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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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Volunteers wanted for street collection

By Michelle Crean October is Breast Cancer Awareness Month and local volunteers are keen to not only raise awareness but also funds. Kathrina Breen, Eleanor O’Doherty and Kathleen O’Shea who […]

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By Michelle Crean

October is Breast Cancer Awareness Month and local volunteers are keen to not only raise awareness but also funds.

Kathrina Breen, Eleanor O’Doherty and Kathleen O’Shea who have been supporting the Irish Cancer Society for many years are delighted to be able to get back to their Pink Ribbon street collection in Killarney town next Friday (October 7).

They are the only group in the country doing the collection as many fundraisers have moved online since the pandemic struck.

“We’re the only town in Ireland doing it this year,” Kathrina, who feels it’s important to keep a street collection going, told the Killarney Advertiser.

“We haven’t done it in two years since before COVID. I pushed to do it as it raises a lot of money. People have been supporting this for years, this money goes towards breast detection equipment, information leaflets in doctors surgeries and towards cancer grants.”

In 2021, donations helped 254 breast cancer patients with free transport to and from 2,380 chemotherapy appointments by volunteer drivers, 154 patients received 514 nights of end-of-life care from Night Nurses and 3,430 enquiries were made about breast cancer through the Freephone Support Line 1800 200 700 and at 13 Daffodil Centres across the country.

And she added that they’re looking for a few volunteers to help out on the day.

“If anyone would like to help they can contact me on 087 2612992.”

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Calls for Council to acquire vacant Rock Road properties

By Sean Moriarty There are calls to make two vacant properties on Rock Road available to Kerry County Council’s housing inventory. The two cottages, one either side of the entrance […]

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By Sean Moriarty

There are calls to make two vacant properties on Rock Road available to Kerry County Council’s housing inventory.

The two cottages, one either side of the entrance to St Finan’s Hospital, are vacant for some time.
Cllr Maura Healy-Rae raised the issue at a recent Killarney Municipal District meeting.

“Regarding two vacant houses at the entrance to St Finan’s on Rock Road which appear to be vacant for a significant period of time. One of the properties is in the ownership of the HSE. I requested that Kerry County Council would liaise with the HSE with a view to potentially acquiring this house,” she told the Killarney Advertiser after the meeting.

“I stressed that it is important that the local authority exhaust all possibilities when it comes to providing more houses, particularly properties located within the town of Killarney where the need and demand for housing is critical.”

Kerry County Council said it would get the Vacant Homes Officer to contact the owner of the privately owned bungalow.

“They will inform the property owner that there is funding available under various schemes and grants to aid the return of this property to habitable use. Such schemes include the Repair and Lease Scheme and the recently launched Croí Cónaithe vacant property grant,” said a Council official.

Cllr Healy-Rae added: “I requested that KCC would liaise with the HSE with a view to potentially acquiring this house.”

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