A Classic Recession
By Saghir A. Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live with dignity and fulfil their moral obligations towards charitable activities).
If we are already in a recession, it remains a very mild one. And for it to end happily, this scenario assumes that inflation will soon drop sharply, enabling the Fed to cut interest rates instead of continuing to raise them.
The latest inflation readings haven't been cooperating. And a mild recession that fails to squelch high inflation would not be welcome in the bond market.
If a recession of some kind is going to take place, as seems likely, it won't help anyone if it's not severe enough to return the economy to low inflation,
“I am afraid it’s best to get the pain over and done with now, and get inflation under control quickly”. Sadly, “People may have to be put out of work for that to happen."
Perversely, a severe downturn would be bullish for bonds, which have lost value this year as yields have risen. They would benefit from falling interest rates and a flight to safer assets.
In a major recession, companies would post losses and the stock market would suffer. But if the downturn were fairly brief, and an economic recovery came soon, stocks could rally even before bond yields started falling.
The long view
Eventually, in any of these narratives, inflation would recede, and the Fed would start to lower rates.
We don't know which, if any, of these outcomes is most likely. And because no one has been able to reliably identify major shifts in economic cycles in real time, a bull market in stocks could begin at an unlikely moment. You don't want to miss out on rallies, and if you can't predict when one will occur, you may want to hold stock even when the market is falling.
You will have to do your own homework, your own research, and do it thoroughly to make sure you consider to look at all the facts and the movements of the stock market in different sectors. This is not an advice but as far as I am concerned, I have started buying stocks carefully and very slowly. I’ll possibly get more active after the November election but at this point we must be very careful and continue with our research and homework, before investing money in the stock market.
The numbers are impressive. Since 1928, the first month of a bull market has, on average, produced a 15.2 percent gain; for the first three months, the gain has been 31.6 percent, stock surges have often begun when the outlook was bleak.
Fundamentally, maintaining a bullish viewed assumes that history will be a useful guide, that the markets will recover and that their long-term trajectory will be upward. It assumes that pain now will lead to better prospects down the road.
There is no guarantee that this will happen, but I wouldn’t bet against it.
In conclusion
As I have written above, I have decided I am going to start putting money in the stock market slowly but consciously and if I have done proper homework with the blessing of Allah ST, in the next 5 to 10 years we will end up with handsome profit InshAllah. Once again, you will have to do your own homework and research before you invest a single penny.
This article has been written in collaboration with Walt Hommerding, senior vice president investment of Wells Fargo.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds, or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
