2013 Economic & Stock Market Outlook - Robert W. Baird

Baird Market & Investment Strategy 2013 Economic & Stock Market Outlook December 12, 2012 Please refer to Appendix – Important Disclosures. America Endures: The Bridge to the Next Secular Bull Market Outlook Summary Weight of the Evidence Mildly Bullish for Stocks Entering 2013; Intermediate Path Forward Dependent on Broad Market Participation U.S. Economy in Slow Growth Mode; Europe in Recession; Emerging Markets Outlook Improving 2013 Offers Potential for Pivot From Marking Time to Making Progress; Resolution of Major Fiscal Uncertainties Could Provide Bridge to Next Secular Bull Market for U.S. Economy & Stocks Risk on S&P 500 To 1100; Reward to 1500 Highlights: • Lack of Real Fiscal Progress Clouds Outlook • Central Banks Activity Provides Cover On Fiscal Front

• Immigration Reform Could Provide Opportunity For Economy • Business Spending Growth Cools Amid Uncertainty • Labor Market Improvement Still Tepid; Wage Growth Lackluster • Earnings Lose Momentum; Expectations Are Elevated • Risks Remain Elevated With Fear Notably Absent • Breadth Gains Needed For Rally To Persist th In mid-2013, the United States will mark the 150 anniversary of the Civil War Battle of Gettysburg. That battle, fought over the course of three days in July 1863, was significant at the time because it represented the largest number of casualties in a single battle in that war, but also, in retrospect, because it marked a turning point in the war. It was not climactic and dark days were not past, but the Union victory in the Pennsylvania countryside helped ensure that America would endure. President Abraham Lincoln captured this sentiment in his famous Gettysburg Address delivered months after the battle but before the war had fully run its course. That battle, that address, and the various monuments and memorials on either side of the National Mall in Washington, DC and around the country attest to the fact that America endures. And so we find ourselves entering a New Year compelled to recite the mantra: America endures? America endures. America Endures! What does this mean for the economy and the stock market for 2013? Bruce Bittles William Delwiche, CMT, CFA Chief Investment Strategist Investment Strategist bbittles@rwbaird.com wdelwiche@rwbaird.com 941-906-2830 414-298-7802 10R.17 2013 Economic & Stock Market Outlook Consider the headwinds: budget and tax reform. It has raised the long-  term cost of this inaction as the monetary policy While not met on an actual battlefield (U.S. has become complicit with (rather than involvement in military operations around the independent of) fiscal policy – the Fed is doing world is at its lowest level in well over a the one thing it should not do (fuel potential decade), we face challenges nonetheless that asset price bubbles) and not doing the one thing could challenge the American economic ethos of it should do (being a staunch defender of the innovation and entrepreneurship. We can use dollar against the cravings for easy money). France as a case study of where we do not want to end up.  The debt overhangs persist and addressing the  unfunded liability from entitlements gets harder We are emerging from a bitterly contested to address with each passing...

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