Brexit, China Tariffs, CA Wildfires, Saudis: Wealth Economic Update Nov. 23, 2018

U.S. and World News

  • Brexiteers had warned of “Judgement Day,” but opponents of British Prime Minister Theresa May are reportedly six letters short of the 48 threshold needed to trigger a no confidence vote on her leadership. May said on Sunday that toppling her would risk delaying Brexit and she would not let talk of the challenge distract her from getting the support of the U.K. business community ahead of a critical week of Brexit negotiations.

  • “We put tariffs on $250B in Chinese goods, and we could more than double that number,” Vice President Mike Pence told the APEC summit, stating the “U.S. will not change course until China changes its ways.” The warning follows remarks made by President Trump that helped the Dow close higher on Friday. The U.S. “may not” need to impose more tariffs after China sent over measures it was willing to take to resolve trade tensions, he said, adding that “we’ll probably get to the four or five big things that were left off” the list.

  • The current wildfires in California could pressure insurers operating in the state given underwriting losses have the potential to approach around $6.8B. “They are not permitted to take all the given year’s losses and cram them into next year’s rates,” California Insurance Commissioner Dave Jones told CNBC. A state ordinance instead spreads repayment of property and casualty insurance payouts over the next twenty years

  • President Trump has called the CIA assessment blaming Saudi Crown Prince Mohammed bin Salman for the killing of Saudi journalist Jamal Khashoggi “very premature” and said he will receive a complete report of the case on Tuesday. Saudi Arabia plays an important role in the oil markets, counters Iran’s influence in the region, and President Trump has repeatedly said he doesn’t want to harm U.S. defense contractors by blocking U.S. arms sales to the kingdom.


Markets

  • Stocks retreated again this week. The S&P 500 fell 3.76% and closed at 2,632.56. The Dow Jones dropped 4.39% and closed at 24,285. Year to date, the S&P is up 0.26% and the Dow Jones is up 0.32.
  • Yields dropped slightly from last week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.87% and 3.04%, respectively.
  • The spot price of WTI Crude Oil fell sharply this week, losing another 11.10% and closing at $50.39 per barrel. Year to date, Oil prices are down 16.17%.
  • The spot price of Gold rose 0.05% this week and closed at $1,223.93 per ounce. Year to date, Gold prices are down 6.06%.

Economic Data

  • Housing starts increased 1.5% in October to 1,228k, and September starts were revised up 9k to 1,210k. The composition of the report was somewhat softer, as the volatile multi-family category increased 10.3% but single-family starts declined 1.8%. Housing starts declined in the Northeast (-34.1%) and West (-4.6%), and increased in the Midwest (+32.9%) and in the South (+4.7%), where there is potential scope for further recovery as the rebound from Hurricane Florence was likely offset by a drag from Hurricane Michael..
  • Existing home sales increased 1.4% month-over-month in October to a seasonally adjusted annualized rate of 5.22 million units, above expectations and the first increase in 6 months. October home sales increased among single-family units (+0.9%) and among condos and co-ops (+5.3%). Sales rose in the West (+2.8%), South (+1.9%), and Northeast (+1.5%) regions and declined in the Midwest (-0.8%).
  • The University of Michigan’s index of consumer sentiment declined 0.8pt to 97.5 in the final November report from the preliminary report. The survey’s current conditions (-0.9pt to 112.3) and expectations (-0.6pt to 88.1) components both moved down from their preliminary readings. The report’s measure of 5- to 10- year inflation expectations remained unchanged at 2.6%.
  • In the week ended November 17, initial jobless claims increased by 3k to 224k—the highest level since June—against expectations for a decrease. The four-week moving average of claims increased by 2k to 219k. Jobless claims increased by 3k in California and Texas, and by 2k in Illinois. Claims declined by 2k in New York. Nationwide continuing claims—the number of persons receiving benefits through standard programs—declined 2k to 1,668k in the previous week. The insured unemployment rate remained unchanged on a rounded basis at 1.2%.

Fact of the Week

  • The S&P 500 has gone 46 trading days (as of 11/23) since it last closed at an all-time high. Since a record close on 3/28/13, the longest that the S&P 500 has gone between record closes is 286 trading days, between 5/21/15 and 7/11/16. (Source: BTN Research)

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
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

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