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

The “unfortunate death” of George Floyd that has “sparked riots” in multiple cities across the country seems to be having “not much of an effect” so far on the political landscape ahead of the November election, according to Jeremy Siegel, professor of finance at Wharton and WisdomTree senior investment strategy advisor.

However, “2020 is not looking like a good year for the U.S.” overall, and the “early read” from the political markets is that Floyd’s death and the ensuing riots may be providing a “slight benefit for the Democrats,” he said Monday, during his weekly conference call on the state of the markets.

Siegel noted that he checked the odds on the political markets just before the call, finding that they gave former Vice President Joe Biden a 53% chance of winning the presidency, while “the Senate is now a dead heat, 50-50,” and the Democrats remain “very strongly” ahead of Republicans and are expected to hold onto the House, with 80-20 odds, he said.

“A sweep by the Democrats would not be favorable for the markets,” Siegel said, adding: “Holding the Senate as Republican would hold off a corporate tax increase.”

That is because, as he said May 18, if the Democrats hold the House and win back the Senate, “my feeling is we’re going to basically repeal and rewrite the corporate tax cut that the Republicans put in place shortly” after Trump took office. He was referring to the sweeping tax overhaul enacted in 2017.

Corporate taxes “would probably go up 10% and that would be a headwind for the stock market going forward, 10 to maybe 15% — it’s too early to tell,” he said Monday.

Meanwhile, federal stimulus efforts including the Coronavirus Aid, Relief and Economic Security Act, are what’s “driving the markets” now, he said.

However, the pandemic is a “shock to the economic system that’s going to cause a tremendous amount of realignment to the labor force,” even once the economy fully opens, he predicted. Many firms are going to decide they don’t need some of the people they have furloughed or laid off, don’t need to do as much business traveling as before, and realize that many employees can work remotely all the time, he said.

“This reallocation could be associated with a dramatic rise in productivity,” he also predicted. “But it’s also going to be hardship because a lot of people who were employed because profits were good and times were good” are going to lose their jobs, he said.

What that means is “these people will have to find new jobs, and that’s not always going to be easy, even in a booming economy” because it “depends on a level of training [and] it depends on reallocation,” he said.

So, there will be a “burst of creativity [and] a burst of cost savings” — and that is “good for profits,” he noted. However, he added there will also be a “burst of unemployment.”

He also predicted Congress will not extend the extra $600 in weekly unemployment benefits added as part of the CARES Act’s temporary, enhanced benefit that, in more than 50% of U.S. states, boosted unemployment pay above what many workers made on the job.

During the Q&A, he said “the pandemic has played right into the hands of the FAANG stocks,” referring to tech giants Facebook, Amazon, Apple, Netflix and Google. “They were already outperforming” other stocks before COVID-19 and have continued benefiting since the pandemic started, he noted.

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