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Three reasons stocks will fall

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By Michael O’Connor, theislandinvestor.com

I can’t recall a time in my career when the outlook was so ‘uncertain'.

I write to clarify my thoughts on the market, but right now, the market noise is deafening.

For me, the economic data points to an obvious slowdown, so my head screams ‘LIMITED UPSIDE’, but my pocket tells me I have been wrong plenty of times before.

Here are three areas I am watching that will dictate where the market goes over the coming months and how you can set up your portfolio accordingly.

1. There is an alternative

Bonds have become a genuine alternative to stocks as the equity risk premium falls.

This is already playing out. More than $100bn has flowed out of stock mutual funds and ETFs on a combined basis over the past 13 weeks, one of the worst flow collapses on record while money market fund flows surge.

The narrative is simple. Why have all your exposure in ‘risky’ stocks if you can get 5% risk-free?

2. Earnings

Company earnings drive the stock market in the long run, and higher interest rates will squeeze margins and lower corporate profits over time.

- In Q4, S&P 500 companies posted an average earnings decline of 4.9% over the same quarter a year earlier. This marks the first quarterly decline since the third quarter of 2020.
- S&P 500 profit margin fell from 13.4% in Q4 2021 to 10.8% in Q4 2022.
- Forward earnings projections have fallen from +10% to +2% over recent weeks - a trend that will likely continue, (some of this is already priced in).

As company profits fall, the price investors are willing to pay to own a part of these companies falls as well.

3. Real Estate slowdown

In the US, 'existing-home sales' have been falling for 12 months straight. January year-over-year sales were down 36.9% and are now at levels last seen during the COVID low and Great Financial Crisis.

Even with supply constraints, housing affordability is far from where it needs to be for demand to return. We need to see either a big adjustment lower in interest rates, a realistic decline in prices or some combination of the two.

In Ireland, the trend is still developing. Europe is behind the US in the rate hiking cycle, so mortgage rates are still relatively low (but rising). The housing market has remained stable as a result.

There have been some signs of a slowdown in activity but no significant price movement. The number of house sales in January 2023 was 11% lower than the same month a year earlier.

However, supply issues and a lower mortgage rate relative to the US mean we are unlikely to see any significant price declines in Ireland just yet.

As rates increase, however, I expect the Irish market to come under the same pressure we are currently seeing play out in the US.

Outlook

As we move forward, the question that determines where the stock market will go changes from:

How high will interest rates go?

to

How long can rates stay this high before something breaks?

In my opinion, any market rallies we see off the back of single data releases will be short-lived - but they will happen.

Long-lasting bull markets require rapidly expanding valuations and/or strong earnings growth. I don’t see a reason for either in the data.

Of course, this is a condensed view. If you want me to help you build out and protect your portfolio, email me mike@theislandinvestor.com or scan the QR code.

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Double celebration for Killarney Valley Classic and Vintage Club

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Double celebration for Killarney Valley Classic and Vintage Club


Members of the Killarney Valley Classic and Vintage Club gathered on Thursday evening for their annual summer barbecue, enjoying a double celebration to mark a major national restoration success.


The event provided a chance for members to toast their second-place finish in the recent AXA Vintage Series Restoration Project. The club successfully restored a 1953 Ferguson 20 tractor in just six months, completing the meticulous work during their regular Thursday evening meet-ups at Upper Lewis Road.
The restored tractor was showcased alongside other entries at the All-Ireland Vintage Show in Wexford, where the display recalled classic farm yards from decades past.
Club PRO Richard O’Donoghue praised the dedication of the men and women involved in bringing the classic machine back to life.
“We are no strangers to restoring a car or tractor, but this 1953 Ferguson 20 was restored in only six months by the hard-working members. It’s amazing how much work our men and women did behind the scenes to get this project done in time.
“This is a prime example of what our Vintage Club gets up to during the winter, especially at the regular Thursday night meet-ups at Upper Lewis Road.”

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New Sunday date for 30th anniversary Historic Rally

The Killarney Towers Hotel Killarney Historic Rally will move to a new Sunday date for its 30th anniversary running. The event is scheduled to take place on Sunday, November 29, […]

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The Killarney Towers Hotel Killarney Historic Rally will move to a new Sunday date for its 30th anniversary running.

The event is scheduled to take place on Sunday, November 29, marking the opening round of the 2027 Irish Tarmac Rally Championship Historic category.

Five-time World Rally Championship event winner Paul Nagle will spearhead the event as Clerk of the Course. The appointment carries personal significance, as Nagle is the son of the late Maurice Nagle, the original founder of the rally.

The first Killarney Historic Rally was organised by Maurice Nagle in December 1996, shortly after the international Rally of the Lakes moved to its permanent May Bank Holiday weekend slot. Having served on the organising committee for the old winter Rally of the Lakes, Maurice maintained that Killarney had the capacity to host a motorsport event during the winter period. Over the last three decades, it has grown into Ireland’s only dedicated event for historic rally machinery, where an overall victory is as coveted as a win at the international event in May. “Taking on the role of Clerk of the Course for the 30th anniversary is a massive honour, but more importantly, it is an opportunity to protect and build upon the legacy my father left behind,” said Paul Nagle. “He believed that Killarney’s classic stages were the perfect arena to showcase historic cars, and he fought hard to establish this. Reaching 30 years of Ireland’s only dedicated historic rally proves his vision was right. We are fully committed to making this anniversary edition a special event that honours his memory and celebrates the history of historic motorsport.”

Nagle has promised a return to the classic Killarney tarmac that defined the event’s early years, confirming that stages such as Ballaghbeama Pass and Caragh Lake will feature on the itinerary for the Killarney Towers Hotel Killarney Historic Rally. Since retiring from professional co-driving in 2023,

Nagle has worked as an FIA Safety Delegate on several World Rally Championship events. Work is now underway to secure a strong field of historic rally cars, with some star names expected to join the Irish Tarmac Rally Championship regulars on the entry list. His experience in event management, combined with his international contacts, is currently being used to attract an expanded entry list. A promotional push is underway to secure a large field of historic rally cars, including several drivers from overseas. The event retains the title sponsorship of the Killarney Towers Hotel and Leisure Centre, located on College Street in the centre of Killarney town. The hotel’s town centre location is highly favoured by rally fans who return each year, having proved to be a popular base since the hotel first took on the role in 2023.

Managing Director of the O’Donoghue Ring Collection and Killarney Towers Hotel and Leisure Centre, Gemma Ring commented: “We are incredibly proud to continue our partnership with the Killarney Historic Rally as we enter our fourth year as title sponsor. This year’s event is especially significant as the rally celebrates its 30th anniversary, a remarkable milestone for one of Ireland’s most iconic motorsport events.
At the O’Donoghue Ring Collection, we have always been passionate about supporting events that showcase the very best of Killarney. The Historic Rally brings together competitors, enthusiasts and visitors from across Ireland and beyond, creating a fantastic atmosphere throughout the town while making a valuable contribution to our local businesses and community.
Congratulations to Killarney and District Motor Club and everyone involved in reaching this incredible 30-year milestone. We look forward to welcoming participants and spectators once again and wish everyone a safe, enjoyable and memorable weekend.”

Full route details and regulations for the Killarney Towers Hotel Killarney Historic Rally will be released by the Killarney and District Motor Club in the coming months.

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