The Dow can hit 30,000 by 2021 if Republicans keep the Senate and the coronavirus is contained, Wharton professor Jeremy Siegel says
- The Dow Jones industrial average could surge to a record high of 30,000 if Republicans keep their hold on the Senate in November and the coronavirus pandemic is contained, the Wharton finance professor Jeremy Siegel said on Tuesday.
- The market's rally from March has slowed, and the easiest stock gains have already been made, he said on CNBC's "Squawk Box."
- "Great uncertainties" from elections and spiking coronavirus cases stand to either boost stocks through the second half of the year or pull them from their lofty valuations, the professor said.
- The political unknowns are "a big one," Siegel said, as a reversal of President Donald Trump's corporate tax cuts would create "a strong headwind" for companies and their stock prices.
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The Wharton finance professor Jeremy Siegel detailed on Tuesday the critical conditions needed for the Dow Jones industrial average to reach a record high of 30,000 before the year is out.
The stock market's rally from March lows has slowed as investors weigh reopening optimism with fears about a surge in coronavirus cases. The latest spike in infections and election outcomes represent the "great uncertainties" plaguing valuations, Siegel said on CNBC's "Squawk Box."
"If we get continued progress and lower virus figures for the US, a resolution of the political uncertainty in November ... I think the market would welcome a Republican-maintained Senate even if there is a Biden presidency," the professor said. "I think that would be favorable for the market, but that is in question."
The market's easiest gains have already been made, and November poses a key deadline for investors waiting on the sideline, he added.
The Dow opened at 25,499.85 on Tuesday, down 10% year-to-date.
A Democratic sweep on Election Day would endanger one of the bull market's biggest drivers. Vice President Joe Biden recently pledged to reverse most of President Donald Trump's 2017 tax cuts. The lower corporate rates helped push the stock market to fresh highs for years, and removing them would place significant pressure on already lofty valuations, Siegel said.
"That uncertainty is a big one, because taxes — the tax cut, the corporate tax cuts are a major reason for a lot of the bull market since Trump was elected," he said. "If they're going to be reversed, that's a strong headwind."
Even if Democrats take the Senate and the White House, investors aren't without hope. Massive monetary and fiscal relief measures have flooded capital markets with liquidity in recent months and helped drive major indexes higher. In the event of a blue wave, "there's probably going to be more liquidity" to lift the economy from the coronavirus recession, the professor said.
A final X factor for the stock market's second-half performance hinges on bringing a reliable COVID-19 treatment to market. Economists, investors, and Federal Reserve officials have said that consumer confidence cannot fully recover until Americans believe they can safely leave their homes and participate in the economy.
Whether it comes from virus containment or a miracle drug, lifted sentiment is crucial to reviving the economy and the US's largest companies, Siegel said.
"If the virus subsides, get some more therapeutics, get some more confidence in the economy, and if the Republicans can hold the Senate, we will see, I believe, Dow 30,000 by the end of the year," he said.
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