Connect with us

News

Three reasons stocks will fall

Published

on

0252463_Mike_Stocks.jpg

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.

Advertisement

News

Killarney exhibition and lecture on foundations of Fianna Fáil

Published

on

By

A widely acclaimed exhibition on the origins and early years of Fianna Fáil in Kerry will opened at Killarney Library on Tuesday for a three-week period and will coincide with a free public lecture on the subject at the library on March 26.


This year marks the centenary of the foundation of the party in 1926 and the exhibition, presented by historian Owen O’Shea, focuses on how the party developed and grew in Kerry in the late 1920s and early 1930s.

The exhibition is called “Soldiers of Destiny, Fianna Fáil in Kerry 1926-1933” and is supported by a Commemorations Bursary from the Royal Irish Academy.

It was officially opened by An Taoiseach Micheál Martin recently at Tralee Library. Mr Martin said the exhibition “has provided a deep insight into the foundations and rapid growth of one of democratic Europe’s most successful political parties.”

Owen will deliver a talk on the same subject on Thursday, 26 March at Killarney Library at 7pm as part of the programme of lectures from the Kerry Archaeological and Historical Society. The lecture is free and open to members of the public.

“The foundation of Fianna Fáil 100 years ago was a transformative moment in Irish politics and represented a new phase of Civil War politics in Ireland.

In this, its centenary year, I am presenting the story of the party in Kerry where its organisational and electoral successes were without parallel in this period,” said Owen O’Shea.

“Éamon de Valera’s party set about establishing a network of branches in Kerry with enormous speed and the Fianna Fáil vote in the constituency grew rapidly from 33% in 1927 to 68% in 1933.”


The seven TDs who represented Kerry during those years were Denis Daly, Fred Crowley, Tom McEllistrim, William O’Leary, Thomas O’Reilly and Jack Flynn.

Their stories are being shared for the first time as are many of the election posters and political material from the time.


“I am very grateful to the Royal Irish Academy for funding this exhibition and I hope it will attract anyone with an interest in Irish history and politics,” he added. It will be open at Killarney Library during library opening hours until March 31.

Continue Reading

News

Resident hits out at “sticking plaster” spend on Listry Bridge

Published

on

By

A Listry resident has slammed Kerry County Council’s latest safety funding for Listry Bridge, labelling the repeated small-scale spending as “insanity.”

The criticism from Brendan O’Shea follows last week’s announcement that €100,000 has been allocated for interim safety measures at the notorious bottleneck.

The Council confirmed the funds will cover a reduced speed limit, upgraded signage, new road linings, extended anti-skid surfacing, and parapet repairs.


However, Mr O’Shea, a long-time campaigner for safety improvements at the site, argues that these measures fail to address the core issue: that the bridge remains the only point between Killarney and Dingle where two cars cannot pass.


“The definition of insanity is doing the same thing over and over again and expecting a different result,” Mr O’Shea said. “Over the years there have been announcements of funding of €30k, €50k, €80k, €100k on a number of occasions, €250k one time before an election, and the latest is another €100k. Each and every time, it’s for new signage, anti-skid surfacing, and repairs.”


He pointed out that the Council has encouraged significant residential development in Milltown, leading to a major increase in daily commuters using the bridge to reach Killarney.


Mr O’Shea also questioned the county’s infrastructure priorities, contrasting the lack of a bridge replacement with the €7 million refurbishment of Ashe Hall in Tralee.

He suggested that Killarney is being left behind in terms of major projects compared to neighbouring counties.


“If the Killarney bypass eventually gets completed, then perhaps we’ll have a few euro left over to replace Listry bridge. Let’s stop with the ridiculous sticking plaster spending in the meantime,” he added.


The Council maintains that the current €100,000 spend is necessary for “interim safety measures” to manage traffic flow and improve grip on the approaches to the bridge.

Continue Reading