Wharton's Jeremy Siegel says the bull run in stocks can go a lot longer even as the Fed wages 'war on growth'

• The new bull market in stocks has more room to run, top economist Jeremy Siegel said.
• Siegel pointed to strong momentum, with the S&P 500 up 16% from January.
• Still, he warned of downside risks in the second half of the year, with the US facing a potential recession.

The new bull market in stocks has room to run, even as central bankers wage what Wharton professor Jeremy Siegel describes as a "war on growth."

The economist pointed to strong recent performance in stocks through the first half of 2023, with mega-cap tech firms soaring amid the hype for AI and bets that the Federal Reserve will soon pull back on interest rates. That helped propel the S&P 500 to a gain of 16% in the first six months of 2023 – already beating Siegel's original estimate that the benchmark index would rise 15% by the end of 2023.

"It can continue a lot longer … the momentum is still there," Siegel said in an interview with CNBC on Monday, adding that he believed markets would need to see disappointing economic data or a drop in corporate earnings for the rally to be thrown off track. 

Even if the uptrend in stocks is disrupted, the rally could likely keep up, Siegel said, thanks to investors eager to jump into the next bull market after 2022's dismal performance.

Still, risks for the market lie ahead, especially as the Fed risks overtightening the economy with ultra-restrictive monetary policy, Siegel said.

Siegel has been a vocal critic of the Fed over the last year, as central bankers aggressively raised interest rates 1,700% to lower inflation. That risks tipping the economy into another recession, Siegel said, though inflation indicators reviewed at the Fed's last policy meeting have clocked in at or below expectations.

Still, Fed officials have suggested rates could stay elevated all year, with markets currently pricing in an 86% chance the central bank will raise rates another 25 basis-points at their next policy meeting, per the CME FedWatch tool.

"It's like a war on growth," Siegel said of Fed policy. 

That means stocks face more downside risks in the second-half of the year, he added, though he believed the rally could continue to run over the short-term.

The Wharton professor of finance has changed his view on the economy and markets numerous times over the past year, predicting a new bull market in January before warning that the rally in stocks could fall off in June. That's because the US could face a mild recession, Siegel warned, which he believes could hit the economy within the next few months.