Wall Street veteran Art Cashin expects the presidential election cycle to give stocks a boost, but that doesn't mean there's no risks for equity investors in the year ahead.
"It's an election year and that tends to be good for the market, as people are making projections and promises and programs," Cashin said in an interview with CNBC's Bob Pisani. With 60 years of industry experience, Cashin, head of floor trading for UBS, has been one of the most influential voices on Wall Street.
Cashin added that when a sitting president runs for reelection, there's more of an upward bias for stocks during the election year.
"The best of all those historical patterns is when an incumbent president is deciding to go for reelection and he needs a decent economy to back him up," he said.
The market is set to finish 2023 with a bang. The Dow Jones Industrial Average on Wednesday closed above 37,000 for the first time ever, after the Federal Reserve signaled rate cuts ahead. The S&P could soon follow the Dow's suit as it sits less than 2% away from its record high reached in January 2022.
Still, the widely followed trader said high valuations, coupled with a fear-of-missing-out mentality, could be a near-term risk for the market.
"The fear of missing out, the idea that the train is leaving the station … so you begin to ignore multiples and you pay up and that's where bubbles come from," Cashin said. "That is a risk, so we've got to see how the money flows go."
Meanwhile, Cashin believes there are still lingering problems in the banking system, particularly in commercial real estate. In March, the collapses of Silicon Valley Bank and Signature Bank — the second- and third-largest bank failures in U.S. history, respectively — prompted extraordinary rescue action from regulators.
"It gets lopsided and what could happen is they feel the pressure. Liquidity is drying up. It wasn't so long ago, last March, we had three banks go out in the snap of a twig, and because we talk about the new age, things are coming along," Cashin said.
AI bull
On the white-hot trend of artificial intelligence, Cashin said it could have the potential to change the game for marketing and help grow the economy to a large extent.
"I think AI will ultimately prove to be as strong as the invention of the wheel. Everybody concentrates on the chips. But people like Walmart or Amazon, they will use artificial intelligence to find a way of marketing and marketing more directly to their customers," Cashin said.
The AI boom powered a strong rally in Big Tech this year, giving the broader market a lift. Key player Nvidia saw its share price more than triple in 2023, topping a $1 trillion market capitalization during its advance.
"They will anticipate the needs in a more correct manner. And therefore, the economy as a whole can grow dramatically. If we can get past all these other liquidity problems, and we let artificial intelligence begin to run full out, we're moving to a different world," Cashin said.
