Kass: Obama, McCain Market Scenarios

06/09/08 - 11:59 AM EDT

Doug Kass

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.

Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.
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