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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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Camera club returns after summer break

Killarney Camera Club will begin its new autumn season with an open night in The Brehon Hotel on September 28. This is the first meeting since the club broke up […]

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Killarney Camera Club will begin its new autumn season with an open night in The Brehon Hotel on September 28.

This is the first meeting since the club broke up for the summer – new members are invited to attend the open meeting later this month .

“Our final competition of the last season was our Open Print competition in June, and 20 unique and enthralling prints were on display in The Brehon on the night. Well done to everyone who put in the time, effort and expense to enter the competition. Thanks also to the many members who were involved in the logistics of bringing the season’s end competition to fruition.,” said club secretary Deirdre O’Donoghue.

“Throughout the year we hold a series of zoom meetings, fortnightly, and also have many in-house presentations of guest speakers , in their respective areas of photographic expertise , as well as occasional photographic outings throughout the club’s calendar year.”

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Kilcummin Comhaltas CCE launches trad music initiative

A new initiative from Kilcummin Comhaltas Ceoltóirí Éireann in association with Conor Moriarty sees the branch offer group music classes for those interested in traditional playing. Conor is combining with […]

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A new initiative from Kilcummin Comhaltas Ceoltóirí Éireann in association with Conor Moriarty sees the branch offer group music classes for those interested in traditional playing.

Conor is combining with the branch to gather musicians form beginner to advanced to give the ultimate group music experience.

“Its a great chance for newer players to learn from Conor, who himself is a champion musician but also from the other musicians that will attend the group in what undoubtedly will also offer a social outlet to all involved,” said Derek O Leary, PRO of Kilcummin Comhaltas CCE.

Conor has enormous previous experience. He is one of Irelands leading accordion players starting his playing career at the age seven. In 2009, Conor was crowned All-Ireland Champion on Melodeon at Fleadh Cheoil na hEireann and followed that up by becoming senior All-Ireland accordion Champion in 2010.

He also completed his MA in Irish traditional music performance at University Limerick that same year. He has worked professionally with many organisations including Siamsa Tire and more recently Gaelic Roots the show. He is also a much sought after music teacher where he has always enjoyed passing on his knowledge to the next generation.

The group sessions start on September 27 for an initial five-week term from 6.30 pm to 7.30 pm in Kilcummin Rural Development Office.

For further details contact Conor on 087 9698063

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