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Proceed with caution

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By Michael O’Connor, theislandinvestor.com

Stock Market Surge

Last week we saw a considerable rally in the stock market. On Thursday, lower-than-expected inflation figures were well received, resulting in the largest one-day rally in over two and a half years.

Although US inflation remains near its highest level since the early 1980s, the latest monthly Consumer Price Index report brought some relief. Inflation rose at an annual 7.7% rate in October - down from 8.2% in September. This was enough to push the NASDAQ up more than 8%, while the S&P 500 added 6% for the week.

So as improving inflation numbers push markets higher, should investors be jumping in headfirst to avoid missing yet another market rally?

Not quite.

Not Out of the Woods Yet

In the last two years, we have seen rapid market recoveries play out at breakneck speed as Monetary support, ultra-low interest rates, and fiscal stimulus all conspired to drive markets higher.

In simple terms, when money is free, and governments are hell-bent on continuously printing more and more of it, asset prices increase.

This exuberance pushed prices and valuation multiples to questionable highs. Now, however, the money printer has been turned off, and interest rates have increased dramatically, leaving us in a far less supportive environment. Unsurprisingly, asset prices have fallen accordingly.

This recent pullback has stripped out much of the excess from markets, leaving stocks trading at much more attractive prices.

Household names such as Google, Microsoft, Amazon, Tesla, Disney, Nike, Netflix, and Facebook have fallen between 30% and 75% in recent months. Now, the entry points into some of the best companies in the world are much easier to digest. This is welcome news for investors with a long-term outlook. But over the short term, it is vital to realise that many of these names are trading lower for a reason.

It can be tempting to assume that we will return to all-time high valuations now that inflation is starting to turn and markets have stripped out much of the excess in valuations. However, as we stare down the barrel of falling earnings, slowing economic activity, a less supportive monetary policy and persistent inflation, it would be naive to think that it’s all upside from here.

The positive momentum from last Thursday’s inflation print will fade, leaving market participants wrestling with the looming recessionary pressures.

Taking all the above into consideration, I believe the stock markets will remain within the 10% range it has traded in over the last month. This is likely to result in volatile horizontal trading over the coming weeks and months as positive moves due to falling inflation give way to market declines as earnings growth continues to slow.

Summary

The market appears to be moving past its overwhelming obsession with inflation, but unfortunately, this paves the way for all new worries. The slowing economic activity that is allowing inflation to fall in the first place now becomes enemy number one. Softer demand will lead to lower spending, leading to lower earnings which should theoretically lead to lower stock prices.

Unfortunately, the ferris wheel of worry continues to spin.

Considering all the above, I believe the stock market will remain within the 10% range it has traded in over the last month. This is likely to result in volatile horizontal trading over the coming weeks and months as positive moves due to falling inflation give way to market declines as earnings growth continues to slow.

Over the long-term, opportunities are more plentiful than ever as valuation multiples improve but for those expecting to make a quick buck over the coming weeks and months, proceed with caution.

If you have any questions reach out at www.theislandinvestor.com, I'm always happy to help.

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Country Queen Cliona Hagan to play Sneem Hotel

Get ready for a glamorous evening of country music as bombshell Cliona Hagan, one of Ireland’s most beloved country music stars, takes the stage at Sneem Hotel on Saturday, May […]

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Get ready for a glamorous evening of country music as bombshell Cliona Hagan, one of Ireland’s most beloved country music stars, takes the stage at Sneem Hotel on Saturday, May 11, 9:00 PM.

Known for her powerful vocals, captivating stage presence, and chart-topping hits, Cliona Hagan promises to deliver a memorable performance that will have the audience on their feet and singing along all night long.
The concert, set against the stunning backdrop of Golden’s Cove at the Sneem Hotel, promises to be an unforgettable experience for country music fans of all ages. From heartfelt ballads to lively toe-tappers, Cliona Hagan’s versatile repertoire ensures there’s something for everyone to enjoy.
Tickets for the concert are priced at €25 and can be purchased at the door on the night of the event. Don’t miss your chance to see Cliona Hagan live in concert at Sneem Hotel on May 11th. Overnight hotel stay packages including dinner and concert tickets, bed and breakfast are also available!
For more information, please visit www.sneemhotel.com or contact 064 667 5100.

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Coffee morning for Kerry Cancer Support Group at the Royal

Killarney Royal is hosting a Charity Coffee Morning on April 19, in aid of the Kerry Cancer Support Group. Join the team at Killarney Royal from 10.30am-12pm where fresh coffee, […]

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Killarney Royal is hosting a Charity Coffee Morning on April 19, in aid of the Kerry Cancer Support Group.

Join the team at Killarney Royal from 10.30am-12pm where fresh coffee, delicious homemade scones, pastries and treats await in the newly refurbished lobby and bar.

All guests attending will also have the chance to be entered into a raffle with a number of wonderful prizes on offer throughout the morning. Volunteers will also be on hand to accept donations, with all proceeds going to the Kerry Cancer Support Group.

“The Kerry Cancer Support Group work hard each day to provide an excellent service and are devoted to maintaining a warm, welcoming environment while ensuring that service users have immediate access to free programmes and resources. Killarney Royal are delighted to support this incredibly worthy charity,” said Brand Sales and Marketing Executive Aoibheann O’Leary.

All are welcome on the morning, with no pre-booking needed.

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