Wealth Management Economic Update November 3, 2014

U.S. and World News

  • The Federal Reserve Committee met this week and decided to end the remaining $15 billion of monthly asset purchases. With QE3 officially over, attention now turns to when the Fed will begin raising short term interest rates. Janet Yellen’s statement maintained that this action is still a “considerable time” off and will be entirely data dependent. While employment has certainly picked up and has surpassed the Fed’s stated goals, inflation remains very subdued below the 2% target. Consensus expectations for the first rate hike have been pushed back from March 2015 to around September 2015.
  • As the US winds down its QE program, the Bank of Japan has unexpectedly announced it will increase its asset purchases from ¥60 trillion to ¥80 trillion ($725 billion). japan_flag_000042392394_320The move resulted from the BOJ downgrading its projections for inflation and growth in the country. The announcement sent the Nikkei stock index soaring by 4.8% and led to rallies across most global markets.
  • Russia and Ukraine have signed an agreement that will guarantee the flow of Russian gas exports into Ukraine through the winter. The deal follows weeks of negotiations and a bitter dispute over payments. The European Union energy chief, Guenther Oettinger, helped broker the deal as the region depends on Russia for 1/3 of its gas.

Markets

  • Equity markets continued to rally this week as both the S&P 500 and Dow Jones Industrial Average closed at new All-Time Highs. The S&P 500 advanced 2.74% and closed at 2,018. Likewise, the Dow Jones climbed up 3.48% and closed at 17,390. Year to date, the S&P 500 is up 10.97% and the Dow Jones is up 6.83%.
  • Yields in the treasury markets continued to come back up this week. The 10 year treasury came up to 2.33% and the 5 year treasury is yielding 1.61%.
  • The spot price of WTI Crude Oil fell slightly this week, dipping 0.35%, closing at $80.73 per barrel. Year to date, Oil prices are down 12.93%.
  • The spot price of Gold plummeted by 4.87% this week, closing at this year’s low of $1,171.59 per ounce. Year to date, Gold prices are down 2.50%.

Economic Data

  • Initial jobless claims rose a bit from last week but remain quite low overall, coming in at 287,000 vs. consensus estimates of 285,000. The Labor Department noted no special factors affecting the report. The four week moving average for claims now stands at 281,000, which is the lowest it’s been since May 2000.
  • The first estimate of 3rd quarter GDP surprised to the upside, rising 3.5% vs. expectations of 3.0%. There was a 0.8% boost from government spending in the quarter which includes defense spending, while consumer spending added 1.2%. The report shows that government drag on growth appears to be waning, and the U.S. private sector continues to function as a consistent source of demand in the global economy.
  • Pending home sales rose 0.3% in September vs. expectations of 1.0%. Sales were mixed by region of the country with the South and Northeast showing gains with the Midwest and West posting losses. This leading indicator for existing home sales has been fairly flat over the past couple of months.

Fact of the Week

  • According to the US Census Bureau, 35% of Americans age 65 and older have no other source of retirement income other than Social Security. The maximum benefit paid by Social Security to a worker retiring at “full retirement age” in 2014 is $2,642 per month or $31,704 per year.

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

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