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

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