After a difficult August, stocks opened September on a strong note, with equity markets rallying sharply in the first few trading days of the month. Factoring in last week’s gains, stocks have moved off of the lower end of their trading range and are approximately back in the middle of the range they have been in for the past several months.

We can identify a host of reasons why stocks were able to stage a rally last week. First, we saw some modestly improved economic statistics, chiefly stronger retail sales figures and a better-than-expected Institute of Supply Management survey. Second, employment data came in somewhat better than expected, both in terms of unemployment claims and payrolls growth. Third, there has recently been some evidence that investors are reallocating assets from bond markets into stocks. Fourth, technical indicators were slightly improved. Fifth, certain commodities (such as copper) have seen significant price increases, possibly signaling improvements in global economic growth. Sixth, some corporate reports have indicated that company managements are growing more optimistic. Seventh, there has been some increased chatter from both Democrats and Republicans in Washington, DC, that tax cuts may be in the offing. And, eighth, recent sentiment surveys have pointed to extreme bearishness, which historically has been a sign that equity markets were at their low.

To us, the single most important factor that will determine whether the current economic recovery can become self-sustaining is employment.

In recent weeks, we have been highlighting the strength in corporate earnings as a positive sign for the markets, and to this factor, we would also add increasing merger and acquisition activity and the easing of some lending standards as important tailwinds for stocks. There are a number of roadblocks that have been holding the equity market back, however, and the majority of these are likely to persist. The housing market remains deeply troubled and consumers continue to work through a painful deleveraging process. Additionally, despite last week’s positive economic surprises, we fully expect disappointments to continue as well.

We welcome your comments and questions…

Martone Capital Management, Inc.

William A. Martone - President - CLU, ChFC

Michael C. Martone - Registered Principal

50 Main Street - Suite #1000 White Plains, NY 10606

Telephone: (914) 682 - 2151    Fax: (914) 682 - 2166

Toll Free: (877) 682 - 2151

Website:www.martonecapital.com

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William Martone is President and Senior Portfolio Manager of Martone Capital Management, Inc., which was founded in 1994. Bill has 38 years of experience in the financial services industry and manages portfolios for both individual investors and pension funds using multiple investment strategies. Bill is a Chartered Financial Consultant, Chartered Life Underwriter, and New York State Registered Investment Advisor. He is frequently quoted in the Westchester Journal Business News as well as other publications. In May 2000, Bill and his firm were featured on CNNfn.