Jeremy Siegel, a finance professor at Wharton, recently made an appearance on CNBC. There, he said that it doesn’t matter who wins the election in November, the stock market will do well in 2021.
“I think the chances are this bull market can continue in the next year, just on those factors. I think the market … is looking forward to a really good 2021 no matter who is president,” said Siegel.
The factors that Siegel mentions are a boost in the money supply from all the multiple stimulus packages, as well a hopeful vaccine for the coronavirus that allows employees to get back to work and increase output.
Siegel pointed to the Federal Reserve and Congress pumping trillions into the economy. A “tremendous burst of liquidity” is what he called it. He also said, “I’m a monetary theorist. This is what I teach and study. This is unprecedented in 75 years, since World War II. I think there’s a lot of repressed liquidity in the market that once the vaccine and the pandemic fears fade in 2021, we’re going to see a big boost in activity.”
He said a vaccine will help companies bring back the right number of workers, which will increase corporate profits. No business likes to let go of its employees. However, “firms have shed down unneeded individuals, unproductive individuals, cut expenses,” according to Siegel. He also said that the 10.1% productivity rate increase in the second quarter is “the biggest in 50 years.”
The market seems to be waiting to see who will win the election in November before moving higher or lower. Democratic nominee Joe Biden has proposed raising the corporate tax rate to 28%. Trump’s 2017 tax cut set the current rate at 21%. Biden has also said he wants to hike the tax rate on long-term capital gains.
Trump, who has steered the country to record-setting economic growth, has discussed lowering the long-term capital gains tax rate among other plans should he win a second term.
Between now and the election, Siegel said people find it difficult to find a reason for much movement in the stock market in either direction.
“I think the two big things weighing on the markets is they want another stimulus package, you guys have talked about it, everyone’s talked about it, and the election coming up. It’s hard for me to see without a stimulus package and with that election uncertainty, for there to be a lot of progress between now and the first week of November. I think that uncertainty is going to weigh on the markets.”
He does say that while he thinks there is a need for more stimulus, nothing has happened yet. An employment report will come out on Friday. With this, Siegel says if it shows an uptick in the unemployment rate, it could spur politicians to head back to the bargaining table.
“One thing that’s coming, certainly the debates tomorrow as we all know, Friday, hey, there’s an employment report. And one of the things that could get a stimulus plan going is a disappointment in that report. You know, we’re expecting the unemployment rate to inch down from 8.4% to 8.2%, what happens if it goes up? I think there could be some political pressure then, ‘Hey, get something started,’ because we really do need more stimulus. PPP that is targeted towards so many businesses and industries that are still shut down, I think it’s really important, so maybe we’ll have to wait until Friday.”