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And just like that, everything changed

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By Michael O’Connor

I spoke last week about the fragility of the most recent upward trend in markets.

We are in the interlude between inflation peaking and economic data slowing, a momentary sweet spot if you will.

Well, the interlude is over, and the sweet spot is no more, ground to a shuddering halt by a direct and concise message of intent from Fed chair Jerome Powell on Friday.

“While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation but a failure to restore price stability would mean far greater pain.”

In short, don’t be surprised to see more market volatility and economic pain as interest rates continue to rise in an effort to cool inflation.

Sometimes pain is for the greater good, apparently.

Outlook

After clawing back over 50% of their losses, stocks are at a crossroads.

As we move away from inflationary woes toward economic growth concerns, market uncertainty will most likely result in back-and-forth trading with no clear direction in site.

As I mentioned previously, the V-shaped recoveries we have come to know and love over the last 2+ years are far less likely.

The liquidity and support that fuelled previous reversals are now being stripped out of markets. Fundamentals will continue to be reset to account for this.

Expectations will need to be moderate as we enter a period of slower growth.

My Predictions

None of the major asset classes looks overly attractive in this market over the short term.

Stocks and bonds continue to reset, and the point of entry remains unclear given the risks that remain.

With that said, buyers remain on the sidelines and using any pullbacks as a chance to top up on high-quality stocks with strong free cash flow is advised.

Although fundamentals are being reset as future earnings get revised downwards, many of these high-quality names are more profitable than ever and have the capital on hand to buy-up market opportunities where they see fit.

Funding these purchases by reducing your positions in non-profitable growth is also advised.

Many of the pandemic high-flyers will continue to bleed out.

Supply/demand issues should keep oil prices elevated over the medium term but expect considerable volatility. Some high dividend energy companies should provide some attractive yields in the process.

Bonds continue to add to their allure as the equity risk premium gets reduced, but interest rates have yet to reach their ceiling. With that said, the 10-year Treasury at 3.5% seems like a solid entry point to build up long-term exposure.

While I believe that interest rates will be higher for longer, I don’t believe that rates can remain elevated for very long, making treasuries an interesting investment.

The current aggressive Fed policy that brings interest rates to these higher levels will initiate an economic slowdown that is only alleviated by reducing the very rates that caused the slowdown in the first place.

And round and round we go.

For free weekly stock tips and direct access to my personal investment portfolio, go to www.theislandinvestor.com.

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Artists invited to showcase work at Wine and Art night

It’s back – and not before time – the hugely popular Killarney Rotary Club evening of Wine and Art will return this November. The pandemic enforced its absence and now […]

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It’s back – and not before time – the hugely popular Killarney Rotary Club evening of Wine and Art will return this November.

The pandemic enforced its absence and now every effort is being made to make up for lost time.

Widely regarded as one of the social highlights of the year in Killarney, this year’s gathering will take place in the Great Southern Killarney on Wednesday, November 30, commencing at 7.15pm.

Tickets, which will be available at the door, are priced at €20 and all proceeds raised on the night will go to deserving local charities and community organisations.

Over the years the evening of wine and art has raised tens of thousands of Euro for great causes and the 2022 proceeds will be of enormous benefit to the chosen groups.

This year, once again, the event is being held in association with Daly’s SuperValu and supported by Killarney Brewing and Distilling Company.

Rotary Club President, Rayla Tadjimatova, has appealed to all artists who might like to showcase their work on the night to get in touch with club members, as soon as possible, to guarantee inclusion.

“We are reaching out not only to artists who have supported the event in the past but to any new artists who wish to take the opportunity to place their work in front of a very appreciative local audience of up to one thousand people on the night,” she said.

Those interested should email killarneyrotaryclub@gmail.com as soon as possible.

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Gardai seek whereabouts of missing Kerry teen

Gardaí are asking the public for their help in locating a 15-year-old teenager. Nicolas O’Sullivan has been missing from Ballyvelly, Tralee, since Monday (October 3). He is described as being […]

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Gardaí are asking the public for their help in locating a 15-year-old teenager.

Nicolas O’Sullivan has been missing from Ballyvelly, Tralee, since Monday (October 3).

He is described as being approximately 6ft in height, of a slim build with brown hair and green eyes. When last seen Nicolas was wearing grey tracksuit bottoms and a black hoody top. He was also carrying a black bag.

Anyone with information on Nicolas’ whereabouts is asked to contact Tralee Garda Station on 066 710 2300, the Garda Confidential Line on 1800 666 111, or any Garda Station.

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