Hey, what gives? Presidential election years are supposed to be up years for the stock market. Since 1992, for example, the S&P 500 has averaged a 7.3% gain in the election year. Not this year, though, as we all know, what with the major market averages down so far in 2004.

But what about the traditional year-end rally? Is that still feasible? Forget it; it’s not going to happen this year, predicts Jeannette Young, a veteran floor broker and skilled equities and commodities trader at the New York Board of Trade.

No, she adds, the culprit is not the spurting price of oil, which has now become a favorite whipping boy and is blamed for everything that’s wrong with the market, but rather an ongoing soft economic recovery that is missing expectations by a country mile.

Aside from interest rate and inflationary concerns, which I’ll get to later on, she points to such economic depressants as lean job growth, sad factory orders, and a declining dollar, which is making American raw material costs more expensive. In turn, she observes, the weak recovery is creating a deep, significant feeling of uncertainty and job insecurity, which have been taking their toll on the market and are likely to continue to do so.

As a result, she believes the stock market – which she views in a downtrend – will turn in a mediocre showing the rest of the year and close about 10% lower than where it is now by the end of the first quarter of 2005. That would imply a drop in the Dow, currently hovering around 9,900, to slightly below the 9,000 level.

Ms. Young, a market out performer who manages about $10 million of equity money for clients (she trades commodities only in her own account), does see a temporary economic blip – a technical term, she said, for an earnings aberration anticipated in this year’s final quarter that will make the economy look better than it is. Attribute it, she observed, to purchases made this year intended to capture favorable IRS allowances of treatments of depreciation expiring at the end of the year and which borrow business from 2005.

Getting back to the slowing economy, Ms. Young sees additional problems arising from a marked increase in foreclosures in modest housing, which she expects will continue. The vultures of the refi-business, she said, have mined the bucks from the pockets of the less fortunate, putting them at foreclosure risk. Adding to the homeowners’ woes, she said, many with excessive credit-card debt have converted that debt into mortgage debt. The problem here, she added, is too much debt and too little income to cover it – which is not what growing economies are all about.

Yet another economic headache: the prospects of more interest-rate boosts. While many pros see the Federal Reserve easing up on further tightening following its recent three rate hikes and September’s disappointing jobs report, Ms. Young is not among them. While unemployment figures may be of concern at the next Fed meeting, inflation, she notes, will also take a seat at the table.

Taking note that dollar-priced commodities are soaring, that the Reuters CRB (a basket of 15 commodities) has rallied to a new 23-year high, and that the dollar’s decline has added fuel to the fires of inflation, she expects further rate increases at the Federal Open Market Committee meetings in November and December.

As for oil, which topped $54 a barrel earlier this week, Ms. Young doesn’t see the price, as some do, eventually retreating to the mid-$30s. People recently said $40 a barrel was too high; now they’re saying $40 is reasonable, she added. Her view: “I don’t see it much lower than $38.”

Summing up her thinking, Ms. Young said, “You have rising rates, higher inflation, and an economy going nowhere, certainly not a good scenario for the stock market. I hope I’m wrong about the decline, but I don’t think so.”

So where should investors put their money? “If I’m going to buy a stock, I want someone to pay me to own it; in other words, it should be a dividend payer,” she said. In this context, she favors Norfolk & Southern, Excel, Hugoton Royalty Trust, and Agilysys.

Ms. Young, who said her clients are averaging gains this year of 20% to 25%, also likes TIPS (Treasury inflation-protected securities), plus selected commodities, notably gold, silver, coffee, and sugar.