The stock market has 'a ways to go' as increased liquidity flows into stocks, Wharton professor Jeremy Siegel says

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The stock market has 'a ways to go' as increased liquidity flows into stocks, Wharton professor Jeremy Siegel says
Scott Mlyn/CNBC/NBCU Photo Bank/NBCUniversal via Getty Images
  • The stock market still has "a ways to go" even as it approaches record all-time highs, according to Wharton professor Jeremy Siegel.
  • In an interview with CNBC on Wednesday, Siegel said that the increased liquidity from central bank policies in response to the COVID-19 pandemic will flow into stocks, pushing them past record highs.
  • Siegel expects a "spending boom" to occur in 2021 as pent-up demand from consumers and increased liquidity is unleashed on the economy once a successful vaccine is developed.
  • And with bond yields near record lows, there is no alternative to stocks, Siegel argued.
  • Visit Business Insider's homepage for more stories.
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Despite the S&P 500 closing in on record all-time highs, there's still "a ways to go" higher for the stock market, according to Wharton professor Jeremy Siegel.

In an interview with CNBC on Wednesday, Siegel noted that there has been a boom in liquidity thanks to central bank policies in response to the COVID-19 pandemic, and that liquidity is going to flow into stocks.

The 35% increase in money supply since the beginning of March is "more than twice the increase in liquidity in the entire year that followed the Lehman bankruptcy," and it's the biggest increase we've seen in over 75 years, according to Siegel.

Read more: Former hedge-fund titan Michael Novogratz breaks down 4 reasons why bitcoin is heading to $20,000 by year-end

Additionally, Siegel thinks 2021 earnings may beat analyst estimates by 5% to 10% due to a "spending boom" driven by the increased liquidity and a potential COVID-19 vaccine or therapeutic development.

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"I think all this money is going to be flowing right into the economy and into the stock market," Siegel argued.

And while Siegel acknowledged near term market risks related to Congress' inability to pass another stimulus bill and the upcoming November election, those risks won't be enough to derail the market.

To take advantage of the rising stock market, Siegel noted that in 2021, two factors might push investors into value stocks.

First, a successful COVID-19 vaccine or therapeutic that will help get people back into the normal economy will be a boon for beaten down sectors like the airlines and leisure/hospitality.

Second, according to Siegel, is the hunt for yield, as investors will be more attracted to quality dividend stocks yielding upwards of 2% to 3% rather than ultra low yielding bonds. There are few alternative to stocks, given current bond yields, Siegel added.

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Finally, are we at the start of a new economic cycle and bull market for the stock market?

According to Siegel, "it is going to be the start of a new expansion," but the new economy is going to look a lot different than it did in 2019.

Particularly, Siegel said companies could see a record boost in productivity as companies cut costs and adopt new technologies that enable employees to work remotely.

"The world has permanently shifted, even after this virus disappears," Siegel concluded.

Read more: The CEO of an $815 million ETF provider explains how to build the perfect portfolio for today's market using just 3 low-cost funds

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