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A bird in hand is worth two in the bush

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By Michael O’Connor

Inflation was already at its highest level in four decades before war broke out between two countries that are vital to the global supply chain.

This unrest has undoubtedly impacted any transient outlook for inflation over the short term, putting further pressure on the Fed to take immediate action to tackle inflation.

As hopes for a ceasefire fade and a war of attrition unfolds, these inflationary pressures look set to remain, increasing the likelihood of a policy misstep by the Fed.

While the probability of a recession has increased over Q1, the strength of the US household balance sheet and company profit margins make it difficult to be ultra-bearish.

If we do experience an economic contraction, it will occur in the face of the strongest job markets on record, the highest corporate earnings since the 1950s and the most robust consumer balance sheet in history.

Labour Market Strength

Despite the surge in unemployment following the pandemic, we are now essentially back to pre-pandemic unemployment levels.

More importantly, the pre-pandemic high for job openings in the US was 7.5 million. We're now sitting at more than 11 million job openings in the US.

US Unemployment Rate

US household net worth is now more than six times annual Gross Domestic Product (GDP), driven predominantly by rising asset prices, increased savings rates, federal support and wage growth. This household wealth can drive consumer demand and company profits into the future.

Corporate Earnings

S&P 500 earnings per share jumped 35% in 2021, making it the most profitable year for American corporations since 1950.

In every quarter of 2021, US corporations' overall profit margin remained above 13%; a level reached during only one previous quarter in the past 70 years.

While ultra-forgiving 2020 comparison stats lend themselves well to record-breaking year-over-year stats in 2021, the point remains - US companies boast resilient profit margins supported by a robust US consumer.

Where to Invest

Volatility is likely to remain as we enter into Q1 earnings season.

Netflix has already shown how unforgiving the market can be. Two disappointing earnings reports have resulted in two consecutive 20% declines as this previous market darling becomes the poster child of growth stock volatility.

Similar growth names are likely to come under continued pressure over the short term as interest rates rise, so don't attempt to catch the falling knife just yet.

'A bird in hand is worth two in the bush' explains the waning allure of growth stocks quite nicely. Simply put, as inflation eats into the value of money, investors look to companies with cash flow heavy balance sheets already in place instead of those promising these cash flows in the future.

Again, short-term equity exposure should be aimed toward companies that can pass on rising prices to consumers without disrupting their net margins. This trend has played out across higher inflationary periods in the past, namely the 1940s and the 1970s.

The Final Word

The market will remain choppy as investors digest the Russia/Ukraine war, high inflation, and a hawkish Fed but economic growth and earnings trends remain healthy. And if inflation can moderate over the year, assisted by higher base rates, it may allow the Fed to take its foot off the gas.

For the full market outlook, visit theislandinvestor.com.

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Local crews prepare for Assess Ireland Rally of the Lakes

Killarney and District Motor Club members are out in force for this weekend’s Assess Ireland Rally of the Lakes, with several local names expected to challenge for top honours across […]

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Killarney and District Motor Club members are out in force for this weekend’s Assess Ireland Rally of the Lakes, with several local names expected to challenge for top honours across all categories.

At the head of the field, Muckross co-driver Noel O’Sullivan and driver Callum Devine are chasing an unprecedented fifth consecutive win in Killarney. The Skoda Fabia RS Rally2 crew leads the entry list and aims to reclaim the championship lead. Other local interest in the top ten includes Rockfield co-driver Shane Buckley, navigating for David Kelly, and Milltown co-driver Ger Conway, who joins Daniel Cronin in the hunt for a podium finish.
The modified section features a heavy local presence. Robert Duggan returns in his Ford Escort Mk2 for his first outing since October, setting up a highly anticipated battle with the returning Conor Murphy. Further down the order, Glenflesk-based crews Denis Hickey and Eoin O’Leary, along with Dave Slattery and Denis Coffey, return to their home international event.
Family ties remain central to the local entry list. Charlie Hickey is joined by his son Cathal, who makes his debut as a co-driver, while John and Michelle Hickey form a father-daughter team in their Mitsubishi E9. Pat and Tara Looney are also competing as a father-daughter duo in their Ford Escort.
Experience and new machinery are both on display this weekend. Noel O’Sullivan and Nicholas Burke represent the longest-serving crew with over 30 starts each. Meanwhile, Tadhg O’Sullivan and Kevin O’Donoghue bring high-powered machinery to Class 14.
David Randles will also be fighting for class honours in a Peugeot 208 R4.
In the Historic category, Fergus O’Meara faces a race against time to have his BMW M3 ready following an engine rebuild. He will compete against former winner Mark Falvey in a Ford Escort RS1600 and Paul Ahern in another BMW M3. The Junior rally features two Kerry crews, with Jaden Leane and Padraig Devane leading the charge in a Honda Civic, while Conor Horgan and Aaron O’Halloran compete in their second-ever rally

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Kerry tourism facing ‘uncertainty’ as global aviation crisis threatens visitor numbers

A Kerry TD has warned that the county’s economy is under threat as international aviation challenges and rising fuel costs begin to impact overseas visitor numbers. Speaking in the Dáil […]

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A Kerry TD has warned that the county’s economy is under threat as international aviation challenges and rising fuel costs begin to impact overseas visitor numbers.

Speaking in the Dáil this week, Deputy Michael Cahill (FF) told the Minister for Enterprise, Trade and Employment that “nervousness” is growing across the sector. He warned that global instability, particularly in the Middle East, is driving flight cuts and surcharges that could leave peripheral regions like Kerry “exposed.”

“Tourism in Kerry is the lifeblood of our local economy,” Deputy Cahill said. “From Killarney to Dingle, thousands of jobs depend on a stable flow of overseas visitors. That stability is now under threat.”

The Deputy highlighted that the Irish Tourism Industry Confederation (ITIC) has already signalled that earlier growth projections of 5% to 7% for this year are unlikely to be met. He noted that Lufthansa has already announced 20,000 flight cuts globally, while Aer Lingus has seen reductions.

Regional Vulnerability
Minister Peter Burke (FG) acknowledged the challenges, noting that 90% of Ireland’s inbound connectivity depends on air access. However, he pointed to a new tourism policy, A New Era for Irish Tourism, and a €400 million capital plan over the next five years designed to enhance the “value proposition” for visitors.

“We have had strong growth this year,” Minister Burke said, “but we recognise that geopolitical instability can have implications. We are working with airlines to ensure they don’t just consolidate routes.”

Calls for Kerry Airport expansion
Deputy Cahill argued that a “one-size-fits-all” approach would not work for the South West, noting that international visitors to Killarney and Kenmare cannot be fully replaced by domestic tourism.

He specifically urged the Minister to prioritise regional air access and called for the introduction of new flight routes to Kerry Airport from Belfast, Barcelona, and Amsterdam to offset potential losses from other markets.

“Kerry is a premium destination but also a peripheral one,” Cahill said. “If flights become more expensive, visitors often choose alternative destinations entirely. We need proactive measures to protect our regional airports.”

Minister Burke confirmed that new viability mechanisms and VAT supports will kick in on July 1, alongside “strategic air activation schemes” to market new flights as they become available. He committed to working with Kerry representatives to ensure the “Kingdom” benefits from the €400 million investment fund.

Michael Cahill TD with former Kerry Airport CEO John Mulhern

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