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

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