Interest Rates, Brexit: Wealth Economic Update Mar. 20, 2017

U.S. and World News

  • In a highly anticipated move, the Federal Reserve raised the Fed Funds Rate by 0.25% this week. Despite being the second rate hike in three months, the Committee remained committed to a gradual pace of rate hikes going forward. The Fed projects two more interest rate hikes in 2017, though there are differing views among the members. There was one dissent, Neel Kashkari, who supported not raising at this meeting and taking a wait and see approach. Finally, it was noted by Fed Chair Janet Yellen that the size of the Fed’s balance sheet (which stands at $4.5 trillion) was discussed at the meeting, but no decisions were made in regard to reducing it over time.
  • British Prime Minister Theresa May secured permission to trigger Article 50 which would officially mark the beginning of Brexit negotiations between the nation and its European Union counterparts. Having received the go-ahead from Parliament, May has said that she will invoke Article 50 by the end month. It’s expected that the negotiation process will last at least two years before Britain is officially able to leave the EU.

Markets

  • Markets closed the week moderately higher. The S&P 500 gained 0.28% and closed at 2,378. The Dow Jones followed suit by inching up 0.08% and closing at 20,915. Year to date, the S&P is up 6.71% and the Dow is up 6.45%.
  • Despite a 0.25% rate hike in the Fed Funds Rate, interest rates fell this week as the projected pace of future hikes was not accelerated. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.02% and 2.50%, respectively.
  • The spot price of WTI Crude Oil stabilized this week and gained 0.47% this week, closing at $48.72 per barrel. Year to date, Oil prices have fallen 9.31%.
  • The spot price of Gold increased by 2.04% this week, closing at $1,229.26 per ounce. Year to date, Gold prices are up 7.13%.

Economic Data

  • Initial jobless claims edged 2,000 lower from last week, coming in at 241,000. The Labor Department noted no special factors in the data. The four week moving average for claims remained at 237,000 which is a near a 40-year low.
  • Retail sales increased 0.1% in February, in line with expectations. Sales excluding autos and gasoline increased 0.2%. Delayed tax refunds appeared to bring down several Retail categories.
  • The Consumer Price Index (measure of inflation) increased 0.1% in February, slightly beating expectations for flat prices. Over the last 12 months, CPI has increased 2.7%.
    • Core CPI (excludes food and energy) rose 0.2% for February, in line with expectations. Core prices have risen 2.2% over the last year.
  • Housing starts increased by 3.0% in February, beating expectations of 1.1%. The details of the report were also favorable, as the less volatile single family starts increased by 6.5% to the highest level since October 2007 while multi-family starts decreased 3.7%.

Fact of the Week

  • The S&P 500 has now gone 108 consecutive trading days without suffering at least a 1% decline over any single trading day. That’s the longest stretch that the S&P has gone without a 1% drop since it had a run of 105 trading days without one that ended on December 15, 1995. (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
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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NKorea/Japan, Healthcare: Wealth Economic Update Mar. 10, 2017

U.S. and World News

  • Global tensions are rising in the wake of North Korea firing four ballistic missiles into nearby waters over the weekend. Three of those missiles landed in Japan’s exclusive economic zone, causing the country to move to the highest possible alert level. Japanese Prime Minister Shinzo Abe declared, “This clearly shows North Korea has entered a new stage of threat.” Fearing a rapid escalation, China has called upon North Korea to stop its nuclear and missile tests and for South Korea and the U.S. to cease their joint military drills in the area.
  • Republican leaders in Congress unveiled their plan to repeal and replace Obamacare this week. Along with the end of the health insurance mandates, the proposal would restructure the Medicaid program and create a new tax credit tied to a person’s age and income for those who cannot get insurance through their employer. President Trump is “proud to endorse” the plan and called for its speedy passage despite some opposition within the Republican Party.

Markets

  • Markets fell a bit this week. The S&P 500 lost 0.40% and closed at 2,373. The Dow Jones followed suit by dipping 0.40% and closing at 20,903. Year to date, the S&P is up 6.41% and the Dow is up 6.36%.
  • Interest rates rose quite a bit this week as odds of a Fed rate hike next week have all but hit 100%. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.10% and 2.58%, respectively.
  • The spot price of WTI Crude Oil plunged 9.38% this week, closing at $48.33 per barrel. Year to date, Oil prices have fallen 10.03%.
  • The spot price of Gold decreased by 2.43% this week, closing at $1,204.74 per ounce. Year to date, Gold prices are up 4.99%.

Economic Data

  • Initial jobless claims bounced 20,000 higher from last week, coming in at 243,000. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 237,000 which is a near a 40-year low.
  • The February jobs report showed an increase of 235,000 new jobs created in the month, better than expectations of 200,000. The prior two months’ figures were revised up by a combined 8,000 which brings the three month average for job gains to 209,000 per month. The report was generally very positive, one blemish however was the 26,000 retail jobs lost during the month, continuing that sector’s recent struggles.
    • The headline unemployment rate ticked down to 4.7%, in line with expectations. The 0.1% decrease in the unemployment rate occurred despite a 0.1% increase in the labor force participation rate to 63.0%.
    • Average hourly earnings rose 0.2% in February, below forecasts of 0.3%. Over the last 12 months, wages have increased 2.8%.

Fact of the Week

  • The Standard & Poor’s 500 (S&P 500) index turned 60 years old this week. The index is widely regarded as the most accurate gauge of large American stocks and it is market capitalization weighted as opposed to the Dow, which is weighted by price, or other indexes that have an equal weighting. The S&P 500 is by far the biggest index in the world, with about $2.4 trillion being tracked by it.

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 speech, Fed, Sessions: Wealth Economic Update Mar. 6, 2017

U.S. and World News

  • politician_podium76797371_320President Trump delivered his first address to a joint session of Congress this week and spoke on a number of initiatives that the administration aims to put through. Trump pledged to overhaul the immigration system, improve jobs and wages for Americans, and promised “massive” tax relief to the middle class and tax cuts for businesses. Trump also laid out some general principles for an Obamacare replacement. Details on these items were absent from the address but Trump did say that he plans to ask Congress for $1 trillion in infrastructure investment, guided by the principle “Buy American and Hire American.”
  • The Federal Reserve came more into focus this week as Fed officials have indicated that there is a strong likelihood of a March interest rate hike. San Francisco Fed President John Williams said that an interest rate hike in March will be under “serious consideration” and New York’s William Dudley feels the case for tightening at the next meeting “has become a lot more compelling.” The market is now assigning a 94% chance of a Fed Funds Rate hike in March.
  • Attorney General Jeff Sessions has announced that he will recuse himself from any investigations related to President Trump’s election campaign amid backlash over his testimony about his contacts with Russia. At Sessions’ confirmation hearing, during which he was under oath, he failed to disclose meeting with Russia’s ambassador on multiple occasions when asked about contact with the Russian government during Trump’s campaign.

Markets

  • Markets rose this week following President Trump’s address to Congress. The streak of 55 consecutive trading days without a trading range of +/- 1% in the S&P 500 was broken this week. The S&P 500 gained 0.71% and closed at 2,383. The Dow Jones followed suit by rising 0.94% and closing at 21,006. Year to date, the S&P is up 6.84% and the Dow is up 6.79%.
  • Interest rates rose quite a bit this week following the address to Congress and increased rate hike odds. The 5 year and 10 year U.S. Treasury Notes are now yielding 2.01% and 2.48%, respectively.
  • The spot price of WTI Crude Oil was down 1.39% this week, closing at $53.24 per barrel. Year to date, Oil prices have dipped 0.89%.
  • The spot price of Gold decreased by 1.78% this week, closing at $1,234.76 per ounce. Year to date, Gold prices are up 7.60%.

Economic Data

  • Initial jobless claims fell 19,000 from last week, coming in at 223,000 which is the lowest reading since 1973. The Labor Department noted no special factors in the data. The four week moving average for claims now stands at 234,000 which is a new 40-year low.
  • The Case-Shiller home price index rose by 0.9% in its latest reading, slightly beating expectations of a 0.7% increase. Prices rose in all 20 cities covered and the largest monthly increases were seen in Chicago (1.5%), Seattle (1.4%) and Tampa (1.4%). Over the last 12 months, home prices as measured by Case-Shiller have risen 5.6%.
  • The Headline PCE index (measure of inflation) rose 0.4% in January, slightly under expectations of 0.5%. Over the last year, prices as measure by PCE have increased 1.9%.
    • Core PCE (excludes food and energy, preferred inflation measure by the Fed) increased 0.3% in January, in line with expectations. Over the last year, Core PCE has risen 1.7%, still a bit below the Federal Reserve’s 2% target.

 

Fact of the Week

  • Over the last 30 years, the proportion of all US workers that were members of a union has fallen from 17.5% to 10.7%. Looking at just private sector workers, union membership has fallen from 14.0% in 1986 to just 6.4% now. (Source: Bureau of Labor Statistics)

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

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Interest Rates: Wealth Economic Update Feb. 24, 2017

U.S. and World News

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

Markets

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

Economic Data

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

Fact of the Week

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

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

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

U.S. and World News

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

Markets

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

Economic Data

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

Fact of the Week

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

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

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.

 

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

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.

 

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

U.S. and World News

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

Markets

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

Economic Data

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

Fact of the Week

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

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

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

 

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

U.S. and World News

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

Markets

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

Economic Data

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

Fact of the Week

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

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

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

 

Outlook December 31, 2016

DAWN OF A NEW ERA? MARKET OPTIMISM TRUMPS UNCERTAINTY.

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

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

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

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

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

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

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

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

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

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

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

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

 

Outlook September 30, 2016

HAIL TO THE CHIEF

With the U.S. Presidential elections on the horizon, investors have taken a seat on the sideline awaiting the outcome. Even the Fed has decided to take a step back from their tightening initiatives to avoid any perception of political motivation. Still, this Fed remains motivated to moderate long-term interest rates with the markets pricing in a 25 basis point rate hike post-election.

It is interesting to note that in June of 2015, each the seventeen FOMC participants disclosed “their judgement of the appropriate target level for the Federal Funds rate.” For 2017, “appropriate target levels” ranged from 1% up to 3.875%, a long way off from the current target levels of 0.25% – 0.50%. What a difference a year makes! Clearly, market expectations have changed from that time and the U.S. economy has become mired in a slow growth environment.

Attempts by the Fed to increase rates have been foiled by negative headlines including the earnings recession for U.S. companies, ongoing Eurozone issues which were capped by the United Kingdom’s “BREXIT” vote in June, and escalating geopolitical concerns. Still, we must remember: “Bull markets are born in pessimism, grow in skepticism and die in euphoria.” – Sir John Templeton

Market Indicies (Total Return as of 9/30/2016)
3rdQ% YTD% 1-Year% 3-Year%* 5-Year%*
S&P 500 3.9 7.8 15.4 11.1 16.3
NASDAQ 10.0 7.2 16.5 13.6 18.7
Russell 2000 9.0 11.5 15.5 6.7 15.8
MSCI EAFE** 6.5 2.2 7.1 1.0 8.0
MSCI Emerging Markets** 9.2 16.3 17.2 0.2 3.4
Source: Bloomberg Finance L.P; *Annualized; **USD

Markets & Economic Data
The S&P 500 Index’s total return of 3.9% in the third quarter outshone the Dow Jones Industrial Average’s 2.8% total return for the period and the NASDAQ Composite sailed in with a 10.0% total return. International markets reversed course in the third quarter with the MSCI EAFE Index providing 6.5% total return for the quarter and Emerging Markets (MSCI Emerging Markets Index) posting a 9.2% total return for the period.

While the hunt for yield remains strong among investors, the high valuations of stocks in the Utility, Telecomm, and REIT sectors showed their sensitivity to an anticipated rate hike; with all three of the sectors trading down for the quarter. As of Sept. 30th, the 5-year U.S. Treasury yielded 1.15% and the 10-year yielded 1.61%.

The “risk on” trade was back in vogue with growth stocks outpacing value stocks and small-caps outpacing large-cap stocks during the quarter. As stocks can be a leading indicator for economic outlook, the third quarter results appear to be indicating that the economy is better than advertised both domestically and abroad.

U.S. economic data remains supportive of continued steady growth. While consumer data is mixed, wage growth remains steady and inflation pressures are weak. The housing sector has experienced a positive rate of growth and the outlook remains favorable. Currently, the consumer is the main source of growth for the economy. To spur GDP growth beyond the 1.5% – 2.0% range, there will need to be an increase in corporate investment or exports. The fourth source of economic growth, government spending, is not expected to increase given the current political environment.

Manufacturing in developed countries is growing as indicated by generally favorable PMI readings. The strengthening foreign economies are resulting in an improving profit outlook and favorable investment (630) 906-2000 http://www.oldsecond.com continued on back HAIL TO THE CHIEF OUTLOOK September 30, 2016 conditions. Easing concerns of a hard landing, China reported third quarter GDP growth of 6.7% year-over-year, supported by retail sales growing by 10.7% and infrastructure spending up by 19.4%.

Follow the money!
While eyes are focused on the U.S. elections and probabilities of who will be the next Commander-in-Chief; don’t lose sight of long-term investment goals. We believe that opportunities are defined by the flow of assets.

Earnings
Contracting corporate earnings for U.S. companies over the last six quarters has set the stage for the third quarter earnings season to be an important factor in determining the economic outlook for the U.S. economy. Stabilizing energy and raw material prices are likely to show that earnings in the Energy and Materials sectors are improving along with a better outlook for earnings in 2017. Consensus estimates for 2016 earnings are higher than 2015 and are anticipated to gain six percent into 2017 over 2016.

Yield & Valuation
In the current interest rate environment, higher yielding stocks and bonds have become more appealing to investors. Consequently we have seen an increase in valuation for higher dividend payers such as Utilities, REITs, MLPs and Telecoms. Additionally, the spread on low credit quality debt over Treasury debt has continued to compress below historic averages. The premium investors are paying for higher yielding securities may be a very volatile investment in consideration of the anticipated Fed tightening.

Currency
The U.S. market continues to offer superior yields on both Fixed Income and Equity investments compared to its foreign counterparts. Should this differential in rates further increase, foreign flows to the U.S. would strengthen the U.S. Dollar, negatively impacting returns on foreign investments over the short-term. Yet, over the long-term, a stronger dollar would create favorable environment for foreign companies to increase exports to the U.S.

The Wealth Management Officers at Old Second work with clients to develop and implement investment strategies that fit their objectives of growth and income. Particularly in volatile markets, ensuring clients’ exposure to risk is appropriate for their situation remains most important. Challenges in the markets will be met with diligence and care. Our team of experienced professionals is available to help guide you along the path toward achieving your financial goals.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

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