Record stocks could still gain 5% by the end of the year

The stock market broke many records this week, and Professor Jeremy Siegel of the Wharton School told CNBC on Friday that he did not see it stop anytime soon.

"I think fair market value still gives us 5% or 6% this year" on the S & P 500, the US Federal Reserve announcing future interest rate cuts, said the long-time bull stock date on the "Financial Report at half-time".

"But we could increase 10% or 12% before we sell," Siegel added, noting that the Fed had a tendency to surpbad itself both down and up when adjusting rates.

Fed Chairman Jerome Powell – who has dropped allusions to lower rates after two days of economic testimony in Congress this week – has been widely criticized by Wall Street and President Donald Trump for rising too aggressively.

After four rises of 0.25% last year, the target range of the overnight funds key rates is 2.25% to 2.5%. The final increase in the Fed's lending costs in 2018 took place in December, when the stock market was melting.

Siegel said he hoped the Fed would cut rates by half a percentage point at its next meeting on July 30-31, though he admitted that such a bold move would be unlikely.

By noon on Friday, the CME FedWatch tracker was only putting a probability of about 25% on a 0.5% reduction in federal funds and a much greater 75% chance on a 0.25% reduction.

If Siegel wants a bigger reduction, it is because he fears that the federal funds rate is higher than the yield of the 10-year Treasury, which was about 2.1% Friday.

At the bottom of the bond yield curve, the 3-month Treasury rate was higher than the 10-year rate.

This so-called reverse yield curve, where short-term bonds offer higher rates than long-term ones, has historically signaled a recession on the horizon.

"The most important factor here is that we have really seen a reversal of this yield curve," said Siegel. "I've gone through history, it's one of the most reliable indicators of a recession, and I'm worried about that."