We think the stock market will have a decent - though not spectacular - year in 2007. Corporate profit growth is likely to slow to single-digit rates. We expect that share prices will roughly track the growth in corporate profits. This view implies appreciation of 5% to 10% for the year. Remember, this is not a guarantee, merely our opinion.

A period of slowing profit growth normally favors “growth” stocks. Growth stocks are companies that consistently achieve better-than-average increases in earnings per share. Many of these companies are found in the health care, technology and consumer staples sectors of the market.

Bonds are likely to be a boring asset class in 2007. They have a place in a diversified portfolio; however, we do not believe that interest rates are likely to change significantly from current levels. (At the time of this writing, the yield on 10-year U.S. Treasury bonds is about 4.80% per year.) Bonds produce more income than stocks. In addition, they are less volatile than equities. During the inevitable downdrafts that occur from time to time in the stock market, bonds usually are stable in value.

We believe that investors should focus on companies with consistent earnings growth and strong balance sheets. Many companies with these characteristics have been laggards in the market for the last few years. In our opinion, these high-quality growth stocks offer attractive risk-reward prospects. (Dow Jones Industrial Average 12,674)

Foothills Asset Management’s commentary is provided for informational purposes only and should not be construed as investment advice. Statements that are non-factual in nature constitute only current opinions that are subject to change without notice. Foothills assumes no responsibility or liability from gains or losses incurred by the information herein contained. You should consult with your own financial advisor before making any financial decisions, including investments or changes to your portfolio.