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US stocks may be in a bull market, but investors should watch the next US inflation print more closely than Friday's jobs report when weighing up what the Federal Reserve might do next, Wharton professor Jeremy Siegel told CNBC.
The Fed's next move is in focus for investors right now as a potential catalyst for a pullback in US stock markets, which have logged a run of record highs.
Siegel brought up an old Wall Street expression for the swift slide that comes when a steady climb for stocks ends - "Up the staircase, down an elevator."
"We're going up the staircase," he said on CNBC's "Squawk Box" Thursday. "I don't know when the elevator's going to come. But it looks like a momentum trade, in the sense that it just keeps on going up a little bit every day. No real news to propel it and a lot of momentum players piling on."
Still, Siegel said long-term returns won't be as robust as they have been over the past decade.
US stock markets are trading at record highs after advancing steadily this year. The benchmark S&P 500 is almost 20% higher year to date, and hasn't seen a decline of more than 5% since last October.
As equities have been supported by the Fed's massive pandemic-era stimulus, traders are looking for clues on the central bank's next steps, which could be the catalyst that causes those markets to turn.
Last week, Fed Chairman Jerome Powell indicated the US economy may be reaching a point where it no longer needs the same scale of monetary support as it did during the depths of the pandemic.
The next economic data that traders will be watching is Friday's August nonfarm-payroll report from the Labor Department, for what that means about economic recovery.
But Siegel said he thinks the inflation reading for August will overshadow the jobs report, in terms of impact on the markets.
"Personally I think the inflation news, not tomorrow's employment report that everyone is looking at ... might be more important," he said. "If they blow out the numbers, the Fed is going to have to be more aggressive going forward."
The Consumer Price Index - among the most popular US inflation yardsticks - rose 0.5% in July. That level matched economist forecasts and marked a sharp deceleration from June's 0.9% pace. The measure also rose 5.4% year-over-year, still the highest since 2008, but holding flat from June's year-on-year level.
Powell has said it's likely inflation will cool off as supply chains heal and demand wanes.
The inflation reading for August is due to be released on September 14 at 8:30 a.m. ET.
