Prof. Jeremy Siegel on the Market Today and the Long-Term Case for Equities


July 5, 2024
By Ambrose O’Callaghan

On Wednesday, June 19, 2024, Harvest ETFs’ President and CEO Michael Kovacs hosted a webinar with Wharton Professor of Finance and acclaimed author Jeremy Siegel for a discussion on markets, the current economic environment, and the potential impacts of the upcoming 2024 US election. Jeremy Siegel has remained steadfast in his view that stocks are the best asset to hold over the long term, when measuring real return.

In this piece, we’re going to dive into Jeremy Siegel’s commentary for the webinar in question. Click below for the full video:

How have equities performed compared to other asset classes historically?

Jeremy Siegel released the first edition of Stocks for the Long Run in 1994. Siegel is a professor of finance at the Wharton School of the University of Pennsylvania. He is a consistent contributor to respected financial publications like The Wall Street Journal, Barron’s, The New York Times, and the Financial Times.

To kick off the webinar, Jeremy Siegel provides a graph that charts the performance of United States financial markets and assets starting all the way back in 1802. The chart shows that stocks in real terms have performed the best and most consistently over a period that covers over two centuries. Amidst all the bull and bear markets over the past 222 years, stocks have produced total real returns of 6.8% compounded annually. An astounding data point.

“What do I mean by real return?” Siegel remarks in the webinar. “Capital gains or losses plus dividends after inflation. That’s what the term real means. That’s the real return you want. The average compound annual real return in the US stock market for the last 222 years has been 6.8% per year after inflation. Astounding. Truly astounding.”

“I did the first edition of the book in 1994, thirty years ago . . . What was the real return I got then? 6.8% per year. What has the real return been the last thirty years? 6.8% per year. Now, of course, some years at 25%, some years is minus 25%. All those wiggles that you see in the line, great bull and bear markets, that’s all the noise.”

Professor Siegel echoed it with these words: “If I were to summarize the returns of major asset classes, I would say the following: History says that stocks are, yes, the most volatile asset class in the short run, but the most stable asset class in the long run.”

Should investors be worried about the current economic environment?

Jeremy Siegel suggests that investors should ignore the “noise” that is part and parcel of the 24-hour news cycle. After all, the 200+ year time horizon that Siegel provides demonstrates that equities will continue to outperform other assets regardless of which story of the day, whether that be social, political, or economic in nature, is capturing the attention of onlookers.

The COVID-19 pandemic was a historic crisis that appeared to demand a historic response, from a social, political, and economic standpoint. However, Jeremy Siegel did have some criticisms with how the US Federal Reserve ultimately handled the health crisis.

“You know I’ve been critical of the Fed,” Siegel explained. “They caused this inflation. They took all the debt that the government floated for COVID relief and just turned it into money, which they are not supposed to do. By using outdated inflation data on housing prices, they underestimated inflation, thinking it was temporary in 2020 and 2021 . . .  We are not going down to the prices for pre-COVID. We’re at a new, higher price level, and we want to get to that 2%. I think we’re there. “

Harvest ETFs and the long-equity philosophy

After an overview of Fed policy and the path forward, Siegel went on to talk about technology sector valuations. As many readers will already know, the technology sector, particularly the “Magnificent 7” – Amazon, Apple, Microsoft, Meta, Nvidia, Alphabet, and Tesla – have had an outsized impact on broader market performance.

Professor Siegel goes on to state that tech valuations appear high at this time, hinting at a possible correction in the future. However, even with such a correction, he contends that investors will be better off in the long run. Technology still has a place in a diversified portfolio. Moreover, it has the potential to keep growing for a long time before any correction.

The performance of these tech giants has powered the positive performance of the Harvest Tech Achievers Growth & Income ETF (HTA:TSX), which has climbed 10.9% in the year-to-date period as at May 31, 2024. It has delivered annualized growth of 29.71% over a 1-year period, 21.27% 2-year, 20.5% 5-year, and 15.5% since inception.

On June 25, 2024, Harvest ETFs announced that the HTA ETF will increase its monthly cash distribution amount for all classes taking effect for the July 31, 2024 record date with a payable date of August 9, 2024. HTA now offers a monthly cash distribution of $0.1300 per unit.

“Yeah, there’s going to be volatility,” Jeremy Siegel concluded. “There will be a bear market in the future, no one knows when. Look at history. These wiggles with great bull and bear markets over time [have] dominated the headlines. But, when you take a look at the long run, they are mere blips in the upward thrust of stock values.”

Recently, I’d discussed a tactical opportunity in the healthcare sector. This is something to keep in mind when we consider the long-term trajectory for the broader market. Healthcare is a superior good and is underpinned by powerful secular trends like demographics and population growth in the developing world.

The Harvest Healthcare Leaders Income ETF (HHL:TSX) offers equal-weight exposure to companies that creative value from new drugs, treatments, and technologies in this vital sector. Canada’s largest healthcare ETF also benefited from the recent increase in monthly cash distributions for core Harvest ETFs. It now offers a high monthly cash distribution of $0.0600 per unit payable on August 9, 2024.

How Harvest ETFs help guard against short-term volatility

As Professor Jeremy Siegel pointed out, the short-term volatility of equities does not detract from their long-term outperformance compared to other asset classes. We at Harvest agree with the thesis that the stock market produces the best performance relative to other asset classes over the long-term, though they do display short-term volatility.

Harvest has designed products to capitalize on short-term volatility while holding a long bias. Using our active covered call strategies, we aim to monetize such volatility, while staying biased to the upside with at least 67% of our equity income portfolios remaining focused on long-term capital appreciation.

Where are we headed?

Finally, Harvest ETFs CEO Michael Kovacs and Prof. Jeremy Siegel touched on the upcoming 2024 United States Presidential Election.

Michael Kovacs; “So, the elephant in the room. [It is a] big year in the U.S. [with the] election. Should this play into people’s approaches to markets?”

“It really shouldn’t,” Jeremy Siegel stated. “I can argue which one is marginally better than the other . . . 52% of Americans directly or indirectly owned stocks. A narrow group of people own a lot of wealth, but everyone has a stake. Everyone is going to suffer if either the Democrats or the Republicans do something to damage the stock market.”

“I say, look at the long-term graph. In the long run, it doesn’t matter. I think on either of these two candidates, they’re both not anti-capitalist.”

“Are there demographic changes you see occurring that will change the market going forward from this point?” Michael Kovacs asked for his final question.

“What I see is people are counting on stocks as a major way to get the savings that are needed,” Jeremy Siegel explains. “You don’t trust the government on social security, Medicare, [etc.]. People are going to be needing to save and accumulate in stocks as they get older. People are looking for vehicles for the creation of wealth, and I think it will be centered in the stock market.”


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Harvest ETFs Announces Increases to Monthly Cash Distributions

Harvest ETFs announced by press release on June 25, 2024 that certain ETFs will increase their monthly cash distribution amount for all classes taking effect for the July 31, 2024 record date with a payable date of August 9, 2024. For more details, please read the press release.