NEW YORK (CNNfn) - At the risk of being called a Johnny-One-Note, I feel compelled to reiterate my view that the unsettled presidential election has been the overwhelmingly key factor keeping the stock market from staging its usual November-December rally.|
Sure, a barrage of warnings from key technology companies has done a good deal of damage, particularly to the Nasdaq composite index, which at its intraday low the other day was down halfway from its record high set in March.
Those tech stocks are not going to reach their old highs any time soon, particularly as personal computer sales slump worldwide and capital spending for technology is hit by a slowing economy. But they will take part in a rally, nonetheless.
The big winners will be those blue chips that make up most of the Dow Jones industrial average. Once the presidential election is finally resolved, they're going to lead the Dow to new heights, and I'm sticking to my prediction of 12,000 before the end of January.
(Not many months ago, I was looking for 12,000 by the end of this year, but who could have dreamed that four weeks after Election Day we still wouldn't know who the next occupant of the White House would be. So I've moved my forecast to the end of January. That assumes, of course, that we'll have a president well before then.)
On Tuesday, I felt really great about my prediction when -- after Alan Greenspan spoke and there were signs favorable to a quick Bush victory -- the Dow shot up spectacularly, gaining 338 points to close at 10,898. That put me just 1,100 points, or 10 percent, away from my goal of 12,000. And the Nasdaq did even better in relative terms, with its biggest one-day gain, a 10 percent surge.
Wednesday, of course, was a big give-back day, and Thursday was a relatively minor loser, as the presidential picture remain muddled.
There are a number of reasons for my bullish view. The economy is indeed slowing. But that's just what the Fed chairman and his colleagues wanted to accomplish with their string of six interest-rate increases. And I anticipate a soft landing, rather than a hard one. This week Greenspan acknowledged that the Fed is aware of the slowdown and signaled that it's ready to start lowering interest rates to soften the blow.
That -- along with the drop in the yield on long-term Treasury bonds and lower crude oil prices despite Iraqi sabre-rattling -- is encouraging for the stock market. And finality in Florida will remove the biggest overhang to the market.
However, it would be wrong to ignore negative developments, notably the likelihood that a slowing economy means lower corporate earnings.
Technology companies will be under special pressure, witness their recent spate of earnings warnings. Overall, though, I don't expect the drop in profits to be that drastic.
Also keep in mind that companies with some bad news in the offing frequently take advantage of this kind of atmosphere to get their warnings out as well.
Another negative is that the tremendous decline in stock market wealth will translate into diminished consumer spending, particularly during this holiday season.
The bottom line, though, is that once the presidential election is resolved, the stock market, along with the rest of the country, will be thoroughly relieved and will go about its business as usual. And on Wall Street, I think business as usual means a year-end rally.