Jeremy Siegel: "pandemic played right into the hands of the FAANG stocks”

The S&P 500 is likely to hit new highs in the second half of this year, says Jeremy Siegel, the author of the influential book Stocks for the Long Run (in which he makes the case that investors should simply buy and hold shares, and not worry about ups and downs in the market). So long as there is not a severe second wave of coronavirus – which Siegel believes can be avoided even without a vaccine, so long as treatments become more effective – the “totally unprecedented” liquidity created by the Federal Reserve will keep powering the rally, he tells CNBC. That’s despite the gulf between the S&P 500 and the wider economy. “One of the unfortunate things about the lockdown is that we’ve actually improved  the prospects of …companies in the stockmarket” at the expense of smaller firms. 

In particular, “the pandemic played right into the hands of the FAANG stocks”, Siegel told ThinkAdvisor, speaking on a conference call for fund manager WisdomTree, where he is an adviser on investment strategy. The tech giants benefited from the closure of many physical businesses and so their shares, which were already beating the market before the crisis, have done much better than other sectors. Whether that persists in the next stage of the rally will depend on how rapidly the economy reopens, says Siegel. If the lockdown eases, the liquidity the Fed has created should flow into non-tech value stocks. “If the economy isn’t opening so fast, then the tech stocks will outperform.”