Tech stocks have developed disproportionately strong this year – despite headwinds from the US Federal Reserve. Market expert Jeremy Siegel believes that the bull run will continue in the second half of the year.
• Siegel sees tech investors in a win-win situation
• Growth stocks were the beneficiaries in both scenarios
• Fed with “war on growth”
Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania in Philadelphia, was optimistic about the second half of the year in a recent interview with CNBC. After a strong development in the first six months of the year, the market expert believes that tech stocks in particular will continue to show strong resilience.
Tech investors in win-win situation
For Siegel, the strong price development in the first half of the year in the tech segment is an indication that investors are preparing for a “win-win” result. Because unlike other stocks, growth stocks are less susceptible to an economic downturn, as it threatens as a result of the interest rate policy of the US Federal Reserve. Tech stocks are largely immune to a recession, Siegel said. The sector performs relatively well regardless of the development of the overall economy. He explains this by saying that technology stocks count as long-term assets because they typically generate a large part of their relative cash flows in the distant future.
At the same time, the sector would also benefit if the interest rate policy of the central banks changes: that would be even better for technology stocks, the expert continues. “Tech investors – it’s a win-win for them,” he explains. “They say, listen, it’s a long-term asset – if we have a recession, you know, tech stocks are mostly immune. And when we have a recession, the Fed will stop raising interest rates, maybe even lower them – then it will be really good for the long-term assets that we have”.
Bull run not over yet
In his opinion, the bull run – especially in the tech sector – could continue for longer. The market’s strong positive momentum suggests stocks could extend gains despite the risk of an economic slowdown – provided some economic or corporate data doesn’t disappoint investors too much, Siegel said.
The economic expert was therefore also optimistic for the second half of the year: “It can go on like this for much longer,” he emphasized with a view to the stock market rally. “Really, the momentum is still there. I think it will take a real, weak economic report or some financial statements that are exactly the opposite of what we thought – really a disappointment – to shake them.”
At the same time, Siegel did not skimp on criticism of the currency watchdogs and theirs monetary policy: “You know, I warned against the Fed tightening too much”, yet he was puzzled that since the last Fed meeting, every single inflation indicator has been in line with or below expectations and yet the Fed’s rhetoric has become even more aggressive. “It’s like a war on growth – oh, we can’t have that much growth. And I think that’s a very dangerous way of looking at the economy.”
Nevertheless, Siegel sees more risks on the bottom than on the top for the second half of the year. “I don’t see the trend breaking anytime soon,” he said optimistically, referring to the old Wall Street stock market adage “Make the trend your friend.”
Editorial office finanzen.net