Wealth Management Economic Update August 25, 2014

U.S. and World News

  • Middle_East_000038001262_320President Obama says that the U.S. will continue limited airstrikes against Islamic State militants. The efforts have helped Iraqi and Kurdish forces retake the vital Mosul dam and halted the advance of Islamic State on the city of Erbil. News of the recaptured dam has helped to push down oil prices this week.
  • The latest cease-fire in the Gaza Strip has collapsed, after rocket fire from the Palestinians resumed eight hours before the cease-fire was due to expire. Israel responded with airstrikes and ordered its delegates back from Cairo saying they will not negotiate under fire. Egyptian officials have been struggling to mediate during the conflict, striking several temporary cease-fires, but not achieving a permanent truce as of yet.
  • Vladimir Putin is scheduled to meet face to face with Ukrainian President Petro Poroshenko in Belarus on August 26th. Among the issues surely to be discussed will be stabilizing the border situation with Ukraine and addressing Ukraine’s energy concerns. Ukraine’s energy sector is faltering considerably and estimates suggest that coal supplies to electricity producers may run out in about a month due to rail lines that were damaged by pro-Russian separatists.
  • The annual retreat in Jackson Hole, Wyoming where central bankers, finance ministers and academics from all around the world come to discuss global economic issues went on this week without too many market moving headlines. Fed Chairwoman Janet Yellen’s comments noted both a more rapid than expected pace of recent labor market improvements, as well as the still significant level of labor underutilization. She continued to emphasize that future policy decisions will be data driven and that the Fed could raise rates earlier than expected should the data improve more than expected but that it could also raise rates later than expected if labor and inflation data disappoints.

Markets

  • Markets were positive this week despite continued geopolitical turmoil. The S&P 500 closed at a new All-Time High on Thursday but lost ground on Friday, gaining 1.74% this week and closing at 1,988. The Dow Jones Industrial Average gained 2.07% and closed at 17,001. Year to date, the S&P is up 9.00% and the Dow is up 4.16%
  • Interest rates floated back up a bit this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.66% and 2.40%, respectively.
  • The spot price of WTI Crude Oil fell by 1.91% this week, closing at $93.50 per barrel. Year to date, Oil prices have dipped 0.53%.
  • The spot price of Gold decreased by 1.89% this week, closing at $1280.04 per ounce. Year to date, Gold prices are up 6.52%.

Economic Data

  • Initial jobless claims declined from last week, coming in at 298,000 vs. consensus estimates of 303,000. The level of claims is near the pre-crisis lows. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 301,000.
  • Nearly all of the 2nd quarter earnings reports from the S&P 500 have come out with 94% of companies reporting. Overall, 67% of companies exceeded earnings expectations with healthcare and financial stocks beating the highest percentage of the time and telecommunication stocks performing the worst. On the top line, 63% of companies beat revenue expectations, again with healthcare leading the way while telecom and staples lagged.
  • Housing starts rose a stronger than expected 15.7% in July vs. consensus expectations of 8.1%. Both single family and multifamily starts contributed to the gains and left the level of housing starts just shy of the post-recession high seen last November.

Fact of the Week

  • According to a study conducted by Reuters, 40% of people identifying themselves as retired reported that they had stopped working involuntarily. Additionally, 30% of those retired people surveyed said that if the labor market improved and a job became available, they would effectively “unretire” and rejoin the workforce. These findings show that headline unemployment rate isn’t always a representative statistic, as those 30% are currently not counted as being in the workforce but would reenter it if conditions improve.

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 CFA® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Tamara Wiley, CFP® – (630) 844-3222 twiley@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Wealth Management Economic Update August 18, 2014

U.S. and World News

  • The reported de-escalation of the Russia/Ukraine situation did not last very long as reports surfaced on Friday of Ukraine destroying several Russian convoy vehicles. A convoy of 280 trucks carrying “humanitarian” aid for Ukraine left from Russia on Tuesday, reaching the border on Friday morning. Ukrainian reports say that the convoy crossed the Ukrainian border and several were armored vehicles, resulting in Ukrainian military destroying part of the convoy. The situation continues to develop and it remains to be seen if Vladimir Putin will attempt to use this attack as an excuse for a larger scale invasion of Ukraine.
  • Iraqi Prime Minister Nouri al-Maliki announced on Thursday that he would step down after eight years in office. This comes after saying he would not step down following the nomination of Haider al-Abadi, the deputy speaker of parliament, to be the new head of government. This opens a new political chapter in Iraq that U.S. officials hope will decrease Iraq’s sectarian divisions. New Obama-approved PM al-Abadi is faced with the daunting task of moving the country toward a united front and fighting Islamic State (formerly ISIS).

Markets

  • finance_chart_250pxMarkets were positive this week despite continued geopolitical turmoil. The S&P 500 gained 1.27% and closed at 1,955. The Dow Jones followed suit by rising 0.74% and closing at 16,663. Year to date, the S&P is up 7.12% and the Dow is up 2.00%
  • Interest rates fell sharply this week, particularly after the reports of Ukraine destroying the Russian convoy. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.54% and 2.35%, respectively.
  • The spot price of WTI Crude Oil fell by 0.68% this week, closing at $96.99 per barrel. Year to date, Oil prices have risen 2.35%.
  • The spot price of Gold decreased by 0.39% this week, closing at $1,304.41 per ounce. Year to date, Gold prices are up 8.55%.

Economic Data

  • Initial jobless claims rose from last week, coming in at 311,000 vs. consensus estimates of 295,000. The level of claims is near the pre-crisis lows. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 296,000.
  • University of Michigan consumer sentiment moved down to 79.2 vs. 81.8 in July and consensus estimates of 82.5. Expectations for the future fell sharply from last month, but consumers’ assessment of current conditions actually improved.
  • Japan’s 2nd quarter GDP shrank by 6.8% on an annualized basis. The sharp contraction comes after a new national sales tax of 3% was instituted in April and triggered a steep decline in consumer spending. Prime Minister Shinzo Abe will need to address the tax issue again soon as the country has already approved another sales tax hike that is set to take effect in October 2015.

Fact of the Week

  • The most recent Medicare Trustees report found that the Medicare trust fund that supports Medicare Part A (hospital coverage) is projected to be depleted by 2030. The shortfall in the trust fund could be corrected by either an immediate 0.87% increase in combined Medicare payroll taxes (up from current 2.90% to 3.77%) or an immediate 19% reduction in Medicare expenditures.

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 CFA® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Tamara Wiley, CFP® – (630) 844-3222 twiley@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Wealth Management Economic Update August 4, 2014

U.S. and World News

  • Negotiations with holdout investors and a last minute Argentine bank proposal fell through this week, triggering a default of Argentina’s sovereign debt. The default will further harm Argentina’s economy which is already in recession. It will also prolong the country’s return to the global credit markets, which it has been isolated from since its $100 billion default in 2002.
  • european_union_flag320The U.S. and now the European Union have placed tougher sanctions on Russia this week, aimed at the finance, defense and energy sectors of the country’s economy. The EU, which is highly dependent on Russia’s energy supplies, had previously been reluctant to impose any real sanctions on the Russians. Russia responded by saying that the sanctions would lead to higher energy prices in Europe and damage cooperation with the U.S. on international affairs. Some of Russia’s largest companies are acting as well, beginning to move their cash reserves to Asian banks in fear that Russia could eventually be completely shut out of U.S. dollar markets.
  • The Federal Reserve met this week and announced they will continue to taper its monthly asset purchases, reducing them from $35 billion to $25 billion as was expected. This makes the central bank on pace to completely cease its purchases in October, which is when discussion about raising short term interest rates will heat up. The Committee’s statement took note of firming inflation data and that “a range of labor market indicators suggest that there remains significant underutilization of labor resources.”
  • A tanker loaded with $40 million of ultralight oil departed from Texas heading to South Korea this week, marking the first unrefined American oil export since the 1970s. Although the U.S. policy on oil exports wasn’t explicitly changed, the Commerce Department announced last month that it would be relaxing its definition of “unrefined oil” to include oil condensate that has been minimally refined.

Markets

  • Markets fell significantly this week amid the sanctions on Russia, deflation worries in Europe and Argentina’s default. The S&P 500 dropped 2.66% and closed at 1,925. The Dow Jones followed suit by falling 2.74% and closing at 16,493. Year to date, the S&P is up 5.36% and the Dow is up 0.78%.
  • Interest rates remained steady this week and the 5 year and 10 year U.S. Treasury Notes are now yielding 1.67% and 2.50%, respectively.
  • The spot price of WTI Crude Oil plunged by 4.40% this week, closing at $97.60 per barrel. Year to date, Oil prices have risen 3.00%.
  • The spot price of Gold decreased by 1.05% this week, closing at $1,293.55 per ounce. Year to date, Gold prices are up 7.65%.

Economic Data

  • Initial jobless claims rose a bit more than expected, coming in at 302,000 vs. consensus estimates of 300,000. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 297,000, the lowest it’s been since April 2006.
  • Monthly nonfarm payrolls increased by 209,000 in July vs. consensus expectations of 230,000. Despite the modest disappointment in July, the last three months have averaged a solid 245,000 gain.
    • The unemployment rate moved up 0.1% to 6.2% aided by a 0.1% increase to the labor force participation rate, bringing it to 62.9%.
    • Average hourly earnings disappointed, coming in flat on the month vs. expectations of a 0.2% gain. The year over year rate of wage growth stands at a subdued 2.0%.
  • The first estimation of 2nd quarter GDP was released this week, showing growth of 4.0% vs. expectations of 3.0%. A significant bounce back was to be expected given the -2.9% print in the 1st quarter, which now appears to be the result of weather distortion.
  • The Case-Shiller home price index declined by 0.3% in May vs. expectations of an increase of 0.3%, the weakest print since December 2011. Home prices fell in 14 of 20 cities covered by the report which adds to recent mixed housing data.

Fact of the Week

  • Nearly three years ago (8/5/2011), ratings agency Standard & Poor’s downgraded the quality of the debt of the USA from its top rating of AAA to AA+ and has yet to restore the country’s AAA status. At the time, the yield on the 10-year Treasury note was 2.57%. As it stands today, the yield on that same 10-year note has actually fallen (price has gone up), and today sits at 2.50%

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 CFA® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Tamara Wiley, CFP® – (630) 844-3222 twiley@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management