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Steve's July 2022 Newsletter

 In my 50 years of investing and 20 years guiding Newmarket Advisors clients, I have never seen a more volatile and unhinged market psychology as I have in 2022. No one foresaw on January 1st what was ahead!  After over a decade of consistent growth with low interest rates and almost free money, the markets changed psychology and direction on a dime! Increasing inflation and energy costs, rising interest rates, a Covid lockdown in China, supply chain problems, fear of a recession, along with an unrelenting European War left almost all Fidelity Investments mutual funds of every style, in the negative.

For the first time in decades the standard diversification of stock sectors and bonds collapsed. Bonds and US Treasuries also declined in value. Almost every day market indexes swing violently from low to high and back again with no reason or consistency. Why? My guess is that after a decade of euphoric growth because of falling interest rates, a new generation of investors both young and old became complacent by investing heavily in unprofitable and risky companies and financial products. They thought the good times would roll on forever! When there is no consensus, trust, or guidance... panic ensues!

At the end of the first half of 2022: the S&P 500 was down -21% (its worst since 1970), the NASDAQ was down -29.2%, and the Dow was down 14.4 %( its worst since 1962)

There are positives: The forward price to earnings (P/E) ratio for the S&P 500 is now about 15.8. (Down from over 26 in Sept. 2021) This is below its five year average of 18.6 and the 10 year average of 16.9. This is no guarantee of a market bottom; however it does suggest that a long term market buying entry point has been opened. (The higher the number the more speculative and overpriced the market).

I believe inflation is now the number one concern of the stock markets!  Although there are just a few data points that show it is leveling off, I believe it is this number that will help the equity markets to stabilize. Gasoline down a small amount in the last weeks is a good starting point!

Since 1950, the S&P has rallied about 15% on average and is positive 70% of the time after a 20% index drop. Of course, when that transition happens is unknown.

The equity markets will remain challenged with additional weakness in the coming weeks and months, however I also firmly believe that equities will be higher over the next 12 months because of the hoped for reduction of inflation.

Economic uncertainty has most likely reached a high for now! As a Newmarket Advisors client you have a well balanced, diversified portfolio, with a risk profile consistent with your goals, and being prepared to withstand the economic aguish along with the euphoria are keys to successful long term investing.

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


Steve Newman