Wharton's Jeremy Siegel says a rattled consumer and huge China tariffs mean stocks aren't out of the woods

• The S&P 500 surged nearly 10% on Wednesday after Trump delayed tariffs, but stocks are still challenged.
• Trump's tariff threats have rattled investors as well as consumers, says Jeremy Siegel.
• Tariffs on China are still high, keeping the average US tariff rate elevated.

The stock market exploded higher on Wednesday, with the S&P 500 rising nearly 10% after President Donald Trump delayed tariffs for 90 days for most countries.

However, don't expect the stock market to mint fresh record highs anytime soon, according to Wharton professor Jeremy Siegel.

That's because the Trump tariff threats have already done a lot of damage to consumers and investors, shaking confidence and ramping up uncertainty in the months ahead.

"The shock of what happened, I don't think you can get that out of consumers' minds or investors' minds for quite a while, so I don't think we can challenge those February highs for quite some time," Siegel said in an interview with CNBC on Thursday.

The S&P 500 peaked at a closing high of 6,144 on February 19. A move to that level would represent potential upside of 14% from current levels.

Siegel added that the sharp volatility in the stock market will have investors rethinking their equity allocations going forward.

"The volatility shock should implore investors to be more careful on equities," Siegel said. "I think the market's going to be treading water for quite a while on stocks and on bonds."

Importantly, Trump still left tariffs on China and even ratcheted those higher to an eye-watering 125% from an already high 104%.

According to Siegel, those tariffs, combined with a universal 10% base tariff, still leave the average US tariff rate at about 23%, which is a higher level than the 1930 Smoot-Hawley tariff.

"With the 125% tariff on China, the 10% blanket tariff, the average tariff actually went up yesterday with the raise on China," Siegel said.

Siegel is encouraged by the tariff pause and is hopeful that negotiations will continue through the 90-day pause, but it won't be easy.

"We're not out of the woods on the tariff, we'll see what gets negotiated," Siegel said. "It definitely will have to be negotiated with China, I don't know whether Trump holds as many cards as he thinks he holds on that."

Because the current tariff rate will raise some prices, the Federal Reserve is also unlikely to cut interest rates anytime soon, Siegel argued.

"The fact is that you still have a big tariff on you, which is going to raise some prices," Siegel said. "It appears the 10% tariff is permanent, which is still 5x what we had before the Trump presidency."

As for a recession hitting the economy, Siegel said that it's probably "off the table," but a slowdown in economic growth remains likely.

The latest first-quarter GDP growth estimate from the Atlanta Federal Reserve is -2.4%.