Tech stock investors are positioned for a 'win-win' outcome regardless of recession risk, Wharton's Jeremy Siegel says

• Jeremy Siegel said the surge in tech stocks shows investors are positioning for a "win-win" outcome. 
• As long-duration assets, tech may be less exposed to a growth slump, and may benefit from interest-rate declines.
• Siegel called the Fed's aggressive anti-inflation rhetoric a "war on growth", doubling down on his calls for a downturn.

The stunning rally in US tech stocks shows investors are betting on a "win-win" outcome – where the sector does relatively well regardless of what happens in the wider economy, according to markets guru Jeremy Siegel.

Market participants think of tech shares – considered as long-duration assets that generate much of their cash flows in the far future – as relatively less vulnerable to an economic downturn, the retired Wharton finance professor told CNBC.

Furthermore, a recession could prompt the Federal Reserve to lower interest rates to support the economy – and that would be even better for technology shares, he added.

"Tech investors – it's a win-win for them," Siegel said. "They say, listen, it's a long-end asset – if we have a recession, you know, tech is mostly immune. And, if we have a recession, the Fed will stop raising interest rates, maybe lower interest rates - that's really good for the long-lived assets that we have."

"So, everyone's plowing into tech because they say that it's a win-win no matter what happens to the economy," he added.

Tech companies have led an impressive rally in US equities this year, buoyed by bets that the Fed is close to ending its interest-rate increases, as well as investor excitement over the rise of artificial intelligence. The tech-heavy Nasdaq 100 index has jumped 39% in 2023, buoyed by triple-digit gains in names such as Nvidia, Meta Platforms and Tesla.

The benchmark S&P 500 index has advanced 16% so far this year.

'Make the trend your friend'

The market's strong positive momentum suggests equities may extend gains – despite the risk of an economic slump – unless some economic or company data leads to sharp investor disappointment, according to Siegel.

"It can continue a lot longer," he said, referring to the stock-market rally. "Really, the momentum is still there. I think it's going to take a real, weak economic report or some earnings that's the really the opposite of what we thought, really a disappointment to shake it."

Usually, it takes a couple of pieces of disappointing economic or corporate news to break a rally, but there hasn't been any so far – so it's probably best to play along with the market, Siegel suggested.

"So, one of the oldest sayings Wall Street's got – make the trend your friend," he added.

Fed's 'war on growth'

However, the economy still faces downside risks in the second half of the year, especially with the Federal Reserve keeping up an aggressive anti-inflation rhetoric even though recent data has underscored a cooling trend in prices.

"You know I've been warning about the Fed overtightening. What really confuses me is, since the meeting two and a half weeks ago, every single inflation indicator has come in at or below expectations. And yet, the rhetoric of the Fed has gone even more aggressive."

"It's like a war on growth – oh, we can't have this much growth. And I think that's a very dangerous way to look at the economy."