French Election, Taxes, N Korea: Wealth Economic Update Apr. 28, 2017

U.S. and World News

  • iStock-534000920_400Results from the first round of the French Presidential Election showed Emmanuel Macron and Marine Le Pen advancing to a presidential runoff as voters turned their backs on the political establishment. Macron, the independent centrist won 23.75% of the vote, while Le Pen, the National Front leader, garnered 21.53%. Trying to broaden her appeal, Le Pen is taking a leave of absence from her leadership position of the National Front party, whose platform is slashing immigration, clamping down on trade and removing France from the European Union. The runoff vote is scheduled for May 7th, in which current polls show Macron holding the advantage.
  • President Trump unveiled the outline for his proposed tax reform this week. While details remain to be filled in, the plan is highlighted by a series of broad tax cuts. It included a reduction of the corporate tax rate from 35% to 15%, lower individual tax rates along with simplified brackets, a bigger standard deduction, and a repeal of the estate and alternative minimum taxes. This one page proposal did not include the controversial border-adjustment tax on imports.
  • Tensions continue to rise in Korea as the North detained another U.S. citizen and staged a massive live fire-drill to commemorate the 85th anniversary of its military. In response to this escalation, the U.S. military has started moving key parts of its controversial THAAD anti-missile defense system to a deployment site in South Korea. This move, which has angered North Korea, China and Russia, prompted protests by local residents and was denounced by the frontrunner in South Korea’s presidential election.

Markets

  • Markets bounced higher following the results of the first round of the French Election. The S&P 500 rose 1.53% and closed at 2,384. The Dow Jones gained 1.91% for the week and closed at 20,941. Year to date, the S&P is up 7.14% and the Dow is up 6.69%.
  • Interest rates moved modestly higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.82% and 2.29%, respectively.
  • The spot price of WTI Crude Oil dipped 0.87% this week, closing at $49.19 per barrel. Year to date, Oil prices have fallen 8.43%.
  • The spot price of Gold declined 1.26% this week, closing at $1,268.21 per ounce. Year to date, Gold prices are up 10.52%.

 Economic Data

  • Initial jobless claims rose by 14,000 from last week, coming in at 257,000. The numbers may have been elevated this week due to seasonal adjustments surrounding Easter and spring break holidays. The four week moving average for claims dropped to 242,000.
  • The Case-Shiller home price index rose by 0.7% in March, in line with expectations. Prices rose in all 20 cities measured, with Seattle (1.9%), Dallas (1.2%) and San Francisco (1.0%) seeing the largest increases. Home prices as measured by the index have now risen 5.9% over the last 12 months.
  • The first estimate of 1st Quarter GDP showed growth of only 0.7% vs. expectations of 1.0%. The slowdown in consumer spending was a significant drag on the headline number.
  • The Employment Cost Index (ECI) rose by 0.8% in the 1st quarter, beating expectations of 0.6%. With the strong quarter, total compensation has now increased 2.4% over the last year.

Fact of the Week

  • 41% of homeowners between the ages of 65-74 and 63% of homeowners over age 75 own their home free and clear of any debt. (Source: Center for Retirement Research at Boston College)

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
Steve Meves, CFA® – (630) 801-2217 – smeves@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.

French Election, Brexit: Wealth Economic Update Apr. 21, 2017

U.S. and World News

  • france360France will be holding what is presumed to be the 1st round of its Presidential Election on Sunday. The current four top candidates in the polling are only separated by 4% points, making the race extremely tight. Under French election rules, if no candidate secures a majority (which seems all but a certainty), the two highest vote-getters will square off in a run-off election scheduled for May 7th. The four candidates include two broadly pro-market, liberal reformers (Emmanuel Macron and Francois Fillon) and two populist eurosceptics who promise labor market and trade protectionism (Marine Le Pen and Jean-Luc Melenchon). Macron and Fillon have put greater focus on domestic issues like tax reform, unemployment and the national debt. Meanwhile, both Le Pen and Melenchon focused on immigration control and have proposed taking France out of the European Union with Le Pen being more staunchly opposed to France remaining in the euro. Global markets will be watching the results of this election closely.
  • British Prime Minister Theresa May has called a snap general election in the U.K., with the vote to be held on June 8th. With her Conservative party holding a sizeable lead in polls, May is taking the opportunity to try to gain a significant majority as Brexit negotiations get underway. May said that the vote was necessary to secure a mandate going into a “moment of enormous national significance”, also stating that Westminster was currently too dividend to take on this task.

Markets

  • Markets rebounded a bit this week. The S&P 500 rose 0.87% and closed at 2,349. The Dow Jones gained 0.51% for the week and closed at 20,548. Year to date, the S&P is up 5.54% and the Dow is up 4.71%.
  • Interest rates ended the week where they began and remain at low levels. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.77% and 2.24%, respectively.
  • The spot price of WTI Crude Oil dropped 6.86% this week, closing at $49.58 per barrel. Year to date, Oil prices have fallen 7.80%.
  • The spot price of Gold was little changed this week, closing at $1,284.72 per ounce. Year to date, Gold prices are up 11.96%.

 Economic Data

  • Initial jobless claims rose by 10,000 from last week, coming in at 244,000. The Labor Department noted no special factors affecting the data this week. The four week moving average for claims dropped to 243,000.
  • Housing starts declined -6.8% in March which was a larger drop than the expected -3.0%. The report was broadly weak with both the single-family category (-6.2%) and the multi-family category (-7.9%) seeing declines.
  • Existing home sales rebounded in March, increasing 4.4% vs. forecasts of 2.2%. This marks a full retracement of February’s -3.9% drop. Both sales of existing single family units (4.3%) and condos/co-ops (5.0%) rose during the month. On a regional level, existing home sales increased in the Northeast (10.1%), Midwest (9.2%) and South (3.4%) but declined in the West (-1.6%).

Fact of the Week

  • Of U.S. metropolitan areas with populations of at least 1 million, Salt Lake City has the lowest unemployment rate at 3.0% and Cleveland has the highest at 6.6%. The nationwide unemployment rate current stands at 4.5%. (Source: Department of Labor)

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
Steve Meves, CFA® – (630) 801-2217 – smeves@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.

Trump, China, NATO: Wealth Economic Update Apr. 14, 2017

U.S. and World News

  • Investors were forced to recalibrate their expectations this week as President Trump reversed several of his positions that he held during the campaign. Trump began by telling the Wall Street Journal that China is no longer a currency manipulator, a claim he had made many times throughout the campaign trail. He then went on to say that he respects Fed Chair Janet Yellen, leaving the door open for her to be reappointed when her term expires, despite Trump previously saying that she should be “ashamed of what she’s doing to the country.” Trump also reversed course on the Export-Import Bank, now supporting it for the backing that it lends to small companies. Finally, Trump said that NATO was no longer obsolete since it is fighting terrorism.

Markets

  • Interest rates continued their recent downward trend this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.77% and 2.24%, respectively.
  • The spot price of WTI Crude Oil rose 1.80% this week, closing at $53.18 per barrel. Year to date, Oil prices have fallen 1.01%.
  • The spot price of Gold increased by 2.47% this week, closing at $1,285.50 per ounce. Year to date, Gold prices are up 12.02%.

 Economic Data

  • Initial jobless claims declined by 1,000 from last week, coming in at 234,000. The Labor Department noted no special factors affecting the data this week. The four week moving average for claims dropped to 247,000.
  • The University of Michigan consumer sentiment index rose 1.1 point to 98.0 in the preliminary April report. This is approaching the cycle high of 98.5 reached in January. Both consumers’ assessment of current conditions and expectations for the future improved in the report.
  • Retail Sales decreased -0.2% in March, in line with expectations. The headline retail sales figure was weighed down by lower motor vehicle & parts (-1.2%) and gasoline (-1.0%) sales. Core retail sales (excludes autos, gas, and building materials) saw a better than expected 0.5% increase.
  • The Consumer Price Index (measure of inflation) declined -0.3% in March vs. forecasts of a flat CPI. The decline was due to a -3.2% drop in energy prices during the month. Over the last 12 months, headline CPI has increased 2.4%.
    • Core CPI (excludes food and energy prices) declined -0.1% in March vs. expectations of a 0.2% increase. The decline was led by lower communications, apparel and lodging prices. This was the first outright decline in Core inflation since 2010. The 12 month increase in Core CPI declined to 2.0% as a result.

Fact of the Week

  • Net interest costs of the federal government make up 7% of total federal outlays in 2017. It is estimated that with higher interest rates in the future and rising federal debt levels, net interest costs will be pushed to 21% of total federal spending by the year 2047. (Source: Congressional Budget Office)

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
Steve Meves, CFA® – (630) 801-2217 – smeves@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.

 

Syria, Gorsuch: Wealth Economic Update Apr. 7, 2017

U.S. and World News

  • Following a poison gas attack against a rebel-held area of Syria which included use of the banned nerve agent sarin, President Trump was forced to pivot from his prior stance on Syria and its President Bashar al-Assad. Trump said that the attack, which included children among its victims, crossed “many, many lines” and that his “attitude toward Syria and Assad has changed very much.” In what was seen as a direct response, the U.S. launched 59 Tomahawk missiles against an airbase in Syria. This sets up further potential conflict with Russia, Assad’s primary backer, as the Kremlin has already stated the missile launch will deal a “significant blow to Russian-U.S. relations” and represented an “act of aggression” against a sovereign state.
  • Facing significant Democratic opposition, Republicans voted to enact the “nuclear option”, which reduces the threshold for Supreme Court nominations in the Senate from 60 to a simple majority. Having done that, the path was cleared for Neil Gorsuch to be confirmed to the Supreme Court by the Senate on Friday. With the Republicans choosing to lower this threshold, future presidents will have a much easier time getting their Supreme Court nominees confirmed, potentially changing whom they decide to appoint.
  • Minutes from the March Federal Reserve meeting were released this week and contained a relatively upbeat assessment of economic conditions and references to the potential upside from fiscal policy measures. The minutes also showed discussion regarding allowing the Fed’s balance sheet to ‘run-off’ at some point in the future. Additionally, some participants characterized stock market valuations as ‘quite high’ in light of the run-up in indices in recent months. The market is currently pricing in a 13% probability of a rate hike at the Fed’s May meeting and a 62% probability of a rate hike by their June meeting.

Markets

  • Markets were relatively flat this week. The S&P 500 fell 0.24% and closed at 2,356. The Dow Jones was flat for the week and closed at 20,656. Year to date, the S&P is up 5.80% and the Dow is up 5.20%.
  • Interest rates bounced around this week but ended close to where they began. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.92% and 2.38%, respectively.
  • The spot price of WTI Crude Oil rose 3.18% this week, closing at $52.21 per barrel. Year to date, Oil prices have fallen 2.81%.
  • The spot price of Gold increased by 0.48% this week, closing at $1,255.21 per ounce. Year to date, Gold prices are up 9.39%.

Economic Data

  • Initial jobless claims declined by 25,000 from last week, coming in at 234,000. Most of the improvement came from the Midwest and Mid-Atlantic regions, where claims in recent weeks were elevated due to Winter Storm Stella. The four week moving average for claims dropped to 250,000.
  • The March employment report showed a gain of 98,000 jobs in the month, well below expectations of 180,000. Additionally, the prior two months’ figures were revised down a combined 38,000. The retail sector disappointed again, losing 30,000 jobs in the month however the overall report may have been negatively affected by severe weather. Over the last three months, job gains have averaged 178,000 per month.
    • The headline unemployment rate moved down 0.2% to 4.5%, which was better than expected. The labor force participation rate held steady at 63.0%.
    • Average hourly earnings rose by 0.2%, which was in line with forecasts. Over the last year, wages have grown 2.7%.

Fact of the Week

  • The IRS audited just 0.7% of individuals’ tax returns in 2016. The number of people audited in 2016 (just over 1 million) dropped for the 5th consecutive year. The IRS claims that for every $1 spent conducting an audit, they are able to recuperate $4 in previously unpaid taxes. (Source: IRS)

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
Steve Meves, CFA® – (630) 801-2217 – smeves@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.