“The four most dangerous words in investing are ‘this time it’s different.'” Sir John Templeton is known for coining this famous phrase, and over the last few months, the stock market has been moving in a more positive direction.

The S&P 500 gained 9.1% in July; history tells us this could be just the beginning. On average, the index has been more than 15% higher a year later, and cumulative gains have been greater than 75% six years later. There are many macroeconomic variables to monitor going into the latter half of the year, which can impact the markets:

Q3 2022 could be a volatile time for the stock market. Quantitative tightening may be a market headwind as we start to unwind the balance sheet, and while the overwhelming majority of major headlines show a bearish picture, the chart below gives a good historical context of positive outcomes for the market, especially after a 9% rally in a month for the S&P 500.

The midterm elections could also have an impact on the stock market. If the Democrats win control of the House and Senate, the Biden Administration may have enough momentum to pass significant legislation throughout the rest of this term. Or, if Republicans regain the house, there could be a shift in the equity markets towards more domestic investment due to their traditionally pro-business attitude. However, it’s important to note that the market has never been negative during the 6-12 months post-midterm elections dating back to 1962. The average annual return is 15.1% on a 6-month outlook and 16.3% on a 12-month outlook.

American investors should pay attention to these events and be prepared for a volatile few months. In addition, the global impact of the Ukraine crisis and the European energy crisis could also lead to increased volatility in the stock market. However, it is also possible that Q3 2022 could be a period of sustained growth for the stock market as the economy continues to recover from the pandemic. Only time will tell what Q3 2022 will bring for the stock market.

European Energy Crisis Exponentially Impacting the E.U.

Europe is facing an energy crisis this winter for a variety of reasons. One major factor is that Russia has cut off oil and gas supplies to the rest of the European Union. This has caused a sharp increase in energy prices across the continent. In addition, many European countries are reliant on Russian energy supplies, and this interruption has left them scrambling to find other fuel sources. As a result, energy costs are expected to continue to rise in the coming months. European leaders are working to find solutions to this crisis, but it remains to be seen whether they will successfully address the problem before winter sets in.

The European Union is considering several options to combat the energy crisis, which is predicted to strain the global economy significantly. These options include energy bailouts, derivative halting, and energy allowances. Energy bailouts would provide financial assistance to countries struggling to meet their energy needs while halting derivatives would prevent speculation on energy prices. Energy allowances would give households a certain amount of free energy every month. The European Union is still discussing which option is the best way forward, but it is clear that the energy crisis is a top priority for European politicians.

American investors should pay close attention to the situation, as it could significantly impact their portfolios. In the short term, higher energy prices will likely lead to European inflationary pressures, which could hurt the value of investments denominated in Euros. Additionally, if the crisis leads to a slowdown in European economic growth, it could drag down the rest of the world economy and hurt the performance of stocks and other assets globally.

The Housing Market Shows Signs of Leveling Off

According to the latest data, the U.S. housing market is still facing some challenges. Home prices are dropping or leveling in many markets as some supply chain issues are resolved. Mortgage rates are rising, which is leading to less demand. We find that many homebuyers are being pushed out of the market as mortgage rates jump. On average, a 1% interest rate increase leads to a 10% reduction in purchasing power.

This is causing sticker shock and bidding wars for lower-priced properties, leaving many would-be buyers on the sidelines. Sellers are also beginning to feel the pinch as they face reduced demand and escalating costs. The current situation is not sustainable, and it will be interesting to see how the market adjusts in the coming quarters.

However, there is still a long time to come before housing prices level to normal. Despite these challenges, the housing market remains one of the bright spots in the economy. The number of new homes being built continues to increase as some supply chain bottlenecks loosen, and the job market remains strong. As a result, the housing market is expected to continue to remain stable in the coming months.

Articles We’re Reading

New UK leader vows to tackle energy crisis, ailing economy … (link)

Ukraine’s Zelenskiy ‘rings’ NYSE bell, seeks $400 billion in foreign investment…(link)

Ethereum Merge Will Make It Faster, Less Costly And It Will Eventually Be More Secure Than Bitcoin, Says Its Creator .… (link)

Here’s everything we know (so far) about Biden’s student loan forgiveness plan … (link)

Market Snapshot

For the Month Ending 8/31/2022 (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?

Every year on the first Monday in September, Americans celebrate Labor Day. It is a day to honor workers and their achievements. The holiday is rooted in the late 19th-century labor union movement. At that time, many workers were required to work long hours for low wages. They also did not have days off or benefits such as healthcare. In response, workers began organizing into unions to demand better working conditions. On September 5, 1882, 10,000 workers in New York City marched in the first Labor Day parade.

The parade was a huge success, and other cities soon held their own parades. In 1884, the first Monday in September as “Labor Day” by the Central Labor Union. In 1894, President Grover Cleveland signed a bill making it an official national holiday. Today, we celebrate Labor Day with picnics, barbecues, and other outdoor activities. It is a day to relax and enjoy time with family and friends. It is also a reminder of workers’ important contributions to our country.

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.