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Steve's October 2018 Newsletter

In case you haven't noticed, we are now going through a typical stock market correction. It might be over by the time you read this or it could last for weeks. This correction started when the 10 year Treasury yield shot up to 3.25% from under 3% in a short few days. It was inevitable and was going to happen sooner or later, so the first week in October was as good a time as any! The cause was a combination of things like: the Federal Reserve raising rates, the upcoming mid-term elections, a stronger dollar, fear of inflation, tariffs, slowing global growth, Amazon raising their minimum wage to $15.00 and some economists finally worrying about the Federal debt, among other things.

Have I planned ahead at Newmarket Advisors, Inc. by structuring your portfolios to help withstand the brunt of this downdraft? Yes! Do I believe this is the end of the bull market? No! Could this last a while? Maybe!  Should you think about the eventuality of a recession in the future, and if your "risk tolerance" that we mutually agreed to use at Newmarket Advisors, Inc. is still current? Yes!

Bull stock markets like the one we have been in for ten years do not die of old age or a vertical line on a graph. They are in almost all cases killed by an imminent economic recession. Should you and I care about the next economic recession? Yes!

At the present time the US economy is very strong, however it is my job to always be looking over the economic horizon. Although I believe the time between today and the next recession is not close..... at the same time it is not exceedingly far away! Yes, that sounds vague because no one can tell exactly.

There are proven techniques that I use to help our clients. For decades, even prior to founding Newmarket Advisors, Inc, I have been using a select group of statistical indicators to help predict the future strategic movements of the economy.

There is not enough room here to explain them all, but here are some: The most important is the Conference Board's Leading Economic Index (LEI); it is composite averages of several individual leading indicators. It is used to summarize economic data and reveal inflection points that could signal peaks and troughs in the business cycle. It has ALWAYS signaled when a recession is approaching, but not the exact timing. In the last three US recessions the LEI has started to decline at least one year in advance of the US economy entering a recession. At present it is still in an uptrend.

Consumer Confidence Index, Consumer Price Index (CPI), Labor Market Index, Wage Surveys, Average Hourly Earnings (AHE), Unemployment Rate (3.7%), Yield Curve, Gross Domestic Product (GDP) are all part of the data I use to construct and rebalance portfolios. It is also important to note that recessions have generally come after the Federal Reserve has finished hiking rates in a business cycle, not while they’re in the process of raising rates, as they are doing now!*


Steve Newman    * Please note the above listed items do not guarantee a positive portfolio return!