Wealth Management Weekly Update January 25, 2013

U.S. and World News

  • As expected, the Bank of Japan has announced further easing measures designed to pull the country out of deflation and doubled their inflation to 2%. What wasn’t expected was that the plan to start open ended asset purchases of ¥13T ($145B) would not begin until January 2014.
  • The House of Representatives approved of a bill to suspend the nation’s $16.4 trillion debt ceiling through May 18 to avert a U.S. default on its legal obligations and buy Washington more time to negotiate budget issues. Both Senate Majority Leader Harry Reid and President Obama have indicated their approval of the measure as well. The bill requires both chambers of Congress to pass a budget by April 15th and if they do not, members’ salaries will be withheld.
  • Treasury Secretary Timothy Geithner left office on Friday and will be replaced temporarily by his deputy, Neal Wolin. The Senate still needs to confirm a permanent replacement, which is likely to be Obama’s selection Jack Lew. Geithner entered office in 2009 at the height of the financial crisis, and oversaw TARP and the bailout of companies such as Citigroup and General Motors.

 Markets

  • The S&P 500 Index rose by 1.1% this week and closed at 1,503. The Dow Jones Industrial Average also rose on the week, posting a gain of 1.8% and closed at 13,895. To start out 2013, the S&P and the Dow are up 5.4% and 6.0% respectively.
  • Yields moved higher this week as the 5 year and 10 year treasury finished the week at 0.85% and 1.94% respectively.
  • The spot price of WTI Crude Oil was flat this week, closing at $96.00 per barrel. So far in 2013, oil prices are up 4.0%.
  • The spot price of Gold fell by 1.5% this week and closed at $1658.65/ounce. Year to date in 2013, gold is down 1.0%.

 Economic Data

  • Weekly Initial Jobless Claims sustained their sizable drop from last week and fell by 5,000 and came in lower than expected at 330,000 vs. consensus expectations of 355,000. The 4-week moving average of jobless claims fell to 351,750. 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.
  • Data out of China continues to strengthen as the country’s Flash PMI reading increased to 51.9 from 51.5 in December. Flash PMI gives a first look at the levels manufacturing activity in an economy. This was the 5th consecutive rise for the index and is at its highest level in two years.
  • Japan remains in a state of deflation as core CPI, a measure of the purchasing power of consumers, came in at -0.2% year over year in December. The drop in prices was the seventh time in eight months that it has happened and demonstrates the challenge that Japan faces in trying to reach its 2% inflation target.

Fact of the Week

  • The Federal Reserve’s prodigious asset purchasing has pushed its balance sheet over the $3 Trillion mark. The extremely accommodative stance of the Fed has led to an expansion of its balance sheet of more than 300% since September 10, 2008, the week before Lehman Brothers collapsed.

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

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

Wealth Management Weekly Update January 11, 2013

U.S. and World News

  • President Obama nominated White House Chief of Staff Jack Lew as Treasury Secretary to replace Timothy Geithner who will leave his post on January 25th. Lew is a career government man, outside of a two year stint at Citigroup. He has faced opposition from Republicans as he has been a staunch defender of the entitlement programs that need to be reformed leading up to the coming debt ceiling debates.
  • Japan’s new prime minister, Shinzo Abe, announced a new ¥10.3T ($117B) stimulus plan as he seeks to pull the country’s economy out of deflation. The funds will go towards public works, incentives for corporate investment and aid for small businesses. To fund these projects, Japan will add to its already enormous national debt and sell around ¥5T more bonds.
  • Regulators have eased the Basel bank liquidity rules compared to those that were proposed two years ago. Lenders would be allowed a wider range of assets that qualify as capital buffers and they will be given until 2019, rather than 2015, to implement the new rules.

 Markets

  • The S&P 500 Index inched up by 0.4% this week and closed at 1,472. The Dow Jones Industrial Average also rose on the week, posting a gain of 0.4% and closed at 13,488. For the year 2012, the S&P and Dow were up 14.2% and 8.6% respectively. To start out 2013, the S&P is up 3.2% and the Dow is up 2.9%
  • Yields dipped a bit this week as the 5 year and 10 year treasury finished the week at 0.78% and 1.87% respectively.
  • The spot price of WTI Crude Oil rose this week by 0.5%, closing at $93.66 per barrel. Despite a recent rally in oil prices, they were down 8.6% in 2012. So far in 2013, oil prices are up 2%.
  • The spot price of Gold rose by 0.4% this week and closed at $1,662.85/ounce. Gold tumbled in the latter part of the year and ended up gaining only 4.5% in 2012. Year to date in 2013, gold is down 0.7%.

 Economic Data

  • Weekly Initial Jobless Claims dropped by 1,000 and came in higher than expected at 371,000 vs. consensus expectations of 365,000. The 4-week moving average of jobless claims rose to 365,750, roughly in line with the levels before Superstorm Sandy. The Labor Department noted that there were no special factors distorting claims this week.
  • Alcoa kicked of 4th quarter earnings season this week, reporting earnings that were largely in-line with consensus estimates. Forecasts for earnings this quarter across the stock market are mixed as some Wall Street analysts fear that another slowdown in earnings and sales growth will take place after last quarter’s somewhat disappointing numbers.

Fact of the Week

  • One market indicator, known as the “First Five Days” indicates that 2013 has a good chance of being a good year for stocks. According to the Stock Trader’s Almanac, a positive start during the first five trading days of a given year has a tendency to foreshadow a positive year for the market. In the last 39 ‘First Five Days’ that saw gains, full year gains followed in 33 of those years and a 13.6% average return was realized across all of those 39 years. The Dow Jones was up 1.7% during the first five trading days of 2013, which potentially bodes well for the rest of the year.

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

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