Quarterly Newsletter

The following highlights are excerpts from Associated Trust Company's quarterly newsletter: The Economic & Investment Environment, written by noted writer and speaker Sara Walker, CFA. Ms. Walker, a senior vice president and portfolio management team leader with the Milwaukee office of Associated Trust Company, is well known for her in-depth analysis of current market trends and objective outlook for the economy.

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• Thank goodness the first quarter of 2008 is over. Conditions were inhospitable to both stock market investors and almost anyone living above the 30th parallel. Volatility was rampant. The Dow Jones Industrial Average had more triple-digit days than in all of 2007. It eked out a +0.11% return in March and a -7.00% return for the first quarter. The S&P 500 was down -0.43% in March and a disconcerting -9.44% in the quarter. The NASDAQ composite was up +0.34% in March, but that was not much solace after declining -14.07% in the first quarter. The foreign markets were equally downtrodden. The Morgan Stanley EAFE index declined by -1.00% in March and -8.82% for the quarter.
• The bond market continued to be a sunnier place with a slight negative performance from the Lehman Government/Credit bond index of -0.01% for March. For the first quarter 2008, the performance was solidly in the black with a +2.53% return. U.S. Treasury Notes continued to benefit from investors’ flight to quality, which drove most of this performance.
• The Federal Reserve was particularly active in March, with a 75 basis point cut in its Federal Funds target rate. This target bank overnight lending rate has declined by 200 basis points in just two months, which has not happened in over 20 years! More importantly, in an effort to get to the heart of the credit crisis, the Fed opened is discount window to primary securities dealers for the first time since the Great Depression. This move allows dealers such as Goldman Sachs and Merrill Lynch to use their portfolios of mortgage-backed securities as collateral for loans from the Federal Reserve. It is designed to “unfreeze” certain parts of the credit markets that are frozen with fear.
• In respect of fear and its impact on all investment markets, the Federal Reserve also orchestrated a $30 billion purchase of Bear Stearns by J.P. Morgan Chase. Fear ran rampant that Bear Stearns would fail, and the Fed believed allowing this failure would put a tremendous drag on our economy.
• The Fed’s decisions reflected worries about the tenuous state of our economy. Recent reports highlighted the weakest consumer spending in over five years and 35-year record low levels of consumer confidence.
• This low level of confidence was justified by the March employment report. This report indicated a loss of 80,000 jobs during the month, with January and February job losses adjusted higher. The stock market reacted somewhat favorably to these numbers, however, as investors began to look forward and believe the worst had passed.

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The trust and investment services described are provided by Associated Trust Company, NA. Investment management services are provided to Associated Trust Company by Associated Investment Management, LLC. All are affiliates of Associated Banc-Corp.

Investment products are not FDIC insured, may lose value, and have no bank guarantee.