By Andrew Leckey
Happy days are here again. Well, for somebody.
Behind their colorful banners and raucous cheers, the backers of both President Bush and Sen. John Kerry have uneasy stomachs as this presidential race enters its last lap. Both camps must face the very real possibility that their champion could lose this difficult election.
Toss that political wild card into a Cuisinart of uncertainty that includes the economy, oil prices, terrorism and Iraq, and you can see why the market is treading water like an exhausted Olympic water polo team.
Hang in there. A number of experts expect a market revival later this year - whoever wins the election. But they also caution that investors must choose stocks very carefully from solid sectors.
"You'd think that with oil prices so high, the election up in the air, and Iraq not going particularly well that there'd be a lot of pessimism, but we don't sense that," observed Bruce Bittles, chief investment strategist with Robert W. Baird Co. in Nashville. "Nothing suggests to me that the market has any unfinished business on the downside before we begin to get a leg up later this year."
The Google initial public offering was so widely anticipated and took so long to get to market that it lost any ability to make a significant impact on the market. The market will "wade" through September, historically its weakest month, before doing well after the election on into the second quarter of next year, Bittles predicts.
Baird's recommended growth stocks include BJ Services Co. (BJS) in petroleum pressure pumping and Chiron Corp. (CHR) in health care. For value, it likes Dollar Tree Stores Inc. (DLTR) in discount retailing and Manpower Inc. (MAN) in staffing services.
Market sympathies usually favor the Republican. However, no matter who's in the White House next year, any ambitious initiatives will move at a snail's pace.
"It's hard to make a big macroeconomic bet based on whoever wins the election, since the gridlock in the U.S. Congress means big changes just aren't likely to be approved," observed Greg Valliere, chief political strategist with the Washington research group of Charles Schwab & Co. in Washington, D.C. "However, there would be a change in regulatory policy under Kerry, with Freddie Mac and Fannie Mae likely to benefit because he'd take a less adversarial regulatory stance against them than Bush has."
Valliere, admittedly "with little conviction," predicts Bush will "limp" into re-election with barely more than the necessary 270 electoral votes. Still, Kerry "surely could" still win the race because Democrats have more money than expected and the economy hasn't surged this summer.
For those seeking safe stocks for whichever way the wind blows, Schwab highly rates the stock of Aetna Inc. (AET) in health care, ChevronTexaco Corp. (CVX) in energy, MetLife Inc. (MET) in insurance benefits, 3M Co. (MMM) in diversified industries and McGraw-Hill Cos. (MHP) in information products.
Do Americans have the stomach for this market?
"The rally in 2003 actually got people engaged again in the art of stock investing, which is very positive for the longer term," said Brian Belski, market strategist with Piper Jaffray in Minneapolis. "The stock market and economy are in the early stages of a rebound and a cycle akin to what we saw in the early 1990s."
A fourth-quarter 2004 rally could occur because this is a market driven by the herd and by portfolio managers who fear missing the rally, Belski said.
Well-positioned stocks, in Piper Jaffray's opinion, include Deere & Co. (DE) in agricultural equipment, Cisco Systems Inc. (CSCO) in communications networking, Pacific Sunwear (PSUN) in youth retailing and Affymetrix Inc. (AFFX) in genetic analysis.
"Remember, many things giving investors pause are psychological and short term, and your investment decisions should be for the long term," advised Phil Dow, director of equity strategy for RBC Dain Rauscher in Minneapolis. "Since actuaries say people retiring at age 65 will have a retirement period of 18 to 20 years, why not adopt a more expansive view rather than just the next few months?"
An 8 to 10 percent market rally before year-end is likely, Dow is convinced, so the risk would be waiting until everything is "all clear." High-quality companies should do best.
"Investors should watch what interest rates are doing, to find signals about how fast the Federal Reserve expects to raise its short-term targets," said Geoffrey Somes, senior economist with Economy.com, a research firm in West Chester, PA "If we see interest rates rise a lot faster, it could destabilize the stock market, as well as the bond market."
Investors must acclimate to uncertainty, according to some technical analysts.
"Forget the 'buy and hold' philosophy of the 1980s and 1990s, where you'd hold a stock for five or ten years," advised Ralph Acampora, director of technical research for Prudential Equity Group in New York. "Have in the back of your mind the possibility of holding just a year or two because it will be a cyclical, roller-coaster market for several years."
Still, Acampora expects "a little move up" in the market in 2005 because whenever a president takes office, whether incumbent or first-timer, he usually enjoys a honeymoon period. Large blue-chips are the best bet, he said.
Editor's Note: Andrew Leckey's column appears regularly in The Bull & Bear Financial Report.
