Prominent stock-market bull Jeremy Siegel says the best bet in a severe market downturn may be owning 30-year U.S. government paper.
“If something happens, they will go up if the stock market goes down 500 points,” University of Pennsylvania economist and professor of finance at the Wharton School of Business told CNBC during a Monday interview.
Siegel, who is known for his ultrabullish calls on U.S. equity markets—he predicted that the Dow Jones Industrial Average would hit 20,000 at the end of 2015—isn’t offering a forecast of a market crash.
But he does believe that the 30-year long bond TMUBMUSD30Y, +2.00% which bears a yield of about 3.01%, compared with a yield of 2.01% for S&P 500 index SPX, +0.33% stocks and a yield of 2.33% for the 10-year benchmark Treasury note TMUBMUSD10Y, +1.93% would be a compelling investment for investors. Bond prices move inversely to their yields.
Siegel’s comments come as lofty equity valuations and a recent spate of lackluster economic reports have raised questions about the sustainability of U.S. equity benchmarks’ rally, which have gained on the back of promises of tax cuts and other pro-growth stimulus pledges from President Donald Trump. Bond yields, however, have been hanging around relatively low levels, despite plans by the Federal Reserve to normalize interest-rate policy off ultralow levels—a plan that should nudge yields higher.
On Monday, tech-heavy Nasdaq Composite Index COMP, +0.76% which touched the psychologically significant level of 6,000 just last week, hit a fresh intraday record of 6,086.37, suggesting that appetite for assets perceived as risky remains healthy. Technology stocks are viewed as a proxy for risk appetite.
Meanwhile, the S&P 500 index SPX, +0.33% is about 5 points from its previous closing high set on March 1 and the Dow Jones Industrial Average DJIA, +0.04% has been holding steady gains, on the back of Apple Inc.’s AAPL, +2.12% all-time trading high set during the session.