Stock Markets, Govt Shutdown: Wealth Economic Update Dec. 21, 2018

U.S. and World News

  • stocks-1023759644_370Equity markets continued their extended slide this week which is largely being attributed to the actions and commentary coming from the Federal Reserve. As mostly expected, the Fed raised interest rates another 0.25% this week, the fourth rate hike of 2018. Markets appear to take issue with comments made in the post-meeting press conference in which Fed Chair Jerome Powell downplayed the implications of market volatility and said that runoff of the Fed’s balance sheet is on ‘auto-pilot’. Despite taking projected rate hikes for 2019 down from 3 to 2, many fear the comments are indicative of a Fed that is steadfast in its plan to continue to raise rates regardless of the data both domestically and globally. For further information on the market action as of late, please see the note Old Second Wealth Management Comments on Market Volatility sent on December 20.
  • Also weighing on markets is an impending government shutdown, which is scheduled to take place unless an agreement is reached by midnight Friday. President Trump has refused to sign a stop-gap spending bill and threatened that the shutdown would last “for a very long time” unless there are provisions for funding the border wall along the Mexican border, something that Democrats appear unwilling to budge on. Government shutdowns have historically not been market moving events, but this time around it appears to be adding extra uncertainty to a market that is already dealing with very poor sentiment.


Markets

  • Stocks fell further this week amid global uncertainty, Federal Reserve concerns and a looming government shutdown with major averages suffering their worst weekly declines in 10 years. The S&P 500 fell 7.03% and closed at 2,417. The Dow Jones dropped 6.87% and closed at 22,445. Year to date, the S&P is down 7.64% and the Dow Jones is down 6.89%.
  • Bonds rallied this week with yields dropping along with stock prices. The 5 year and 10 year U.S. Treasury Notes are yielding 2.63% and 2.79%, respectively.
  • The spot price of WTI Crude Oil continued its precipitous slide this week on forecasts of record U.S. and Russian output combined with the sharp selloff in the equity markets. Prices fell 11.81% and closed at $45.39 per barrel. Year to date, Oil prices are down 24.48%.
  • The spot price of Gold rose 1.37% this week and closed at $1,255.84 per ounce. Year to date, Gold prices are down 3.59%.

Economic Data

  • Initial jobless claims increased by 8,000 to 214,000 this week. The four-week moving average of claims fell by 3,000 to 222,000. Claims rose by 2,000 each in Pennsylvania, California, and New York.
  • Existing home sales increased 1.9% in the month of November, beating expectations of a -0.4% decline. Sales rose in the Northeast (+7.2%), Midwest (+5.5%), and South (+2.3%) and declined in the West (-6.3%).
  • The PCE Price Index (measure of inflation) rose by 0.06% in November, slightly higher than expectations of flat prices. Over the last 12 months, the headline PCE index has risen 1.8%.
    • The Core PCE Price Index (excludes food and energy prices) rose 0.15% in November, a bit below expectations of 0.2%. Over the last 12 month, Core PCE prices have risen 1.9%.

Fact of the Week

  • Last year, there were twice as many home owners created as were created in the previous 10 years combined. The number of U.S. homeowners grew by 1.8 million in the 12 months ending 6/30/2018, double the 900,000 new homeowners over the 10 year period ending 6/30/2017. (Source: Census Bureau)

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

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

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