Wharton professor Jeremy Siegel lays out why a record-high stock market in 2020 remains 'a real possibility'

Wharton finance professor Jeremy Siegel still sees a scenario where the stock market breaches new highs before the year is out, despite reopening risks, historic unemployment, and a deep recession.

The Federal Reserve's multitrillion-dollar relief operations offer an unprecedented lift to the recently struggling market and should aid in a run-up through the rest of the year, he added. Couple the hefty stimulus with investors' growing appetite for long-term risk, and stocks could rally to fresh highs before 2021 as buying picks up, Siegel said.

"Believe it or not, it is a real possibility. Given no serious second wave, which could mean just effective therapeutics without even a universal vaccine, my feeling is it's even a likelihood that we will reach it," he told CNBC on Tuesday.

Siegel's comments arrived during a strong market upswing. Investors piled into equities throughout Tuesday as optimism toward reopening efforts grew. The S&P 500 breached 3,000 for the first time since early March before closing just below the threshold.

The Wharton professor said the market's late-March low marks a floor for equity prices unless the coronavirus pandemic flares up again. Stocks' rally through the lockdown could prove too powerful, he added, as the larger firms included in major benchmarks likely performed better than smaller businesses.

"One of the unfortunate things about the lockdown is we've actually improved the prospects of the very companies in the stock market," Siegel said. "We've widened the gap between large and small, and between those people feeling the pain and those people that have their portfolios."

One factor Siegel is less concerned about is the Fed's stepping back from emergency lending. Several market experts see a market correction on the horizon once the central bank unwinds its nine credit facilities and stops its backstopping of the credit market.

The professor expects the Fed's retreat to take place over a long period of time to ensure a steady recovery. As long as that cash remains in the financial system, the economy will likely enjoy a brief bout of healthy inflation, he said.

"There's no way they're taking that back, and as a result, that is all going to be flowing into the stock market and the economy," Siegel said.

(published 27 May 2020)