Wealth Management Weekly Update June 28, 2013

Money6

U.S. and World News

  • Liquidity concerns cropped up in China this week as the People’s Bank of China allowed short-term lending rates to spike in a move interpreted as an attempt to rein in the country’s ballooning lending market. The PBOC stepped in later in the week to ease the credit crunch that it had engineered, saying it has provided liquidity to banks and that it will inject cash based on the market’s actual situation. This is another example of the increased effect central banks are having on market volatility.  
  • The White House has reportedly begun assembling a list of candidates to replace Ben Bernanke as the Federal Reserve Chairman. This comes as no surprise following President Obama’s “firing” of Bernanke last week. There is no clear front runner but many believe that Fed Vice-Chair Janet Yellen may be the favorite, while Larry Summers and Timothy Geithner may also be in the running.

 Markets

  • Stock markets rebounded a bit as the S&P 500 Index rose 0.85%, closing at 1,606. The Dow Jones Industrial Average was up 0.72% to close at 14,909. After this week’s bounce, the S&P and the Dow were up 2.36% and 2.27% respectively for the 2nd quarter and up 12.6% and 13.8% year to date.
  • Treasury yields fell back down a bit this week after their rapid climb higher as several Fed officials this week tried to soothe the bond market’s fears regarding tapering of asset purchases. The 5 year and 10 year treasury finished the week at 1.40% and 2.49% respectively.
  • The spot price of WTI Crude Oil rose this week, increasing by 3.0%, closing at $96.52 per barrel. For the 2nd quarter, oil prices were down 1.0% and on the year, they are down 2.9%.
  • The spot price of Gold continued its nose dive this week, dropping by 4.9% and closing at $1,232.55/ounce. Gold was down 22.8% for the 2nd quarter and is down 26.4% this year.

 Economic Data

  • Weekly Initial Jobless Claims fell this week as claims decreased by 8,000 and came in in-line with expectations at 346,000. The 4-week moving average of jobless claims moved down to 346,000.
  • Personal Consumption Expenditure prices, the measure of inflation the Federal Reserve uses for its policy targets rose 0.1% last month. Over the last 12 months, PCE has risen 1.0%, continuing the subdued inflation well below the Fed’s 2.0% target for altering policy.
  • The Case-Shiller home price index rose more than expected in April, seeing gains of 1.7% month over month. On a year over year basis, the home price index is up over 12%.
    • New Home sales also beat expectations, rising by 2.1% in May vs. consensus expectations of 1.3%. Sales increased in the Northeast, Midwest and West regions.

Fact of the Week

  • According to Moody’s, U.S. states have a combined pension shortfall of $980 billion, or the equivalent of 66% of their income from taxes collected on average, including money from federal block grants and aid. Nebraska has the smallest gap relative to their revenue with a shortfall of 7%. Illinois, not surprisingly, has the largest hole with a shortfall of 141% of the state’s revenue.

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

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@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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Wealth Management Weekly Update June 21, 2013

Money6

U.S. and World News

  • Despite the fact that there was seemingly no new information released, a combination of details from the Federal Reserve meeting and Chairman Ben Bernanke’s post-meeting press conference sent markets into turmoil this week. Bernanke signaled that the Fed may soon start tapering down its current $85 billion in monthly asset purchases (likely cutting them to $65 billion) as soon as later this year should economic conditions (such as employment and inflation expectations) improve. He went on to say that purchases altogether could end in mid-2014 should those same measures strengthen. However, with the unemployment rate well above their stated goal of 6.5% (currently 7.6%) and the rate of inflation slowing, it will take significant improvement before we’re likely to see any sort of monetary tightening.
    • St. Louis Fed chief Jim Bullard took issue with Bernanke’s comments laying out a plan for reducing QE, saying that it was “inappropriately timed.” Bullard (and many economists) wonders how the committee could permit the announcement of a less accommodative approach at the same time it was cutting its economic outlook for 2013. He stated, “Policy action should be undertaken to meet policy objectives, not calendar objectives.”
  • In an interview this week, President Obama indicated that Fed Chairman Ben Bernanke’s time as the head of the Federal Reserve will be drawing to an end. Obama stated that Bernanke has already stayed in the position “a lot longer than he wanted or he was supposed to.” Bernanke’s second four-year term is due to end on January 31st.
  • Brazilian President Dilma Rousseff has called an emergency cabinet meeting after two weeks of demonstrations culminated in over 1.25 million people marching in more than 100 cities of Brazil. The protestors are angry about a range of economic issues facing the country, including the huge sums of money spent on next year’s World Cup which will be held there.

 

Markets

  • Stock markets ended the week down as the S&P 500 Index fell 2.1%, closing at 1,592. The Dow Jones Industrial Average was down 1.7% to close at 14,799. After this week’s decrease, the S&P and the Dow are respectively up 11.6% and 12.9% year to date.
  • Treasury yields rose substantially this week as Ben Bernanke’s comments regarding the tapering of asset purchases have caused all areas of the bond market to sell off. The 5 year and 10 year treasury finished the week at 1.42% and 2.53% respectively. The 10 year treasury yield is at the highest level it has been at since August of 2011.
  • The spot price of WTI Crude Oil fell this week, decreasing by 4.4%, closing at $93.69 per barrel. On the year, oil prices are only marginally lower.
  • The spot price of Gold tumbled this week on fears about the possible scaling back of Fed asset purchases, plummeting by 7.1% and closing at $1291.60/ounce. Gold is down 22.9% for the year.

 

Economic Data

  • Weekly Initial Jobless Claims rose this week as claims increased by 8,000 and came in higher than expected at 354,000 vs. consensus expectations of 340,000. The 4-week moving average of jobless claims moved up to 348,000.
  • Headline Consumer Price Index rose only 0.1% in May vs. consensus expectations of  0.2%. Data such as this continues to indicate that inflation is low in the U.S. at the moment which would likely give the Fed more time to wait on improvement before it starts tapering asset purchases.

Fact of the Week

  • There have been 12 official recessions in the United States since 1940. The most recent recession ended on 6/30/09. The 5.06 million jobs that have been gained in the country since 6/30/09 ranks #8 (out of the 12) in terms of jobs added nationally in the 47 months following the end of every recession since 1940. The best bounce back was the 12.41 million jobs added in the 47 months following the recession that ended in March 1975.

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

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@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

Visit Old Second Wealth Management

Wealth Management Weekly Update June 14, 2013

Money6

U.S. and World News

  • Japanese Prime Minister Shinzo Abe announced that he intends to introduce corporate tax cuts for capital expenditures as part of the government’s sweeping plan to pull the economy out of deflation. Abe originally disappointed markets last week when these provisions were not included when he unveiled the plan. Despite the announcement, extreme volatility continued in the Japanese markets this week as the Nikkei officially entered bear market territory with the index more than 20% off of its highs.
  • The Senate passed a $955 billion agriculture bill that would reduce farm spending by $18 billion over the next decade, partly by ending the practice of making direct payments to farmers irrespective of crop yields, market prices and the economy. The bill would also slash spending on food stamps by $4 billion. The House is expected to take up its version of the legislation next week, which includes cutting food stamp by $20 billion.
  • The Wall Street Journal’s Jon Hilsenrath, who seems to have the inside track on the inner workings of the Federal Reserve, quoted officials as saying that a tapering of asset purchases doesn’t mean an end to those purchases. Officials also said that a hike in short-term interest rates isn’t anywhere close to being on the radar at this point.

 

Markets

  • Stock markets ended the week down as the S&P 500 Index fell 1.0%, closing at 1,627. The Dow Jones Industrial Average was down 1.2% to close at 15,070. After this week’s decrease, the S&P and the Dow are respectively up 15.0% and 14.1% year to date.
  • Treasury yields came back down this week as discussion as to when the Federal Reserve will begin to taper their asset purchases continues. The 5 year and 10 year treasury finished the week at 1.03% and 2.13% respectively.
  • The spot price of WTI Crude Oil rose again this week, increasing by 1.9%, closing at $97.86 per barrel. On the year, oil prices are up 4.4%.
  • The spot price of Gold was slightly up this week, rising by 0.5% and closing at $1390.36/ounce. Gold is down 17.0% for the year.

 

Economic Data

  • Weekly Initial Jobless Claims fell this week as claims decreased by 12,000 and came in lower than expected at 334,000 vs. consensus expectations of 346,000. The 4-week moving average of jobless claims moved down to 345,000. After recent volatility, jobless claims appear to be continuing their downward trend.
  • University of Michigan consumer sentiment fell to a reading of 82.7 vs. consensus expectations of 84.5. The drop was driven by consumers’ assessments of current conditions.
  • U.S. states are expected to end their fiscal year on June 30th with a combined surplus of $23.7 billion after taking in stronger than expected revenues. However, the future is more uncertain, as revenues this year may have been boosted by citizens selling assets ahead of a capital gains tax hike. Going forward, states will also have to cope with federal spending cuts, an expansion of Medicaid and increasing pension obligations.

Fact of the Week

  • Health care costs in America are equal to 17.6% of the US economy, a larger percentage than any other country in the world. The proportion of our economy that goes to health care is 47% greater than the country in second place in this ranking, with the Netherlands spending 12.0% of its economy on health care.

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

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@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

Visit Old Second Wealth Management

Wealth Management Weekly Update June 10, 2013

Money6U.S. and World News

  • Turkish markets plunged following violent protests in Istanbul over the weekend. Citizens have been staging anti-government demonstrations in response to what many feel is increasing authoritarianism in the country. Over 1,000 people were injured and two people died during the protests that were met with tear gas and rubber bullets.
  • Japanese Prime Minister Shinzo Abe has announced the “third arrow” of his grand plan to pull his country out of deflation. The first two arrows of his plan were aggressive monetary easing with the goal of spurring inflation and blowout deficit spending by the government on public works projects. This third arrow is a package of sweeping reforms made to encourage business activity. This will be achieved through improving productivity in the private sector, labor reform and developing new markets. The program includes allowing Japan’s massive public pension funds to buy more stocks, the creation of special economic zones, free-trade agreements and privatization.
    • Despite the announcement, turmoil in the Japanese equity markets continued this week as the Nikkei Index has lost about 20% since hitting its recent high on May 23rd. Part of this had to do with disappointment with the proposed grand plan, as some see that the labor-market proposals don’t go far enough and a nationwide corporate tax cut was not included.

 Markets

  • Stock markets ended the week up thanks to a positive jobs report. The S&P 500 Index rose .89%, closing at 1,643. The Dow Jones Industrial Average was up .78% to close at 15,248. After this week’s increase, the S&P and the Dow are respectively up 15.2% and 16.4% year to date.
  • Treasury yields continued to drift higher again this week with a continued focus on when the Federal Reserve will begin to taper their asset purchases, as the 5 year and 10 year treasury finished the week at 1.09% and 2.17% respectively.
  • The spot price of WTI Crude Oil rose this week, increasing by 4.4%, closing at $96.03 per barrel. On the year, oil prices are up 2.5%.
  • The spot price of Gold was down for the week, closing at $1383.05/ounce. Gold is down 17.4% for the year.

 Economic Data

  • Weekly Initial Jobless Claims fell this week as claims decreased by 8,000 and came in slightly higher than expected at 346,000 vs. consensus expectations of 345,000. The 4-week moving average of jobless claims moved up to 353,000.
  • Bureau of Labor Statistics monthly employment reported payrolls rose 175,000 last month beating economists’ forecast of 169,000. The unemployment rate rose to 7.6 percent from 7.5 percent.
  • The May ISM manufacturing index fell against expectations, declining to 49.0 in May vs. expectations of 51.0. The reading below 50 indicates contraction in manufacturing activity during the month.

Fact of the Week

  • Social Security Trustees announced last week that the trust fund backing the payment of Social Security benefits would be zero by 2033. A zero trust fund doesn’t mean the payment of benefits would go to zero, but rather they would drop to 77% of their originally promised levels through the year 2087. When the trustees reported on this in 2007, the projection was that the trust fund would be depleted in 2041, showing the significant damage that has been done to this entitlement program’s funding levels.

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

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@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

Visit Old Second Wealth Management