Interest Rates: Wealth Economic Update Feb. 24, 2017

U.S. and World News

  • commerce-517533970_360Minutes from the January Fed meeting were released this week and comments from many of the participants indicated that it would be appropriate to raise interest rates again “fairly soon” if upcoming data are in line with expectations. Members mostly only saw a modest risk of a significant increase in inflation pressures and thought the Fed would have “ample time” to respond if necessary. The market is currently pricing in a 40% probability that the Fed raises interest rates at their next meeting in March.

Markets

  • Markets rose this week with continued low volatility. The S&P 500 gained 0.73% and closed at 2,367 which is an All-Time High. The Dow Jones followed suit by rising 0.99% and closing at an All-Time High of 20,822. Year to date, the S&P is up 6.08% and the Dow is up 5.80%.
  • Interest rates fell this week and the 5 year and 10 year U.S. Treasury Notes are now yielding 1.80% and 2.31%, respectively.
  • The spot price of WTI Crude Oil was up 1.83% this week, closing at $54.02 per barrel. Year to date, Oil prices have risen 0.56%.
  • The spot price of Gold increased by 1.83% this week, closing at $1,257.19 per ounce. Year to date, Gold prices are up 9.56%.

Economic Data

  • Initial jobless claims rose 5,000 from last week, coming in at 244,000. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 241,000 which is a new 40-year low.
  • New home sales rose by 3.7% in January which was a smaller rise than expected. New home sales rose in the Midwest, South and Northeast regions but fell in the West.
  • Existing home sales rose 3.3% in January. Sales of single family units rose 2.6% while multi-family unit sales rose 8.3%.

Fact of the Week

  • The Dow finished Friday at a new record high for the 11th consecutive day, the best streak of consecutive new highs since 1987.

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
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

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Keystone, Interest Rates: Wealth Economic Update Feb. 17, 2017

U.S. and World News

  • oil_socialPresident Trump met with Canadian Prime Minister Justin Trudeau this week for their first face-to-face meeting. The major topic of discussion was the NAFTA trade deal that Trump has vowed to update and renegotiate. The two leaders also discussed Trump’s decision to conditionally approve the Keystone XL pipeline which begins in Alberta’s oil sands. Coming out of the meeting, Trump said that the trade situation with Canada is already “less severe” than it is with Mexico. Canada sends 75% of its exports to the United States, accounting for 20% of Canada’s GDP.
  • Janet Yellen delivered her semi-annual testimony to Congress this week and touched on a number of topics, including the pace of interest rate hikes in the near future. On that note, she stated that, “I would say every meeting would be live,” indicating that the next hike could come as soon as the Fed’s March meeting. The markets are now pricing in a little over a 1 in 3 chance that the Fed raises rates in March.

Markets

  • Markets rose this week with continued low volatility. The S&P 500 gained 1.60% and closed at 2,351 which is an All-Time High. The Dow Jones followed suit by rising 1.88% and closing at 20,624. Year to date, the S&P is up 5.31% and the Dow is up 4.76%.
  • Interest rates were little changed this week and the 5 year and 10 year U.S. Treasury Notes are now yielding 1.90% and 2.42%, respectively.
  • The spot price of WTI Crude Oil was down 0.91% this week, closing at $53.37 per barrel. Year to date, Oil prices have dipped 0.65%.
  • The spot price of Gold increased by 0.11% this week, closing at $1,235.00 per ounce. Year to date, Gold prices are up 7.63%.

Economic Data

  • Initial jobless claims rose 5,000 from last week, coming in at 239,000. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 245,000 which is very close to a new 40-year low.
  • Retail sales increased by 0.4% in January, beating expectations of 0.1%. Retail sales ex-autos rose by 0.8%. Gains were broad-based across categories, with the largest increases coming from sporting goods (1.8%), electronics (1.6%), restaurants/bars (1.4%) and department stores (1.2%).
  • The headline Consumer Price Index (measure of inflation) increased by 0.6% in January, beating expectations of 0.3%. This was mostly the result of a 4.0% increase in energy prices during the month. Over the last 12 months, headline CPI has risen 2.5%.
    • Core CPI (excludes food and energy) increased by 0.3% during January, more than the 0.2% forecasted. In the last year, core prices have risen 2.3%.

Fact of the Week

  • 54% of student loan borrowers have either defaulted or failed to pay down even $1 of principal on their outstanding debt over the last 7 years. Until an error was discovered in the government calculations last month, it was believed that the percentage was much lower, at 34%. (Source: Education Department)

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
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

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Travel Ban, One China: Wealth Economic Update Feb. 10, 2017

U.S. and World News

  • scales_gavel-509557490_360Three judges in the U.S. Appeals Court upheld the suspension of President Trump’s travel ban this week. The government now has 14 days to ask the 9th Circuit to have a larger panel of judges review the decision or appeal directly to the U.S. Supreme Court, which would likely determine the case’s final outcome. Expressing his displeasure with the Circuit Court’s decision, Trump tweeted, “SEE YOU IN COURT, THE SECURITY OF OUR NATION IS AT STAKE!”
  • In his first phone call with Chinese President Xi Jinping, President Trump said that he would honor the nation’s “One China” policy which considers Taiwan as one with China and not a separate nation. Trump also urged closer ties between the U.S. and China. The clarification on the “One China” policy ends weeks of uncertainty regarding Washington’s approach to China.
  • According to a new U.S. Department of Homeland Security report, President Trump’s wall along the U.S.-Mexico border would be a series of fences and walls that would cost as much as $21.6 billion and take more than three years to construct. The projected price tag is much higher than the $12 billion figure cited on the campaign trail and the $15 billion estimated by Republican Congressional leaders.

Markets

  • Markets rose this week with continued low volatility. The S&P 500 gained 0.87% and closed at 2,316 which is an All-Time High. The Dow Jones followed suit by rising 1.13% and closing at 20,269, also an All-Time High. Year to date, the S&P is up 3.66% and the Dow is up 2.83%.
  • Interest rates fell this week and the 5 year and 10 year U.S. Treasury Notes are now yielding 1.89% and 2.41%, respectively.
  • The spot price of WTI Crude Oil was unchanged this week, closing at $53.81 per barrel. Year to date, Oil prices have risen 0.18%.
  • The spot price of Gold increased by 1.09% this week, closing at $1,233.62 per ounce. Year to date, Gold prices are up 7.51%.

Economic Data

  • Initial jobless claims fell 12,000 from last week, coming in at 234,000. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 244,000 which marks a new 40-year low.
  • The University of Michigan consumer sentiment index fell to 95.7 in the preliminary February report following increases in the previous three months. Both consumers’ assessment of current conditions and expectations for the future declined with the expectations component falling further.

Fact of the Week

  • Equity market volatility has been very low for the last portion of 2016 extending into 2017. The S&P 500 has now gone 39 consecutive trading days without experiencing an intraday range of greater than +/- 1% which is the longest stretch that has occurred since 1982. (Source: Strategas Research Partners)

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
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

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SCOTUS, Brexit, Fed: Wealth Economic Update Feb. 6, 2017

U.S. and World News

  • scales-178714734_360President Trump continued to make headlines this week starting with his firing of Attorney General Sally Yates after she ordered DOJ lawyers not to defend the newly enacted travel and immigration restrictions. Dana Boente, U.S. Attorney General for the Eastern District of Virginia, has been named acting Attorney General until Jeff Sessions is confirmed by the Senate. Trump also announced his nomination of Neil Gorsuch, an appointee of President George W. Bush, to the U.S. Supreme Court. Gorsuch is the youngest (49) nominee to the Supreme Court in more than 25 years and will face a difficult confirmation process as Democrats have already come out in opposition of him.
  • After a two day debate, Britain’s departure from the European Union took a step forward this week as the House of Commons voted overwhelmingly in favor of triggering Article 50. Once triggered, it will begin a two year process for Britain to leave the EU. With that obstacle cleared, Prime Minister Theresa May is set to publish a detailed Brexit plan that includes controlling migration, pulling out of the single market and negotiation plans with Britain’s trading partners.
  • The Federal Reserve held a policy meeting this week and elected to keep interest rates unchanged as was the expectation going in. The Committee made few changes to their prior statement saying that the economy was expanding “at a moderate pace” and that job growth was still “solid.” They did make one meaningful upgrade to their assessment of the economy saying “measures of consumer and business sentiment have improved of late.” The Fed will meet again March 14-15 and the market is currently pricing in a 35% probability of a rate hike at that meeting.

Markets

  • Markets traded relatively flat this week. The S&P 500 gained 0.16% and closed at 2,297. The Dow Jones dipped 0.09% and closed at 20,071. Year to date, the S&P is up 2.76% and the Dow is up 1.69%.
  • Interest rates held steady this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.93% and 2.49%, respectively.
  • The spot price of WTI Crude Oil rose by 1.28% this week, closing at $53.85 per barrel. Year to date, Oil prices are unchanged.
  • The spot price of Gold increased by 2.44% this week, closing at $1,220.30 per ounce. Year to date, Gold prices are up 6.34%.

Economic Data

  • Initial jobless claims fell 14,000 from last week, coming in at 246,000. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 248,000.
  • The January employment report showed a gain of 227,000 jobs in the month, beating consensus estimates of 180,000. The prior two months were revised down by a combined 39,000 which brings the three month average of job gains to 183,000.
    • Headline unemployment ticked up 0.1% to 4.8% in January. The move up was the result of a 0.2% increase in the labor force participation rate to 62.9%.
    • Average hourly earnings only rose 0.1% in January, lower than expectations of 0.3%. Over the last 12 months, wages have grown 2.5%.
  • The Case-Shiller Home Price Index rose by 0.9% in December, beating forecasts of 0.7%. All 20 cities measured by the index saw increased prices and have now grown 5.3% over the last 12 months.
  • The PCE Index (measure of inflation) rose by 0.2% in December, in line with expectations. Over the last 12 months PCE prices have risen 1.6%.
    • Core PCE (excludes food and energy, preferred measure of inflation by the Fed) rose 0.1% in the month, meeting expectations. Over the last year, Core PCE has risen 1.7%, still short of the Federal Reserve’s 2% target.

Fact of the Week

  • The New York Stock Exchange introduced its opening/closing bell in the 1870’s when continuous trading began and started off as a Chinese gong. In 1903, the NYSE moved to its current building and the gong was replaced by a brass bell. The first guest to ring the opening bell (which has now become a tradition) was Leonard Ross in 1956. Leonard was a 10 year old who had won a TV quiz show answering questions about the stock market to earn that honor. (Source: NYSE.com)

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
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

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Dow 20,000, 1st Week: Wealth Economic Update Jan. 27, 2017

U.S. and World News

  • dow_20000The Dow Jones Industrial Average finally eclipsed the 20,000 mark for the first time, having flirted with the mark for more than a month. The benchmark index took 103 years to reach the 10,000 level in March 1999 and another 17 years to double. The latest 1,000 points added to the Dow came in the last 42 trading days as a post-election stock market rally sent major U.S. indices to new all-time highs.
  • In his first full week in office, President Trump has been very busy enacting many of the initiatives that he laid out on the campaign trail. He began by withdrawing the U.S. from the TPP trade agreement that had been established with many Asian nations like Japan and promising to renegotiate the NAFTA trade deal currently in place with Canada and Mexico. This was followed by executive orders clearing the path for the Keystone XL and Dakota Access Pipeline projects to move forward after they had been blocked by the Obama administration. Finally, Trump reiterated his intention on building a border wall between the U.S. and Mexico and insisted that Mexico would be footing the bill for the massive project. These statements resulted in Mexican President Enrique Pena Nieto cancelling a planned trip to meet with Trump and tensions rose further when White House spokesman Sean Spicer suggested Trump was considering a 20% tax on Mexican imports to pay for the wall. On tap for next week will be Trump’s nomination for the vacant Supreme Court seat.

Markets

  • This week the S&P 500 rose by 1.04%, closing at 2,295. The Dow Jones Industrial Average surpassed the 20,000 mark, increasing by 1.34% and closed at 20,094.
  • Interest rates were mostly unchanged this week. The 5 year and 10 year U.S. Treasury Notes now yield 1.95% and 2.48%, respectively.
  • The spot price of WTI Crude Oil increased by 1.29% this week and closed at $53.12 per barrel.
  • The spot price of Gold dropped by 1.51% this week, closing at $1,191.35 per ounce.

Economic Data

  • Weekly initial jobless claims came in at 259,000, an increase from last week’s reading of 235,000. The Labor Department noted no major distortions to the data this week. The four week moving average for jobless claims now stands at 245,000 setting a new low mark since 1973.
  • New home sales fell by 10.4% in December which was worse than consensus expectations. Only new home sales in the Northeast region rose during the month as the Midwest, South and Wet all saw declines.
  • Real GDP in the 4th quarter grew by an annualized 1.9%, missing expectations for a 2.2% gain. This brings full year 2016 growth to just under 2.0%.

Fact of the Week

  • The Dow Jones Industrial Average was launched in 1896 and consisted of 12 companies. The index expanded to 20 companies in 1916 and grew to its current size of 30 companies in 1928 when the components of the index started being referred to as “Blue Chips”. General Electric is the only stock currently in the index that was part of the original 12, although it was removed from the index twice (in 1898 and in 1901) but returned to the index both times.
  • CORRECTION: Last week’s fact incorrectly stated market returns during the Obama presidency in relation to other Presidents. A total return (includes dividends) was quoted for Obama while comparing it to Clinton’s price-only returns. The correct figures were 13.8% annualized returns during Obama’s tenure and 15.2% annualized returns during Clinton’s.

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
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

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Trump, Brexit: Wealth Economic Update Jan. 20, 2017

U.S. and World News

  • president_podiumDonald J. Trump was inaugurated as the 45th President of the United States on Friday morning. His inauguration address stressed the importance of putting America first in all aspects including business and defense. The address was filled with promises of a more prosperous and safer country. While no specifics were given in his speech, President Trump guaranteed that the status quo of Washington D.C. would be shaken up and change was on the horizon.
  • This week British Prime Minister Theresa May laid out more plans for the coming Brexit, saying that the country will not seek a deal that leaves it “half in, half out” of the European Union. This confirmed fears of a “hard Brexit” in which the nation would leave the EU’s single market and regain full control of Britain’s borders. Also, in a speech at the World Economic Forum in Davos, May vowed that, “The U.K. will step up to a new leadership role as the strongest and most forceful advocate for free markets and free trade anywhere in the world.”

Markets

  • This week the S&P 500 dipped modestly by 0.13%, closing at 2,271. The Dow Jones Industrial Average decreased by 0.24% and closed at 19,827.
  • Interest rates rose a bit this week. The 5 year and 10 year U.S. Treasury Notes now yield 1.94% and 2.47%, respectively.
  • The spot price of WTI Crude Oil declined by 0.20% this week and closed at $52.42 per barrel.
  • The spot price of Gold increased by 1.08% this week, closing at $1,210.32 per ounce.

Economic Data

  • Weekly initial jobless claims came in at 235,000, a decrease from last week’s reading of 247,000. The Labor Department noted no major distortions to the data this week. The four week moving average for jobless claims now stands at 247,000 which is the lowest since 1973.
  • The Consumer Price Index (measure of inflation) rose 0.3% in December which was in line with expectations. The headline figure was boosted by a 1.5% rise in energy prices and have now risen 2.1% over the last 12 months.

o   The Core Consumer Price Index (excludes food and energy) rose by 0.2%, also in line with forecasts. Over the last year, core inflation stands at 2.2%.

  • Housing starts increased by 11.3% in December, bouncing back following a large decline in November. The rebound was solely in the multi-family category which increased by 57.3% in the month. Single family starts actually saw another decline in December, falling by 4.0%.

Fact of the Week

  • President Obama leaves office having presided over one of the best stock market return environments in American history. Since his inauguration in January 2009, the S&P 500 gained 182% or an annualized return of 16.3%. Since 1928, those market returns were only surpassed by the presidency of Bill Clinton (15.2% annualized return). (Source: Wall Street Journal)

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
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

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Obamacare, Cuba: Wealth Economic Update Jan. 13, 2017

U.S. and World News

  • medical-522306108_360Following a seven hour debate, the Senate narrowly passed a budget resolution this week, clearing the first major hurdle in the Republican effort to repeal Obamacare. House leaders have now taken on the resolution amid pressure from President-elect Donald Trump who has said that a repeal and replacement of Obamacare should happen essentially simultaneously.
  • A week before leaving office, President Obama announced an end to the “wet foot, dry foot” policy that allowed Cubans who arrived in the United States without visas to pursue residency after one year. This will likely mark his last major change that his administration will make to U.S.-Cuba relations after he previously lifted the long standing embargo with the country and cleared the way for travel to the island nation.

Markets

  • This week the S&P 500 dipped modestly by 0.10%, closing at 2,275. The Dow Jones Industrial Average decreased by 0.39% and closed at 19,886.
  • Interest rates continued to retreat a bit from their recent highs. The 5 year and 10 year U.S. Treasury Notes now yield 1.90% and 2.40%, respectively.
  • The spot price of WTI Crude Oil declined by 2.72% this week and closed at $52.52 per barrel.
  • The spot price of Gold increased by 2.11% this week, closing at $1,197.34 per ounce.

Economic Data

  • Weekly initial jobless claims came in at 247,000, an increase from last week’s reading of 235,000. The Labor Department noted no major distortions to the data this week. The four week moving average for jobless claims now stands at 257,000.
  • Headline retail sales for the month of December grew 0.6%, slightly below expectations of 0.7%. The headline number was aided by gains in gas prices and vehicle sales. Core retail sales (excludes autos, gas stations, building materials) was up only 0.2%, below expectations of 0.4%. The report showed non-store retail (includes online shopping) improving by 1.3% during the month but sales for department stores, electronics stores and restaurants declining.
  • The University of Michigan consumer sentiment index was approximately unchanged at 98.1 in the preliminary January report, following a sizable increase in December. The measure of current conditions increased, while the survey’s expectations of the future decreased a bit.

Fact of the Week

  • According to the American Society of Civil Engineers, the United States will need to spend $3.32 trillion over the next decade to fix our nation’s infrastructure, including $2.04 trillion on roads and bridges.

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
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.

 

Rate forecast, OPEC: Wealth Economic Update Jan. 9, 2017

U.S. and World News

  • money_chess-523185447_360Minutes from the December Federal Reserve meeting were released this week, giving insight into the Committee’s discussions leading up to the only Fed Funds rate increase of 2016. The transcripts showed that part of the reasoning behind the 0.25% rate hike was an expectation of coming fiscal stimulus under an upcoming Trump presidency. The Federal Reserve will meet again at the end of January but no further action is expected to be taken until the March meeting at the earliest.
  • The start of the year marked the beginning of the deal agreed upon by OPEC countries to reduce oil production and so far it appears as though all parties are complying with the agreement. OPEC and some non-OPEC member countries agreed last November to decrease crude output by 200,000 barrels per day in an effort to support prices and several countries, including Iraq, have already taken measures to reduce production.

Markets

  • This week the S&P 500 kicked off 2017 by rising 1.76%, closing at 2,277. The Dow Jones Industrial Average increased by 1.07% and closed at 19,763. The Dow was unable to reach the 20,000 milestone again this week, coming within 0.37 points of the elusive mark.
  • Interest rates continued to retreat a bit from their recent highs. The 5 year and 10 year U.S. Treasury Notes now yield 1.92% and 2.42%, respectively.
  • The spot price of WTI Crude Oil declined by 0.24% this week and closed at $53.70 per barrel.
  • The spot price of Gold increased by 2.19% this week, ending the year at $1,172.63 per ounce.

Economic Data

  • Weekly initial jobless claims came in at 235,000, a decrease from last week’s reading of 265,000. The Labor Department noted no major distortions to the data this week. The four week moving average for jobless claims now stands at 257,000.
  • The December payroll report showed a gain of 156,000 jobs in the month, lower than consensus forecasts of 175,000. The prior two months’ figures were revised up by a total of 19,000 which brings the three month average for job gains to 165,000.
    • The headline unemployment rate rose by 0.1% to 4.7%, in line with expectations. The small tick up in the unemployment rate was the result of a 0.1% increase in the labor force participation rate to 62.7%.
    • Average hourly earnings rose 0.4% in December, better than expectations of 0.3%. Over the last 12 months, wages have grown 2.9%, the highest mark during the recovery.
  • The ISM manufacturing index increased to a two-year high of 54.7 in December, rising from 53.2 in November. This was another positive data point indicating further signs of recovery in the U.S. manufacturing sector.

Fact of the Week

  • The total return for the S&P 500 during 2016 was +12.0%. If you missed the 3 best percentage gain days last year, that 12.0% return falls to 4.4%. If you avoided the 3 worst percentage loss days last year, that 12.0% gain rises to a 22.1% gain. (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
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.

 

Outlook December 31, 2016

DAWN OF A NEW ERA? MARKET OPTIMISM TRUMPS UNCERTAINTY.

Market volatility continued in the fourth quarter of 2016 amidst uncertainty about the U.S. Presidential election as well as overseas economic and geopolitical tensions. For the better part of 2016 the U.S. faced an election that was too close to call allowing mood swings to underpin economic news as time wore on. The S&P500 Index declined 4% between September 30 and the Friday before Election Day. In the early morning after the election, futures markets traded down sharply as the results became clear. Yet, by the time markets opened, in an abrupt about-face, the markets had reestablished pre-election levels and the S&P500 Index rallied over 7% through year-end.

Markets
In the fourth quarter the S&P500 Index earned a 3.8% total return rounding up the strong year-to-date return to 12% for the year ended December 31, 2016. Inspired by the results of the Presidential election in November Small Cap Stocks surged 8.8% in the fourth quarter, chalking up a 21.3% total return for the year, as represented by the Russell 2000 Index. Foreign equity returns were lackluster during the quarter as indicated by the declines MSCI EAFE Index and the MSCI EM Index, 0.7% and 4.1%, respectively. Emerging Market equities had a strong year with an 11.6% total return.

Market Indicies (Total Return as of 12/31/2016)
4thQ% YTD% 3-Year%* 5-Year%*
S&P 500 3.8 11.9 8.9 14.6
NASDAQ Composite 1.7 9.0 10.2 17.2
Russell 2000 8.8 21.3 6.7 14.5
MSCI EAFE** (0.6) 1.6 (1.0) 7.1
MSCI Emerging Markets** (4.3) 11.2 (2.3) 1.6
Source: Bloomberg Finance L.P; *Annualized; **USD

Economy and Interest Rates
In December the Federal Open Market Committee voted to increase the Federal Funds rate by 0.25%, to a range of 0.50% – 0.75% range. In anticipation of this rate increase, bond yields reached 2016 highs. Chair Janet Yellen proclaimed that the Committee will enact a “measured pace” of increasing the Federal Funds rate which, in our opinion, remains supportive of future economic growth. Concerns about the potential impact of rising rates on the dollar and global financial markets are the reasons for slower rate of increases.

The U.S. economy has grown at a 2.1% annual pace over the past five years. The slow growth rate has allowed the economy to heal from the 2007-09 financial crisis. Businesses and consumers have benefitted from the low interest rate environment. Companies have refinanced debt, repurchased shares and have decent cash levels on their books. Consumers also paid down debt as evidenced by an increased savings rate. Mortgage rates remained low which encourages consumers to buy homes and consumer durables.

Other indications of the improvement in the economy are that business and consumer confidence have been rising. In December, the NFIB’s Small Business Confidence survey rose dramatically to 115.8 from 107.8 in November. Small Business owners surveyed by the NFIB reported that they intend to make capital investments, hire more people and increase wages. President Trump’s pro-growth policies such as reduced government regulation and a revamped tax code support business owners’ optimistic stance.

Yields
Strong demand for U.S. Government bonds is evidenced by the Treasury’s new issues being overbought. The Ten-year Treasury Note yields 2.36% which is above the low of 1.37% reached in the past twelve months. In fact, over the past five years the 10-year Treasury yield has traded in a 1.4% to 3.0% range. The market hints that this range may be the “new normal” implying that investment income expectations remain modest.

Stocks
Stock prices reached new highs several times in 2016 and the Dow Jones Industrial Average is flirting with 20,000. Prices are relevant in determining an investment’s value. As equity investors, we consider additional measures when weighing the outlook for the market: earnings, valuation and sentiment.

2016 earnings for S&P 500 companies are expected to be $118.01, 10% above 2015. For 2017, the consensus earnings outlook is $128.23, per Zack’s Investment Survey, an 8.7% increase. The price-to-earnings ratio base upon expected earnings, known as P/E, is a useful barometer of value. Presently the future P/E of the S&P 500 Index is at 17.7 times 2017 expected earnings, slightly above the 15.9x long-term average. We believe that on a P/E basis the market is neither expensive nor cheap. Investor sentiment has risen supported by an improved outlook for the economy. Expected earnings and sentiment measures are positive, and the P/E ratio is neutral. The 8.7% expected increase in earnings for the S&P500 Index plus the 2% dividend yield signal a good year ahead in the equity market.

When Is the Right Time to Invest?
When you are an investor and take a long-term view, any time can be the right time depending in what you are investing. Therefore, it’s advisable to have access to wealth managers who actively monitor securities and markets daily. It’s also our job to keep emotions like loss avoidance from endangering your overall goals. Investing in a portfolio diversified over different types of assets and actively managing the assets are the keys to long-term success. The secret to successful investing is to remain focused on why you invest: to build wealth over time. The Wealth Management Officers at Old Second work with clients to develop and implement investment strategies that fit their objectives of growth and income. Particularly in volatile markets, ensuring clients’ exposure to risk is appropriate for their situation remains most important. Challenges in the markets will be met with diligence and care. Our team of experienced professionals is available to help guide you along the path toward achieving your financial goals.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@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.

 

Russia-Election, Turkey: Wealth Economic Update Dec. 30, 2016

U.S. and World News

  • In response to its alleged hacking and interference in the 2016 presidential election, the Obama administration announced new sanctions against Russia this week, including expelling 35 Russian diplomats and closing two Russian compounds in the U.S. The White House stated, “Russia’s cyber activities were intended to influence the election, erode faith in U.S. democratic institutions, sow doubt about the integrity of our electoral process, and undermine confidence in the institutions of the U.S. government.” Russian President Vladimir Putin has announced that Moscow will not retaliate in-kind and will refrain from expelling U.S. diplomats from the country, a decision that was praised by President-Elect Donald Trump in a Friday afternoon tweet.
  • Expanding on the truce that was established in Aleppo earlier this month, Russia and Turkey have brokered a nationwide ceasefire in Syria. The agreement would come into force in all regions where fighting between pro-government forces and opposition groups is taking place. The accord is already off to a shaky start as just after the ceasefire was set to take effect, it was reported that clashes between insurgents and government forces took place in several locations.

Markets

  • This week the S&P 500 fell by 1.07% and closed at 2,239. The Dow Jones Industrial Average decreased by 0.46% and closed the year at 19,763 and was unable to reach the 20,000 milestone in 2016. For the year, the S&P rose 11.77% and the Dow climbed 16.16%.
  • Interest rates continued to retreat from their recent highs this week. The 5 year and 10 year U.S. Treasury Notes now yield 1.93% and 2.45%, respectively.
  • The spot price of WTI Crude Oil rose by 1.49% this week and closed 2016 at $53.83 per barrel. WTI Crude was up 34.40% in 2016.
  • The spot price of Gold increased by 1.59% this week, ending the year at $1,151.35 per ounce. In 2016, gold prices rose 8.50%.

Economic Data

  • Weekly initial jobless claims came in at 265,000, a decrease from last week’s reading of 275,000. The Labor Department noted not major distortions to the data this week. The four week moving average for jobless claims now stands at 263,000.
  • The Case-Shiller home price index rose by 0.6% in October, beating expectations of 0.5%. Prices rose in all 20 cities measured by the index and have now risen 5.1% over the last 12 months.
  • Pending home sales fell 2.5% in November to a 10-month low. Pending sales fell in the West (-6.7%), Midwest (-2.5%) and South (-1.2%) but rose in the Northeast (+0.6%). The weak report may be an indication that higher mortgage rates are beginning to affect demand.

Fact of the Week

  • The number of electronic devices that are connected to the internet (ie. laptops, phones, care, appliances etc.) surpassed the world’s population in 2010. By 2020, the number of connected devices will reach 50 billion, or almost 7 times the world’s population of 7.3 billion. (Source: Federal Trade Commission)

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
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.