Election Year Planning: Expect the Unexpected
By Saghir 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 in security and dignity and fulfill their religious and moral obligations towards charitable activities.)
Election year, usually, is unpredictable. However, we have found that generally most of the time stocks perform better after election. This also depends on the election. What party came to power will definitely have an impact.
What I have shared with your multiple times, and I am going to repeat again, is always do your homework, make sure you do complete research, checkout the different options regarding the election, checkout the last 10 years and see how the stock market performed little bit before election and also after the election.
You may also want to see and check when the stock market was higher - was it during the Republican or the other way around when the Democrats were in power.
Once you have done all above you will be in a much better position to invest this year.
US equities decline in troubled economy; foreign markets retreat.
The board domestic equities market lost ground during the quarter as worries about the US economy grew. In the retreating market, large cap stocks outperformed small-cap stocks, and value stocks surpassed growth stocks.
A number of factors brought equities down, including the widening US credit crisis, falling home prices, declining consumer discretionary spending, rising unemployment, plummeting consumer confidence, soaring energy prices, and a slowing economy. These factors contributed to the growing conviction among economies that the economy had slid into recession.
Non-US markets in all parts of the world also suffered losses for the quarter – a dramatic reversal from their collectively strong 2007 performance. Emerging markets, which has surged during 2007, generally posted the worst declines many economists believe that market struggles cropping up outside the US indicate the domestic financial crisis is spreading globally.
Treasuries again lead broad fixed-income market
With investors continuing to seek safety, US. Treasuries continued to dominate quarterly returns. The cash flow into Treasuries – coupled with the Federal Reserve’s (the fed) aggressive actions to alleviate the widening credit crisis – helped drive Treasury prices higher.
For the quarter, high-yield bonds delivered the worst returns. The sector was battered by Treasuries and was significantly outperformed by investment – grade bonds, as investors showed their unwillingness to take on the additional risk high-yield bonds carry. Asset-backed securities – which carry broad exposure to mortgages and consumer credit – significantly underperformed versus Treasuries. Commercial mortgage-backed securities also underperformed, as investor concerns regarding residential real estate spilled over into the commercial real estate sector.
REITs, large-cap value lead Portfolio performance
The portfolio’s real estate investment trust (REIT) exposure contributed to performance, as REITs proved to be the only equity class within the Portfolio that delivered a positive return through quarter end. Also, the Portfolio’s large-cap value exposure was a primary contributor due to the out-performance of these holdings relative to both their asset class benchmark and the S&P 500. On the fixed-income side, the Portfolio benefited from its allocations to cash the high-yield corporate bonds, as equities in general underperformed fixed-income securities. Absolute performance of the Portfolio’s large and mid-cap growth and non-US (Developed market) equities were the primary detractors.
US economy struggles as credit crisis spreads and inflation rises
The market turmoil that began with sub-prime mortgages last summer intensified during the first quarter, spreading to other US credit markets. Stocks, with very few exceptions, continued to falter as the credit crisis expanded to hit higher-quality mortgages.
Meanwhile, inflationary pressures mounted, and the economy slowed. Oil price skyrocketed and commodities in general surged. Rising oil prices tend to encourage inflation because they raise the cost of producing goods and services; however, rising oil prices can dampen the economy at the same time by investment.
(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.)
