'm also confident that this 79-year-old "ball of energy" could even keep the attention of the general public, as he does as a very frequent interviewee on CNBC. Allow me to summarize his views on interest rates and stock market valuations and add some color on how this informs our decision-making on behalf of the client portfolios we manage.
Interest Rates
He desires and expects an interest rate cut at the next Federal Reserve meeting this week (9/18/25). More important than how much the cut is, if any, is what does the Federal Reserve signal they will do over the next few meetings (September, October, and December). If they cut 25bps every meeting, which certainly is a possibility, that would put the Fed Funds rate 0.75% cheaper than it is today in December, and this would be meaningful.
The question remains: has the US stock market already priced in an interest rate cut? My view is that it has priced in a 25bps cut and possibly a 50bps cut, but the Fed Outlook is key. Remember OUR core view on interest rates as they relate to stock market performance - GENERALLY rate reductions are props for the stock market. The lower the yield, bond or CD investors receive investing in those vehicles, the more likely they are to instead put cash to work in the stock market, which in turn either keeps the stock market stable or adds fuel to the growth.
Stock Market Valuations
Mr. Siegel believes that "yes" stock market valuations can be perceived as "elevated" IF looking at backward-looking performance and fundamental ratios such has P/E multiples (Price to Earnings Ratio), but he much prefers looking at the stock prices compared to forward earnings estimates from companies.
"Earnings momentum from the AI leaders has more than offset near-term macro concerns. Meta posted a decisive revenue beat and Microsoft reported earnings roughly 8% above consensus, sending both shares higher. These results underscore that AI’s productivity dividend is materializing, offering a counterweight to tariff-driven cost pressures. Notably, the Magnificent 7 ex-Tesla trade at forward multiples in the low-30s, while the median S&P 500 stock trades at just 16–17× next year’s earnings—levels that hardly suggest a broad market bubble with the 10-year Treasury anchored near 4.25%.
The missing ingredient remainsrotation. Small-cap and deep-value stocks sit at historic discounts, yet flows remain concentrated in mega-cap growth. A clear Fed signal toward easing could steepen the yield curve, lower financing costs for Main Street firms, and finally trigger the long-anticipated shift from the Magnificent 7 toward the Russell 2000.
Internationally, most-favored-nation provisions under WTO rules mean U.S. tariff-free access to foreign markets could extend to other countries as well, enhancing global trade. For now though, China’s industrial downturn and Europe’s fiscal constraints continue to restrain overseas demand."
I like this take from Mr. Siegel and find it a reasonable, balanced approach. Sometimes it's more nuanced than just saying stocks are overpriced or underpriced. I think this market is a stock picker's market, much more so than 2009, 2020, or 2022. In my view, even though the stock market has been strong, the opportunity still exists to buy good companies at reasonable prices. Just looking at the value of the S&P 500 Index or the Dow Jones Index doesn't tell that story well, simply because those indexes aren't very representative of the breadth of the whole market. The top 10 companies of the 500 represented in the S&P500 combine for over 40% of the value of the entire index. What about the other 490 companies in the S&P 500? Are they all overpriced? We think "not" in the case of Chipotle Mexican Grill (CMG), which was the newest stock addition to many of our portfolios.
In the end, we remain "cautious optimists" and are striving to be surgical in our decision-making.
Until Next Time,
Brock W. Rouch CIMA®
Managing Partner
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All investing involves risk, including possible loss of principal.
