A Joe Biden presidency and the Republicans holding the Senate is “early Christmas” for the stock market; and the prospect of distribution of Pfizer’s COVID-19 vaccine starting by year’s end augurs that by mid-2021, “the virus is totally gone.”
That’s the rosy outlook from Wharton finance professor Jeremy Siegel in an interview with ThinkAdvisor.
He argues that — after the vaccine receives emergency approval from the Food and Drug Administration — the vaccine, and others undergoing tests by four additional companies, will trigger businesses to reopen next year. And the “enormous liquidity” provided by the Federal Reserve and CARES Act will function like “kindling wood” to fire up a “tremendous increase in economic activity,” he forecasts.
The University of Pennsylvania securities expert and senior investment strategy advisor at WisdomTree wrote “Stocks for the Long Run” (5th edition – 2014), which The Washington Post named “one of the 10 best investment books of all time.”
In the interview, Siegel offered his forecast for the economy and stock market, the latter to possibly see a correction in the technology sector.
ThinkAdvisor interviewed Siegel on Monday. He was speaking by phone from Philadelphia. The otherwise upbeat discussion was also clouded by his forecast for “relatively high” unemployment next year. To remedy that, he cited a need for companies to hire workers who were laid off amid the pandemic and to retrain them.
Here are highlights of our conversation:
How will President-elect Joe Biden’s presidency impact the stock market?
Biden’s winning the presidency and the Republicans holding the Senate is the best thing possible — an early Christmas for the stock market. It’s an excellent combination to block the tax increases [Biden proposed]. If the Democrats do get those two Senate seats in Georgia, [any tax increases] will be muted because conservative Democrats won’t go for some of the more extreme measures.
What approach will Biden take in working with the Senate?
We’re going to go back to an environment of horse trading, where he’ll say [for instance], “I want a light jump in certain tax categories, so I’ll give you guys [something in exchange].” [That is], things will get done through more traditional ways [again]. Maybe some tax rates could jump a little higher on some of the high end, with a bit of a rise in the corporate tax rate [too], but it’s going to be a trade [-off] type of deal.
What about the critical issue of trade — regarding China, in particular?
I think we’ll have a more rational policy toward China — not all those tariffs. I liked Trump’s tax cuts and deregulation; but a lot of his stuff on trade wasn’t good. I don’t think Biden will pursue [that].
Does President Trump’s threat of legal action for what he calls election fraud stand up?
It will fizzle out. There won’t be any significance to it.
What does Pfizer’s COVID-19 vaccine mean to the stock market?
Obviously, it’s good for the economy and stock market because it [will] push the reopening of the economy forward — and that’s very positive for economic growth. Businesses will start opening up in January; and by the middle of next year, I think the virus is totally gone.
What else do you know about the vaccine?
It isn’t just a vaccine against COVID-19. That’s important enough, but it can also be used rapidly for many different types of diseases. So it’s really a very important medical breakthrough.
We’re now in what’s called the third wave of the pandemic. Your thoughts?
Actually, COVID is one wave. We’re having a bit of an increase everywhere; but this is the last of the wave, I think. It will peak around Thanksgiving and early Christmas[time]. So people have to be really careful. But then, that’s it.
Why do you think so?
As the vaccine starts to be distributed, [the number of cases] will go down. You’ll have a total crash in cases in the first quarter of next year; and then basically, there won’t be any increase, just minimal in comparison.