China Tariffs, Gas Prices/Canada: Wealth Economic Update Dec. 7, 2018

U.S. and World News

  • china-943639230_370.jpgFollowing the meeting in Buenos Aires between President Trump and President Xi Jinping of China, President Trump agreed to delay a planned increase in the tariff rate on $200 billion of Chinese goods by 90 days while China agreed to begin purchasing agricultural, energy, and industrial commodities from the United States. The deal was initially met with skepticism by markets, however, China has begun preparations to begin importing soybeans and liquefied natural gas. Yesterday, the CFO of Chinese company Huawei was arrested for a violation of United States sanctions that prohibit doing business with Iran. The incident is not estimated to have any effect on trade negotiations between the United States and China.
  • In an effort to combat rapidly falling oil prices, Canada has unexpectedly announced an output cut of 325 thousand barrels per day, setting the precedent for other major oil producing nations to follow suit. Later in the week, Saudi Energy Minister Khalid al-Falih stated that no OPEC deal was a real risk, just before Russia and OPEC members were to meet to discuss further production cuts. After Thursday’s summit concluded with no deal, OPEC met again to agree on 1.2 million barrels per day of production cuts. The deal is viewed as a victory United States oil producers as they are able to enjoy rising oil prices without having to cut production.


Markets

  • In another volatile week, stocks reversed course and headed sharply lower. The S&P 500 plummeted 4.55% and closed at 2,633. The Dow Jones lost 4.44% and closed at 24,389. Year to date, the S&P is up 0.40% and the Dow Jones is up 0.95%.
  • Yields continued their slide this week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.70% and 2.86%, respectively.
  • The spot price of WTI Crude Oil rose higher this week, gaining 2.75% and closing at $52.33 per barrel. Year to date, Oil prices are down 12.94%.
  • The spot price of Gold rose 1.46% this week and closed at $1,248.60 per ounce. Year to date, Gold prices are down 4.16%.

Economic Data

  • Initial jobless claims fell by 4,000 to 231,000 this week. The four-week moving average of claims rose by 4,000 to 228,000. Claims rose by 4,000 in California, 2,000 in Illinois, 2,000 in Iowa, 2,000 in Texas, and 2,000 in Wisconsin.

     

  • Private sector employment rose by 179,000 in November versus expectations for a 195,000 gain.

     

  • The trade deficit rose $0.9 billion to -$55.5 billion in October versus expectations for a reading of $-55 billion.

     

  • The ISM manufacturing index rose by 1.6 points to 59.3 in November versus expectations for a reading of 57.5.

     

  • The ISM non-manufacturing index rose by 0.4 points to 60.7 versus expectations for a reading of 59.0.

     

  • Factory orders fell by 2.1% month-over-month in October versus expectations for a 2.0% decline.

     

  • Construction spending fell by 0.1% in October versus expectations for an increase of 0.4%.

     

  • Nonfarm payrolls rose by 155,000 in November month-over-month versus expectations for an increase of 198,000. The lower-than-expected reading was led by slower growth in construction, leisure, and hospitality.

     

    • The unemployment rate held steady at 3.7%, in-line with expectations.

       

    • The labor force participation rate remained at 62.9%

       

    • Average hourly earnings rose by 0.2% month-over-month in November versus expectations for an increase of 0.3%.

Fact of the Week

  • Credit card debt in the US peaked in May 2008 before the global real estate crisis at $1.02 trillion. It then hit a low of $832 billion in April 2011. As of August 2018, US credit card debt climbed back to a record level of $1.04 trillion. (Source: Federal Reserve)

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.

Special Market Update: Dec. 6, 2018

The market reversal that began on Tuesday has carried over into today’s trading as stocks continue to exhibit a high level of volatility. At the time of this writing, the markets are down 2.3% as measured by the S&P 500.  The Dow is off 2.8% while international markets are down 1.2% and the Shanghai composite closed down 1.8%.

iStock-874979248Stocks experienced a relief rally last week and into early this week on Fed Chair Jerome Powell’s more dovish comments indicating a more measured approach to interest rate hikes in 2019. This was followed by optimism on progress regarding the trade issues between the U.S. and China last weekend at the G-20 meeting in Buenos Aires. Initial reports stated that there was somewhat of a ‘trade truce’ reached between the two countries that would delay the escalation of tariffs for 90 days and include Chinese purchases of agriculture and liquid natural gas. Markets turned on Tuesday when the validity of those initial reports were called into question, something of which we have not seen any hard evidence.

The catalyst for today’s drop seems to be the arrest of the CFO of Chinese tech giant Huawei in Canada on charges that the firm violated U.S. sanctions by selling to Iran. This has been an issue with Chinese firms in the past, notably the recent fines levied against ZTE for similar allegations. Chinese officials are reportedly outraged by the detainment of Meng Wanzhou, daughter of the prominent CEO of the Chinese tech giant. The arrest, which occurred on the same day (December 1) as the Xi-Trump dinner, has stoked fears of an escalation of the trade tensions between the U.S. and China and that any progress that may have been made last weekend at the G-20 has been negated.

It is unclear what the ramifications of the arrest will have on the big picture trade negotiations but the United States’ handling of it will be a near term focus of markets given the prominence of Huawei (comparable to Apple in the U.S.) and the existing controversy of the firm’s development of 5G networks around the world. Old Second Wealth Management’s investment professionals will continue to monitor the situation and provide pertinent updates.

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.

Brexit, China Tariffs, Ukraine: Wealth Economic Update Dec. 1, 2018

U.S. and World News

  • iStock-815062310The House of Commons will vote on Theresa May’s new Brexit withdrawal agreement on December 11th, which calls for London to follow many of the European bloc’s rules in an effort to keep trade agreements intact. Meanwhile, people in the “Remain” group are hopeful that the European Union’s top court will determine that the U.K. can unilaterally cancel Brexit after it has been completed. European Union Brexit negotiator Michel Barnier has advised Britain that this agreement is “the only one possible”.
  • President Trump has threatened to raise tariffs to 25% from 10% on $200 billion of Chinese goods effective January 1st and institute tariffs on $267 billion more Chinese imports that would include iPhones and laptops. The announcement preludes the G20 summit in Argentina taking place this weekend that will be attended by President Trump, Xi Jinping. President Trump and the Chinese President are expected to have a dinner meeting on Saturday night to discuss trade.
  • Tensions are rising between Vladimir Putin and Ukraine after Russia captured and fired upon three Ukrainian navy vessels that had entered the Kerch strait near Crimea last weekend. Russia is now planning to deploy more surface-to-air missile systems to the area. Ukraine is calling for NATO to deploy warships to the sea of Azov, between the two countries.


Markets

  • Stocks rebounded this week. The S&P 500 gained 4.91% and closed at 2,760.16. The Dow Jones rose 5.52% and closed at 25,538.46. Year to date, the S&P is up 5.10% and the Dow Jones is up 5.54%.
  • Yields dropped again from last week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.82% and 2.99%, respectively.
  • The spot price of WTI Crude Oil rose slightly this week, up 0.36% and closing at $50.60 per barrel. Year to date, Oil prices are down 16.17%.
  • The spot price of Gold fell 0.07% this week and closed at $1,222.12 per ounce. Year to date, Gold prices are down 6.19%.

Economic Data

  • Initial jobless claims rose by 10,000 to 234,000 this week. The four-week moving average of claims rose by 4,000 to 223,000. Claims rose by 5,000 in New York, 3,000 in Pennsylvania, and 2,000 in Georgia.
  • The core PCE price index ex-food and energy rose by 0.10% month-over-month in October versus expectations for a 0.2%. The year-over-year rate fell 0.2% to 1.8% versus expectations for 1.9%.
  • Personal income rose by 0.5% month-over-month in October versus expectations for a 0.4% increase.
  • Consumer spending rose by 0.6% in October versus expectations for a 0.4% increase.
  • Pending home sales fell by 2.6% in October versus expectations for a 0.5% increase. Declines were led by the West region.
  • Sales of new single-family homes fell by 8.9% in October to a seasonally-adjusted annualized rate of 544k versus expectations of 575k. This is the lowest level since March 2016.
  • Second-quarter GDP growth was unrevised and remained at 3.5% versus expectations for a revision to 3.6%.
    • The October goods trade deficit increased by $1.2 billion to $77.2 billion, versus expectations for a reading of $77.0 billion.
    • Wholesale inventories rose 0.7% in October versus expectations for a 0.4% increase.
  • The Conference Board index of consumer confidence fell 2.2 points to 135.7 in November, in-line with expectations.

Fact of the Week

  • Outstanding student loan debt in the US doubled from $360 million to $720 billion from 3/31/05 to 12/31/09. It double again to $1.44 trillion as of 9/30/18.

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.

5 Myths That Keep Millennials From Becoming Homeowners

Frederick Nosal — First Vice President, Residential Lending

Though most Millennials are already well down the path of “adulting,” with careers, car and student loan repayments, and even starting to save for retirement, many haven’t taken a critical next step in their financial lives: homeownership.

Behind this hesitation are a handful of persistent myths.

Myth# 1: Renting saves me money.

Rent is an expense you pay to live in someone else’s real estate investment. If you were spending that same amount on a mortgage payment, you would actually be investing in an asset you own. It would be yours to sell and borrow against. It could even appreciate over time, which would help you build long-term wealth. Here’s a calculator that can help you put this in dollars—potentially your own.

Myth#2: I don’t make enough to buy a home.

You may not be able to buy your dream home right away, but the odds are good you can find one you’d be comfortable owning and can already afford. After all, you won’t be paying for your home all at once. While you can try different scenarios online to see what’s affordable, we recommend first-timers talk to an Old Second Mortgage banker. Not all mortgages are alike. Some lenders, like Old Second, participate in a variety of programs for first-time buyers that make affordability easier. 

Myth# 3: I still have student loans, so I can’t get a mortgage.

While your student loan balance may seem high, just focusing on how much you owe can be misleading. The amount you are required to pay back each month is what influences your mortgage approval. Also, federal student loan programs offer numerous options to ensure your payments are affordable, even with a car loan and mortgage payment. Many borrowers are able to make adjustments that allow them to comfortably repay their debt and make a housing move.

Myth# 4: It’ll be years before I can afford a down payment.

While experienced homebuyers typically make a larger down payment, first-time mortgage programs can require far less. Some are available with as little as a $1,000 investment. Depending on where you live, you may be able to access grants that cover a portion or all your down payment. This is where working with an Old Second Mortgage banker comes in handy. We can help you access the right programs for your situation. 

Myth# 5: Owning a home is a big responsibility.

While having a big property can mean a lot of yardwork and maintenance, you have options that reduce the “sweat equity” associated with homeownership. From new construction to high-rise condos or townhomes with shared maintenance costs, you can own without giving up your weekends to home maintenance chores.

Myth #6: Getting a mortgage is complicated.

You don’t have to do this alone. Talk to us. We listen and are always ready to answer questions. The only dumb question is the one you don’t ask, so ask us anything. We’ll help you understand what’s affordable, calculate how much different types of properties will cost and prequalify you so it’s easier to work with a real estate agent.

We’re here—online, by phone and in person. As your community bank, we aren’t going anywhere. So, ready when you are. After all, you may not do this every day, but we do.

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

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.

Brexit, California Wildfires: Wealth Economic Update Nov. 17, 2018

U.S. and World News

  • The British pound had a volatile week as uncertainty around the outcome of a Brexit deal rose higher. Theresa May has lost transport minister Jo Johnson and Brexit Secretary Dominic Raab within the past week and risks further resignations of pro-EU ministers. There was a Cabinet meeting held this week in an attempt to gain support on an agreement with a focus on the controversial Irish border. The deal would force Britain to abide by European rules and would make it very difficult for Britain to negotiate trade deals with other countries. Citing Brexiteer sources, Telegraph Chief Political Correspondent Christopher Hope tweeted “The threshold of 48 letters of no confidence in Theresa May will be passed today. They are expecting a no confidence vote in the PM on Tuesday”.

  • The death toll has climbed to 65 and over 600 people are missing in the deadliest wildfire in California state history. The two major fires are the Camp Fire, just north of Sacramento, which is 45% contained and the Woolsey Fire, just outside of Los Angeles, which is 69% contained. The state of California is also battling very serious air quality issues as a result of the fire, with the smoke continuing to flow southwest. The California utility company PG&E’s faulty power lines are believed to have started the fire.


Markets

  • Stocks retreated this week from last week’s gains. The S&P 500 fell 1.54% and closed at 2,736. The Dow Jones dropped 2.15% and closed at 25,413. Year to date, the S&P is up 4.12% and the Dow Jones is up 4.84%.
  • Yields dropped sharply from last week and the yield curve steepened. The 5 year and 10 year U.S. Treasury Notes are yielding 2.88% and 3.07%, respectively.
  • The spot price of WTI Crude Oil continued falling this week, shedding another 5.63% and closing at $56.80 per barrel. Year to date, Oil prices are down 5.51%.
  • The spot price of Gold rose 0.99% this week and closed at $1,221.59 per ounce. Year to date, Gold prices are down 6.23%.

Economic Data

  • Initial jobless claims rose by 2,000 to 216,000 this week. The four-week moving average of claims rose by 1,000 to 215,000. Claims increased by 2,000 in New York and fell by 3,000 in Michigan, 2,000 in North Carolina, and 2,000 in California.
  • Retail sales rose by 0.8% in October versus expectations for a 0.5% increase. This was led by sales at gas stations.
    • Retail sales ex-autos rose 0.7% versus expectations for a 0.5% increase.
    • Retail sales ex-auto & gas rose by 0.3% versus expectations for a 0.4% increase.
  •  Import prices rose by 0.5% in October versus expectations for a 0.1% increase.
    •  Import prices-ex petroleum rose by 0.2% versus expectations for a flat reading.
  •  The Philadelphia Fed manufacturing index fell by 9.3 points to 12.9 in November versus expectations for a reading of 20.0.
  •  The Empire State manufacturing index increased by 2.2 points to 23.3 in November versus expectations for a reading of 20.0.
  •  The consumer price index (CPI) rose by 0.33% in October, meeting expectations. The increase was driven by higher energy prices. The year-over-year rate came in a 2.53%, also meeting expectations.
    •  Core CPI rose by 0.19% in October, meeting expectations. The year-over-year rate came in at 2.15%, also meeting expectations.
  •  Industrial production rose by 0.1% in October versus expectations for a 0.2% increase.
  •  Manufacturing production rose by 0.3% in October versus expectations for a 0.2% increase.

Fact of the Week

  • As of October 31, the US was producing 11.2 million barrels of crude oil a day, while importing 7.3 million barrels. US oil production has risen substantially from October 2016, when the US produced only 8.5 million barrels and imported 9 million. (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

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.

Iran, Midterm Elections: Wealth Economic Update Nov. 9, 2018

U.S. and World News

  • On Monday, sanctions on Iran imposed by the United States that target the oil, banking and transportations sectors have taken affect. The sanctions were imposed as a means to end Iran’s nuclear program. Eight countries were given temporary exemptions, allowing them to continue to import Iranian petroleum. This will buy time for Iran to continue to negotiate their missile and nuclear programs with the United States, however, Iran is taking a tough stance on the sanctions. Iranian President Hassan Rouhani stated that Iran will “sell its oil and break sanctions” and that “This is an economic war against Iran, but we are prepared to resist any pressure”.
  • In a widely expected outcome, the 2018 midterm election resulted in the Democrats gaining control of the House of Representatives while the Republicans retained control of the Senate. In two closely watched, key races, Republican Ron DeSantis defeated Tallahassee Democratic Mayor Andrew Gillum for Governor of Florida and Republican Ted Cruz was able to keep his Texas Senate seat after defeating Beto O’Rourke. Also, 29-year-old Democrat Alexandria Ocasio-Cortez became the youngest women ever elected to Congress after her victory in New York’s 14th district.


Markets

  • Stocks continued their climb higher this week, despite the declines seen today. The S&P 500 rose 2.21% and closed at 2,781. The Dow Jones gained 3.00% and closed at 25,989. Year to date, the S&P is up 5.72% and the Dow Jones is up 7.10%.
  • Yields ended the week mostly unchanged from last week. The 5 year and 10 year U.S. Treasury Notes are yielding 3.04% and 3.18%, respectively.
  • The spot price of WTI Crude Oil slid into a bear market this week, losing another 5.26% and closing at $59.82 per barrel. Year to date, Oil prices are down 0.48%.
  • The spot price of Gold fell 1.91% this week and closed at $1,209.35 per ounce. Year to date, Gold prices are down 7.17%.

Economic Data

  • Initial jobless claims fell by 1,000 to 214,000 this week. The four-week moving average of claims did not change and remained at 214,000. Claims fell by 5,000 in Illinois and by 3,000 in Missouri.
  • The ISM non-manufacturing index declined by 1.3 points to 60.3 versus expectations for a reading of 59.0.
  • The producer price index (PPI) increased by 0.6% month-over-month in October versus expectations for a 0.2% increase. The year-over-year figure rose by 2.9%. 
    • PPI excluding food, energy, and trade services rose by 0.2% month-over-month, in-line with expectations. The year-over-year figure rose by 2.8%.
  • The University of Michigan’s index of consumer sentiment fell by 0.3 points to 98.3 in the November preliminary reading versus expectations for a reading of 98.0.
  • Wholesale inventories rose by 0.4% for September versus expectations for a 0.3% increase.

Fact of the Week

  • Tuesday’s Midterm elections saw Democrats taking control of the house while Republicans bolstered their control of the senate. Historically, returns in the S&P 500 under a Republican President, Republican Senate, and Democratic House are 10.8% annualized. (Source: Strategas)

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.

China, Brazil election: Wealth Economic Update Nov. 3, 2018

U.S. and World News

  • China made progress this week towards making its financial markets more investor friendly. The China Securities Regulatory Commission said that it will begin increasing liquidity, reduce unnecessary interference in trading, and increase fairness in the markets for investors. President Trump ramped up trade threats if negotiations with Chinese President Xi fail, stating that the U.S. is planning tariffs on the remaining $257 billion in Chinese goods. Reports surfaced early this morning that President Trump had asked U.S. officials to draft a trade agreement with China, however, a few members of the administration later said that an agreement is not imminent.
  • brazil-676361592_370In a controversial victory, right winged presidential candidate Jair Bolsonaro won Brazil’s presidential election with 55% of the vote. The Brazilian Real gained 9.7% against the U.S. Dollar and the Bovespa stock index rose 13.5% in the last 30 days as the market predicted a Bolsonaro victory leading up to the election. Brazil has gone through years of corruption scandals, brutal elections and protests, the impeachment of a president, and negative economic growth. Bolsonaro campaigned on restoring discipline and law-and-order, putting an end to the corruption.


Markets

  • Stocks rebounded from correction levels this week as volatility remains elevated. The S&P 500 rose 2.45% and closed at 2,723. The Dow Jones gained 2.36% and closed at 25,271. Year to date, the S&P is up 3.47% and the Dow Jones is up 4.03%.
  • Yields also rebounded dramatically from their lows last week. The 5 year and 10 year U.S. Treasury Notes are yielding 3.04% and 3.22%, respectively.
  • The spot price of WTI Crude Oil continued its slide this week, losing a whopping 6.92% and closing at $62.91 per barrel. Year to date, Oil prices are up 4.66%.
  • The spot price of Gold ended the week almost unchanged from last week, losing 0.05% and closing at $1,232.94 per ounce. Year to date, Gold prices are down 5.36%.

Economic Data

  • Initial jobless claims fell by 2,000 to 214,000 this week. The four-week moving average of claims increased by 2,000 to 214,000. Claims fell by 3,000 in California and by 2,000 in Georgia. Jobless claims still remain high in hurricane affected states.
  • The core PCE index (excluding food and energy) rose by 0.15% month-over-month in September and the year-over-year figure came in at 1.97%, in line with expectations.
  • Personal income rose by 0.2% month-over-month in September versus expectations for a 0.4% increase.
  • Personal spending rose by 0.4% month-over-month in September, in-line with expectations.
  • The Conference Board index of consumer conference rose to 137.9 versus expectations for a reading of 135.9. This is the highest level since 2000.
    Private sector employment rose 227,000 in October versus expectations for a 187,000 increase.
  • Factory orders increased by 0.7% month-over-month in September versus expectations for a 0.5% increase.
  • Nonfarm payrolls rose by 250,000 in October month-over-month versus expectations of a 200,000 increase.
    • The unemployment rate remained unchanged at 3.7%, in-line with expectations.
    • Average hourly earnings rose by 0.2% month-over-month in October and the year-over-year figure rose by 0.3% to 3.1%, a new cycle-high.
    • The trade deficit rose by $700 million to $54 billion in September, versus expectations for a $300 million increase.

Fact of the Week

  • The last time Amazon saw a 20% drawdown in stock price was in February of 2016, when its market cap was $227 Billion. In the period from September 4th to October 30th, Amazon fell nearly 25% and lost $249 Billion in market cap.

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.

Saudis, Turkey, Khashoggi: Wealth Economic Update Oct. 26, 2018

U.S. and World News

  • iStock-927165528Saudi Arabia’s handling of the death of Jamal Khashoggi, a journalist working for the Washington Post, is under sharp criticism as the story continues to change nearly every day. The latest announcement from Saudi prosecutors was yesterday, when they stated that the killing was in fact premeditated. This morning, President Erdogan of Turkey stated that “Turkey has other information and evidence about the killing by Saudi officials after Khashoggi entered the consulate on October 2nd, and it will eventually reveal that information”. Whether the crown prince of Saudi Arabia knew of the murder and the location of the body are the two mysteries that remain. The incident has put a strain on a long standing strong relationship with the United States and Saudi Arabia.


Markets

  • Stocks plummeted this week as volatility picked up further. The S&P 500 lost 3.93% and closed at 2,659. The Dow Jones fell by 2.97% and closed at 24,688. Year to date, the S&P is up 1.03% and the Dow Jones is up 1.67%.
  • Yields also fell sharply this week as investors piled into bonds this week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.91% and 3.08%, respectively.
  • The spot price of WTI Crude Oil was down for yet another week, losing 2.32% and closing at $67.67 per barrel. Year to date, Oil prices are up 12.58%.
  • The spot price of Gold rose 0.61% this week, and closed at $1,233.95 per ounce. Year to date, Gold prices are down 5.28%.

Economic Data

  • Initial jobless claims rose by 5,000 to 215,000 this week. The four-week moving average of claims remained unchanged at 212,000. Claims rose by 4,000 in Florida and by 3,000 in Georgia as a result of Hurricane Michael.
  • Durable goods orders rose by 0.8% in September versus expectations of a -1.5% decrease. This was led by defense aircraft.
    • Durable goods orders ex-transports rose by 0.1% in September versus expectations of a 0.4% increase.
  • Core capital goods orders fell by 0.1% in September versus expectations for a 0.5% increase.
  • New home sales fell 5.5% in September to a seasonally-adjusted rate of 553,000 units versus expectations for 625,000 units. Sales fell the most in the Northeast region (-40.6%).
  • Pending home sales rose by 0.5% in September versus expectations for no change. Pending home sales rose the most in the West region (+4.5%).
  • Real GDP rose by 3.5% in the third quarter, beating expectations of a 3.3% increase.
    • Personal consumption rose by 4.0% versus expectations of 3.3%, the fastest pace since the fourth quarter of 2014.
    • The Core PCE Price index rose by 1.6% in the third quarter versus expectations for a 1.8% increase.
  • The University of Michigan’s index of consumer sentiment fell by 0.4 points to 98.6 in October versus expectations for a reading of 99.0.

Fact of the Week

  • The largest one day decline in the S&P 500 happened on “Black Monday” (10/19/87), when the index dropped 20.5%, equal to 58 points. A 20.5% drop today would be equal to 545 points. The largest one day drop so far this year was 113 points. (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

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.

Interest rates, Midterms, NAFTA, Saudis: Wealth Management Special Update Oct. 26, 2018

Following a largely positive 3rd quarter during which the S&P 500 set a new all-time high, markets have moved sharply lower to begin the month of October. Gains in both the S&P and Dow have been wiped out, while the Nasdaq is clinging to a ~2% gain. The recent weakness has been heaviest in those Nasdaq/Growth stocks which have been leadership for the last few years. While there is no clear cause of the near 10% correction in stocks, there are a number of factors that may be contributing:

  • Recent communication from the Federal Reserve indicates a commitment to further rate hikes which the markets have perceived as too aggressive. To borrow from our research partner Strategas, “The level of interest rates that the economy can take is higher that the interest rate financial markets are comfortable with.” So despite an otherwise strong economy which justifies further rate increases, the markets have responded poorly to the perceived path of hikes. With the recent market downturn, implied odds of a December rate hike have fallen from over 80% to 69%, though the Fed seems intent on one more hike in 2018.
  • ballot-884243522_370October tends to be a weak time seasonally for equity markets, in particular during midterm election years. Markets don’t like uncertainty, so a midterm election that has the potential to swing the balance of power in Congress could be a source of heightened volatility. While there may be some specific industries or sectors that win or lose based on the outcomes, historically the broad market indices rally into year-end following the midterms once the results are clear.
  • Trade continues to be an issue. The USMCA agreement (updated NAFTA), which has been agreed to in principle by the U.S., Mexico and Canada, won’t be voted on until 2019 when the new Congress comes in, raising fears that its passage may be impeded if the Democrats are to take control. The tariff war with China continues on and little to no progress towards a resolution has been made.
  • The situation with Saudi Arabia has intensified and fears of isolation of that country and its potential effect on oil prices is a cause for concern.

Despite these concerns, the underlying fundamental data of the economy remains strong. Growth (GDP), employment and earnings figures continue to be solid and valuations are reasonable. With interest rates rising and the real rate of interest now positive (rates exceed inflation) for the first time since the financial crisis, companies are no long enjoying a near zero cost of capital. This results in more rationed allocations of capital and greater volatility as there is less margin for error for companies from more expensive capital and cash as an asset class is more viable. Increased volatility and lower correlations between assets is likely here to stay throughout the remainder of this cycle and benefits the active management approach.

 

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.