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Steve's Newsletter

Steve's April 2021 Newsletter

I don't know about you; but Robin and I are waiting like sprinters in the starting blocks to: dine inside a restaurant, get on an airplane, meet friends and family in person, hike the Rockies' again, and maybe even take a test drive in a new car in a few months!

The stock markets have been for months, slowly and haltingly moving higher on these same expectations of pent up demand. The move has been fueled by the increasing vaccinations of Americans, still historically low interest rates, and a stimulus program that has pumped trillions of dollars into the economy and consumers' pockets. This impetus for a strong earnings outlook and improved employment numbers could "possibly" move the markets higher even though the S&P 500 has recently traded at an all time high.

I say "possibly" because in addition to rising interest rates and the possibility of inflation, one large negative is that Americans are starting to believe that the pandemic is over, and it is NOT! We need only to reflect on the 550,000+ souls lost to understand the importance of patience!

Markets often move higher on anticipation of a future event and then sell off on the cusp of that event. Earning season starts soon and I will not be listening to what companies have earned last quarter; but what they say are the expectations for the remainder of 2021and into 2022. It is that bridge from "hope" to firm economic growth that is a key!

And while all this is going on, you might have noticed the seldom seen "Great Rotation" occurring in the markets. There has been a movement away from Momentum Growth and "stay at home" companies that were high flyers over the last year and a movement to more Value companies that have more proven and sustainable business models.

The Bond Market Meltdown

Inflation, interest rates, and ultimately bond prices are like the canary in the (stock market) coal mine. In a period of a few weeks, interest rates have swiftly and dramatically moved higher while the price of a currently owned bond has fallen. The bond markets are afraid that inflation will grow as the economy strengthens and more people are back at work. That in turn would force the Federal Reserve to possibly increase interest rates faster than expected and cause volatility in the stock market.

It is the speed of the interest rate increase that is concerning, not the higher rate. Rates are still very low by historical standards. Bottom line: As interest rates rise, new bonds at higher rates present a future competition to the stock market.

 As always, if you have any questions about your Newmarket Advisors, Inc. portfolio, or any other financial matter, please do not hesitate to contact me.

Regards,

Steve Newman