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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• The year 2009 turned out to be one for the record books in many ways. After a violent swoon early in the year, equities roared back. The S&P 500 gained +1.93%, +6.04% and +26.47% for December, the fourth quarter and the full year 2009, respectively. In the same order, the NASDAQ composite produced the following returns: +5.87%, +7.20% and +45.36%.
• Foreign markets were equally strong with the Morgan Stanley Capital EAFE index up +1.46%, +2.25% and +32.18% for December, the fourth quarter and the full year 2009, respectively. Emerging markets were especially strong in 2009 with Brazil gaining about +70% and China gaining about +50% in their own currencies. Dollar-denominated returns for U.S. investors were even higher as the U.S. dollar weakened.
• It was a tale of two bond markets as investors rediscovered the allure of risk and dumped U.S. Treasury securities. Investment-grade corporate notes gained about +16% for the year, which was the best performance for this market since 1995. Treasury securities lost about -3.30% during the year after a powerful +14% performance in 2008. The Barclays Government/Credit index, which includes both U.S. government securities and corporate securities, lost -1.77% in December, but gained +4.52% for the year. High-yield bonds (also known as junk bonds) benefited from the renewed appetite for risk, gaining over +58% in 2009.
• Fortunately, foreign investors held on to their U.S. Treasury securities and eagerly bought more. The U.S. sold a record $2.1 trillion of new issues in 2009 in order to fund the stimulus package and other spending. The Japanese and Chinese were the most significant foreign buyers of our debt. The U.S. is expected to raise an additional $2.45 trillion of debt in 2010.
• Many economic indicators showed solid improvement in 2009. November’s employment report showed a loss of 11,000 jobs, which compared favorably to early 2009 reports of 700,000 job losses. Additionally, jobless claims fell sharply in December to levels not seen since mid-2008. Hiring activity of temporary workers gained for the fourth month in a row. The increased use of temporary workers often presages the hiring of permanent employees. The Institute for Supply Management’s manufacturing index remained above its neutral 50 level for the fifth consecutive month in December and reached its highest level since April 2006.
• Rain continued on some parts of the parade as small business owners remained challenged by reduced access to credit, slow sales and low confidence. The National Federation of Independent Business (NFIB) optimism index showed little improvement since May 2009 with more employers planning to cut workers than add workers over the next three months.
• Individual investors remained skeptical of the stock market despite its triumphant performance. A net $35 billion was withdrawn from domestic equity mutual funds by U.S. investors in 2009, and $3.3 trillion (down from $3.9 trillion) still sits on the sidelines earning minimal interest.

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SECURITIES AND ADVISORY SERVICES ARE OFFERED BY ASSOCIATED INVESTMENT SERVICES, INC. (“AIS”), member FINRA and SIPC, d/b/a Associated Investment Services Group in Minnesota. • Insurance products are offered by licensed agents of Associated Financial Group, LLC. (“AFG”). • Fiduciary, administrative, and planning services are provided by Associated Trust Company, N.A. (“ATC”). Investment management services are provided to ATC by Associated Investment Management, LLC (“AIM”). • Securities and insurance products offered are NOT deposits or obligations of, insured or guaranteed by Associated Banc-Corp (“AB-C”) or any bank or affiliate, are NOT insured by the FDIC or any agency of the United States, and involve INVESTMENT RISK, including POSSIBLE LOSS OF VALUE. • Advisory services may not be available in all locations. • AIS, AFG, ATC and AIM are all affiliates of AB-C. • Associated Wealth Management is a marketing name AB-C uses for products and services offered by AIS, AFG and ATC.