Over the last quarter, the VIX volatility index rose sharply due to all the uncertainty in the market. This month we want to discuss volatility’s role in the markets and what you need to know to understand how volatility impacts prices.

We use volatility to measure the amount of risk in the capital markets. It is usually expressed as a percentage and can be measured over different periods. For example, investors may measure the stock market volatility over one year, five years, or ten years. Volatility is typically measured by looking at the standard deviation of returns. The higher the standard deviation, the more volatile the investment is.

Volatility can be a good thing or a bad thing, depending on your perspective. For investors looking for short-term momentum trades, volatility can be beneficial because it provides opportunities for them to make short term decisions. However, for longer term investors looking for price stability, volatility can be worrisome due to the larger than normal moves in the market.

The CBOE Volatility Index, or VIX, measures the stock market’s expectation of volatility over the next 30 days. It is calculated by taking a weighted average of the prices of put and call options on the S&P 500 index. The VIX index is often used to gauge investor sentiment, with high levels indicating fear and low levels indicating complacency. If the VIX rises, investors have more uncertainty in the market which tends to lead to falling stock prices.

A lower VIX indicates that investors are more certain about the forward outlook of the market and it is typically associated with rising stock prices. However, it is essential to note that the VIX can also be affected by other factors, such as the level of options trading activity, so it should not be used in isolation when making investment decisions.

The following chart shows how the VIX has whipsawed throughout 2022 which has been interrupted by the lack of certainty of where the markets will trade in the short term.

Mid-Term Considerations

As we approach the midterm elections in 2022, investors should brace for more volatility in the markets. Political uncertainty always has the potential to roil markets, and with so much at stake in this election, we can expect plenty of turbulence in the months ahead.

The aftermath of the elections typically sees a period of stabilization as the market prices in the anticipated changes. This is significant because 2022 is a mid-term election year. Given the current climate of political tension and economic uncertainty, it is likely that we will see elevated levels of volatility in the lead-up to the elections.

Investors need to be aware of this and have a clear strategy for managing risks during this period. By understanding the potential impact of the elections on markets, investors can make informed decisions about protecting their portfolios from downside risk.

First, it’s essential to diversify your portfolio across asset classes. This will help cushion the blow if a specific market segment takes a hit.

Second, stay disciplined with your investment strategy. Instead, don’t let emotions dictate your decisions; stick to your plan and ride out the storm. Finally, remember that market volatility surrounding politics is normal and even healthy.

So while it’s essential to be prepared for volatility, don’t let it scare you off from making smart investment choices.

Home Values Are Mismatched with Income Growth

Home prices have increased significantly in the past few years. Currently, the average price of a home is around 7 years of income, whereas historically, it was 5. This increase is due to several factors, including low-interest rates, population growth, and limited inventory. As a result of these trends, many people are priced out of the housing market and are forced to rent instead.

There has been a notable trend in recent years of institutional investors purchasing large numbers of single-family homes. Companies like Brookfield and Blackrock have been increasing their investment in single-family real estate, contributing to the shortage of available homes on the market.

When fewer homes are available for sale, prices tend to go up. This has been happening in many markets around the country, and the trend will likely continue as more investors enter the market. While this can be good news for those who own a home, it can be difficult for first-time buyers or those looking to downsize. Institutional investors are likely to play a significant role in the housing market, and it is important to be aware of their impact when making purchasing decisions.

The following chart shows the home price/median income ratio, and it has already surpassed the highest point before the housing crash. The market is waiting to see if the Fed’s rate hikes will help cool down the housing prices.

Source: Longtermtrends

History of Bear Markets & Investor Sentiment

With all the headlines around inflation, inverted yield curve and slowing growth, many investors worry about a potential recession. While economic recessions are a certainly through an economic cycle, the chart below puts in context the length and severity of all past bear markets since 1950.

While these downtrends in the market are always difficult to endure, the average length is 1.7 years and average decline is 30.2%. If we are indeed experiencing another of these events, the emotions of the investors will experience this same cycle as the chart below. Investor sentiment is currently as low as it was in the spring of 2009, right before the market changed course to the positive. While we don’t know or predict if that is the indictor of the market bottoming, it is positive to manage emotions during market turbulence.

How Should Couples Manage Their Accounts

When it comes to finances, there is no one-size-fits-all approach for couples. Some opt for joint accounts, while others prefer to keep their money entirely separate.

There are pros and cons to both approaches. One advantage of joint accounts is that they can simplify budgeting and bill-paying. Couples can pool their resources and make sure all of their financial obligations are being met. Joint accounts can also help couples build up their savings more quickly. On the downside, joint accounts may not be ideal for couples who have different spending habits or want to maintain some degree of financial independence.

Separate accounts can allow couples to spend their money as they see fit. And if one partner runs into financial difficulties, the other partner’s credit score will not be affected. However, separate accounts can make it more challenging to keep track of shared expenses or reach financial goals as a couple.

There are a few things to consider when deciding whether or not to have joint accounts as a couple. The first is demographics – as this CreditCards.com survey shows, younger couples are less likely to have joint accounts than older couples. This may be due to various factors, including greater financial independence among millennials or a desire to keep finances separate to maintain autonomy in the relationship.

Another thing to consider is your overall financial goal as a couple. If you’re trying to save for a significant purchase, like a home, car, or your child’s education expenses, having joint accounts can make it easier to track your progress and stay on budget.

On the other hand, if you’re content with maintaining separate finances, there’s no need to change what’s working for you. Ultimately, whether or not to have joint accounts is one that every couple has to make for themselves.

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Market Snapshot

For the Month Ending 4/30/2022 (Cumulative Returns)1

1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.

Did You Know?

Although the modern holiday of Mother’s Day was not officially declared until the early 20th century, the idea of celebrating mothers and motherhood is a centuries-old tradition.

One of the earliest recorded Mother’s Day celebrations dates back to the ancient Greek festival of Cybele, which honored the goddess of nature and fertility. The Romans later adopted this holiday, renaming it Matronalia and marking it as a day to honor the mothers of famous Roman citizens.

Similarly, in medieval Europe, Mothering Sunday was celebrated on the fourth Sunday in Lent as a day for people to return home to visit their mothers. Following the spread of Christianity, this holiday became associated with the Virgin Mary and was celebrated on different days across Europe.

In America, Mother’s Day was first proposed by abolitionist and suffragist Julia Ward Howe in 1872 as a day dedicated to peace. However, it wasn’t until 1908 that Anna Jarvis successfully lobbied for Mother’s Day to be declared an official holiday in the United States.

Since then, Mother’s Day has become an annual celebration in countries worldwide, typically observed with flowers, cards, and other expressions of love and appreciation.

Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.