No matter who wins the White House, analysts see steady rise in stock prices
If anyone is expecting a flood of investment dollars to pour back into the stock market after the presidential election, he is going to be disappointed. ``The market has already discounted a victory by George Bush,'' says Stephen Robert, chairman and chief executive officer of Oppenheimer & Co. ``And even if Michael Dukakis pulls off a surprise upset, the market will probably drop for a day or two and then level off into a wait-and-see attitude.''
In fact, no matter who wins tomorrow, the stock market, like the overall economy in the United States, will show ``slow and steady growth for the period ahead,'' Mr. Robert believes. ``Nothing will happen that's too dramatic.''
He expects the Dow Jones industrial average to finish the year within 100 points of its present level. Obviously, he would prefer it to be on the upside of that equation. For the week ending Nov. 4, the Dow closed down 4.09 points at 2,145.80.
Even though most small investors will probably continue cautiously to sit on the sidelines - as will large institutional investors with their sizable cash hoards - that is not to say they should, Robert says.
``There's lots of money to be made in this market,'' he contends. ``The largest bulk of stocks are very cheap now,'' in terms of price to underlying value.
The broad array of stocks in the various equities markets, he says, ``have been neglected relative to the 100 biggest stocks,'' the popular blue-chip issues that the investment community tends to seek out in periods of economic uncertainty.
Robert is not alone in his upbeat assessment. ``I see the Dow rising to the 2,200 range by the end of the year,'' says Leo Grohowski, director of equity portfolio management at Marinvest Inc.
The one immediate concern is the impact a Democratic victory might have on leveraged buyouts (LBOs) and defense stocks. Mr. Dukakis has been particularly critical in recent days about the LBO fervor, and is perceived on Wall Street as being less favorable toward big-ticket defense programs than Vice-President Bush is. But even if Dukakis were to pull off a come-from-behind victory, says Oppenheimer's Robert, ``he would move quickly to reassure the financial markets.''
``This period presents a tremendous opportunity for the long-term investor,'' says Robert Goodman, senior vice-president and economist at J.&W. Seligman & Co. Mr. Goodman goes so far as to suggest that this may be the ``last opportunity in this century'' for an investor to accumulate earnings from investments ``faster than taxes and inflation'' can take them away.
Goodman's enthusiasm is not totally unexpected. Seligman & Co., after all, manages a wide-ranging and successful family of mutual funds with more than 30 portfolios. But beyond his own interest in seeking a return of the small investor, Goodman believes the underlying strength within the industrial sector, as well as relatively low inflation, adds up to a positive environment for the long-term investor, particularly in equities.
Using a hypothetical situation in which a person has a small bequest to invest, say $100,000, Goodman would put as much as 50 percent in a blue-chip stock fund. He would put another 15 to 20 percent in a managed bond fund, probably a municipal bond fund; 5 to 10 percent in a gold fund; 15 percent in government bonds; and the rest in cash. But Goodman would not ``vote'' for equities in any rash fashion. A firm believer in dollar-cost averaging, to minimize day-to-day gyrations in the market, he would invest the bequest in increments, ``perhaps a little now, a little more some time later,'' to maintain as much flexibility as possible.
If Goodman sees any dangers to the economy - and thus, the market - in the post-election period, they come mainly from the trade front and fiscal policy. He believes the recently enacted omnibus trade bill (which mandates protectionist retaliation against unfair foreign-trade practices) could work against expanding global commerce. Keeping commercial pipelines open, he believes, is essential to ensure continuation of the six-year economic expansion in the US.
On the fiscal front, Goodman worries about Washington's inability to control the federal budget deficit. Those caveats aside, he believes that so long as Washington policymakers allow the market to function efficiently, then the economic environment should make it possible to continue building up assets faster than taxes and inflation can take them away.
One area that will be closely watched in the post-election period is the extent to which foreign investors return to the equities market. That's of no small importance, since foreign investors were a key factor in driving the market upward last year. During the first half of 1987, foreign investors ``boosted US equities at a $40 billion annual rate,'' says David Hale, chief economist at Kemper Financial Services Inc., in Chicago. That added up to 1 percent of the US gross national product, he says.
The key to the return of the foreign investor, Mr. Hale says, will be the policy steps the president-elect outlines in the next few months - and fully details in January, when he formally takes office - to solve the budget and trade deficits.