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How long can it last?

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Equity Wobble

US stock markets extended their recovery following a sharp sell-off at the start of the week. Mounting concerns over the spread of the Delta variant and its ability to interrupt a strong reopening and economic recovery resulted in the worst day for global stocks in some months on Monday.

Since then, a string of upbeat earnings reports and some aggressive 'buying the dip' strategies revived market optimism.

Double Your Money

The S&P 500 has now doubled in value in just 15 months following the March 2020 Pullback: The second fastest double in history, second only to the 1932 reversal after the infamous 80%+ crash of the great depression.

It is worth noting that the cumulative earnings for companies within the S&P 500 is set to double over the same period.

The market hasn't doubled for no reason despite what some market heretics proclaim.

A Closer Look

After a brief respite due to strong market rotation dynamics, the narrow breadth of the S&P 500 is back in focus. The S&P 500 is up 4% since June 3, but ~80% of that move can be attributed to just the largest five stocks. This concentration in returns is one to watch as narrowing breadth is a sign of internal weakness and can sometimes precede pullback periods.

Market Outlook

As we focus on the second half of the year, investors will undoubtedly be haunted by fleeting bouts of uncertainty. Echoes of 'this surely can't last forever' screech louder and louder as markets continue to notch up all-time highs. This uncertainty and doubt is an inherent part of the human condition that even the most steadfast investor must grapple with.

Lately, market participants are constantly worrying about, well, everything. Their concerns range from inflation and the Delta variant to tech regulation and tensions with China. None of these fears are irrational, but they are part and parcel of any investment. While all these concerns could negatively impact markets over the near term, there is no reward without risk, and historically, it hasn't paid to be a pessimist.

While the outlook is broadly positive, uncertainties remain, as mentioned above. Economic statistics have been consistently positive in recent times, but this positive news stream is now simply functioning to maintain the current levels of market exuberance.

As we advance, it won't be enough to say that businesses are recovering, and earnings are increasing. The market will need to hear about a stable recovery and more robust future earnings to come. As a result, market participants will be far more sensitive to any negative news, fuelling the fragility and volatility in the most exposed sectors of the market.

My overarching view is that economic recovery will persist, and upside remains, fuelled by higher earnings, fiscal stimulus, and low interest rates. With that said, pullbacks and market rotations are likely, and any deviation away from this base case scenario will create a painful environment for those holding the most speculative names.

As always, caution and patience are the order of the day.

For investing tips, go to www.theislandinvestor.com.

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Market sentiment has flipped again

By Michael O’Connor Last week, the three-week losing streak that saw the S&P 500 drop over 8% ended as markets bounced from seemingly oversold positions. Investor sentiment flipped as the […]

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By Michael O’Connor

Last week, the three-week losing streak that saw the S&P 500 drop over 8% ended as markets bounced from seemingly oversold positions.

Investor sentiment flipped as the recent pullback created buying opportunities.

The S&P 500 rose nearly 3.7%, while the NASDAQ’s gained 4.1% to help it recover some of the 11% it lost in recent weeks.

But on Tuesday of this week, the market sentiment flipped again.

The August inflation print, widely expected to show falling US inflation, showed the opposite.

Falling gas prices and improving supply side pressures were not enough to offset price increases in both food and shelter.

CPI climbed 0.1% month over month in August, accelerating from 0.0% in July.

Even though we’re talking about just one report, it’s enough to raise doubt about inflation being under control which has knock-on effects regarding how aggressive the Fed needs to be as they attempt to cool the economy.

While this is undoubtedly a negative indicator that was always going to trigger a sell-off in the short term, if we zoom out, I’m not sure it considerably changes the position we are in.

The Fed was going to stay on track to tighter monetary policy whether inflation was 8.1% (expected) or the 8.3% reported.

So if the long-term picture has not changed dramatically, but prices are falling, what does this mean for investors?

Outlook

Everything seems relentlessly bearish at the moment.

The recession obsession is everywhere.

There are obvious reasons to be fearful, you hear them every day, but this isn’t the beginning of the end.

Contrary to general market consensus, I think we are close to peak bearishness with much of the negative outlook for the economy now priced in (the Nasdaq composite index is down 26% so far this year).

We are not quite there yet. The lows in June will likely be retested over the coming days/weeks, but I don’t expect much pain past this point.

As such, investors shouldn’t look at this current selling as a reason to run for the hills. Instead, view this as an opportunity to invest in your favourite companies at discount prices.

To quote Warren Buffett:

“Our goal is more modest: We simply attempt to be fearful when others are greedy and greedy when others are fearful.”

Are we in a downtrend where rising interest rates and inflation pressures are forcing investors to reassess equity valuations?

Yes.

Is this repricing within the realm of standard market conditions as we reset our expectations following a decade of relentless Fed support?

Yes.

Is the apocalypse coming?

No.

Despite the headlines, It’s not all bad news.

Company earnings have held up well
Labour markets remain strong
Supply-side inflation pressures have eased,
Interest rates hikes are likely to slow following the FOMC meeting this month
This year’s pullback has stripped much of the excess out of markets
As I have discussed previously, we are unlikely to have the same rate of recovery we experienced when the Fed was funding asset price inflation.

Market uncertainty could result in horizontal trading for quite some time, but all is not lost.

Without a new macro shock, I don’t see markets falling significantly below the lows set in June.

Time to put your money to work.

To learn what companies to invest in and to direct access to my personal investment portfolio go to www.theislandinvestor.com.

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How to protect your home from intruders

By John Healy of Healy Insurances Burglary rates have increased considerably as pandemic restrictions were lifted and workers returned to the workplace. It is important to be mindful of security […]

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By John Healy of Healy Insurances

Burglary rates have increased considerably as pandemic restrictions were lifted and workers returned to the workplace.

It is important to be mindful of security in your home. You should include all the following in your everyday routine to avoid break-ins:

Use levered deadlocks

Fitting and using good quality locks such as levered deadlocks on your doors will make it harder for burglars to barge through them. You should also ensure all ground floor windows have locks.

Hide keys/valuables out of sight

Remove keys from locked doors and windows and put them in a safe place. Valuables (cash, jewellery etc.), which can be seen from outside, are tempting targets for burglars, so keep them out of sight.

Apply timed switches on lights

Put timer switches on your lights so it looks like you’re at home when you’re out.

Install home security cameras and/or an alarm system

These can act as a deterrent and may ward off burglars. When choosing a home alarm system, look for one which is all the following:

1. Your home’s alarm should be easy to see as it will ward off burglars
2. A loud alarm will scare off burglars’ mid-break-in, while a fake or ‘dummy’ alarm won’t
3. Monitored alarms will allow the police to respond to an alarm event much more quickly
4. Household alarm systems that are wireless are harder to tamper with and continue to work during power outages

Lock garden items away

Valuable items such as bikes and power tools should be locked securely in a garden shed or outbuilding when not in use. Also, a well-lit garden can deter would-be burglars as it stops them from sneaking around unseen.

Most insurers will offer a discount if your house has a monitored alarm, however you must ensure that it is turned on and in working order each time you leave the house.

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