Wealth Management Weekly Update February 8, 2013

U.S. and World News

  • The Department of Justice announced that they are filing civil charges against McGraw Hill Companies, the parent company of the S&P Ratings unit. The suit is seeking financial penalties for S&P’s role in the financial crisis as the DOJ alleges the ratings agency knowingly inflated the ratings of mortgage bonds, which misrepresented the riskiness of the products. Many of these mortgage bonds that had been rated AAA proved to be made up of subprime junk when home prices started to fall in 2007.
  • President Obama has asked Congress to craft a small package of short-term spending cuts and tax revenue increases in order to delay the automatic across-the-board spending cuts, known as the sequester, that are scheduled to kick in March 1st. The request appears to be another instance of lawmakers kicking the can down the road because they claim that they “haven’t had enough time” to achieve a bigger budget deal.
  • Japanese Finance Minister Taro Aso has said that the yen’s sharp decline in value since November has happened too quickly. His comments come amid international criticism of the falling yen and talk of “currency wars.” Japan’s monetary policy is sure to be a big issue next week when the G20 Finance Ministers meet in Moscow.  

 

Markets

  • The S&P 500 Index rose by 0.3% this week and closed at 1,518. The Dow Jones Industrial Average on the other hand fell a bit on the week, posting a loss of 0.1% and closed at 13,993. Equity markets paused a bit this week but maintain their great start to 2013; the S&P and the Dow are up 6.4% and 6.8% respectively.
  • Treasury yields backed off this week as the 5 year and 10 year treasury finished the week at 0.83% and 1.95% respectively.
  • The spot price of WTI Crude Oil fell this week by 2.0%, closing at $95.79 per barrel. So far in 2013, oil prices are up 3.8%. This week broke a string of 8 consecutive weeks that the price of oil had risen.
  • The spot price of Gold was essentially unchanged this week and closed at $1668.15/ounce. Year to date in 2013, gold is down 0.4%.

 

Economic Data

  • Weekly Initial Jobless Claims ticked down a bit this week and fell by 5,000 and came in higher than expected at 365,000 vs. consensus expectations of 360,000. The 4-week moving average of jobless claims fell to 350,500. Last week’s jump in claims was sustained this week and we’re starting to see a little bit of weakness in the labor markets as the payroll tax hike could be having an effect.
  • 4th Quarter earnings have been generally positive following some worries of a slowdown after a somewhat disappointing 3rd quarter. With 341 of 500 S&P 500 companies reporting, 75% exceeded profit projections and 67% have beaten sales estimates. It will be important for companies to keep growing the top line in an environment that includes some economic headwinds (sequester, troubles in Europe).

Fact of the Week

  • Including dividends, the S&P 500 gained 135% from March 2009 through January 2013, during what most people remember as the “Great Recession.” It gained the same amount from 1996 to 2000, during what people remember as the “greatest bull market in history.”

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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