The market bottom is in, and 2021 could be a boom year for stocks, Wharton Professor Jeremy Siegel says

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The market bottom is in, and 2021 could be a boom year for stocks, Wharton Professor Jeremy Siegel says
Jeremy Siegel (R), professor of finance at the Wharton School, University of Pennsylvania, participates in a panel discussion during the Skybridge Alternatives (SALT) Conference in Las Vegas, Nevada May, 9, 2012.REUTERS/Steve Marcus
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The stock market bottom is in, and 2021 could be a boom year for stocks.

That's according to Wharton professor Jeremy Siegel, who made those comments and more in a Friday morning interview on CNBC.

While many investors are questioning why the market has rallied 30% from its lows amid a soaring unemployment rate and weekly jobless claims, Siegel isn't as surprised.

Siegel emphasized that the reason the stock market has held up so well during the coronavirus pandemic is that "more than 90% of the value of stocks is from earnings more than 12 months in the future."

From there, it depends on the successful development of therapeutics or vaccines to treat the virus, which is why any news on that front is much more important to the market right now than any backward looking economic data that tells us what we already know.

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Read more: GOLDMAN SACHS: Traders are reaping unusually large profits from earnings-related stock trades. Here are 15 picks for the remainder of the season.

Siegel may be on to something.

There have been sizable swings in the stock market caused by news readouts of Gilead's potential treatment for the coronavirus, remdesivir.

On April 23, the stock market sold off after trial data from the WHO surfaced showing little effect that Gilead's drug was successful in combating the coronavirus.

Alternatively, the stock market jumped higher on April 29 after Gilead announced "positive data" for its drug in a coronavirus trial with the National Institutes of Health.

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Siegel said that if a treatment or vaccine for the coronavirus is developed that reduces the fear instilled in people since the pandemic started, "2021 can be a boom year."

That echoes Siegel's recent comments that the 40-year bull market in bonds is about to end.

Siegel added that the unprecedented liquidity being added by the Fed is a tailwind for stocks.

More money has been added to the system in the past eight weeks than was added in the entire year following the collapse of Lehman Brothers, according to Siegel.

Once confidence begins to recover, that liquidity will flow into spending and into the stock market.

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"I do think that the March low is definitely going to be the low," Siegel said, adding that the stock market can make news highs in the next year-and-a-half to two years.

Still, there is risk, according to Siegel.

"The only worse-case scenario is if there's a huge second wave in October, we don't have therapeutics, no vaccine is available ... and there's a total shut down again," he said.

While Siegel said that investors can't take that possibility off the table, he views it as a low-probability risk.

Read the original article on Business Insider
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