Wednesday, July 27, 2011

US and global markets posted strong gains this past week on news that the European Union had settled on a plan to deal with Greece's debt crisis and a continued expectation that US political leaders would reach some agreement before the August 2 debt ceiling increase deadline.

For the week, the Dow Jones Industrial Average (DJIA) gained 201 points (1.61%), the S&P 500 added 29 points (2.19%), and the Russell 2000 increased 13 points (1.57%) moving all of the major indexes solidly into positive territory for July. For the year the DJIA is up 9.53%, the S&P 500 is up 6.95%, and the Russell 2000 is up 7.42%. The NASDAQ, a technology heavy index that I have rarely discussed recently, posted a weekly gain of 2.47% to beat all the major indexes and moved it nearly 1% higher than the S&P 500 so far in 2011.

Every sector was positive last week except for Telecom with Energy, Information Technology, Real Estate, Financials, Materials, and Consumer Discretionary exceeding the DJIA's weekly return. Financials finished fourth last week on the news of Europe's announcement that a deal had been reached in regarding Greece. I will discuss this further in the next session. For the year, however, Financials still remain in negative territory. Energy, Health Care, and Real Estate remain firmly as the top three sectors so far in 2011 while Financials, Materials, and Industrials are the bottom three performers.

International markets responded positively to news that an agreement had been reached in dealing with Greece for now. The MSCI (EAFE) index gained 2.62% for the week making it the best week for this broad international index since April 8. For the week, developed countries led all major asset class returns and beat emerging markets by over 1%. For 2011 developed countries have outperformed emerging markets, but both significantly trail US equities and commodities.

The news on Greece carried over to the Euro which strengthened two cents against the US dollar to close the week at $1.436. The NYCE US Dollar Index, which is heavily Euro-weighted, has remained in a negative trend now since June 2010 but rebounded very slightly on Friday as investors still remain wary of the European Union's (EU) ability to extricate themselves from their on-going debt problems.

Commodities continued to rebound in July especially in gold and silver. For the week, gold added $12.60 (0.79%) an ounce to close at $1602.70 and is now up 6.65% for the month and 12.89% for the year. The Dow Jones UBS Commodity Index, a broad basket commodity index, was up 0.47% for the week and is now up 1.78% for the year. Not making the headlines has been the pullback of cotton which is now down 18% in July and has turned negative (-16.7%) for the year. Other commodity movers in July are Sugar (20.2%), Silver (15.5%), and Grains (15.5%) while Coffee (-8.7%) and Timber (-2.8%) join cotton as the bottom performers. WTI Oil added $2.47 to close the week at $97.71 and is now up 9.31% for the year. At one point last week, WTI reached $100 put pulled back. While there is no immediate plan to dip again into the Strategic Oil Reserves, if oil prices continue to rise, there may be another release which will hold oil prices down. A strengthening US dollar will also have a negative impact on oil and commodity prices in general.

The bond markets have been tame leading into the potential debt ceiling deadline of August 2nd. The Barclays US Bond Index fell just 0.07% last week and the 10-year Treasury yield climbed slightly to close the week at 2.958% up from last Friday's close of 2.905%. International Treasuries and US High Yield bonds were the best performers for the week while longer-term and intermediate term US Treasuries were the worst.

DEBT HERE AND ABROAD

The negotiations taking place in Washington and Brussels dominated the financial headlines this past week. Slipping under the radar was another terrible jobs report which showed first time unemployment numbers coming in at 418,000. The markets were helped by above expectations earning announcements (except for Caterpillar), and a belief that earnings announcements in the coming weeks will continue to be positive.

The Europeans announced on Thursday that they had reached a broad compromise on Greece's crisis by committing to a second outright bailout of €109 billion ($156.5 billion), an expansion of the European bailout fund and uses of that fund, private sector participation, and a reluctant concurrence from the European Central Bank (ECB). Everyone got a little and gave a little in this agreement. For Germany, this means opening up their treasury to continue funding the debt problems of Greece in return for private bond holders absorbing some of the losses on bonds as they are restructured. This means that Greece will enter into a "technical default" for the bonds that are rolled over into new bonds at extended maturities (15 and 30 years) at below market valuations and coupons. The amount of losses incurred by private lenders will be dependent on the type of bonds they agree to accept. Additionally, the European bailout fund may now be used in advance of other country's problems in an effort to avoid a crisis situation including providing capitalization for troubled banks. The ultimate test of this deal will be whether or not Greece can return to a growing economy capable of sustaining itself.

Here in the United States, the assumption that Congress and the President will be able to find some agreement to stem a potential default on August 2nd is coming under increasing doubt. I will not get into the details of these discussions or whether or not the US will actually default on its obligations if an agreement is not reached, but clearly the markets will not be comfortable if no deal is reached. I am writing this update late on Sunday afternoon and Asian markets have not started trading, nor have US stock futures, so it is difficult to say just how impactful the debt negation impasse that emerged Friday evening will have on the markets. I will say that if Moody's, Standard & Poor's and Fitch Rating Services do go ahead and downgrade the US credit rating it will have a significant impact on markets and may also have ramifications on the many states, municipalities, pension funds, banks, and insurance companies that hold large quantities of US debt.

LOOKING AHEAD

The debt ceiling negotiations will continue to dominate headlines. I cannot imagine that the markets will not be at least a little spooked by what is happening in Washington. In addition to this important issue, the first estimate of the US 2nd Quarter Gross Domestic Product (GDP) will be released on Friday at 9:30 AM. Preceding this critical piece of information will be releases of the Consumer Confidence Index and New Home Sales (Tuesday morning) and Thursday's release of Initial Jobless Claims. If these numbers are poor (which they are expected to be) combined with uncertain debt ceiling negotiations, it may be a tough week in the markets. Offsetting this negative trend is the expected strength of US corporate earnings announcements which will peak this week for the 2nd Quarter. Strong earnings by most corporations have, and will expect, to help offset the broader economic concerns in investor's minds.

The technical analysis of the markets has been unchanged for some time now. US Stocks and Commodities remain the favored asset classes followed by International Stocks, Foreign Currencies, Bonds, and Cash. Within US Stocks, small and mid-capitalization stocks are favored, growth is favored over value, and equal-weighted indexing is favored over capitalization-weighted indexing.

My sector analysis has likewise not changed. Energy and Health Care are preferred along with Consumer Noncyclical. I continue to avoid the Financial sector.

Within Commodities I continue to favor Precious Metals and Energy.

The International Sector showed some improvement last week and may continue to rebound on the news about the Greek bailout, however, from a technical basis, this sector is not favored and investments here should be carefully evaluated and only the strongest technical investments should be held. From a longer-term perspective, I prefer Emerging Markets over Developed Markets.

Generally bonds have remained a good place to hold cash. I prefer US corporate bonds and International bonds. US Treasury Inflation Protection notes have performed well and I like this as a hedge against the risk of rising interest rates.

While some doubts have been eased in Europe, uncertainty here at home continues to rise. Gold prices reflect investor uncertainty. I will be monitoring events here and abroad closely, and will communicate with my clients as needed.

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

Emerging market investments involve higher risks than investments from developed countries and also involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

Tuesday, July 19, 2011

US and global markets sagged under the weight of the European debt crisis and the fiscal uncertainty here at home.

The Dow Jones Industrial Average (DJIA) lost 177 points (-1.40%) last week as the S&P 500 gave back 28 points (-2.06%) and the Russell 2000 fell 24 points (-2.79%) pushing July returns back to near zero indicating that markets are struggling to digest and trade on the uneven news coming from Washington in the form of the debt ceiling debate and continued weak economic news. For the year the DJIA is up 7.79%, the S&P 500 is up 4.65%, and the Russell 2000 is up 5.76%.

Turning to specific sectors, only the Energy sector posted a positive gain of approximately 0.40% last week with the best performance found in the exploration and production sub-sector. Utilities and Consumer Staples outperformed the DJIA followed closely by Health Care. Financials, Industrials, and Telecom were the bottom three performers for the week. For the year, Energy, Health Care, and Real Estate lead while Financials, Information Technology, and Materials rank as the bottom three. Beyond the strong performance of the Energy, Health Care, and Real Estate sectors, every other of the eight remaining sectors (except Financials) have performed adequately and have not been a drag on portfolios. Financials continue to perform very poorly and I continue to avoid this sector completely.

International markets continue to struggle. The MSCI (EAFE) index was down 2.71% last week and is up just 0.17% for the year. On a regional basis, Europe has underperformed so far in July with Greece, Portugal, Italy, Spain, and France holding five of the bottom six positions globally for the month of July. Europe owns the bottom 14 country spots (out of 64 that I follow) so far in July as investors express doubts about the financial health of this region. Asia continues to lead building on early momentum this month. For the year, the United States ranks a respectable 17th out of 64 countries. Among the BRIC countries, Brazil, Russia, China, and India, only Russia is solidly positive for the year while China is off nearly 3% and Brazil and India are each of about 9%. This underperformance highlights the challenges that emerging markets have had this year coping with surging commodity prices and local inflation. Most emerging market governments have had to implement policies to curb economic growth to fight inflation and this in turn has hurt equity markets.

The US dollar weakened slightly and the Euro also gave back about a penny closing last week at $1.416. The US dollar has been on a generally positive trend since mid-April and this has helped hold back commodity prices, however, recently the US dollar has shown weakness especially after Fed Chairman Bernanke expressed his support for low interest rates and indicated a willingness to step in with another round of bond purchases (QE III) should conditions warrant.

Commodities have been bolstered this month by a surge in gold prices of nearly 6% in July along with almost a 2% increase in oil prices. Gold jumped $48.50 an ounce (3.15%) last week to close on Friday at $1590.10. WTI Oil added $1.04 per barrel to close Friday at $97.24. The impact of new supply provided by the Strategic Oil Reserve has done little to curb prices. Gold prices reflect uncertainty in investors minds while oil prices indicate a combination of demand and currency movements. The Dow Jones UBS Commodity Index has gained 2.8% for the week on the strength of precious metals (silver has also been performing well recently) and is now up 1.30% for the year.

The Barclays Aggregate Bond Index had its best weekly performance (+0.97%) so far in 2011 as investors continue to see a mountain of sub-par economic data, a continued accommodative Fed, and a firm belief that Washington will not default on its obligations. For the year, the Barclays is now up 3.99%. The 10-year Treasury yield closed Friday at 2.905% which is off lows reached earlier in the week. Longer duration bonds and inflation protection notes (TIPs) were among the best performers while International, preferreds, and high yield bonds were the worst. For the year, International, municipals, and TIPs have been the best performing general category of bonds while very short-term treasuries have been the worst.

UNCERTAINTY MOUNTS

For those of you who have been reading my Update regularly you know that I have consistently said that the price of gold is a measure of uncertainty in the markets. Looking across the global landscape one only sees uncertainty and worry. Uncertainty and worry are not new to financial markets, just look at American history over the past 100 years. This country has fought two world wars, numerous smaller conflicts, survived the Great Depression, an unprecedented oil embargo, and a cowardly terrorist attack on our nation. We have lived under the cloud of nuclear annihilation for nearly 70 years and yet the United States and world economy has expanded. So a little perspective helps now.

We are, however, confronting what I believe to be the crisis of our lifetimes. Spending and debt are at record levels in nearly all of the developed countries not just here. I recently saw a chart in the Wall Street Journal that illustrated US debt as a percentage of Gross Domestic Product (GDP). The chart shows that in the history of this country, we are at levels seen only during World War II when debt to GDP exceeded 100%. What the chart also shows is that the nation's debt was cut drastically in the years immediately following the war when 12 million servicemen and women were discharged from the military and military budgets were slashed. Looking forward from here, there is no such option. We cannot "discharge" the millions and millions of Americans living on social security or using Medicare. These numbers are only going to grow.

Europe is confronting an economic system that can only be described as flawed. Germany, France, and the Netherlands are supporting the spendthrift countries found in the southern regions of Europe. Reports that politicians are at least acknowledging that Greece has no chance of repaying its debt is helping reshape discussions to a more realistic outcome. For the first time leaders are looking at more than just kicking the can down the road.

A recent editorial on Bloomberg.com by Carmen Reinhart and Kenneth Rogoff (Too Much Debt Means the Economy Can't Grow: Reinhart and Rogoff) postulated that if debt to GDP ratio exceeds 90%, countries are increasingly unlikely to be capable of growing their way out of debt and suffer slow growth until the debt is retired either through default or inflation. The article also discusses that in developed countries, interest can rates remain relatively low as governments use financial repression to help pay off debt (interest rates are below real rates of growth). They also point out that higher interest rates generally do not signal a problem until very late in the game if at all. Japan continues to be the most recent example of this.

So how does this information translate to gold at $1600 per ounce? It signals a lack of confidence. A lack of confidence that the US political leadership will be able to lead our nation to a sustainable conclusion of the current debt burdens, that the Europeans will continue to struggle with unruly member nations, and that it is better to hold a tangible asset than the paper promises of countries that are growing increasingly fiscally unsound. So as you try to make sense of all of the macro economic data that is discussed in the media, just watch the price of gold and the rate on the US 10-year Treasury note. High gold prices and low interest rates signal pessimism while lower gold prices and higher interest rates would signal optimism.

LOOKING AHEAD

Last week's economic data was not good. First time unemployment claims remained above 400,000, consumer confidence is at very low levels, industrial output is anemic, and inflation is a little better but creeping upwards. Yet the DJIA is up over 9%, the United States is outperforming most countries around the world, and corporate earnings continue to come in strong.

US Stocks remained favored over Commodities, International Stocks, Bonds, and Currencies. Commodities, International Stocks, Bonds, and Currencies is trending weaker while US stocks continue to hold. Stocks are still favored over bonds, small and mid-capitalization stocks favored over large. Growth over value, and equal-weighted indexes over capitalization-weighted. Large capitalization stocks have shown signs of life and while I continue to prefer small and mid-capitalization stocks, I believe that large growth stocks will not be a drag on portfolio returns.

I maintain my comments about sectors. While I have no significant preference within the various broad economic sectors other than avoiding Financials, I am concentrating more on Health Care, Consumer Staples, Real Estate, and Energy. Utilities have proven to be a good bond-alternative option within the equity space.

International investments should be carefully considered. The strength around the world has been weak at best and any holdings should be evaluated with only the strongest technical holdings kept in the portfolio. From a relative strength basis, I continue to prefer Emerging Markets over Developed Markets.

Commodities have rebounded recently. Gold and silver are especially strong. Oil remains in a negative trend so I am less committed to oil in the near-term than I have been; however, I read a recent observation in the Wall Street Journal that said oil will win regardless of what the economy does. If economies falter, the Fed is likely to maintain a weak dollar policy (favors commodities) and if the economy strengthens demand will grow favoring oil. I am not initiating new positions in oil at this time, but I am not pushing to sell existing ones for now. Please keep in mind that commodities is a highly volatile asset class and entering positions in this category should be done so with the understanding that you are likely to experience greater volatility than with many other investments.

Bonds have been a stable investment so far in 2011. With the pullback late in June, bonds are not nearly as overbought as they had been and I believe remain attractive for now. I prefer high quality corporates, emerging market debt, and TIPs.

All eyes will remain on Washington and Brussels as the US and Europe will be working on their debt problems. Based upon US interest rates and the strength of the Euro, investors believe resolutions are coming; however, the rising price of gold show that they are hedging their bets!

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

Emerging market investments involve higher risks than investments from developed countries and also involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

Wednesday, July 13, 2011

Markets have been moving sharply since my last update. The last week in June saw all US major indexes surge over 5% followed by a leveling off last week. The extremely poor US employment report released on July 8th will weigh heavily on investors minds going into the new week. Europe has released additional funds to help Greece meet its most immediate needs, but a sharp sell-off in Italy on Friday has raised new worries about the strength of Europe. China's inflation rate reach 6.4% causing worries about forcing the government there to further reign in growth, and US politicians seem increasingly unable to reach a long-term compromise on US spending and tax reforms.

So far in the month of July, the Dow Jones Industrial Average (DJIA) has gained 243 points (2.03%) to close at 12,657 and the S&P 500 has gained 3 points (-0.24%) to close at 1344. The Russell 2000, an indicator of smaller capitalization stocks, posted a solid gain of 3.04%. For the year the DJIA is now up 9.33%, the S&P 500 is up 6.85%, and the Russell 2000 is up 8.97%.

Sector returns in July have seen a significant improvement in the Information Technology sector and continued strong performance in Real Estate. In addition, Consumer Discretionary, Materials, and Energy all bested the DJIA while Utilities, Health Care, and Financials are the bottom three performers. For the year, Health Care, Real Estate, Energy, Consumer Discretionary, Consumer Staples and Telecom have all posted double-digit gains and are ahead of the DJIA. Only Financials have significantly underperformed the main indexes and remains negative for the year.

International markets have not shared in the strong performance seen here in the US recently. The MSCI (EAFE) index is down 0.73% for the month and is up just 2.96% for the year. Developed Europe has seen strong sell-offs so far in July with the deficit crisis still dominating investors concerns. Italy, Spain, Greece, and Portugal are four of the five worst performing countries in July while strength has emerged in Asia with good returns in Thailand, South Korea, and the Philippines. Just over halfway through the year, Emerging European countries hold most of top spots of my list of countries while the Middle East owns the majority of bottom performers. Developed countries in general are outperforming emerging markets.

Commodities have been bolstered this month by a surge in gold prices. Gold has jumped $38.80 an ounce (2.58%) since the start of the month helped by a $59 gain just this past week to close on Friday at $1541.60. Clearly concerns about political and economic turmoil both here in the US and in Europe have contributed to gold's recent gains. Oil has increased $0.78 in July to close at $96.20 and is now up $4.98 (5.46%) for the year. Oil did see a drop of over $2 per barrel on Friday following the release of week jobs data here in the US. The Dow Jones UBS Commodity Index has gained 1.7% in July primarily on the strength of precious metals but remains down about 1% for the year.

Bonds suffered during the gains in equity markets the end of June but rallied significantly in the last couple of days. The 10-year Treasury yield closed Friday at 3.022% reflecting investor concerns over the strength of the US recovery while short duration bonds have underperformed so far in July. The Barclays Aggregate Bond Index is now up just under 3% for the year.

WHERE OH WHERE ARE THE JOBS?

The US unemployment rate jumped to 9.2% in June with only 18,000 jobs being added. Additionally, May's figure was revised downward to 25,000 from a previously reported gain of 55,000. There was no good news in the report anywhere and has raised serious concerns about the strength of the US economy going into the second half of 2011. If you factor in those workers who just quit working, the jobless rate goes to 11%. The best spin that can be put on this dreadful number is that unemployment has traditionally been a lagging economic indicator and that supply disruptions coming from Japan will be lessened as that country rapidly comes out of the stresses caused by the earthquake and tsunami. Manufacturing is still growing slightly and may improve if parts from Japan arrive here in pre-quake quantities.

The challenge is that employers are not going to start hiring more workers unless there is more economic activity, but economic activity will not improve without more people working and willing to spend. The drop in oil prices will help, but not unless the price of oil falls well below current levels. The White House blamed the ongoing debt ceiling impasse for employer unwillingness to hire, but in my opinion that is simply trying to make a bad day less bad. The markets, in my opinion, have already priced in that Congress will raise the debt ceiling and that the US will not default on its debt, so a favorable solution to this uncertainty will help, but I am not sure if it will enough to turn around employment numbers in a meaningful way.

Pressure is mounting on the Federal Reserve to do more than just keeping interest rates low, but so far, Chairman Bernanke has not shown much willingness to start buying more bonds (Quantitative Easing III). Economists will now begin to relook their 2011 growth projections and I would expect to see growth estimates drop to under 3% if for no other reason than we are simply running out of time this year. Pressure is also mounting on the White House. The closer we get to the 2012 election (now just 17 months away), the more likely new initiatives will be put forth for an uncertain result. At this point, I do not see much relief to these dismal numbers. Interest rates will offer some insight on how investors perceive the strength of the economy so watch the 10-year Treasury yield closely.

LOOKING AHEAD

This coming week marks the beginning of 2nd Quarter corporate earnings announcements. Good earnings numbers will help stem the worry surrounding the unemployment data and may boost the markets. If the numbers fail to meet expectations, I fear that the recent gains in the markets will be hard to hang on to.

My technical analysis is essentially unchanged. Stocks are still favored over bonds, small and mid-capitalization stocks favored over large. Growth over value, and equal-weighted indexes over capitalization-weighted. The New York Stock Exchange Bullish Percent (NYSEBP) did reverse last Wednesday into a column of X's meaning that there is more demand for stocks for now. Large capitalization stocks have shown signs of life and while I continue to prefer small and mid-capitalization stocks, I believe that large growth stocks will not be a drag on portfolio returns.

I maintain my comments about sectors. While I have no significant preference within the various broad economic sectors other than avoiding Financials, I am concentrating more on Health Care, Consumer Staples, Real Estate, and Energy. Utilities have proven to be a good bond-alternative option within the equity space.

International investments maintain a greater degree of risk in my opinion given the struggles in the Euro zone with Greece and other countries (Italy for now). I am not looking to add to international positions for now and would use weaker positions in your portfolio to raise cash.

Commodities have come under stress recently but over the longer-term precious metals and energy remain favored. Oil is in a negative trend so I am less committed to oil in the near-term than I have been. Please keep in mind that commodities is a highly volatile asset class and entering positions in this category should be done so with the understanding that you are likely to experience greater volatility than with many other investments.

Bonds have been a stable investment so far in 2011. With the pullback late in June, bonds are not nearly as overbought as they had been and I believe remain attractive for now. I prefer high quality corporates, emerging market debt, and TIPs.

There are no major economic reports due out this week, however, the Initial Jobless Claims (Thursday), Retail Sales (Thursday), the Producer Price Index (Thursday), and Consumer Price Index (Friday) will all be watched closely. Earnings reports will be the focus of the week and may help the market if companies show strong earnings.

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

Emerging market investments involve higher risks than investments from developed countries and also involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

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