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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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Irish-language short film award added to film festival

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Kerry International Film Festival (KIFF) will return to Killarney from October 16 to 19, and this year’s event will include a new award category – Best Irish Language Short Film.


The new award aims to highlight the growing presence of Irish language filmmaking.


It will be judged by Máire Ní Chonláin, TG4 Commissioning Editor and executive producer of An Cailín Ciúin, which was nominated for Best International Feature Film at the 2023 Academy Awards.


Ní Chonláin brings decades of experience in commissioning, producing and acquiring both scripted and unscripted content.


She co-commissions drama through TG4’s Cine4, Tús, Céim Eile, and Gealán schemes, and is also behind TG4’s long-running country music programming.


KIFF already presents 10 short film awards each year, including Best of Kerry and Best Documentary Short. The new Irish language award adds further recognition for a growing sector in Irish film.


Submissions for this year’s festival close on July 31 via FilmFreeway.


KIFF is supported by Kerry Airport, The Arts Council of Ireland, Kerry County Council, Fáilte Ireland, and a wide range of local businesses.

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Buckley leads National co-drivers’ standings ahead of Sligo Rally

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Buckley leads National co-drivers’ standings ahead of Sligo Rally

Rockfield co-driver Shane Buckley sits at the top of the Triton Showers Motorsport Ireland National Rally Championship co-driver standings heading into this Sunday’s Sligo Stages Rally.

Buckley, who was due to partner Sam Moffett in a Hyundai i20 R5 in Sligo claimed fourth overall on the Raven’s Rock Rally two weeks ago — a result that pushed him into the lead of the standings with 61 points after four rounds.

However, the championship allows for dropped scores, and when those are applied, Buckley trails rival Tom Murphy by a single point. Murphy has 50 points to Buckley’s 49, meaning the second half of the season is set up for a close title fight.

Sam is now unavailable for the Sligo Rally but Buckley has teamed up with promising Donegal driver David Kelly in a Volkswagen Polo R5. They placed a late entry and will carry 171 on the doors but will run inside the top ten on Sunday.

Several Kerry crews are also entered for the Sligo Rally this weekend. Mike Quinn and Kieran Doherty return in their familiar Mk2 Escort, running in Class 14. Dave Slattery and Denis Coffey, also in a Mk2 Escort, are entered in Class 13.


Mossie Costello, is entered a Fiesta Rally4 and will contest Class 2.


Eugene Buckley and Aaron Williams complete the Kerry Motor Club representation in a Toyota Starlet (Class 9).


Killarney Co-Drivers in Down Rally
While the focus is on Sligo this weekend, two Killarney co-drivers will be in action on Saturday’s Down Rally.


Elaine Ní Shé is navigating for Richard O’Lone in a Ford Fiesta Rally3, and John McCarthy is on the notes for Banbridge’s John Devlin in a Mk2 Escort.

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