The S&P 500's steady climb higher was interrupted last week, reversing course to fall nearly 2%. The biggest weekly drop since February.
The Federal Reserve acted as the catalyst for this latest bout of volatility. Last Wednesday, the FED issued a revised outlook, signalling that interest rates are set to increase sooner than previously projected due to higher inflation forecasts.
While this FED adjustment resulted in a momentary pull back, market participants quickly reverted to their default setting of unwavering optimism, with the market hitting new all-time highs just five days later.
While unrelenting positivity is enough to sustain the current investing eutopia, history suggests that volatility will return at some point in the future. So instead of basking in the glory of your unrealized gains, use these periods of low volatility to prepare. Diversify, take profits on certain stocks that have notably appreciated and implement some downside protection.
Has the rotation into 'Value' run its course?
So-called value stocks, expected to benefit from the economic recovery, have outperformed in 2021, but this rotation trade has been out of favour in recent weeks.
Growth stocks, including the major tech names like Apple and Microsoft, have rallied since the Fed announced a slightly more aggressive stance on future rate hikes last week. The S&P growth index has added almost 2% since the announcement, compared with a drop of nearly 2% in the value index.
With the S&P Value index up 13% year-to-date, much of the re-opening trade has arguably been priced in the market. With that said, specific sectors such as energy and financials may still have room to run.
Cryptos pulled back once again as China continues its clampdown on miners and the Crypto space as a whole. The recent volatility has wiped out all of bitcoins 2021 profits, with Bitcoin briefly falling below 30,000 a coin. The cryptocurrency has now lost more than 50% from its mid-April highs of almost $65,000.
Commodities like copper slumped last week while Lumber recorded its worst week in history, falling 18%. Higher commodity prices have played a pivotal role in the recent inflation jump. This pullback in commodity prices suggests that the supply chain bottlenecks may be clearing in certain sectors of the economy. From a global perspective, the 're-opening' is still in its infancy, but these price adjustments suggest the inflation we are currently experiencing is, in fact, transient in nature.
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 […]
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.
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 […]
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 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.
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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