Coronavirus, Vaccine, Expansion: O2 Wealth Economic Update, June 12, 2020

U.S. and World News

  • iStock-1205972800_370On Thursday, the FOMC announced that it will leave the fed funds target rate range unchanged at 0-0.25%. The Fed expects no change in the rate through 2022. The statement’s characterization of the current economic situation was mostly unchanged from the April FOMC meeting, and continued to acknowledge the “tremendous human and economic hardship” caused by the virus outbreak. The statement once again noted “sharp” declines in economic activity, “a surge” in job losses, and that weaker demand and lower oil prices are “holding down” inflation. The FOMC outlined its economic projections for the next 3 years, expecting GDP growth of -6.5% for 2020, +5% for 2021, and +3.5% for 2022. They also noted that they will increae holdings of UST as well as residental and commercial MBS in order to “sustain smooth market functioning”.
  • The Wall Street Journal reported this week that the National Institute of Health will be funding and conducting studies for three potential COVID-19 vaccines beginning this summer. Trials for Moderna’s mRNA-1273 will begin next month, Oxford University and AstraZeneca’s AZD1222 will begin in August, and Johnson & Johnson’s As26.COV2-S will begin in Septerber. The NIH may include additional large-scale studies of other candidates as well, according to Dr. Larry Corey, a member of the committe advising the NIH.
  • The National Bureau of Economic Research (NBER) annouced Monday that the business cycle peaked in February, marking the end of the expansion that began in June 2009 and the beginning of a recession. The expansion lasted 128 months, the longest expansion in the history of U.S buisness cycles, dating back to 1854. The previous longest was the 120 month expanison from March 1991 to March 2020.

Markets

  • The markets faded after a strong week last week. The S&P 500 fell -4.73% and closed at 3,041. The Dow Jones was down -5.51% and closed at 25,605. Year-to-date, the S&P 500 is down -4.98% and the Dow Jones is down -9.20%.
  • Yields fell this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.33% and 0.71%, respectively.
  • The spot price of WTI Crude fell as well this week. Prices fell -7.91% and closed at $36.42 per barrel. Year to date, Oil prices are down -40.35%.
  • The spot price of Gold gained 2.79% and closed at $1,732.14 per ounce. Year to date, Gold prices are up 14.16%.

Economic Data

  • Job openings declined 965,000 in April and the outright decline in layoffs was consistent with the stronger than expected May jobs report.
  • The May core CPI price index fell by 0.06% month-over-month, lowering the year-on-year rate by two tenths to 1.2%, both below consensus.
  • The producer price index (PPI) increased by 0.4% in May, three tenths above consensus expectations, led by an increase in food prices (+6%) and energy prices (+4.5%).
  • Initial jobless claims declined to 1.5 million in the week ended June 6, in line with consensus expectations. Continuing claims fell by 339,000 to 20.9 million.
  • The University of Michigan’s index of consumer sentiment rose by 6.6 points to 78.9 in the June preliminary report, above expectations.

Fact of the Week

  • From 1927 to 1981, dividend’s accounted for about 60% of stocks total return, while price movement accounted for 40%. Since 1982, dividends only make up about 25% of annualized return (Source: Strategas).

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 CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

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