Wealth Management Economic Update March 25, 2015

U.S. and World News

  • In a unanimous decision, the Federal Reserve has dropped “patient” from their description of their philosophy regarding raising interest rates. The committee ruled out the chances of a hike during its next meeting in April, seeming to indicate that the first move could come as early as June. However, the Fed acknowledged that there has been a soft patch in U.S. economic data and that, “the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.” Adding that, “This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.”
  • brazil_280Brazil’s government will present a package of anti-corruption measures after more the 1 million people took to the nation’s streets in protest, many of them calling for President Rousseff’s impeachment. In the midst of the biggest corruption scandal in the country’s history, higher taxes and increased prices for government regulated goods are further fueling the discontent of Brazilian citizens. Brazil’s currency has fallen to its weakest level in 12 years and its benchmark stock index has fallen over 15% since Rousseff was re-elected last October.

Markets

  • Equity markets rallied this week following the seemingly dovish message sent by the Federal Reserve despite the dropping of the “patient” language. The S&P 500 rose 2.65%, closing at 2,108, while the Dow Jones climbed 2.13% and closed at 18,127. Year to date, the S&P and Dow Jones are up 2.84% and 2.29%, respectively.
  • Yields in the Treasury markets moved downward after the Fed downgraded its view on the economy. The 10 year Treasury bond now yields 1.93% and the 5 year Treasury bond yields 1.41%.
  • The spot price of WTI Crude Oil rose a bit this week, gaining 1.96% this week, closing at $45.72 per barrel. In 2015, WTI Oil prices have fallen 14.17%.
  • The spot price of Gold rose by 2.16% this week and closed at $1,183.47 per ounce. Year to date, gold prices are virtually unchanged.

Economic Data

  • Initial jobless claims rose a bit from last week, coming in at 291,000 vs. consensus estimates of 293,000. The Labor Department noted that no special factors affected claims this week. The four week moving average for claims now stands at 304,750.
  • Housing starts plunged 17% in February vs. expectations of only a 2.4% decline. This was the largest decline since February 2011. The data may have been skewed by a colder and snowier than normal February, as data from the Midwest (-37%) and Northeast (-57%) were extremely poor.

Fact of the Week

  • According to the Urban Institute, an average ‘high income’ U.S. couple (defined as joint income over $125,000) that will retire in 2020 will have paid $909,000 in Social Security taxes in their lifetime, but only receive $756,000 of Social Security benefits. This is the equivalent to receiving $0.83 in benefits for every $1 put into the system.

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 March 16, 2015

U.S. and World News

  • The European Central Bank kicked off its quantitative easing program this week which calls for monthly purchases of €60 billion of government bonds. As a result, the Euro continued its steep decline against the U.S. Dollar, falling to new 12-year lows around $1.05 per €1, appearing to be on course for Euro/Dollar parity in the near future.
  • South Korea this week joined the 24 other countries across the world to ease monetary policy so far in 2015. After lowering economic growth forecasts for the next year from 3.9% to 3.4%, the central bank cut its base rate by 0.25% to a record low of 1.75%.
  • iceland_300Iceland dropped its bid to join the European Union this week. Its original application was submitted six years ago. Prime Minister Gunnlaugsson stated, “Participating in EU talks isn’t really valid anymore. Both due to changes in the EU and because it’s not in line with the policies of the ruling government to accept everything that the last government was willing to accept.”

Markets

  • Equity markets moved lower this week, the result of several volatile trading sessions. The S&P 500 lost 0.81%, closing at 2,053, while the Dow Jones fell 0.52% and closed at 17,749. Year to date, the S&P and Dow Jones are up 0.19% and 0.16%, respectively.
  • Yields in the Treasury markets drifted downward this week, following last week’s upward spike. The 10 year Treasury bond now yields 2.12% and the 5 year Treasury bond yields 1.59%.
  • The spot price of WTI Crude Oil fell to a new 52 Week Low this week, falling 8.40% this week, closing at $45.12 per barrel. In 2015, WTI Oil prices have fallen 16.80%.
  • The spot price of Gold fell by 0.94% this week and closed at $1,156.36 per ounce. Year to date, gold prices are down 2.36%.

Economic Data

  • Initial jobless claims fell from last week, coming in at 289,000 vs. consensus estimates of 305,000. The Labor Department noted that no special factors affected claims this week. The four week moving average for claims now stands at 302,500.
  • Headline retail sales unexpectedly fell 0.6% in February, while expectations were for a 0.3% gain. Core retail sales, which are used by the Commerce Department to estimate consumer spending in the GDP calculation, were flat in February vs. expectations of +0.4%. Gasoline station sales rose 1.5% in the month, reflecting higher prices at the pump.
  • The University of Michigan consumer sentiment survey disappointed expectations, coming in at 91.2 in March, down from 95.4 in February. Both consumers’ assessment of current conditions and expectations for the future worsened. Despite the recent downtick, likely due to the recent rise in gas prices, consumer sentiment remains solidly above average levels over the last couple of years.

Fact of the Week

  • Individual Retirement Accounts, or IRAs, were established in the U.S. by the Employee Retirement Income Security Act of 1974, with the first year of contributions happening in 1975. A lot has changed for these retirement savings vehicles in their 40 year history. They were originally only available to workers who weren’t covered by employer retirement plans and the contribution maximum was $1,500. In 1981, a new tax law let anyone under the age of 70 ½ contribute to them. In 1986, the Tax Reform Act phased out the deductibility of IRA contributions for high income workers who were also covered by employer plans. Now, IRAs have a contribution limit of $5,500 per year or $6,500 if you’re over 50 years old. Over 43 million Americans now have one or more IRAs and the vast majority of IRA balances are from rollovers from previous employer plans. According to the Federal Reserve, at the end of 2014, there were $3.1 trillion in pension plans, $5.3 trillion in 401(k)-type defined contribution plans and $7.2 trillion invested in IRAs.

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 March 10, 2015

U.S. and World News

  • All 31 banks that were tested passed the Federal Reserve imposed stress test on minimum levels of capital. The Fed simulated an economy that faced severely adverse conditions in order to determine if major banks were capitalized enough to remain solvent in those conditions. Next week, the Fed will release the results of the Comprehensive Capital Analysis and Review (CCAR) and will either approve or disapprove of the banks’ capital return plans.
  • india_coin_200The Reserve Bank of India surprised markets by cutting rates for the second time this year. Citing inflation and weakness in the economy, the central bank lowered its benchmark rate by 0.25% to 7.5%. Also joining in the worldwide trend of monetary easing, China also cut their benchmark interest rate by 0.25%. In the last few months, China has seen signs of slowing growth, with GDP dipping to 7.3% in the 4th quarter, its slowest rate of growth in over 20 years.

Markets

  • Equity markets moved lower this week following the release of the monthly non-farm payrolls report. The S&P 500 lost 1.55%, closing at 2,071, while the Dow Jones fell 1.52% and closed at 17,857. Year to date, the S&P and Dow Jones are up 0.99% and 0.67%.
  • Yields in the Treasury markets moved up significantly this week after the better than expected jobs report pushed forward expectations of the Fed’s first rake hike. The 10 year Treasury bond now yields 2.25% and the 5 year Treasury bond yields 1.70%.
  • The spot price of WTI Crude Oil was up 0.93% this week, closing at $49.26 per barrel. In 2015, WTI Oil prices have fallen 8.40%.
  • The spot price of Gold fell by 3.79% this week and closed at $1,167.24 per ounce. Year to date, gold prices are down 1.45%.

Economic Data

  • Initial jobless claims jumped up from last week, coming in at 320,000 vs. consensus estimates of 295,000. The Labor Department noted that no special factors affected claims this week. The four week moving average for claims now stands at 305,000.
  • The February jobs report showed a gain of 295,000 non-farm payrolls, beating estimates of 235,000. There was no significant negative weather effect apparent in the data.
    • The unemployment rate dropped to 5.5%, beating expectations of 5.6%. This drop was aided however by a 0.1% drop in the labor force participation rate to 62.8%.
    • Average hourly earnings rose 0.1% in the month, below expectations of 0.2%. Over the last 12 months, wages have grown a subdued 2.0%.
  • The PCE Price index (the Federal Reserve’s preferred measure of inflation) fell 0.5% in January, in line with expectations. This was largely due to a 10% drop in energy prices. Core PCE (excludes food and energy) rose 0.1% in the month, also in line with consensus. Core prices are up 1.3% over the last year, well below the Fed’s 2% inflation target.

Fact of the Week

  • The NASDAQ Composite traded over the 5,000 threshold this week for the first time since March 2000. In the 15 years it took to regain this level, the composition of the index has changed quite a bit. One difference is the valuations of the representative companies are drastically different. Today the NASDAQ has a price to earnings ratio (price per share of stock for every $1 per share of earnings) is 21.5 compared to 107 in 2000. Some of the top 10 stocks in the NASDAQ in March 2000 were WorldCom, Dell, Sun Microsystems and JDS Uniphase.

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 March 2, 2015

U.S. and World News

  • Greece submitted its list of economic reform plans to the Eurozone finance ministers just before Monday’s deadline. While the list was approved, clearing the path for a four month extension to Greece’s bailout funding, the finance ministers warned that the reforms must be expanded in detail before new bailout funding would be released.
  • Following months of negotiations, West Coast ports have been reopened and are working at full speed after a new five year labor contract agreement was reached. Port officials estimate that it will take at least three months to clear the backlog of containers that have been piling up during the labor stoppage. The strike has disrupted shipments for companies across the country as merchandise has been sitting idle in stacked containers, waiting to be unloaded.
  • world_internet_000003759439_320The FCC has approved net neutrality restrictions on the internet, reclassifying broadband services under the Telecommunications Act. The vote for the measure was 3 to 2 and went down party lines with the Democrats carrying the vote. The new rules will prevent internet service providers from prioritizing the speeds of service they provide to customers and charging higher rates for ‘fast lanes’ of the internet. FCC Chairman Tom Wheeler said the action was an “irrefutable reflection of the principle that no one, whether government or corporate, should control free and open access to the internet.”

Markets

  • Equity markets were mostly flat this week. The S&P 500 lost 0.24%, closing at 2,104, while the Dow Jones gained 0.02% and closed at 18,033. Year to date, the S&P and Dow Jones are up 2.57% and 2.22%.
  • Yields in the Treasury markets moved down this week. The 10 year Treasury bond now yields 2.00% and the 5 year Treasury bond yields 1.50%.
  • The spot price of WTI Crude Oil fell this week, losing 3.05% and closing at $49.26 per barrel. In 2015, WTI Oil prices have fallen 9.21%.
  • The spot price of Gold rose by 0.92% this week and closed at $1,213.00 per ounce. Year to date, gold prices are up 2.41%.

Economic Data

  • Initial jobless claims jumped up from last week, coming in at 313,000 vs. consensus estimates of 290,000. The Labor Department noted that no special factors affected claims this week. The four week moving average for claims now stands at 294,500.
  • The Case-Shiller home price index rose 0.9% in December vs. consensus estimates of a 0.6% increase. Appreciation was seen across all 20 of the cities monitored in this index. Over the past year, home prices have risen 4.5% as measured by the index.
  • The headline Consumer Price Index (measure of inflation) fell 0.7% in January, pushed lower by an 18.7% drop in gasoline prices. Core CPI, which does not include food or energy, rose 0.2%, better than the expected 0.1%. Despite this better core CPI number for January, the one year rate of change stands at a subdued 1.6%.

Fact of the Week

  • On July 15, 2014, Federal Reserve Chair Janet Yellen stated in her scheduled testimony to Congress that, “Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched…” This sort of sector specific commentary from a Fed Chair was highly unusual and questioned at the time. Her call on social media stocks was good, as since then, those stocks have returned -1.11% (as measured by the Global X Social Media ETF, SOCL) compared to the S&P 500 return of 7.9% during that time. However, her biotech call doesn’t look so good as those stocks have gained 52.3% (as measured by the SPDR Biotech ETF, XBI) in that time. Yellen was back in front of Congress again this week but didn’t provide any asset class valuation calls this time around.

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