John K' Lynch

1
Economic Market Outlook

• John K. Lynch
• Chief Market Analyst

May 2007
2
Agenda

• U.S. Economy
• Fed Interest Rates
• Equities Valuation

3
Real Gross Domestic Product
Q1 1.3 YOY 2.1
Source Wachovia Economics Group, Evergreen
Investments
4
Existing Home Sales
March 5.32 M
Use data series that includes condos March
should be 6
Source Baseline
5
2007 U.S. Economic Forecast
Source Strategas Research Partners
6
U.S. Economy Key Points

• Household Net-Worth
• Low Unemployment
• Solid Corporate Balance Sheets
• Productivity Labor Costs

Slow, But Steady Mid-Cycle Slow-Down
Source Strategas Research Partners
7
Federal Reserve and Interest Rates

• Banking System
• Employment
• Inflation
• Monetary Policy

8
Fed Funds vs. Treasuries
Source Wachovia Economics Group, Evergreen
Investments
9
U.S. Treasury Yield Curve
Yield Curve
Yield to Maturity
30 Year
Years to Maturity
Source Baseline, Lehman Brothers
10
Investment Grade Yield Spreads
High Yield Spreads
Merrill Lynch Corporate Master Index Yield less
Merrill Lynch Treasury Master Index Yield
Merrill Lynch High Yield Index Yield less
Merrill Lynch Treasury Master Index Yield
Source Bloomberg as of 4/302007
Source Bloomberg as of 4/30/2007
Source Baseline
11
Fed Rates Fixed Income Securities

• Treasuries
• Municipals
• Corporates
• High Yield
• International

12
Fed Rates Key Points

• Bernanke is Data Dependent
• Energy vs. Labor Costs
• Inflation Adjusted Interest Rates

Less Stimulative vs. More Restrictive
13
SP 500 vs. 200 Day Moving Average
Source Baseline as of 5/09/07
14
SP 500 Annual Operating EPS
Source Baseline
15
P/Es Since 2000
Source Baseline
16
Equity Valuation

• 2006 87.00
• 2007 Est. 93.00
• SP 500 FV Est. 1550

17
Economic Indicators by Decade
Source Strategas Research Partners
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Equity Investing Key Points

• Return to Quality
• Large vs. Small
• Growth vs. Value
• Trend for Dividends
• International

Market Growth Profit Growth
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Conclusion Focus on the Fundamentals

• Economic Growth
• Monetary Policy
• Corporate Profits
• Diversification