Wealth Management Economic Update December 22, 2014

U.S. and World News

  • Global equity markets surged following this month’s Federal Reserve meeting. The Fed’s statement gave a vote of confidence to the U.S. economy saying that the recovery remained on track. Additionally, Chairperson Janet Yellen gave comments that an interest rate increase was unlikely for at least the next two Fed meetings. She continued to preach patience in regards to this tightening step, emphasizing data over dates as to when the decision will be made. With inflation expectations continuing to track below the central bank’s 2% target, the first rate hike appears to have been pushed out to the 2nd half of 2015 at the earliest.
  • In a surprising move, the Russian central bank announced it would raise the country’s key interest rate from 10.5% to 17% in an attempt to stem the decline in Russia’s currency, the Ruble. Russia’s economy has stalled as a result of economic sanctions imposed by the West and the recent plunge in oil, upon which their economy is extremely reliant. The situation in Russia doesn’t appear to be improving any time soon as President Obama announced that he intends on implementing a new round of economic sanctions on Russia targeted at its weapons and already battered energy sectors. Addressing the country in his annual address, Vladimir Putin predictably placed blame for Russia’s economic woes on the West. Putin also said that the country’s problems could last for the next two years, although that timeline could be cut down given the measures the Russian government and central bank are taking.
  • President Obama has ordered the restoration of full diplomatic relations with Cuba, in addition to the opening of an embassy in Havana in the coming months. Travel restrictions to Cuba will be eased and the trade embargo with the country would be eventually lifted.

Markets

  • Equity markets rebounded this week following the FOMC meeting. The S&P gained 3.44% and closed at 2,071. Likewise, the Dow Jones moved up 3.04% and closed at 17,805. Year to date, the S&P is up 14.27% and the Dow Jones is up 9.93%
  • Yields in the Treasury markets moved a bit higher this week. The 10 year Treasury bond now yields 2.16% and the 5 year Treasury bond yields 1.65%.
  • The spot price of WTI Crude Oil fell again this week, reaching a new 52 week low. Prices fell 2.23%, closing at $56.52 per barrel. Year to date, Oil prices are down 38.53%.
  • The spot price of Gold dropped this week, shedding 2.18% and closing at $1,195.95 per ounce. Year to date, Gold prices are down 0.47%.

Economic Data

  • Initial jobless claims fell from last week, coming in at 289,000 vs. consensus estimates of 295,000. The Labor Department noted no special factors affecting the report, although the holiday season is traditionally more volatile. The four week moving average for claims now stands at 299,000.
  • Housing starts declined 1.6% in November vs. expectations of a 3.1% gain. The details in the report were unfavorable as the less volatile single-family housing starts saw a 5.4% decline in November.

Fact of the Week

  • When a Social Security committee chaired by Alan Greenspan implemented changes in 1983 that gradually increased the age at which retirees receive full Social Security benefits from age 65 to 67, only Americans that were 20 or more years from age 65 were impacted. Though the change had only saved the program $100 billion through 2012, it is expected that over the next 75 years the reforms will save Social Security $4.6 trillion.

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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