Kass: Obama, McCain Market Scenarios

This blog post originally appeared on RealMoney Silver on June 9 at 7:25 a.m. EDT.

Over the next few months, the outcome of the November 2008 presidential election will importantly influence the U.S. stock market.

Currently, Senator Obama has a relatively clear lead over Senator McCain in most of the polls, but, as we have learned over the past six months (e.g., in the Obama/Clinton Democratic primary contest), almost anything can and usually does happen.

I have written generally about what a Democratic or Republican win might hold for equities. Today, I will attempt to forecast possible and more specific outcomes for the senior averages -- namely, the S&P 500, which today stands at 1,360.

Below, I have linked the political outcomes with the price of crude oil (a total of four scenarios), as the cost of energy products must be considered hand-in-hand with politics these days! (I have assumed that the Fed is on hold for the balance of the year, the U.S. dollar is range-bound and is relatively unchanged and that corporate profits are slightly below today's optimistic expectations in all four scenarios.)

1. If Senator McCain wins the presidency and crude remains above $110 per barrel, then my S&P 500 forecast is 1,325 to 1,400.

2. If Senator McCain wins the presidency and crude is below $110 per barrel, then my S&P 500 forecast is 1,450 to 1,500.

3. If Senator Obama wins the presidency and crude remains above $110 per barrel, then my S&P 500 forecast is 1,225 to 1,300.

4. If Senator Obama wins the presidency and crude is below $110 per barrel, then my S&P 500 forecast is 1,300 to 1,350.

(Note: Again, the S&P 500 currently stands at 1,360.)

I fully recognize that there is more to the market's riddle than politics and oil, but, from my perch, unless the cost of crude declines to below $110 per barrel, well, even the permabulls will recognize that fourth-quarter 2008 real GDP (which is already growing slowly) could slip into negative territory under the weight of higher energy costs and could serve to provide a challenging environment for corporate profits.

Doug Kass is the author of The Edge, a blog on RealMoney Silver that features real-time shorting opportunities on the market.

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