Stock Market Will Be Great in 2021
No Matter Who’s President
Wharton professor Dr. Jeremy Siegel doesn’t see Trump or Biden as a factor. He said the stock market will be great no matter who wins the elections. In a CNBC interview Monday, Siegel believes that the stock market 2021 will see the continuation of the bull run. He cited the prospect of the increased money supply from stimulus efforts. Besides, an improved Covid-19 situation should lead to anticipated increases in worker activity. He thinks that “the chances are this bull market can continue in the next year, just on those factors,” Siegel said. “I think the market … is looking forward to a really good 2021 no matter who is president.”
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With the elections over a month away, Wall Street is awaiting who sits in the White House. A win by either candidate means certain implications for the stock market. Democrat Joe Biden wants to increase the corporate tax from 21% to 28%. His opponent, incumbent Donald Trump reduced the tax from 35% in 2017. Biden also wants a bigger long-term capital gains tax. This proposal does not sit well with businessmen.
Meanwhile, Trump opposes any further tax increases. He said any increase would affect the stock market, which would “drop down to nothing.” He credits the current market bull run to policies set by his administration. As of last week, the S&P 500 was up 54% compared to the last election in 2016.
Siegel believes that fundamental factors will help the market continue its amazing run. If a vaccine for the coronavirus becomes available by next year, the timing is impeccable. Congress and the Federal Reserve helped inject trillions of dollars into the economy. This leads to what Siegel calls a “tremendous burst of liquidity.” He explained:
“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.”
Once the fear of the virus wears off, the economy will come roaring back. Siegel foresees unprecedented worker activity as soon as it’s safe to work. Profits will go up, as most companies have already cut jobs and expenses during the pandemic. He noted that “firms have shed down unneeded individuals, unproductive individuals, cut expenses.” This led to productivity increases during the 2nd quarter (10.1%) which is the “biggest in 50 years.”
So Why Is The Stock Market Tanking A Bit Now?
September is a traditional down month for stocks. For the past 124 years, the Dow dropped an average of 1% every September. For other months, stocks gain an average of 0.7%. Siegel also believed that the uncertainty over the new stimulus brought down the market. Time is running out for Congress to pass a new bill. It’s now a real possibility to have coronavirus aid relief after the elections.
For 2021 to work, the market must first hurdle the challenges this year. “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,” Siegel said. “I think that uncertainty is going to continue to weigh onto the markets.” Once Wall Street overcomes 2020, the recovery would be a great story.
It’s good to know that no matter the election’s outcome, the stock market looks to continue its amazing run in 2021. With a vaccine expected at the end of this year, many expect the economy to rebound soon thereafter. And Dr. Siegel thinks the choice of a President this November won’t be a factor. If so, America wins.
Watch the CNBC’s Squawk Box interviews Dr. Jeremy Siegel, who talks about how the stimulus, election are weighing on the markets:
Dr. Jeremy James Siegel is the Russell E. Palmer Professor of Finance at the Wharton School. He is a frequent guest in many finance shows, sharing his views on the economy and financial markets.