Economic Update - Baker Tilly

The economy
Monthly economic and
market commentary
April 2013
Mixed signals
Although the stock market is hitting new highs, there is some concern
that the strong growth rate the economy experienced in the third
quarter has cooled. The Commerce Department revised the growth
rate for the fourth quarter to a meager 0.4 percent. Extensive talk
about the fiscal cliff, sequestration, and Federal spending caps has
kept investors’ confidence from growing. Retail sales are up fairly
briskly at 4.6 percent over one year ago, and real estate had a
relatively consistent recovery throughout the United States. However,
the memory of the “Great Recession” seems to be lingering and the
continued gridlock in Washington with periodic disputes between
Republicans and Democrats has been keeping consumer confidence
levels low.
The stock market
So far, so good
The stock market is experiencing a sustained rally beyond 2012.
Year-to-date the Dow Jones Industrial Average is up 11.3 percent,
while the S&P Index is up 10.0 percent. In fact, most all indexes are
experiencing double-digit gains with weak performance concentrated
in some international markets and commodities in general (see chart).
Many are concerned that the stock market is overextended. However,
the PE estimate for Dow stocks is 12.95, up from 12.63 one year ago
on April 1, 2012. Similarly, the dividend yield is still at a healthy 2.44,
compared to 2.49 one year ago. These forward looking PE ratios are
well within traditional valuations and some might argue low given the
alternative investment yields in the bond market. In the stock market,
danger always lurks with the unknown. However, if we can maintain
a robust economy, the possibility of continued stock gains is a viable
proposition.
The bond market
Yields drift up as total returns languish
Although the stock market brought substantial returns, the bond
market thus far in 2013 is much more subdued. Bond market
performance in US Government bonds, municipal bonds, TIPS, and
corporate bonds had a total return of plus or minus 0.5 percent
year-to-date on average. High yield bonds, however, are up 2.9
percent year-to-date, but represent an area of concern for the
Federal Reserve. Multiple Federal Reserve governors have indicated
the spread between Treasuries and high yield bonds is less than 5
percent, noting that the $72 billion in new investment in high yield
bonds last year could be creating a bubble. Narrowing spreads and
decreasing credit quality are signs to look out for in high yield bonds.
If these trends continue, the long winning streak of high-yield bonds
may be coming to an end. Finding bonds that will perform well in
a rising interest rate environment or an environment in which rates
remain stable is the goal of most money managers today.
Source: Wall Street Journal
Connect with us:
Laura Barry 414 777 5408
Kelly Baumbach 608 240 2682
Indexes
Stock indexes
Dow Jones 14,579
YTD
11.3%
Prime rate
LIBOR rate (3 mos.)
3.25%
0.28%
Treasury yields
6-month 0.11%
1-year 0.14%
Robert Cron 612 876 4843
Jay Czarapata 414 777 5856
Justin Goldstein 608 240 2589
Steve Hooyman 920 739 3351
Bruce Laning 414 777 5585
S&P 500 1,569 10.0% Unemployment rate 7.6% 2-year 0.23%
Marc McDowell 608 240 2486
NASDAQ 3,268 8.2% 15-year mortgage rate 3.08% 5-year 0.76%
Jennifer Miland 608 240 2408
Bond indexes
Broad Market Barclays Aggregate 1,856
US Corporate Barclays Capital 2,468
0.67%
0.12%
30-year mortgage rate
CPI (12-months ending 3/31/2013)
GDP (fourth-quarter 2012 revised)
3.87%
2.0%
0.4%
10-year
30-year
1.86%
3.08%
Curt Parish 608 373 3027
John Richards 608 240 2655
Tiffany Rovaina 612 876 4842
Dale Schumacher 612 876 4870
US Agency Barclays 1,890 0.39% Oil price (price/barrel) $97.23
Amy Sitter 920 739 3340
Mortgage-Backed Barclays 1,016 0.97%
Source: The Wall Street Journal, US Department of Treasury
Gold (oz.) $1,536.20
bakertilly.com
An independent member of Baker Tilly International
Baker Tilly Investment Advisors, LLC, is a registered investment advisor and a subsidiary of Baker Tilly Virchow Krause, LLP. Securities are offered through Baker Tilly Capital, LLC,
member FINRA and SIPC (Office of Supervisory Jurisdiction: Ten Terrace Court, Madison, WI 53718, 800-362-7301). Baker Tilly Virchow Krause, LLP is an independently owned and
managed member of Baker Tilly International. This publication should not be viewed as a recommendation, an offer to sell, or a solicitation of an offer to buy a particular security or service.
The commentary provided is for informational purposes only and should not be relied on for accounting, legal, tax or investment advice. Financial information is from third-party sources.
While such information is believed to be reliable, it is not verified or guaranteed. Performance of any indexes is provided for reference and competitive purposes only without factoring any
fees, commissions and other charges. Individual results achieved by investors will be different from those of the indexes. Indexes are unmanaged; one cannot invest directly into an index.
The views and opinions expressed are those of Baker Tilly Investment Advisors, LLC, and they are subject to change at any time. Past performance does not imply or guarantee future
results. Investing in securities involves risks, including possible loss of principal. Diversification cannot assure a profit or guarantee against a loss. Investing involves other forms of risk that
are not described here. For that reason, you should contact an investment professional before acting on any information in this publication. © 2013 Baker Tilly Investment Advisors, LLC

Economic indicators
Leading
Lagging
Consumer
confidence
Spending
+
-
+
-
Manufacturing +
-
GDP growth
+
-
Inflation +
Housing +
Job growth
+
-
Monthly economic
update
April 2013
> The consumer confidence index fell in March to a reading of 59.7, down from
the February reading of 68. (1985=100, The Conference Board)
> University of Michigan/Reuters consumer-sentiment index rose in March to
78.6 from a February reading of 77.6.
> Retail sales rose 1.1% in February from a month ago and are up 4.6% from a
year ago. (Commerce Department)
> Consumer spending rose by 0.7% in February from a month ago, while
personal incomes rose by 1.1%. (Commerce Department)
> The Savings rate rose slightly in February to 2.6%. (Commerce Department)
> The household debt service ratio (debt to disposable income) is currently at
10.38% as of Q4 2012, down from 13% in 2008 as mortgage obligations
have fallen. (Federal Reserve)
> March reading fell slightly with a reading of 54.4. (Institute of Supply
Management)
> Inventories of manufactured durable goods rose by than 0.4% in February. (US
Census Bureau)
> In the Commerce Department’s third and final estimate, fourth quarter GDP
rose by 0.4%. A revision to nonresidential fixed investment was the main
contributor.
> CPI increased 0.7% in February from a month earlier and 12 month CPI rose to
a rate of 2.0%. The gasoline index rose 9.1% and was the largest contributor
to the increase. (Bureau of Labor Statistics)
> Core CPI (CPI – food & energy) increased by 0.2% in February from a month
prior and the annual rate rose slightly to 2.0%. (Bureau of Labor Statistics)
> The 20 city Case-Shiller Index (home-price readings) rose by 0.1% in January
from a month ago, and the index was up 8.1% over the past 12 months.
(Standard & Poors)
> Existing home sales rose by 0.8% in February from a month earlier. (National
Association of Realtors)
> New home sales fell by 4.6% in February from a month earlier. (US Census
Bureau)
> The Labor Department reported that employers added 88,000 jobs last month
while the unemployment rate fell one-tenth of a percentage point to 7.6%,
largely because of people dropping out of the work force.
March’s economic
indicators were
moderately positive
with a slight
improvements across
multiple indicators.
> Consumer spending
rose by 0.7% and
the Savings rate rose
slightly in February to
2.6%.
> Inventories of
manufactured durable
goods rose by more
than 0.4% in February.
> In the Commerce
Department’s third and
final estimate, fourthquarter
GDP rose by
0.4%. A revision to
nonresidential fixed
investment was the
main contributor.
> Existing home sales
rose by 0.8% in
February from the
previous month.
> The unemployment
rate fell to 7.6% as
employers added
88,000 jobs.
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An independent member of Baker Tilly International

Headlines
Monthly economic
update
April 2013
Foreign markets struggled during first quarter.
Source: JP Morgan, S&P, MSCI, Factset
Source: JP Morgan Global Research
Source: JP Morgan, Eurostat, Factset
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An independent member of Baker Tilly International

Equity markets
20%
15%
10%
5%
0%
-5%
-10%
10.6%
3.8% 4.3% 4.6%
Source: Morningstar, Inc.
Source: Standard & Poors
Source: Morningstar, Inc.
S&P 500 Russell Mid
Cap
Monthly economic
update
April 2013
Equity market performance
13.0% 12.4%
Russell
2000
5.1%
0.8%
March YTD 2013
-1.7%
-1.6%
MSCI EAFE MSCI
Emerging
Markets
18% Sector performance
16%
14%
12%
10%
8%
6%
4%
2%
0%
5.4%
13.0%
6.4%
15.8%
14.6%
4.9%
3.4%
9.5%
4.6%
2.5% 2.2% 1.9%
March YTD 2013
10.7% 10.2%
3.8%
1.0%
-4.7%
7.0%
2.7%
Gold (GLD) REITS
11.4%
4.9%
12.2%
2.4%
4.8%
Domestic markets were strong, while foreign
markets lagged.
Consumer stocks lead sector returns, along with
healthcare and utilities.
S&P 500 Index breaks through record price level,
valuations remained below historical averages for
large cap stocks.
Source: chartoftheday.com
Source: Standard & Poors
bakertilly.com
An independent member of Baker Tilly International

Monthly economic
update
April 2013
Fixed-income markets
5%
0%
-5%
0.1%
-0.2%
Source: Morningstar, Inc.
-0.4%
0.3%
0.3% 0.0%
-0.4%
-0.2%
1.0%
2.9%
US Government Munis TIPS Corporate Bonds High Yield
Source: US Department of Treasury, Barclays
Bond market performance
March YTD 2013
4.00
3.50
3.00
2.50
2.00
1.50
1.00
High yield bonds trend higher as spreads continue to shrink.
Most other sectors show minimal change as interest rates
held fairly steady in March.
Source: US Department of Treasury
Source: Barclays Capital
High yield bond market
2012 - 2013 Treasury Yields
30 Year Bond
10 Year Note
bakertilly.com
An independent member of Baker Tilly International
Baker Tilly Investment Advisors, LLC, is a registered investment advisor and a subsidiary of Baker Tilly Virchow Krause, LLP. Securities are offered through Baker Tilly Capital, LLC,
member FINRA and SIPC (Office of Supervisory Jurisdiction: Ten Terrace Court, Madison, WI 53718, 800-362-7301). Baker Tilly Virchow Krause, LLP is an independently owned and
managed member of Baker Tilly International. This publication should not be viewed as a recommendation, an offer to sell, or a solicitation of an offer to buy a particular security or service.
The commentary provided is for informational purposes only and should not be relied on for accounting, legal, tax or investment advice. Financial information is from third-party sources.
While such information is believed to be reliable, it is not verified or guaranteed. Performance of any indexes is provided for reference and competitive purposes only without factoring any
fees, commissions and other charges. Individual results achieved by investors will be different from those of the indexes. Indexes are unmanaged; one cannot invest directly into an index.
The views and opinions expressed are those of Baker Tilly Investment Advisors, LLC, and they are subject to change at any time. Past performance does not imply or guarantee future
results. Investing in securities involves risks, including possible loss of principal. Diversification cannot assure a profit or guarantee against a loss. Investing involves other forms of risk that
are not described here. For that reason, you should contact an investment professional before acting on any information in this publication. © 2013 Baker Tilly Investment Advisors, LLC