Steve's Newsletter

The markets spent July bouncing back from damage done during the second quarter. After starting July at their year to date lows, the major indexes were up strongly despite a few days of triple digit head fakes both ways in the Dow. The S&P 500 rose almost 7% to top 1100 again. Strong corporate earnings for the second quarter also helped push the NASDAQ and the small cap Russell 2000 up almost 7%. The Dow did slightly better, rising just over 7% in July. As European economic tensions eased, the Global Dow rose almost 8.5%. Treasury bond yields continued to slide and the dollar, which had been benefitting from anxiety about European sovereign debt, weakened against the Euro.

I continue to believe that stocks will continue to be a better investment (compared to bonds or anything else, for that matter!) as we stay in a slow but positive growth and high unemployment environment. Yields are low and the Fed is expected to keep short term rates low for some time. Chairman Bernanke has said that the "US economy faces a long and bumpy ride ahead". He specifically mentions state and local budgets being under pressure and being forced to make large cuts in spending which will contribute to the sluggishness of the recovery. Without a doubt, removal of stimulus money and stagnant government employment will hold the economy back in the near term. We will have to endure this transition! A new stimulus bill is the last thing we need!

< So how do we add value for our clients in this hectic environment?

-By maintaining a diversified fund portfolio according to each clients risk tolerance. In a choppy market environment, diversifying a portfolio among various asset classes is even more important than normal, and will take the edge off portfolio volatility.

-By emphasizing yield. When price appreciation is lowered, maintaining exposure to investments with a yield is an important component to generate attractive total returns.

-By buying high quality, larger capitalization stock funds. Not only are high quality stock funds relatively cheap right now, they also have higher dividend yields.

-By maintaining a focus on relative valuations. Though the market may be choppy for a while, we will continue to take advantage of shifts in relative valuations.

-By emphasizing corporate bond funds with fixed income. Assuming interest rates remain within a trading range, coupled with the economy being able to maintain its slow but steady growth, then the yield advantage of corporate bonds over government bonds make them attractive.

-By continuing to do fundamental basic portfolio management. This includes managing volatility, regular rebalancing, and pro active tax management of taxable accounts and active management of industry and sector exposure for our clients.

If you are not already a Newmarket Advisors, Inc. client there is no better time than now to call! There is never a cost to meet at your home or office to review your present portfolio and financial plan. Unbiased advice based on our clients risk tolerance and individual situation has always been our cornerstone.

Regards,

Steve Newman

President