Wealth Management Weekly Update January 4, 2013

U.S. and World News

  • A ‘mini-deal’ resolution was passed this week regarding the Fiscal Cliff. Here are some of the highlights:
    • The Bush era tax cuts were made permanent for all individuals making under $400K and couples making less than $450K. Those who earn more than this threshold will see their income, capital gains and dividend taxes all rise.
    • The payroll ‘tax holiday’ on Social Security was allowed to expire which means that everyone’s taxes will effectively go up an additional 2% in 2013.
    • The Alternative Minimum Tax issue was fixed as it is now linked to inflation. The tax was set to hit many middle income households if this had not been rectified.
    • The $110B in automatic spending cuts, known as Sequestration, were delayed for two months in order to buy lawmakers more time to deal with the issue.
    • While the revenue side of the equation has largely been resolved, nothing was done to address the nation’s large spending problem which mainly pertains to its underfunded entitlement programs. Focus in Washington now turns to these issues as another political battle is set to take place as the nation’s debt ceiling has been reached and must be addressed. Expect the political rancor to flare back up in the next two months.
  • The minutes from the latest Fed meeting were released this week and they showed the Fed policy officials are about evenly divided between those supporting the open ended Quantitative Easing policy and those who want to end the bond buying program by the middle of this year. This surprising division within the Fed indicates that their “money printing” policy may end earlier than previously thought.

Markets

  • The S&P 500 Index soared by 4.6% this week and closed at 1,466. The Dow Jones Industrial Average also rose on the week, posting a gain of 3.8% and closed at 13,435. Stocks rallied on Wednesday by more than 2% following the passage of the Fiscal Cliff deal on New Year’s Day. For the year 2012, the S&P and Dow were up 14.2% and 8.6% respectively.
  • Yields have been rallying the last few weeks as the 5 year and 10 year treasury finished the week at 0.81% and 1.90% respectively. This move is likely due to a combination of a stabilizing US economy and lowered fears regarding the Fiscal Cliff.
  • The spot price of WTI Crude Oil rose this week by 2.5%, closing at $93.11 per barrel. Despite a recent rally in oil prices, they were down 8.6% in 2012.
  • The spot price of Gold fell by 0.1% this week and closed at $1,657.90/ounce. Gold tumbled in the latter part of the year and ended up gaining only 4.5% in 2012.

Economic Data

  • Weekly Initial Jobless Claims rose 22,000 and came in higher than expected at 372,000 vs. consensus expectations of 360,000. The 4-week moving average of jobless claims fell to 360,000. The Labor Department continues to note that figures may be skewed due to holiday reporting.
  • The December Labor Department employment report showed the creation of more jobs than expected, coming in at a gain of 155,000 vs. consensus expectations of 152,000.
    • The headline unemployment rate ticked up to 7.8% which was in line with expectations.
    • Overall, it was a good but not great employment report. Participation rates remain at record lows but data on hours worked and earnings surprised to the upside.

Fact of the Week

  • The Dow Jones Industrial Average was created by Dow Jones and Company in 1896 and is made up of 30 companies that act as the standard bearers for the economy. The constituent of the group is General Electric, which was added in 1907.

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann – (630) 844-5730 rgartelmann@oldsecond.com
Dayle Malone – (630) 906-5489 dmalone@oldsecond.com
Brad Johnson – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg – (630) 966-2462 jrunnberg@oldsecond.com

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