Based on its traditional election year performance, Wall Street should prosper in 1992.
The stock market generally does poorly the first two years after a presidential election, then revives and turns in an excellent showing in the third year.
The fourth year of a president's term is typically a good one for the market, though not as strong as the third.
"Looking at historical precedent, 1992 should be a good year for stocks," said A. Marshall Acuff Jr., portfolio strategist for Smith Barney, Harris Upham. "The period between spring and fall should be the strongest for the market this year, though events can certainly come along to change the timing and magnitude of change."
There likely will be gyrations based on the relative popularity of presidential candidates on the road to the November elections. It's no secret that Wall Street tends to prefer Republicans.
"The only year in which there was an extreme market reaction to the presidential election was when Jimmy Carter defeated Gerald Ford," recalled Michael Sherman, portfolio strategist with Shearson Lehman Bros.
"The market had a momentary rally, then collapsed because Wall Street didn't like the things the new president was saying."
Many analysts believe the market is already taking into account the likelihood of a victory by President Bush, and will react only if that possibility is endangered.
Right now, the president's budgetary proposals have the greatest impact and Wall Street hasn't exactly done handsprings since they were released.
"If the Congress enacts what Bush has proposed, it will reinforce what is expected, and that is a revival of the economy in the second half," Mr. Acuff said. "However, it still won't be a booming economy and the real key to recovery will be monetary policy and low interest rates."
Mr. Acuff predicted a moderate 10 percent increase in the stock market's total return. His model portfolio is 60 percent stocks and 40 percent bonds.
Among growth companies, he liked Glaxo Holdings, Merck & Co. and Syntex Corp. From medium-sized companies, he selected Wendy's International and VeriFone Inc. Growth cyclicals include Boeing Co. and Fluor Corp. Housing industry favorites are Centex Corp. and Masco Corp. He liked the stock prices of International Paper and Stone Container.
The Dow Jones industrial average should reach 3,700 within the next 12 months, Mr. Sherman said. However, if the market starts moving upward too quickly, he'd recommend selling because it may be headed for a correction. His model portfolio is 60 percent stocks, 35 percent long-term Treasury bonds and 5 percent cash.
Banking stocks are Mr. Sherman's favorite way to play the economic recovery, particularly Banc One Corp., BankAmerica Corp. and Bankers Trust. In basic industries, he suggests Sherwin-Williams and Armstrong World Industries. Technology choices are Adobe Systems and Microsoft Corp. Consumer cyclical picks are Bandag Inc., Carnival Cruise and Club Med Inc., while consumer stable choices are Brown-Forman and Archer Daniels Midland.
As recovery unfolds, Mr. Front expects the best performance from growth cyclicals Walt Disney Co., Limited Inc., Toys R Us and Dillard Department Stores. In health care, his choices are Abbott Laboratories, Johnson & Johnson, Bristol-Meyers Squibb, and Pfizer Inc. From foods and tobacco, he recommended Coca-Cola Co., PepsiCo Inc. and Philip Morris Cos.