French Election, Brexit: Wealth Economic Update Apr. 21, 2017

U.S. and World News

  • france360France will be holding what is presumed to be the 1st round of its Presidential Election on Sunday. The current four top candidates in the polling are only separated by 4% points, making the race extremely tight. Under French election rules, if no candidate secures a majority (which seems all but a certainty), the two highest vote-getters will square off in a run-off election scheduled for May 7th. The four candidates include two broadly pro-market, liberal reformers (Emmanuel Macron and Francois Fillon) and two populist eurosceptics who promise labor market and trade protectionism (Marine Le Pen and Jean-Luc Melenchon). Macron and Fillon have put greater focus on domestic issues like tax reform, unemployment and the national debt. Meanwhile, both Le Pen and Melenchon focused on immigration control and have proposed taking France out of the European Union with Le Pen being more staunchly opposed to France remaining in the euro. Global markets will be watching the results of this election closely.
  • British Prime Minister Theresa May has called a snap general election in the U.K., with the vote to be held on June 8th. With her Conservative party holding a sizeable lead in polls, May is taking the opportunity to try to gain a significant majority as Brexit negotiations get underway. May said that the vote was necessary to secure a mandate going into a “moment of enormous national significance”, also stating that Westminster was currently too dividend to take on this task.

Markets

  • Markets rebounded a bit this week. The S&P 500 rose 0.87% and closed at 2,349. The Dow Jones gained 0.51% for the week and closed at 20,548. Year to date, the S&P is up 5.54% and the Dow is up 4.71%.
  • Interest rates ended the week where they began and remain at low levels. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.77% and 2.24%, respectively.
  • The spot price of WTI Crude Oil dropped 6.86% this week, closing at $49.58 per barrel. Year to date, Oil prices have fallen 7.80%.
  • The spot price of Gold was little changed this week, closing at $1,284.72 per ounce. Year to date, Gold prices are up 11.96%.

 Economic Data

  • Initial jobless claims rose by 10,000 from last week, coming in at 244,000. The Labor Department noted no special factors affecting the data this week. The four week moving average for claims dropped to 243,000.
  • Housing starts declined -6.8% in March which was a larger drop than the expected -3.0%. The report was broadly weak with both the single-family category (-6.2%) and the multi-family category (-7.9%) seeing declines.
  • Existing home sales rebounded in March, increasing 4.4% vs. forecasts of 2.2%. This marks a full retracement of February’s -3.9% drop. Both sales of existing single family units (4.3%) and condos/co-ops (5.0%) rose during the month. On a regional level, existing home sales increased in the Northeast (10.1%), Midwest (9.2%) and South (3.4%) but declined in the West (-1.6%).

Fact of the Week

  • Of U.S. metropolitan areas with populations of at least 1 million, Salt Lake City has the lowest unemployment rate at 3.0% and Cleveland has the highest at 6.6%. The nationwide unemployment rate current stands at 4.5%. (Source: Department of Labor)

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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Trump, China, NATO: Wealth Economic Update Apr. 14, 2017

U.S. and World News

  • Investors were forced to recalibrate their expectations this week as President Trump reversed several of his positions that he held during the campaign. Trump began by telling the Wall Street Journal that China is no longer a currency manipulator, a claim he had made many times throughout the campaign trail. He then went on to say that he respects Fed Chair Janet Yellen, leaving the door open for her to be reappointed when her term expires, despite Trump previously saying that she should be “ashamed of what she’s doing to the country.” Trump also reversed course on the Export-Import Bank, now supporting it for the backing that it lends to small companies. Finally, Trump said that NATO was no longer obsolete since it is fighting terrorism.

Markets

  • Interest rates continued their recent downward trend this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.77% and 2.24%, respectively.
  • The spot price of WTI Crude Oil rose 1.80% this week, closing at $53.18 per barrel. Year to date, Oil prices have fallen 1.01%.
  • The spot price of Gold increased by 2.47% this week, closing at $1,285.50 per ounce. Year to date, Gold prices are up 12.02%.

 Economic Data

  • Initial jobless claims declined by 1,000 from last week, coming in at 234,000. The Labor Department noted no special factors affecting the data this week. The four week moving average for claims dropped to 247,000.
  • The University of Michigan consumer sentiment index rose 1.1 point to 98.0 in the preliminary April report. This is approaching the cycle high of 98.5 reached in January. Both consumers’ assessment of current conditions and expectations for the future improved in the report.
  • Retail Sales decreased -0.2% in March, in line with expectations. The headline retail sales figure was weighed down by lower motor vehicle & parts (-1.2%) and gasoline (-1.0%) sales. Core retail sales (excludes autos, gas, and building materials) saw a better than expected 0.5% increase.
  • The Consumer Price Index (measure of inflation) declined -0.3% in March vs. forecasts of a flat CPI. The decline was due to a -3.2% drop in energy prices during the month. Over the last 12 months, headline CPI has increased 2.4%.
    • Core CPI (excludes food and energy prices) declined -0.1% in March vs. expectations of a 0.2% increase. The decline was led by lower communications, apparel and lodging prices. This was the first outright decline in Core inflation since 2010. The 12 month increase in Core CPI declined to 2.0% as a result.

Fact of the Week

  • Net interest costs of the federal government make up 7% of total federal outlays in 2017. It is estimated that with higher interest rates in the future and rising federal debt levels, net interest costs will be pushed to 21% of total federal spending by the year 2047. (Source: Congressional Budget 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
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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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

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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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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.