Markets

Longtime bull Jeremy Siegel: Stocks rally on odds of GOP keeping Senate and stopping tax hikes

Key Points
  • Wharton professor Jeremy Siegel told CNBC on Wednesday that a Joe Biden presidency and a continued Republican majority in the Senate would be a good scenario for markets.
  • "The [Biden] tax increase was a big potential negative. That is off the table" if the government were to remain divided, Siegel argued.
  • While the outcome of the presidential election was not clear Wednesday, the odds of Democrats flipping the Senate from Republican control were getting longer and longer.
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Why a split Congress and White House looks good for the economy: Wharton's Jeremy Siegel

Wharton professor Jeremy Siegel on Wednesday attributed the stock market's post-Election Day rally to the prospect of continued divided government reducing the chances for tax hikes.

"The [Biden] tax increase was a big potential negative. That is off the table," Siegel said on "Squawk on the Street," despite predicting that Democrat Joe Biden would ultimately beat President Donald Trump.

While the outcome of the presidential election was not clear Wednesday, the odds of Democrats flipping the Senate from Republican control were getting longer and longer.

Without both the Senate and the House in Democratic control, it would be unlikely that a president Biden would be able to pass his proposed tax increases on corporations and capital gains.

Siegel said investors would be reassured if Republicans were to hold on to the Senate.

"That blocks that negative," he argued. "A lot of people that I have talked to say, 'You know what I could really tolerate' — and these are Republicans — 'a Biden presidency as long as the Senate remains Republican.'"

"Your wish is come true, Christmas is early," he said, though NBC News has not called the balance of power in the Senate yet. The House, however, is projected to stay Democratic.

The major stock benchmarks rose sharply by midsession Wednesday, with the Nasdaq gaining over 4% while the Dow Jones Industrial Average and the S&P 500 climbed more than 2.5% and 3%, respectively.

Siegel said that a Biden presidency and Republican Senate would be a net positive for stocks.

"You can go down the list. There's far more things that are positive for the market than negative for the market with this outcome," the professor explained.

Siegel also thinks Biden as president would be able to get Republicans and Democrats on Capitol Hill to compromise on additional coronavirus economic stimulus and infrastructure spending.

"I think the market is really looking at that and saying, 'This ain't so bad," he added.

Siegel has been bullish on the market outlook throughout the campaign, saying in September that 2021 could be a big year for stocks "no matter who is president."