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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Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

Greek reforms: Wealth Economic Update Oct 31, 2016

U.S. and World News

  • greece_52645812_360Eurozone officials have approved a €2.8 billion tranche of financial aid for Greece after the debt-laden country delivered the needed economic reforms to unlock the latest round of cash. The reforms included progress in pension restructuring, bank governance and revenue collection. So far, Greece has received €31.7 billion of its €86 bailout granted in July 2015, its third bailout since 2010.
  • The People’s Bank of China is making changes to its Macro Prudential Assessment risk program to broaden its regulatory oversight to include wealth management products sold by banks and not counted on their balance sheets. The move marks another step in the PBOC’s efforts to control rising leverage in China’s financial system and highlights the worries that many have that unsustainable debt levels could derail an already slowing economy.

Markets

  • This week the S&P 500 dropped 0.67% and closed at 2,126. The Dow Jones rose 0.09% and closed at 18,161. So far in 2016, the S&P is up 5.81% and the Dow is up 6.37%.
  • Interest rates climbed higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.33% and 1.85%, respectively.
  • The spot price of WTI Crude Oil was down 4.35% this week to close at $48.64 per barrel. WTI Crude is up 21.45% in 2016.
  • The spot price of Gold rose 0.71% this week, closing at $1,275.47 per ounce. Year to date, gold prices are up 20.20%.

 Economic Data

  • Initial jobless claims came in at 258,000, a decrease from last week’s reading of 260,000. The Labor Department noted that claims may have been distorted by a bounce back from the effects of Hurricane Matthew which led to closures of filing offices in affected regions in previous weeks. The four week moving average for claims moved up to 253,000.
  • The Case-Shiller home price index showed an increase of 0.2% for August, more than consensus expectations of 0.1%. Of the 20 cities included in the index, 15 showed higher prices in the month. Over the last 12 months, home prices have risen 5.1% as measured by the index.
  • Real Gross Domestic Product rose 2.9% (annualized) during the 3rd quarter, beating expectations of 2.6% growth.
  • The Employment Cost Index (ECI, measure of wage growth) increased by 0.6% in the 3rd quarter, in line with expectations. On a year over year basis, total compensation has risen by 2.2%

Fact of the Week

  • The U.S. economy has been growing for the last 87 months (ie. no recession), an expansion exceeded in length only 3 times since 1900. (Source: National Bureau of Economic 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.

 

July Fed Meeting: Wealth Economic Update Aug 22, 2016

U.S. and World News

  • Minutes from the July Federal Reserve meeting were released this week and showed that the Committee continues to be patient regarding further interest rate increases. Several members noted that inflation continued to be low and saw little risk of waiting for inflation data to firm up before taking further tightening action. Committee members also noted that while markets rebounded from the surprising Brexit vote, they continued to see a variety of risks overseas.
  • China_Great_Wall_340China’s State Council has approved the launch of the Shenzhen-Hong Kong Stock Connect, which will serve as a trading link between the two area’s stock markets. It will be operational in about four months and will be similar to the existing Shanghai-Hong Kong link that was launched in late 2014. It is expected that this new agreement will further open up China’s market to outside investors.
  • In a live broadcast, suspended Brazilian President Dilma Rousseff said that, “Impeachment without a crime, if consummated, would be a coup.” Rousseff also called for early elections in an attempt to unite the country that is currently in recession. Rousseff was suspended in May on accusations that she doctored government fiscal accounts in order to get re-elected in 2014. It’s widely expected that she will be impeached and permanently removed from office later this month.

Markets

  • This week the S&P 500 was up 0.06% and closed at 2,184. The Dow Jones rose 0.02% and closed at 18,553. So far in 2016, the S&P is up 8.28% and the Dow is up 8.31%.
  • Interest rates increased this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.16% and 1.58%, respectively.
  • The spot price of WTI Crude Oil gained 9.17% this week to close at $48.57 per barrel. WTI Crude is up 21.27% in 2016.
  • The spot price of Gold rose 0.41% this week, closing at $1,341.47 per ounce. Year to date, gold prices are up 26.42%.

Economic Data

  • Initial jobless claims came in at 262,000, moving down from last week’s reading of 266,000. The Labor Department noted no special factors in the data. The four week moving average for claims moved up to 265,000.
  • The headline Consumer Price Index (measure of inflation) was unchanged in July, in line with forecasts as a decline in energy prices offset moderate gains in other components. Over the last 12 months, headline CPI has risen 0.8%.
    • Core CPI (excludes food and energy prices) showed gains of 0.1% in July, less than the expectation of 0.2%. Over the last year, ‘core’ prices have risen 2.2%.
  • New housing starts increased by 2.1% in July, beating consensus expectations of a -0.8% decline. Single family starts increased 0.5% in the month, while multi-family starts increased by 5.0%.

Fact of the Week

  • Of the households headed by a currently employed individual (i.e, a “working” household), 44% do not have any money invested on a pre-tax basis in a defined contribution plan, e.g., a 401(k) retirement plan. (Source: Government Accountability Office)

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
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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Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

Wealth Management Economic Update February 29, 2016

U.S. and World News

  • britain_000085343391_320Despite last week’s report that an agreement between Britain and European Union was on track, British Prime Minister David Cameron has announced a historic referendum to decide whether the United Kingdom should remain in the EU. Though Cameron himself strongly favors remaining in the economic bloc, he lost the backing of London Mayor Boris Johnson, who became the most high profile supporter of a British exit, or Brexit. The referendum is set to take place on June 23rd and the announcement set off a plunge in the value of the British Pound.
  • Finance ministers and central bank governors from the world’s 20 leading economies have convened in Shanghai to discuss a response to the dim global economic landscape. G20 participants will discuss many issues including the plunge in commodity prices, increased market volatility, exchange rates and the slowdown of China’s economy.

Markets

  • Markets continued to gain back ground this week. The S&P 500 gained 1.61% and closed at 1,948. Likewise, the Dow Jones rose 1.52% and closed at 16,640. So far in 2016, the S&P is down 4.33% and the Dow is down 4.03%.
  • Interest rates rose modestly this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.24% and 1.77%, respectively.
  • The spot price of WTI Crude Oil gained 3.43% this week to close at $32.43 per barrel. WTI Crude has fallen 16.08% in 2016.
  • The spot price of Gold decreased 0.27% this week, closing at $1,223.46 per ounce. Year to date, gold prices are up 15.30%.

Economic Data

  • Initial jobless claims came in at 272,000 which was an increase from last week’s reading of 262,000. The Labor Department noted no special factors in the data. The four week moving average for claims moved down to 272,000.
  • The Case-Shiller home price index rose 0.8% in December, slightly lower than expectations of 0.9%. Of the 20 city index, 19 showed price increases during the month. Over the last 12 months, home prices as measured by the index have risen 5.7%.
  • The headline PCE index (measure of inflation) rose by 0.1% in January, better than expectations of flat prices. Over the last 12 months, prices as measured by PCE have risen 1.3% vs. forecasts of 1.1%. Core PCE (excludes food and energy prices, preferred measure of inflation used by the Fed) was up 0.26% in January, narrowly beating expectations of 0.2%. Over the last 12 months, core PCE is up 1.7%, closer to the Federal Reserve’s goal of 2.0% inflation.
  • GDP growth in the 4th quarter of 2015 was revised up to 1.0% from the initial estimate of 0.7%. This was better growth than had been expected by the consensus (0.4%).

Fact of the Week

  • According to the National Association of Home Builders, over the last 30 years, the average size of a new single family home built in the U.S. has increased by 935 square feet to a total of 2,720 square feet. This is roughly the equivalent of adding a 30’ by 31’ room.

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
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
Tamara Wiley, CFP® – (630) 844-3222 twiley@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.

 

Wealth Management Economic Update January 25, 2016

U.S. and World News

  • switzerland_000008031742_320At the World Economic Forum in Davos, Switzerland this week, European Central Bank President Mario Draghi hinted at more stimulus for the Eurozone which has struggled to produce growth and inflation close to their 2% target. This action helped to stabilize global markets that had been in freefall early in the week. Draghi stated, “We have plenty of instruments and especially we have the determination and willingness and capacity of the Governing Council to act and deploy these instruments.”
  • The ECB wasn’t the only central bank suggesting additional easing. China’s Vice President Li Yuanchao signaled that Beijing would keep intervening in its stock market in an attempt to stabilize prices. Additionally, there is wide speculation that the Bank of Japan will opt for extra stimulus at its policy meeting next week.
  • This past summer’s landmark nuclear deal between Iran and six world powers came into effect this week. The result was an end of years of sanctions and the unfreezing of $100 billion of Iranian assets. Secretary of State John Kerry said in Vienna, “Today marks the first day of a safer world. We are really reminded once again of diplomacy’s power to tackle significant challenges.”

Markets

  • Markets rebounded midway through the holiday shortened week. The S&P 500 gained 1.46% and closed at 1,907. Likewise, the Dow Jones rose 0.69% and closed at 16,093. So far in 2016, the S&P is down 6.61% and the Dow is down 7.53%.
  • Interest rates ended the week relatively unchanged from where they began; however, there was plenty of volatility in between. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.48% and 2.05%, respectively.
  • The spot price of WTI Crude Oil began to rally midweek, much like the stock markets, gaining 9.62% to close at $32.25 per barrel. WTI Crude has fallen 12.93% in 2016.
  • The spot price of Gold advanced 0.83% this week, closing at $1097.95 per ounce. Year to date, gold prices are up 3.47%.

Economic Data

  • Initial jobless claims came in at 293,000 which was an increase from last week’s reading of 284,000. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 285,000.
  • The Consumer Price Index (measure of inflation) declined 0.1% in December, reflecting another 2.4% decline in energy prices. Core CPI (excludes food and energy) increased by 0.1%, below expectations of 0.2%. Over the last 12 months, core CPI has risen 2.1%.
  • Housing starts unexpectedly declined by 2.5% in December, much lower than expectations of a 2.3% gain following an unseasonably warm December. Multi-family starts declined by 1.0% and single-family starts were also soft, falling 3.3%.
  • Existing home sales increased 14.7% in December, beating expectations of 9.2%. The rise follows a 10.5% decline in November. Single family unit sales increased 16.1%, while multi-family unit sales rose 4.9%.

Fact of the Week

  • The U.S. economy has been expanding since July 2009 and the expansion reached 78 months as of the end of 2015. This duration of expansion has been exceeded by just 4 other U.S. expansions since 1854 or 162 years ago. (Source: National Bureau of Economic 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
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
Tamara Wiley, CFP® – (630) 844-3222 twiley@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.

 

Wealth Management Economic Update January 19, 2016

U.S. and World News

  • Poor economic data and further currency devaluation in China continued this week and sent global stocks lower.
  • President Obama delivered his 7th and final State of the Union address this week. Among the topics he discussed was ensuring opportunity for everyone, harnessing technological change and keeping the country safe. Obama lauded the economic progress the country has made since he took office but mentioned that one of his few regrets during his Presidency has been “that the rancor and suspicion between the parties has gotten worse instead of better.”

Markets

  • Markets continued their downward start to 2016 highlighted by a large down move to end the week. The S&P 500 declined 2.18% and closed at 1,880. Likewise, the Dow Jones fell 2.19% and closed at 15,988. So far in 2016, the S&P is down 7.96% and the Dow is down 8.19%.
  • Interest rates fell during this week, reflecting the weakness in the stock markets. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.46% and 2.04%, respectively.
  • The spot price of WTI Crude Oil plunged again this week, dropping 10.62% to a new 52 week low of $29.64 per barrel. WTI Crude has fallen 20.00% in 2016.
  • The spot price of Gold dipped 1.31% this week, closing at $1089.70 per ounce. Year to date, gold prices are up 2.70%.

Economic Data

  • Initial jobless claims came in at 284,000 which was an increase from last week’s reading of 277,000. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 279,000.
  • Headline retail sales declined by 0.1% in December, in line with expectations. However, core retail sales (excluding auto and gasoline sales) declined by 0.3%, much weaker than the estimated 0.3% increase.
  • The University of Michigan consumer sentiment index improved in the initial January estimate to 93.3 from 92.6 in December. Consumers’ expectations of the future improved, however their assessment of current economic conditions declined in the month.

Fact of the Week

  • According to the Social Security Administration, in 1994 there was 2.8% of America’s working-age population that was receiving Social Security disability benefits. This has increased to 5.1% of the working-age population in 2015.

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
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
Tamara Wiley, CFP® – (630) 844-3222 twiley@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.

 

Wealth Management Economic Update January 11, 2016

U.S. and World News

  • Global tensions rose over the weekend when Saudi Arabia cut off diplomatic relations with Iran and gave diplomats 48 hours to leave the country as a result of protestors storming and destroying the Saudi Arabian Embassy in Tehran. The destruction of the embassy was in response to Saudi Arabia’s execution of 47 prisoners, including a prominent Shiite cleric. The two sides are also fighting in the oil markets as Iran is poised to re-enter the global oil markets following the nuclear deal signed over the Summer.
  • China’s unstable economy and markets are again sending shockwaves throughout the globe. Following weak manufacturing and economic data, Chinese shares plummeted and the Chinese government attempted to stop the bleeding through intervention. Newly implemented, and since suspended, market circuit breakers were tripped twice as the markets were shut down following declines breaching the 7% threshold. The ban on selling by major shareholders was also kept in place indefinitely and further currency devaluation methods were deployed in an attempt to boost exports and maintain the country’s growth targets.
  • Initially detected as a 5.1 magnitude earthquake by various agencies, North Korea has claimed to have successfully test detonated its first hydrogen bomb, the fourth nuclear device that the country has detonated. According to North Korean news, the country wanted an ‘H-bomb of justice’ in order to protect from the ‘ever-growing nuclear threat and blackmail by the U.S.-led hostile forces.” In addition to condemning the tests, some U.S. officials are skeptical that the bomb tested was a hydrogen bomb, which is 1,000 times stronger than a typical atomic bomb.

Markets

  • Markets started the year in the red rather dramtically. The S&P 500 declined 5.96% and closed at 1922. The Dow Jones fell 6.19% and closed at 16346.
  • Interest rates declined slightly this week and the 5 year and 10 year U.S. Treasury Notes are now yielding 1.56% and 2.11%, respectively.
  • The spot price of WTI Crude Oil dropped 11.12% this week, closing at $32.88 per barrel.
  • The spot price of Gold rose 4.05% this week, closing at $1104.16 per ounce.

Economic Data

  • Initial jobless claims came in at 277,000 which was an decrease from last week’s reading of 287,000. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 276,000.
  • The monthly non-farm payrolls report showed a strong increase of 292,000 jobs in December, beating consensus estimates of 200,000. There were also upward revisions to the prior two months’ figures totaling 50,000. This brings the three month average of job gains to 284,000.
    • Average hourly earnings were flat for the month, behind forecasts of 0.2% growth. Wages increased by 2.5% in calendar year 2015.
    • The headline unemployment rate held steady at 5.0% which was in line with forecasts. The labor force participation rate rose 0.1% to 62.6%.

Fact of the Week

  • The total return for the S&P 500 in 2015 was a gain of 1.4%. If an investor in the index was able to avoid the worst three trading days during the year, that return would have risen to 12.3%. Conversely, if the investor missed the three best trading days, the 1.4% gain falls to a 7.1% loss. (Source: By The Numbers 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
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
Tamara Wiley, CFP® – (630) 844-3222 twiley@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, 2015

A Bit of Relief for Income Investors

At long last, the Federal Open Market Committee, chaired by Janet Yellen, increased the Federal Funds rate by .25% for the first time in nine years. Prior to the Great Recession of 2008-2009, the Fed Funds rate stood at 5%, but has since remained near 0% for more than six years. A .25% increase is a minor step towards normalizing interest rate levels. Highly confident that the employment and inflation indicators are nearing target levels, the Committee indicated that four increases are likely in the coming year. Taking the rise in stride, yields on money market funds and short-term bonds rose in response. Although a small move, some relief is being enjoyed by income investors.

Rocky Start to the New Year

On the heels of a frustrating and lackluster 2015, the New Year begins with a torrent of stock selling. The “crowded theater fire” selling spurred by distractions (China, oil, war mongering nations) and distortions (economic activity, strong U.S. dollars, corporate earnings) reinforces the importance of maintaining one’s investment plan despite the noise. At the time of this writing, investors are reeling from a string of 100-plus daily declines in the Dow Jones Industrial Average. We can expect increased volatility as we move forward, which is normal.

Being typical Americans, we tend to “Westernize” the rest of the world with our thinking, an interesting conversational topic but not reality. The Chinese stock market is a newer exchange dominated by inexperienced retail investors whereas U.S. stocks are traded largely by professional investors. The panic seizing the U.S. markets appears to be a reaction to the sell-offs overseas and the intentional devaluing of the Renminbi (RMB). Getting out of the way of a herd of cattle is nearly impossible, however cattle do eventually tire and the cowboys round them up.

While Chinese financial markets do not govern our investment strategies, we believe that it is important to discuss what happened. A couple of factors collided to create the panic selling in Chinese stocks. Government imposed sanctions on selling Chinese A-shares enacted last summer were lifted in January 2016. Also, China experienced capital outflows at the end of 2015, possibly fueled by the weakening RMB, and there was weaker than expected economic news for December. The lack of transparency around their policymakers’ priorities adds to the challenges facing China.

The intentional devaluation of the RMB in mid- and late-2015 comes after a nearly thirty percent appreciation of the currency over the past five years (Source: Bank for International Settlements). Facing an economy growing at seven percent, a decent clip albeit slower than the past decade or so for China, the People’s Bank of China’s move to lower the relative value of the RMB may be an attempt to stimulate economic growth. Over the longer term, the currency moves will have a broader impact on their economy than the changes in U.S. domestic stock prices.

U.S. Financial Market Review

U.S. Treasuries yields ended the year at levels near their yields at the beginning of the year. Slow and steady growth in the U.S. economy, which is good for financial assets, was overtaken by global concerns. Oil prices fizzled from $53 to $37 during the year as supply swamped global demand. Energy stocks and bond yields suffered as a consequence. One apparent goal of the Middle East oil producing countries by opening the well spicket wide is to drive out the high cost oil producers in the United States. The tactic may be working as the number of oil wells operating in the U.S. contracted two-thirds during 2015.

Amidst the chaos in the financial markets, there are reasons to be cautiously optimistic going forward. On a national level, the housing recovery absorbed many workers who were displaced by the capping of the oil wells. Consumers are benefitting from significantly lower prices at the pump, essentially getting a tax cut and a raise eventually. Representing more than sixty percent of our economy, consumers are a powerful force who will spend that savings, adding stimulus to the economy. The Federal Budget, passed in December, includes a stimulus package that could add over .2% to GDP growth in 2016. Commercial and industrial loan volume rose eleven percent in the 52-weeks ended 12/23/15 indicating strength in the economy and banks’ willingness to lend.

One of the subtleties one must recognize is that the U.S. is becoming the “old reliable” one, rather that the young, adventurous one. We can all relate to someone we know who is financially responsible, conservative, available in times of need, dedicated, and thus may be a bit boring. The U.S. economy, growing at two percent, may be a bit boring as well, but it is our longer term reality. Construction activity is slowly increasing, providing job opportunities. The current unemployment rate of five percent and rising wages bode well for this slow economic back drop. Our take away is that the U.S. economy will muddle along supported by accommodative monetary policy, Federal incentives and a strong consumer sector. Even a boring economy can be a good one. Translating the economic optimism into a quality-focused 2016 outlook remains our theme. Index Returns as of December 31, 2015:

Market Indicies (Total Return as of 6/30/2015)
YTD% 3-Year% 5-Year%*
Dow Jones 0.2 12.7 11.3
NASDAQ 7.1 19.9 15.0
S&P 500 1.4 15.1 12.5
Russell 2000 (4.4) 11.7 9.2
MSCI World ex-USA** (0.2) 5.7 4.3
MSCI Emerging Markets** (14.8) (6.5) (4.5)
Source: Bloomberg Finance L.P; *Annualized; **USD

Looking at the numbers, the S&P500 Index returned 1.4% for the year ended December 31, 2015. Separately the four “FANG” stocks: Facebook, Amazon, NetFlix and Google, returned an astounding 83% for the same period. The internet “darlings” commanded huge returns as investors followed “hot money”. On the flip side stocks in the Energy sector declined more than twenty percent in the year demonstrating the bifurcated nature of the market last year.

We believe the three underpinnings to the stock market are earnings, valuation and sentiment. U.S. corporations having faced headwinds caused by the strong U.S. dollar and energy company earnings drag are expecting an earnings recovery in 2016. Earnings are expected to be $118.73 for 2015, and $127.21 for 2016, a seven percent increase according to the folks at Zacks Investment Research. Valuations have become more attractive in the recent contraction. Two of the three tenets of the stock market are favorable. Sentiment remains a challenge as volatility increases in the market.

Investment quality and suitability remain foremost in our investment strategy. A diversified portfolio of quality investments tailored to your individual situation will deliver good returns over time. Thank you for allowing the Old Second Wealth Management team to be of service. 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
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
Tamara Wiley, CFP® – (630) 844-3222 twiley@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.

Wealth Management Economic Update December 7, 2015

U.S. and World News

  • European Central Bank President Mario Draghi announced a new stimulus plan this week that included extending the central bank’s €60 billion per month bond buying program to at least March 2017. In addition, the ECB cut its deposit rate further into negative territory, dropping it 0.1% to -0.3%. However, the measures appear to have disappointed the markets as European indices were down significantly following the announcement. ECB action thus far has failed to spur significant economic growth and inflation in the Eurozone.
  • The International Monetary Fund has added the Chinese yuan to its Special Drawing Rights Basket this week in a much anticipated announcement. The addition will be official in October 2016 and will increase China’s economic standing in global finance as it makes the yuan more freely accessible and tradable.
  • truck320The House and Senate have reached an agreement on a five year highway bill that will add $305 billion to infrastructure spending that is sorely needed. The bill also reauthorizes the Export-Import Bank which had its charter expired in June after some Republicans targeted it as a waste of government funds. The bill has now moved to President Obama’s desk where it is expected  to be approved.
  • At its semi-annual meeting in Vienna this week, members of OPEC have decided to maintain the cartel’s production ceiling of 30 million barrels per day even as oil markets remain in a supply glut. It was just over a year ago at the meeting when OPEC made the same call to maintain supply at current levels, sending crude oil prices spiraling lower. Many believe that OPEC’s stance is an attempt to drive out U.S. shale producers that have much higher costs of production.

Markets

  • Markets rose modestly in volatile end of week trade, falling on the ECB’s stimulus measures that were less than expected and then rising on a moderately strong employment report. The S&P 500 gained 0.12% and closed at 2,092. The Dow Jones followed suit by rising 0.36% and closing at 17,848. Year to date, the S&P is up 3.56% and the Dow is up 2.50%.
  • Interest rates rose a bit this week and the 5 year and 10 year U.S. Treasury Notes are now yielding 1.71% and 2.27%, respectively.
  • The spot price of WTI Crude Oil fell by 3.76% this week, closing at $40.14 per barrel. Year to date, Oil prices are down 33.07%.
  • The spot price of Gold increased by 2.74% this week, closing at $1,086.44 per ounce. Year to date, Gold prices are down 8.24%.

Economic Data

  • Initial jobless claims came in at 269,000 which was an increase from last week’s reading of 260,000. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 269,000.
  • The November nonfarm payroll report showed the addition of 211,000 during the month, beating expectations of 200,000. Employment growth over the prior two months was revised up by a total of 35,000, bringing the three month average to 220,000 jobs created.
    • The unemployment rate remained unchanged at 5.0%, in line with expectations. The labor force participation rate rose by 0.1% to 62.5%
    • Average hourly earnings increased by 0.2% in November, bring the 12 month increase in wages to 2.3%.

Fact of the Week

  • According to the Government Accountability Office, an estimated 9,300 Americans will turn 65 years old each day in 2016, representing the 6th of 19 years that “Baby Boomers” will turn 65. It’s estimated that by 2029, there will be 11,400 Americans turning 65 each day.

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
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
Tamara Wiley, CFP® – (630) 844-3222 twiley@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.

Wealth Management Economic Update November 16, 2015

U.S. and World News

  • The President of the European Central Bank hinted this week at the possible need for the Eurozone to expand is QE program. This is based on comments that Mario Draghi made in Brussels in which he said that downside economic risks are clearly visible, which may translate to an increase in the ECB’s monetary policy measures at the next policy meeting in December.
  • China has taken another step to boost its yuan currency’s global usage by announcing it will start direct trading with the Swiss franc. The franc marks the 7th major currency outside of the U.S. dollar that can be exchanged directly for the yuan. The announcement comes ahead of an International Monetary Fund meeting this month that will consider the inclusion of the yuan in its Special Drawing Rights Basket, putting it on par with the U.S. dollar, yen, euro and pound sterling in terms of international acceptance.
  • The leaders of the world’s 20 largest economies, known as the G20, are set to meet in Turkey starting on Sunday. Among others, items to be discussed at the global forum include bank regulation, tax cooperation, global growth, the Syrian civil war and the Iranian nuclear deal. G20 countries account for 85% of the world economy, 75% of world trade and 67% of the world’s population.

Markets

  • Equity markets reversed their recent course, heading negative this week. The S&P 500 ended the week down 3.56%, closing at 2,023. Similarly, the Dow Jones decreased 3.64% and closed at 17,245. Year to date, the S&P is up 0.08% and the Dow is down 1.13%.
  • Yields in the Treasury markets moved lower this week after last week’s spike upwards. The 10 year Treasury bond now yields 2.28% while the 5 year Treasury bond now yields 1.67%.
  • The spot price of WTI Crude Oil fell significantly again this week. Prices decreased by 7.97% closing at $40.76 per barrel. In 2015, WTI Oil prices are down 31.44%.
  • The spot price of Gold decreased this week, losing 0.55% and closing at a 52-week low of $1,083.82 per ounce. Year to date, gold prices are down 8.49%.

Economic Data

  • Initial jobless claims came in at 276,000 which was unchanged from the prior week’s figure. The Labor Department noted that there were no special factors that affected the claims figure. The four week moving average for claims now stands at 268,000.
  • Retail sales in October disappointed against consensus expectations, rising just 0.1%. Core retail sales (excluding auto sales) showed a gain of 0.2% in October, also missing estimates.
  • The University of Michigan’s measure of consumer sentiment was stronger than expected in the preliminary November reading at 93.1, an increase from the 90.0 level seen in October. Both consumers’ assessment of current conditions and household expectations of the future increased during the month.

Fact of the Week

  • A large portion of the Friday the 13th superstition can be traced to the 1907 novel by Thomas Lawson, entitled Friday, the Thirteenth. In it, the antagonist, an evil stock broker takes advantage of the public’s fear of the number 13 to crash the market and cause Wall Street panic on Friday the 13th. Despite the negative connotation, the Dow Jones has been positive 66% of the time on these dates. Although it is a different story when the occurrence is in the month of November; the market has fallen 70% of those November occurrences (including today). (Source: Art Cashin)

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
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
Tamara Wiley, CFP® – (630) 844-3222 twiley@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.