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Signs of Strain Emerge: Kevin O‘Leary Cautions About Persistent Energy and Food Inflation Amidst Increased Money Printing—Reveals Strategies to Capitalize

In 2023, the U.S. stock market exhibited robust expansion, witnessing a notable 17% surge in the S&P 500 Index. Nonetheless, notable “shark” Kevin O’Leary brings a more nuanced perspective.

“The S&P 500 employs 40% of America,” he told Fox Business, “where the cracks are starting to show is in mainstream America where the car loans have gone from five and a half percent to nine and a half percent and continue to go up.”

To combat soaring inflation, the U.S. Federal Reserve has initiated substantial increases in interest rates. Consequently, numerous borrowers now confront notably higher payments for loans and mortgages. O’Leary observed a slowdown in lending activities and an elevated cost of borrowing for small enterprises.

“For regional banks at present, lending activity has slowed down,” O’Leary commented, drawing from his interactions with small businesses. “This scenario is particularly detrimental for small businesses. The ramifications extend even to regional banks, where certain signs of strain are emerging.”

As per O’Leary’s assessment, it’s possible that the Federal Reserve has further rate hikes in store, given the ongoing presence of inflationary pressures.

Specifically, he raised concerns about the volume of currency that the U.S. will continue to produce, given the expenditures linked to the Inflation Reduction Act and the CHIPS Act.

“Whether you think printing money helps or hurts inflation — I personally think it increases inflation — that’s why it’s staying up there,” he said.

Furthermore, the cost of essential items continues to stay high. O’Leary highlighted the persistent nature of energy and food inflation, noting that these factors simply refuse to dissipate.

This situation doesn’t fare well from a political standpoint.

“If you’re the incumbent in the White House, and you got high gas prices coming back up to four bucks, and protein, whether it’s chicken or beef or pork is going back up again, that’s not so great as you’re going into an election cycle. So that’s where the war is going to be fought,” O’Leary said.

Another factor contributing to the potential continuation of rate hikes by the Fed is the robustness of the U.S. labor market. According to the most recent employment report, the unemployment rate for July stood at 3.5%, approaching a low not seen in several decades. Additionally, average hourly earnings witnessed a 0.4% rise for the same month.

The combination of steep borrowing expenses and consistently high price levels presents a challenging scenario for the economy. However, as O’Leary suggests, there exists a subset of companies poised to gain from the substantial spending initiatives undertaken by the government.

“Where is [the money] going? All into the S&P 500,” he said. “So if you’re an S&P 500 company, you’ve got clear sailing for the next three to four years.”

If O’Leary’s perspective resonates with you and you’re interested in investing in the S&P 500, numerous exchange-traded funds (ETFs) offer convenient access to this group.

One such example is the SPDR S&P 500 ETF Trust (SPY), established in 1993 and currently holding $418.8 billion in assets under management. It closely follows the price and yield performance of the S&P 500 Index, boasting an expense ratio of 0.0945%.

Alternatively, investors can explore comparable ETFs from different issuers, like the iShares Core S&P 500 ETF (IVV) and the Vanguard S&P 500 ETF (VOO). These two funds feature expense ratios of 0.03%.

While the benchmark index displayed impressive growth in 2023, it’s essential to note that the journey isn’t always smooth. In the previous year, the S&P 500 experienced a significant drop of 19.6%.

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