AGAINST the backdrop of a potentially acrimonious and close presidential election, the United States stock market is clearly feeling the blues. The market is beset by rising concerns over the slumping dollar, high unemployment, low consumer confidence, lower-than-expected corporate earnings, and the lack of an aggressive fiscal policy from Washington to stimulate the economy.
"The economy's not picking up steam and that leads to confusion in the stock market," says Hildegard Zagorski of Prudential Securities Inc. In recent days, she notes, the market has been on a roller coaster, "up one day, down another" - with the trend more down than up in trading sessions. "Frankly, it's not a pretty picture out there for investors," Ms. Zagorski says.
Amid the current doldrums in the market, financial experts say certain stock sectors are expected to outperform the overall market over time. In particular, stock technicians are looking at certain economic sectors that should do well in 1993 and beyond under either a reelected Bush White House, or a Bill Clinton White House. These sectors include health care, utilities, banking, metals, and most importantly smaller growth companies that do well over time.
But determining which companies or sectors will do best requires a "bottom-up" approach to the market, says Ronald Schroeder, managing director and chief investment officer of J. & W. Seligman & Co., an investment house. That means looking at companies on a "case-by-case" basis, Mr. Schroeder adds.
Schroeder says there is currently "no fiscal engine of growth" out of Washington. He is concerned that the White House appears even to be pulling back from its main economic proposal - lowering the tax on capital gains.
Looking ahead, Schroeder says the market will continue to reflect the current low-growth economy, although he expects the economy will pick up steam late in the year. He sees the Dow Jones industrial average - which is now in the 3200 range - inching up about 7 percent this year, to the 3400 to 3500 range by the end of 1992. The Dow, however, comprises large blue-chip firms, many of which have been forced to restructure operations, such as IBM and the auto companies. Schroeder sees greater gains on the b roader market - measured by indexes such as the Standard & Poor's 500 and NASDAQ, which lists over-the-counter companies.
Schroeder says growth stocks will replace cyclical issues - which were fairly consistent gainers earlier this year - as stocks to watch in late 1992 and going into 1993. Companies that do well, he says, will be firms that "are adding to productivity," have sizeable market share, and are turning in good earnings gains relative to stock price. Examples include Dillard Department Stores and Toys `R' Us in the retail sector, Philip Morris in the consumer/foods area, and Microsoft in high tech.
TECHNICIANS for Kidder, Peabody and Co. note that the leadership component of the market now belongs to "growth issues." Sectors showing this strength, Kidder concludes, include regional and money-center banks, toys, restaurants, automobiles, metals and aluminum, chemicals, and electric power. Emerging sectors - areas starting to show strength - include insurance companies, telephone firms, gold mining stocks, and savings and loan associations.
Dennis Jarrett, who heads up technical analysis for Kidder, says that despite slow economic growth, stocks remain in a long-term bull market. And ironically, he argues, the gloom and doom heard about the US economy should be a positive factor for equities - since their performance often moves in reverse direction to public sentiment.
Mr. Jarrett predicts that the market will continue to do well because there are no real alternatives for investors; bank certificates of deposit and money market accounts pay modest interest rates; precious metals, including gold and silver, are down. So too is the real estate market, including residential housing.