The “tremendous increase in liquidity” the U.S. government has created through its stimulus efforts will be flowing into equity in the stock market, but just what types of equity it will flow into most will depend on how quickly the market opens up, according to Jeremy Siegel, professor of finance at Wharton and WisdomTree senior investment strategy advisor.
“If it looks like the economy is reopening, that will flow into” the value stocks — non-Nasdaq and non-technology stocks — the most, Siegel said Monday, during his weekly conference call on the state of the markets.
However, he said: “If it looks like the economy isn’t opening so fast, then the tech stocks will outperform,” he predicted.
There were a lot of reopenings of economies in recent days, both within U.S. and around the world, he noted, adding it was, therefore, “not surprising” that Dow value stocks started “outperforming,” while the Nasdaq was up only slightly Monday.
Another prediction: “If we do not get a second wave” of COVID-19 infections in the U.S. this year, its is “more likely than unlikely that we will get an all-time high in the S&P,” he said. And “there could be many reasons why” that second wave doesn’t happen, including “we get effective antiviral” medication or a vaccine arrives, he noted.
More Promising Signs
Despite pointing to another strong stock market showing on Monday, he said: “It could have been a little greater day if we didn’t get some tweets about anti-Chinese moves at the end.” He was apparently referring to the tweets of President Donald Trump bashing China over how it handled the pandemic and blaming the country for not containing it.
However, the Dow Jones Industrial Average’s 530-point jump on Monday was “not bad,” although “not really unexpected,” he said.
He also pointed to more positive news on the vaccine front as multiple trials have gotten underway, saying there seem to be many Americans eager to be included in those trials.
However, he warned that “if the virus really wanes in the summer, which it could … you might not get enough people to really do a full-stage study.” That was why a trial was halted in China, he said: There weren’t enough people willing to take part once infections significantly declined.
Although we have yet to see a spike in infections in most U.S. states that opened first, it remains early, Siegel said, striking a note of caution, adding: “I’d like to wait a couple of more weeks” before saying it is a sure thing there won’t be spikes.
An increase in air travel would give the economy an even bigger lift, according to Siegel.
“There’s going to be some people that are brave enough to be the guinea pigs” and “go first,” he said. If those people are traced after flying and news reports say there is no higher rate in infection among them, that would go a long way to convincing other Americans to follow back on the airlines, he predicted, adding: “The same thing goes for restaurants and the same thing goes with stadiums.”
If there is a big increase in infections as a result, then it’s “oops” and “we’ve got to really tread carefully,” he conceded. However, “if there isn’t, that’s what brings confidence back.”
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