Published: April 12th, 2021
A finance professor at the famed University of Pennsylvania’s Wharton School is urging investors to take advantage of the stock boom. Jeremy Siegel said the stocks and equities prices could go up by up to 30% before the current boom ends.
Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School, has said that the current rally the stocks are experiencing could go on for the rest of 2021.
Speaking to CNBC on Thursday, April 8, the academician said the stock market might go up by between 30% and 40% before it recedes to 20% following any Federal Reserve’s eventual reaction to inflation. However, he cautioned investors to watch the said reaction closely as it might signal the turning point.
The professor said that it would not be until the Fed leans hard on the policies that investors should start to worry. The market might take a while before it goes back to 20%, and that might only come after the markets factor in the changes in course from the central bank, Siegel added.
Siegel’s sentiments were aired on the Thursday, April 8, edition of CNBC’s Fast Money Halftime Report hosted by Scott Wapner. The economist likened the state of activity in the stocks to the early stages of a football game. While commenting on the prime condition of the market vis-à-vis the boom, Siegel said the market is not by any means in the ninth inning. Instead, it looks more like it just is in the third inning.
Market analysts mostly agree with the professor’s sentiments. According to Dr. Faisal Shuaib, a leading IMF economist and the head of Nigeria’s National Primary Health Care Development Agency, COVID vaccines are the key weapon to unlocking faster economic recovery. The statement blends with Siegel’s, who expects a roaring economy this year after the last COVID-19-era containment restrictions are lifted.
The Wharton professor said vaccinations would allow people to travel freely and economic activities to pick up once again. However, investors should understand that initially, the move will come with unbridled inflationary pressures, Siegel said.
Siegel said he expects inflation and interest rates to rise above the figures that the Fed has projected. He predicts 2021 to be a solid inflationary year with figures ranging between 4% and 5%. However, the longtime market bull said such conditions are a blessing in disguise.
Siegel said economic situations of such nature often compel the regulatory authority to act a lot sooner than planned. However, he is urging investors to enjoy the ride in the meantime. As if reading from the professor’s script, the U.S. stocks and equities market was higher during the mid-morning trading session on Thursday, April 8.
Nasdaq was about 1% up, the leading performer of the indexes. The tech-laden index had dipped the previous day but remained almost 3% lower than its February record close. The S&P 500 added a slight margin to its record finish on Wednesday, April 7. The Dow Jones Industrial Average was also up. However, it fell short of the record close etched on Monday, April 5.
The 10-year Treasury yield, though still under 1.7% on Thursday, April 8, has been broadly steady recently. The acute surge in market rates this year, which includes a run of 14-month highs sometime in March, destabilized growth stocks, mainly tech names, as higher borrowing costs squeezed valuation and eroded the value of future profit.
Besides, the bonds market has been at loggerheads with the Federal Reserve this year. Traders are pushing yields up while believing that inflation and a more robust economic performance will compel central banks to increase near-zero short-term interest rates. They believe such actions will slow down the massive asset purchases witnessed lately, sooner than the markets have predicted.
During the March meeting of the Federal Reserve’s Policy Committee, Fed Chair Jerome Powell said his bank had significantly increased its expectations for economic growth. However, he pointed to the likelihood of zero rate increases between now and 2023 despite the impressive outlook. His remarks essentially turned 2021 into an inflationary year.
Powell reiterated the same central bank’s policy stance at an International Monetary Fund (IMF) seminar that asset purchases would remain on course at the current pace until the Fed attains substantial progress towards the overall goal. Powell added that the bank is looking at the progress reports to ensure the purchases remain in tune with the objectives.
The Fed Chair said that the economic recovery so far remains uneven and incomplete. Low-income U.S. residents who are the worst-affected by the effects of the coronavirus pandemic are seeing fewer employment opportunities, Powell said.
While responding to the Fed Chair’s remarks, Siegel said it is the first time he has seen anyone in that position so dovish. However, he supported his assertion on the stock market boom, saying that owning equities is better than bonds or holding cash despite rising inflation.
Siegel said many investors would look at the increasing inflation and the 10-year Treasury yield and wonder what to do with their money. Because most corporations would have more pricing power than they have had in more than two decades, many investors would not want to remain outside the stock markets. The whole outlook would change the calculus for a vast majority of the investors, the Wharton professor said.
However, as the inflation becomes unbearable, the Fed would step in to tame the time. At such a time, it would make sense to be cautious. For now, the bull market is synonymous with 2021.
A renowned Wharton School professor has said that the stock markets would swell to between 30% and 40% before the current boom ends. Jeremy Siegel noted the situation might change only after the Fed reviews the ultra-accommodative monetary policies it has implemented. Overall, he said the boom would stretch through 2023.