Brexit aftermath: Wealth Economic Update July 5, 2016

U.S. and World News

  • pont_fawr_bridge_Wales_84636501_340The U.K. now faces the challenge created by its vote to leave the European Union and Chancellor George Osborne cautioned it would not be “plain sailing” in the days and weeks ahead. In the fallout from the shocking vote, there have been rumblings of a “re-do” vote or a renewed independence vote in Scotland, but neither is likely to gain too much traction. The process for the U.K. to leave is will officially begin when Parliament invokes Article 50, the timing of which has yet to be determined. Candidates for the Prime Minister post that David Cameron resigned from are beginning to emerge, though prominent Brexit figurehead and former London Mayor Boris Johnson has dropped out of the running.
  • Puerto Rico today defaulted on $800 million of debt payments it had constitutionally guaranteed to make to general obligation bond holders. These bond holders were supposed to receive priority before the Puerto Rican government paid out anything to state employees like police and teachers, however Governor Garcia Padilla ruled to continue running essential services on the island. This marks the first time that a U.S. state or territory has failed to pay general obligation bonds since the Great Depression. In response, Washington has pushed through a law signed by President Obama that would create a federal oversight board to oversee the restructuring of Puerto Rico’s over $70 billion of additional debt. The plan involves 1 out of every 3 dollars the island earns in revenue being used to pay off creditors.

Markets

  • After falling dramatically again on Monday, markets roared back the remainder of the week and regained most if not all of the post-Brexit losses. The S&P 500 was up 3.27% for the week and closed at 2,103. The Dow Jones gained 3.18% and closed at 17,949. So far in 2016, the S&P is up 4.00% and the Dow is up 4.37%.
  • Interest rates moved lower again this week despite the rally in the equity markets. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.00% and 1.44%, respectively.
  • The spot price of WTI Crude Oil gained 3.48% this week to close at $49.30 per barrel. WTI Crude is up 17.71% in 2016.
  • The spot price of Gold gained 1.95% this week, closing at $1,341.35 per ounce. Year to date, gold prices are up 26.41%.

Economic Data

  • Initial jobless claims came in at 268,000 which was an increase from last week’s reading of 259,000. The Labor Department noted no special factors in the data. The four week moving average for claims moved down to 266,750.
  • The Case-Shiller home price index rose 0.5% in April, slightly missing expectations of 0.6%. Prices increased in 16 of the 20 cities represented in the index. Over the last 12 months, home prices as measured by the index have risen 5.4%.
  • The headline PCE Index (measure of inflation) rose by 0.2% in May, in line with consensus expectations. The increase was in part due to a 1.4% rise in energy goods and services prices. Over the last 12 months, headline PCE has increased 0.9%.
  • The Core PCE Index (excludes food and energy, preferred measure of inflation by the Federal Reserve) also increased 0.2% in May and was in line with expectations. Over the last 12 month, Core PCE has risen 1.6%, still well short of the Fed’s 2% inflation target.

Fact of the Week

  • According to the Social Security Trustees 2016 report, the trust fund backing the payment of Social Security benefits would be zero in 2035. A zero trust fund does not mean that Social Security payments would also go to zero, but rather would drop to 77% of their originally promised level (or a 23% cut to benefits). In the 2009 report, the projection had been that that the trust fund would hit zero in 2042.

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®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

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