Professor Jeremy Siegel speaks at LINC 2018. (Photo: Lila Photo for TD Ameritrade Institutional)

There are four steps that will lead to an economic and market recovery — and “we’re only going to have a market recovery if we have an economic recovery,” according to Jeremy Siegel, professor of finance at Wharton and WisdomTree senior investment strategy advisor.

“The first of these steps is fiscal and monetary support” — and “we can check that box” already because that arrived in “full force in the last two weeks as well as I could hope on both sides,” he said Monday during a weekly conference call on the state of the markets.

After all, the “very strong response” to the coronavirus and economic crisis that he called for “has been made” with the enactment Friday of the Coronavirus Aid, Relief and Economic Security (CARES) Act, he said. That followed Federal Reserve Chairman Jerome Powell slashing the federal funds rate by 1% to a range between zero and 0.25%.

However, Siegel added that “obviously there can be a few other things they can do, and there will be technical corrections and other measures” still to come. But, “by and large, we did that well,” he said.

The second step is “flattening the curve” to slow the spread of the coronavirus, he said. And, on that front, “I am encouraged by what I see” and that “social distancing does seem to work,” he told advisors on the call. As a result, he said: “I am much more encouraged and optimistic that we will be able to avoid widespread rationing of ventilators for those who fall into the seriously ill category.” Although it is “not a slam dunk,” he said, “we may have slowed it down enough — and that was the goal” so we would “not overload our medical systems.”

The third step is the arrival of vaccines and therapeutics, he said. On that front, he applauded Johnson & Johnson’s announcement that it plans to start human testing of a coronavirus vaccine by September. However, the company said it did not expect the first batches of its vaccine to be available for even emergency use authorization until early 2021.

The estimated arrival date is a “sobering fact,” despite the fact that time frame is faster than vaccines typically arrive, and is a promising sign, Siegel said. However, “we cannot wait a year to open up the economy,” he said. While “the market will tolerate a two- to three-month shutdown,” it will not tolerate a “six- to nine-month shutdown,” so if the latter course of action is what ends up happening, there is “a lot more downside” that needs to be projected for the economy, he said.

What could soften the blow would be the arrival of a drug that can eliminate or even “greatly reduce” the number of people who die from coronavirus. “That would be a huge psychological boost to the market, and that’s a possibility,” he said.

The fourth step is “the most important” one, and that is “to employ a crash program to deploy” systems that accurately collect coronavirus outbreak data, make widely available reliable diagnostic tools to test people for the virus liberally, and test people on a wide basis to find out who has antibodies that fight off coronavirus and can go back to work, he said, noting “there could be millions” of people in that latter camp.

“These are not expensive” methods of fighting the virus and, “in fact, we have most of these” already, he said. If all of these methods are put in place, we can start getting people back to work in two months, and “that is really what we need for a big recovery,” he said. This “should be our government’s biggest challenge and biggest goal,” he told advisors.

While there will probably be a lot of pent-up demand for spending that could spur the economy once it opens up again, Siegel projected that some consumers will probably start saving more money. He referred to data indicating about 40% of Americans don’t have $800-$900 in liquid assets at hand to tide them over in case of emergency. “If they keep a little bit more in the bank, that’s going to be good for the financial institutions and it’s also ultimately going to [result in] a healthier economy,” he said.

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