Wealth Management Economic Update January 26, 2015

U.S. and World News

  • President Obama delivered his State of the Union address this week, declaring that the economy has recovered under his leadership and discussed several measures that he would like to see enacted during his final two years in office. Among them, he called on Congress to impose new taxes on high-income earners and new fees on large financial institutions. Obama also reiterated his plan to offer free community college that would be funded by the federal and state government, but is seemingly seeking to discourage individuals from saving for their child’s college by eliminating the tax advantages of Section 529 and Coverdell Education Savings Accounts. Many of the issues he raised have little to no chance of passing in the Republican controlled House and Senate.
  • European Central Bank President Mario Draghi announced this week that the central bank plans to expand its purchase of European government bonds to €60 billion per month until at least September 2016. While additional quantitative easing was expected, the size of the program was larger than consensus expectations. The goal of the plan is to reverse deflationary pressures that are weighing on the Eurozone as many of the country’s economies have stagnated recently.
  • oil-rig_000003751456_250King Abdullah, 91, of Saudi Arabia died this week, calling into question the future of the Saudi’s strategy for crude oil production. Historically, the country has been the oil market’s swing producer, altering production volumes based on demand in order to keep prices stable, but this has not been the case during the current plunge in oil prices. Abdullah’s half-brother, Crown Prince Salman has been declared King and a key indicator of the future Saudi oil policy will be whether Salman retains oil minister Ali Al-Naimi, who has driven the decision making since 1995.

Markets

  • Equity markets ended positively this week following the ECB’s announcement of an increased quantitative easing program. The S&P 500 rose 1.62% and closed at 2,052. Likewise, the Dow Jones gained 0.95% and closed at 17,673. Year to date, the S&P and Dow Jones are down 0.26% and 0.73% respectively.
  • Yields in the Treasury markets remained at very low levels this week. The 10 year Treasury bond now yields 1.79% and the 5 year Treasury bond yields 1.31%.
  • The spot price of WTI Crude Oil plunged again this week, falling 7.63% and closing at $45.32 per barrel. In 2015, WTI Oil prices have fallen 15.49%.  According to AAA, the national average gas price is now $2.04/gallon as compared to $3.29 a year ago.
  • The spot price of Gold rose by 1.09% this week and closed at $1,294.39 per ounce. Year to date, gold prices are up 9.29%.

Economic Data

  • Initial jobless claims declined from last week, coming in at 307,000 vs. consensus estimates of 300,000. The Labor Department noted no special factors affecting the report. The four week moving average for claims now stands at 306,500.
  • Housing starts rose 4.4% in December against expectations of 1.2%. Rising 7.2% in the month, the increase was primarily from the single-family home category which is a more positive signal.
  • China reported that its economy grew by 7.4% in 2014, its slowest pace since 1990 when growth was only 3.8% as a result of international sanctions following the Tiananmen Square massacre. The slowing growth pace has prompted speculation that the People’s Bank of China may undergo additional support measures.

Fact of the Week

  • The economy of the United States is estimated to be $17.5 trillion, representing 23% of the $77.6 trillion global economy. The 19 countries that make up the Eurozone and use the common currency collectively have an economy of $13.2 trillion, or 17% of the global economy.

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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