Wealth Management Weekly Update January 18, 2013

U.S. and World News

  • Ratings agency Fitch has again warned that it will formally review the status of the U.S.’s AAA rating if the debt ceiling isn’t raised, although the agency believes that the risk of a default on the country’s obligations remains extremely low.
  • The Consumer Financial Protection Bureau unveiled new rules this week that will require mortgage servicers to improve their efforts to ensure that struggling borrowers are able to keep their homes. Among other things, lenders will have to assess homeowners for all loan-assistance options, and not those that are most financially favorable for the loan servicer.
  • The Bank of Japan will reportedly consider making a pledge similar to that of the Federal Reserve and institute an open-ended asset purchasing program until the country reaches a new inflation target of 2%. It is believed that this policy would further weaken the Yen and strengthen Japan’s export economy.
  • Backing down from their hard-line stance, House Republicans said on Friday that they would agree to raise the Debt Ceiling for three months, with a requirement that a budget be passed in that time to clear the way for negotiations on long-term deficit reduction. The decision by Republicans seems to significantly reduce the threat of a federal government default in the coming weeks. The House will consider this plan next week.

 Markets

  • The S&P 500 Index rose by 1.0% this week and closed at 1,486. The Dow Jones Industrial Average also rose on the week, posting a gain of 1.2% and closed at 13,649. To start out 2013, the S&P and the Dow are up 4.2%.
  • Yields dipped a bit this week as the 5 year and 10 year treasury finished the week at 0.77% and 1.84% respectively.
  • The spot price of WTI Crude Oil rose this week by 1.9%, closing at $95.35 per barrel. So far in 2013, oil prices are up 3.8%.
  • The spot price of Gold rose by 1.4% this week and closed at $1,685.55/ounce. Year to date in 2013, gold is up 0.6%.

 Economic Data

  • Weekly Initial Jobless Claims plunged by 36,000 and came in much lower than expected at 335,000 vs. consensus expectations of 369,000. The 4-week moving average of jobless claims fell to 359,000, roughly in line with the levels before Superstorm Sandy. The Labor Department noted that part of this large drop in initial claims may be due to an issue with the seasonal adjustment of the data, in addition to the unusually warm weather we’ve experienced.
  • Housing starts were stronger than expected in December, rising by 12.1% vs. consensus estimates of 3.3%. Unusually warm weather in December may have aided housing starts to some extent but this report remains consistent with the continued broad improvement in housing market activity that we have been seeing.
  • The GDP in China rose by 7.9% year over year in the 4th quarter of 2012, which beat forecasts and tops 3rd quarter growth of 7.4%.  This reacceleration of growth reflects the efforts of the Chinese stimulus policies and reduces some fears of a ‘hard landing’ of economic growth in the country.
  • University of Michigan consumer sentiment continued to decline January, to a level of 71.3, in contrast to expectations of a slight turnaround to a consensus level of 75.0. Issues revolving around the uncertainty of fiscal policy, in addition to lower take home pay as a result of the expired payroll tax cut, resulted in the decline in sentiment.

Fact of the Week

  • The largest one day gain by the Dow Jones Industrial Average occurred in 1933, with the index posting a gain of 15.3%. Conversely, the largest one day drop in the Dow occurred on ‘Black Monday’ in 1987 when the index dropped 22.6%!

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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