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Looking Ahead With Hope and Trepidation

One day left until we find out who will occupy the White House for the next four years. Whoever it is, he will inherit a mess. Campaign promises will have to addressed before they're discarded. The rescue/bailout has to be implemented, and more important, paid for. And there will be pressure from all around to re-regulate the markets.

Most of this will likely take many quarters to sort out, so I anticipate volatility in the markets early on. My hunch is that government will grow in size and grow in scrutiny as it prints itself trillions of dollars to work with. Over time, analysts will simply take it for granted that big government is here to stay.

The volatility in the markets will eventually give way to steadying yet directionless markets. September is known as the weakest month for the S&P, and it did not disappoint, with futures opening the month at 1282 and closing at 1169, a loss of 8%.

October is known for its "crash" tendency ... and it too did not disappoint, with a drop from 1169 to 834 on Oct. 27, a 28.7% fall in four weeks.

Looking back on two years with similar profiles -- 1987 and 1929 -- we get a glimpse of what we might expect for the rest of the year and further. Both prior years, the market ( Dow) was higher from the October crash lows by year-end. In 1987, the market came back 39% by year-end; in 1929 the Dow managed a 25% recovery from the lows seen during the October free fall.

So sitting with a 19% gain from the October lows leaves room for upside going into the last two months of the year.

November has averaged 0.9% gains since the S&P has traded; the best month of the year? December. The market manages a 1.5% gain on average during the last month of the year.

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