Wealth Management Economic Update February 24, 2015

U.S. and World News

  • After a full week of contentious negotiations, a tentative agreement has been reached between Greece and Eurozone finance ministers, which would provide for a four month extension of Greece’s bailout program. This would allow Greece to access €10 billion of funding the country desperately needs. New Greek Prime Minister Alex Tsipras had been seeking a six month extension and a roll back of the austerity measures the original bailout had been contingent upon, instead winding up with only four months and no change to austerity. Greece must provide an action plan on Monday outlining steps they will be taking to improve its fiscal situation in order for the deal to be complete.  Additionally, Greece will be subject to reviews by the IMF and the ECB to ensure they are following the terms of the agreement, conditions which the country had been fighting against. Temporarily preventing Greece from exiting the Eurozone, this ‘kick the can down the road’ agreement will likely lead to the situation being revisited in four months.
  • russia_000057310942LargeThe U.S. has accused Russia of violating the ceasefire in Ukraine. This is amid reports that Ukrainian troops are pulling out of the key railroad hub town of Debaltseve after separatist forces fought their way into the key railway junction on Tuesday. Vice President Joe Biden strongly condemned the violence and warned the “costs to Russia will rise if it continues to violate the Minsk agreements.”
  • Minutes from the January Fed meeting showed the committee to be a bit more dovish than consensus believed. There was no clear indication that most participants thought that ‘patience’ should be removed from the upcoming Fed statement as it pertains to when an initial rate hike will come. Many still believe the Fed is on track for a June or September initial hiking of the Fed Funds rate, as long as employment and inflation data continue to improve.

Markets

  • Equity markets continued to rise this week following the four month Greek extension as both the S&P 500 and Dow Jones closed the week at new All-Time Highs. The S&P 500 gained 0.67%, closing at 2,110, while the Dow Jones gained 0.69% and closed at 18,140. Year to date, the S&P and Dow Jones are up 2.80% and 2.17%.
  • Yields in the Treasury markets continued to creep upwards this week. The 10 year Treasury bond now yields 2.12% and the 5 year Treasury bond yields 1.60%.
  • The spot price of WTI Crude Oil fell this week, losing 4.62% and closing at $50.34 per barrel. In 2015, WTI Oil prices have fallen 5.50%.
  • The spot price of Gold fell by 2.23% this week and closed at $1,229.66 per ounce. Year to date, gold prices are up 1.51%.

Economic Data

  • Initial jobless claims decreased from last week, coming in at 283,000 vs. consensus estimates of 290,000. The Labor Department noted that some states had to have their claims estimated due to severe weather. The four week moving average for claims now stands at 283,250.

Fact of the Week

  • Since the beginning of 1986 through close today, the Dow Jones Industrial Average has risen from 1,547 to 18,140, a price increase of 1,072%. Breaking down when these gains occurred results in a pretty interesting finding. The combined gains on the index on Mondays, Tuesdays and Wednesdays comes to 988.46%, while the combined gain of Thursdays and Fridays is just 8.95%. The Dow has been doing its work early in the week and been taking four day weekends for 30 years. (Source: Eddy Elfenbein, Crossing Wall Street)

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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Wealth Management Economic Update February 16, 2015

U.S. and World News

  • After unsuccessful meetings this week in Brussels, Belgium, European finance ministers put off decisions on Greece’s bailout terms until they reconvene next week. Greece is trying to negotiate a €10 billion bridge loan to keep the country solvent as it works with its creditors. Greek officials are promising they will make every effort to reach an agreement on conditions for a new support program although new Greek Prime Minister Alexis Tsipras continues to vow to roll back austerity measures in the country, jeopardizing its ability to renegotiate.
  • A ceasefire between Russia and Ukraine has been reached and will begin on February 15th. This was the result of a 17 hour meeting between leaders of Russia, Ukraine, France and Germany. The new deal revives a failed September agreement and includes commitments from each side to pull back heavy weapons. Should this agreement fail, many Western nations are considering increased sanctions against Russia.
  • Sweden has joined the fray when it comes to central bank easing as its Riksbank cut its repo rate into negative territory, down to -0.1%. Riksbank also announced a 10 billion kronor ($1.2 billion) quantitative easing program in which the bank will purchase Swedish government bonds.

Markets

  • Equity markets continued to rally this week, with the S&P 500 gaining 2.09% and closing at a new All-Time High of 2,097. Likewise, the Dow Jones gained 1.26% and closed at 18,019. Year to date, the S&P and Dow Jones are up 2.11% and 1.47%.
  • Yields in the Treasury markets continued to creep upwards this week. The 10 year Treasury bond now yields 2.04% and the 5 year Treasury bond yields 1.53%.
  • The spot price of WTI Crude Oil continued to rise from very low levels, gaining 1.64% and closing at $52.54 per barrel. In 2015, WTI Oil prices have fallen 2.16%.
  • The spot price of Gold fell by 0.35% this week and closed at $1,229.66 per ounce. Year to date, gold prices are up 3.82%.

Economic Data

  • Initial jobless claims increased from last week, coming in at 304,000 vs. consensus estimates of 287,000. The Labor Department noted that some states had to have their claims estimated due to severe weather. The four week moving average for claims now stands at 289,750.
  • Headline retail sales declined 0.8% in January, more than the 0.4% decline that was expected. The drop was largely due to a 9.3% drop in gasoline station sales due to lower prices. This indicates that consumers are not yet spending the savings they’ve been enjoying at the gas pump, but this is not terribly surprising as oil price declines have historically affected the economy with a lag.

Fact of the Week

  • According to the Treasury Department, the average interest rate paid by the US government on the country’s interest-bearing debt has fallen by more than half over the last 8 years, dropping from 5.03% at the end of 2006 to 2.37% at the end of 2014.

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 February 11, 2015

U.S. and World News

  • The second full week of the Syriza Party’s power in Greece was another tumultuous one that first started with Germany ruling out any debt write downs for Greece and an ECB policymaker threatening to cut off funding to Greek banks if Athens doesn’t agree to renew its bailout package. Fears were calmed a bit when Greece proposed ending the confrontation with its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting wealthy tax-evaders. However, later in the week the ECB put more pressure on Greece by revoking a waiver that allowed banks to use Greek government debt as collateral for loans. All of this is to say, stay tuned to the Greek situation.
  • australia_000047410124_300The Reserve Bank of Australia has joined the easing party, becoming the latest global central bank to cut interest rates in response to slowing inflation and concerns about economic growth. The RBA’s cut was its first change since August 2014 and lowered its benchmark rate by 0.25% to a new low of 2.25%

Markets

  • Equity markets rallied this week, with the S&P 500 gaining 3.09% and closing at 2,055. Likewise, the Dow Jones gained 3.86% and closed at 17,824. Year to date, the S&P and Dow Jones are virtually unchanged.
  • Yields in the Treasury markets spiked up this week, especially after a solid employment report seemed supportive of a Fed rate hike during the summer. The 10 year Treasury bond now yields 1.97% and the 5 year Treasury bond yields 1.49%.
  • The spot price of WTI Crude Oil continued to bounce from very low levels, rising 8.37% and closing at $52.28 per barrel. In 2015, WTI Oil prices have fallen 2.64%.
  • The spot price of Gold fell by 3.88% this week and closed at $1,234.04 per ounce. Year to date, gold prices are up 4.19%.

Economic Data

  • Initial jobless claims increased a bit from last week but remained quite low, coming in at 278,000 vs. consensus estimates of 290,000. The Labor Department noted no special factors affecting the report. The four week moving average for claims now stands at 292,750.
  • The January nonfarm payroll employment report showed a gain of 257,000 jobs vs. expectations of 228,000. Job gains for November and December were revised up by a combined 147,000, bringing the three month average gain to 336,000 jobs.
    • The headline unemployment rate ticked up from 5.6% to 5.7%. However, the labor force participation rate increased 0.2% to 62.9% which is what pushed the unemployment rate up.
    • Another positive sign was average hourly earnings rising 0.5% vs. expectations of 0.3%. The 1 year growth in average hourly earnings now stands at 2.2%.

Fact of the Week

  • According to World Bank, if the state of California were a country, its $2.2 trillion economy would rank as the 8th largest in the world, ahead of Russia, Italy, India, Canada, Australia and Spain.

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 February 2, 2015

U.S. and World News

  • The left-wing, anti-austerity Syriza party won the general election in Greece on Sunday, raising concerns over the country’s future status as member of the European Union. Party leader Alexis Tsipras has already moved to form a coalition that will work to reverse years of austerity measures imposed by the Troika. The Syriza government also came out against increasing sanctions on Russia for escalating violence in Ukraine. This could be very problematic for EU foreign policy, as further sanctions must be unanimously voted upon by all EU nations.
  • Just about a week after President Obama floated the idea of ending the tax advantage of 529 College Savings plans, the administration has decided to scrap the proposal. Amid outrage from a broad range of Americans, Obama has decided that the plan is a “distraction” and will seek to raise revenue in other ways.
  • ruble_320Ratings agency Standard and Poor’s downgraded Russia’s credit rating to junk, due to weak economic growth prospects, low oil prices and sanctions from the West. The move sent the Russian currency, the ruble, plunging to new lows.

Markets

  • Equity markets tumbled this week with the S&P 500 falling 2.75% and closing at 1,995. Likewise, the Dow Jones lost 2.87% and closed at 17,165. Year to date, the S&P and Dow Jones are down 3.00% and 3.58% respectively.
  • Yields in the Treasury markets remained at very low levels this week. The 10 year Treasury bond now yields 1.65% and the 5 year Treasury bond yields 1.17%.
  • The spot price of WTI Crude Oil reversed course after a sharp bounce on Friday, rising 4.89% and closing at $47.82 per barrel. In 2015, WTI Oil prices have fallen 10.95%.
  • The spot price of Gold fell by 0.79% this week and closed at $1,283.92 per ounce. Year to date, gold prices are up 8.41%.

Economic Data

  • Initial jobless claims declined sharply from last week, coming in at 265,000 vs. consensus estimates of 300,000. This was a new low mark for the recovery. While the Labor Department noted no special factors affecting the report, the holiday shortened week (MLK Day) may have skewed the data. The four week moving average for claims now stands at 298,500.
  • The Case-Shiller home price index rose 0.7% in November vs. expectations of 0.6%. This represents the strongest monthly gain since March. Over the last 12 months, home prices as measured by the index have risen 4.3%.
  • The first estimate of GDP showed 2.6% growth vs. expectations of 3%. Growth was aided by a strong 4.3% increase in consumer spending but was suppressed by increasing import activity. Full year 2014 GDP growth now stands at 2.5%, which is a solid gain especially given the -2.1% number posted in the 1st quarter of 2014.

Fact of the Week

  • Apple reported earnings this week, showing that the company has $178 billion in cash reserves on its balance sheet. The size of this cash component alone would rank it 5th in size in the entire S&P 500. This amount of cash would be enough to give each American $556 or purchase every pro sports franchise in the NFL, MLB, NBA and NHL.

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