Professor who called Dow 20,000 says he’s nervous about trends in inflation that could spark a stock-market correction

The academic’s comments came as Federal Reserve Chairman Jerome Powell on Wednesday said a bout of high U.S. inflation could be prolonged into early next year because parts and material shortages might be getting worse.

Parts of the financial market are undergoing big price surges, including natural-gas futures NG00, -7.16%, which surged 11% on Monday, reaching levels not seen since 2014 amid tight U.S. supplies and strengthening demand across the globe.

Read: Inflation in the U.S. is running at the highest level in 30 years

Also: Fed’s Williams predicts the high rate of inflation will cool to 2% in 2022

“It’s frustrating to see the supply-chain problems not getting better, in fact they are probably getting worse,” Powell said during a virtual forum with other central bank leaders, including those from the European Central Bank. “It’s very difficult to say how big the effects will be in the meantime and how long they will last.”

The rate of inflation in the U.S., using the Fed’s preferred personal-consumption expenditures price index, rose at a 4.2% pace in the 12 months ended in July. That is the fastest increase in 30 years. Inflation is running even hotter based on the better-known consumer-price index, a measure of the average prices paid by consumers for a common basket of goods and services that serves as a barometer of economic health.

Powell and others at the Fed have contended for months that the surge in inflation was “transitory.” 

However, that view is starting to shift and investors are starting to factor in more persistent inflation than previously thought, analysts say.

Siegel said the anticipated timeline that the Fed will start tapering in November and end it the middle of 2022, with an eye toward starting to raise interest rates sometime next year, is a fair timetable, but he but fears that the surge in inflation could hasten moves, which would drive yields higher and stocks lower.

On Wednesday, the S&P 500 index SPX, +0.16% ended higher but was still down 3.9% from its Sept. 2 record close, and the Dow Jones Industrial Average DJIA, +0.26% was off 3.5% from its Aug. 16 record high, following marginal gains on the session. The technology-laden Nasdaq Composite Index COMP, -0.24% is down 5.6% from its Sept. 7 closing peak after finishing lower on Wednesday.

A correction in an asset is usually defined by market technicians as a fall of at least 10%, but no more than 20%, from a recent peak.

Meanwhile, the benchmark 10-year Treasury note TMUBMUSD10Y, 1.521%, used to price everything from car loans to mortgages, yielded 1.54%, up from 1.534% on Tuesday. The note is up nearly 10 basis points so far this quarter and up 23.7 basis points in September alone, according data compiled by Dow Jones Market Data.