Wharton's Jeremy Siegel Says 2026 Has The Ingredients To Be A Good Year For Risk Assets – If Washington Avoids These Two Challenges

The economist stated that a cooling of inflation gives the Federal Reserve more room to lower the policy rate further.

• The economist pointed to the tariff uncertainty stemming from the Supreme Court’s ruling and the risk of federal funding next month.
• Another factor that Siegel believes will affect the performance of risk assets in 2026 is productivity.
• He said that the market leadership is increasingly tied to whether AI translates from capex and excitement into measurable productivity and cash flow.

Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania’s Wharton School of Business, on Tuesday stated that 2026 has the ingredients needed to be a good year for risk assets, but noted that this hinges on two important aspects.

Firstly, Siegel states that Washington would have to avoid self-inflicted disruptions. He pointed to two upcoming policy cliffs that investors should watch for — the tariff uncertainty arising from the Supreme Court’s ruling next month and the federal funding risk. “I don’t expect policymakers to choose chaos, but markets don’t price intentions—they price deadlines,” he said.

The U.S. government is operating under a current resolution (CR) passed in November. This expires in January for most federal agencies, posing the risk of yet another U.S. government shutdown.

Another factor that Siegel believes will affect the performance of risk assets in 2026 is productivity. He said that the market leadership is increasingly tied to whether AI translates from capex and excitement into measurable productivity and cash flow.

Constructive Outlook On 2026

Heading into 2026, Siegel stated that his outlook for the new year remains constructive. He said that cooling inflation gives the Federal Reserve more room to move the policy rate down further. Eventually, he expects additional easing that will take rates closer to the low-3% range.

“That means the equity market backdrop can still be favorable—falling inflation and easier policy are supportive,” he said.

On Monday, Fed Governor Stephen Miran warned of a rise in recession risks if the central bank does not lower policy rates further.

November Inflation Report Takeaway

The Consumer Price Index (CPI) rose at an annualized rate of 2.7% in November, compared to a Dow Jones estimate of 3.1%. New York Federal Reserve Bank President John Williams stated that some technical factors may have “distorted” November CPI data.

However, Siegel stated that it is the wrong takeaway from the report.

“The right takeaway is simpler and far more important: inflation is coming down decisively, and the largest component of core inflation, shelter, is finally rolling over in a way that should keep downward pressure on inflation well into 2026,” he said.

The economist added that even if a one-time adjustment shaved a few basis points off the November CPI number, it does not change the direction or the persistence of the trend.

Meanwhile, U.S. equities inched up in Tuesday’s pre-market trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up by 0.07%, the Invesco QQQ Trust ETF (QQQ) gained 0.08%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) edged up by 0.01%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bearish’ territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was up 0.15% at the time of writing.

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