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Big Tech to the rescue

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Week in Review

Stocks trended downwards early in the week despite positive earnings reports as rising COVID-19 cases, inflation and economic growth all weighed on investor sentiment.

China

Panic selling gripped Chinese stocks early in the week as fears over a regulatory crackdown by the Chinese Government continued to mount.

Although the sell-off centred around a new set of restrictions on Chinese for-profit tutoring companies, it's the latest example of the communist party's unwavering ability to destroying shareholder value with an unexpected decision.

China's largest tech names have all recorded significant losses in recent months. Alibaba, China's largest e-commerce company, has now seen its market cap fall by over 300 billion dollars since its market highs set back in October.

Big tech

The mega-cap tech companies continued to produce mind-boggling revenue numbers this week. Apple, Alphabet and Microsoft all reported record quarters after the closing bell on Tuesday, with a combined profit of $57 billion in Q2, which equates to $626 million a day.

Google's parent company, Alphabet, was particularly noteworthy, with advertising revenue up 69% year over year. YouTube alone generated $7 billion in revenue for the quarter.

While it's easy to look at record high numbers in the stock market and assume a bubble, record earnings figures and improving fundamentals from the biggest hitters in the index will continue to act as a support, justifying further gains.

Bitcoin Bounce

The major crypto names experienced a late-night surge on Sunday, with bitcoin now sitting at a six-week high just below $40,000.

Bullish comments last week from the tech trio of Elon Musk, Jack Dorsey, and Cathie Wood spurred the recent positive sentiment.

The outlook has been boosted further by the news that Amazon may accept cryptocurrency payments - by the end of the year. While early reports are vague and yet to be confirmed by Amazon, inclusion across the Amazon infrastructure would be a significant steppingstone in the cryptocurrency space.

Stock Watch:

Snap Inc jumped a colossal 24% last Thursday after reporting its biggest growth quarter in four years.

Snap's next significant growth opportunity appears to be in the AR space. The company has invested heavily in Augmented reality and is looking to change the e-commerce experience by allowing those shopping online to "try on" clothing using its AR technology. I’m listening.

While revenue more than doubled to $982 million in Q2 2021 and the AR tech offers significant growth opportunities, valuations appear stretched, to say the least.

For me, Snap Inc will need to show an ability to turn its lower-income younger users into paying customers and turn big revenue gains into realised profits before the current market cap is justified.

Robinhood

De facto Guardian of the retail investor in the fight against the Wall Street elite, Robinhood has fast become the poster child of retail investor revolution.

As such, its IPO this week was always guaranteed to generate a lot of interest.

With almost 18 million active users, $80 billion in AUM and revenue close to $1 billion last year's Robinhood makes for a compelling investment opportunity, but with a predicted valuation of $35 billion, much of the juice may have already been squeezed by the private market before it becomes available to the public.

While I'm skeptical in the long run, especially with the majority of earnings coming from the sale of order flows, this IPO will undoubtedly generate a lot of interest over the near term.

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Broadening the Vacant Homes grant

By Ted Healy of DNG TED HEALY  Vacant property grants of up to €50,000 are to be extended to all vacant properties across the country in a bid to bring […]

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By Ted Healy of DNG TED HEALY
 

Vacant property grants of up to €50,000 are to be extended to all vacant properties across the country in a bid to bring as many unoccupied buildings back into use as family homes.

Until now the grant has provided financial supports to refurbished vacant properties in towns and villages only.

However, at the time of writing, it is expected that Housing Minister Darragh O’Brien will announce that he is bringing properties in inner city areas including Cork, Dublin, Galway, and Limerick as well as one-off farmhouses in rural locations into the scheme.

Over 400 applications for the scheme have been made to date since its launch in July of this year. While the qualifying criteria is to be broadened out, it is understood that there are currently no plans to increase the €50m which had been originally allocated for the scheme.

However, this could be reviewed if the scheme is oversubscribed.

Under the scheme, a grant of up €30,000 is available for the refurbishment of vacant properties for occupation as a principal private residence, including the conversion of a property which has not been used as residential heretofore.

However, people can apply for a top-up grant of up to €20,000 where the property is derelict and structurally unsound.

The grants, which are primarily aimed at helping first-time buyers to bridge the cost of refurbishing older and unused homes can also be combined with supports received under the Sustainable Energy Authority Of Ireland (SEAI) Better Energy Homes scheme.

Properties must be vacant for two years or more and built before 1993 to qualify.

Preliminary results from Census 2022 recorded more than 166,000 dwellings as vacant in the State.

While some of these may have been unoccupied on a temporary basis, more than 30% (48,387) of the dwellings vacant in 2022 were also out of use when the previous Census was carried out in 2016.

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Proceed with caution

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 […]

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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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