June 30, 2001

The passage of the budget resolution at the beginning of the quarter assured the passage of the Bush tax program. In response to the improved tax environment, the larger capitalization stocks improved their relative performance. However, with the defection of Senator Jeffords, the surge in large-cap stocks faded. The democrats regaining control of the Senate created some uncertainty and the possibility of a rise in regulations. The forecast for the next four quarters is quite interesting. On balance, the model suggests that the smaller issues are the place to be. We look for the market to rotate away from the mid-caps to the small capitalization stocks by the beginning of next year.

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