Hurricane season, Libya: O2 Wealth Economic Update, July 10, 2020

U.S. and World News

  • iStock-692343236_370Hurricane season in 2020 has started with the earliest 6th named storm on record set to make landfall in the Northeastern U.S. tonight. Tropical Storm Fay is sustaining winds around 50 mph as of this morning and is expected to bring 2 to 4 inches of rain with some isolated areas expecting to see 7 inches. Tropical Storm Warnings are currently in effect for New Jersey, New York, and Connecticut as the Northeast prepares for flash flooding throughout the night. The storm gained structure and transformed into a Tropical Storm this morning and the potential exists for it to become a Category 1 hurricane which is defined by sustained winds of at least 75 mph.
  • Tensions in Libya escalated further this week after Turkey announced that they will be holding large scale naval exercises off the Libyan coast in anticipation of war in the eastern Mediterranean. One day later, the Egyptian media announced that the Egyptian Army will host their own military drills near the western Libyan border. Turkey has been stepping up its military efforts in Libya recently in support of the government, which is currently battling a civil war. Egypt supports the opposing party in Libya, and this is the first show of force by the Egyptian Army since Turkey began intervening.

Markets

  • Markets rallied this week. The S&P 500 spiked 1.79% and closed at 3,185. The Dow Jones rose 0.98% and closed at 26,075. Year-to-date, the S&P 500 is down -0.38% and the Dow Jones is down -7.44%.
  • Interests rates were unchanged from last week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.30% and 0.63%, respectively.
  • The spot price of WTI Crude oil fell slightly this week. Prices fell -0.37% and closed at $40.50 per barrel. Year to date, Oil prices are down -33.67%.
  • The spot price of Gold rose 1.31% and closed at $1,799.18 per ounce. Year to date, Gold prices are up 18.58%.

Economic Data

  • Initial jobless claims fell by 99,000 to 1.3 million and the four-week moving average of claims fell by 63,000 to 1.4 million. Claims fell by 37,000 in New York, 23,000 in Florida, and by 12,000 in Oklahoma. Claims rose by 39,000 in Texas, 30,000 in California, and by 4,000 in Connecticut.
  • The ISM non-manufacturing index rose by 11.7 points to 57.1 versus expectations for a reading of 50.2
  • Wholesale inventories fell -1.2%, in-line with expectations
  • The producer price index (PPI) fell by -0.2% versus expectations for an increase of 0.4% and the year-over-year rate fell by -0.8%
  • PPI ex-food, energy and trade services rose by 0.3% versus expectations for an increase of 0.1% and the year-over-year rate was flat

Fact of the Week

The money used by the Federal Reserve in its lending programs and asset-buying programs was “digitally created” by the Fed, i.e., the Fed does not technically “print” money (it does not have a printing press) but rather it creates money with the press of a button on a keyboard.  The Fed is forecasted to create$5 trillion of new money between March 2020 and December 2020 (source: Federal Reserve)

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves CFA® – (630) 801-2217 smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com

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Coronavirus, Jobs Gains: O2 Wealth Economic Update, July 3, 2020

U.S. and World News

  • The United States is setting records for new confirmed daily coronavirus cases heading into Independence Day weekend as dozens of states have either delayed reopening plans or have taken steps back in the process. After reporting a record 509 new cases yesterday, Washington State Governor Jay Inslee announced that he would pause reopening in the state for 2 weeks and directed all businesses to require face coverings for employees and customers. The announcement from the Washington Governor comes after Texas issued a similar order requiring face coverings as Houston hospitals were forced to move ICU patients as far as 50 miles away as a result of overcapacity. The state of Arizona announced this morning that 91% of its ICU beds are occupied by COVID-19 patients and only 196 beds remain available as 4,433 new cases were reported yesterday in the state. The United Kingdom released travel guidelines easing restrictions on travelers from a handful of countries excluding the United States, continuing to require Americans to quarantine for 2 weeks upon arrival.
  • In the past two months, the United States has added back a shocking 7.5 million of the 20.7 million lost jobs in April. About 40% of the job gains were in the leisure and hospitality sector as most restaurants and bars have reopened. New jobs in the retail trade industry accounted for about 10% of the total job gains in the past two months as clothing stores and general merchandise stores also reopened. Education and health services jobs also increased substantially, as many dentists, physicians, and private educators went back to work. The rate of job growth in the past two months have smashed expectations as the unemployment rate was expected to rise to 19.1% in May but instead fell to 13.3% while the unemployment rate in June fell to 11.1% versus 12.5% expected.

Markets

  • Markets surged higher in the holiday shortened trading week. The S&P 500 jumped 4.07% and closed at 3,130. The Dow Jones spiked 3.29% and closed at 25,827. Year-to-date, the S&P 500 is down -2.13% and the Dow Jones is down -8.33%.
  • The yield curve steepened this week as the level of rates remained relatively unchanged. The 5 year and 10 year U.S. Treasury Notes are yielding 0.30% and 0.67%, respectively.
  • The spot price of WTI Crude oil rose this week. Prices rose 4.68% and closed at $40.29 per barrel. Year to date, Oil prices are down -34.01%.
  • The spot price of Gold rose 0.23% and closed at $1,775.35 per ounce. Year to date, Gold prices are up 17.01%.

Economic Data

  • Initial jobless claims fell by 55,000 to 1.4 million and the four-week moving average of claims fell by 1118,000 to 1.5 million. Claims fell by 47,000 in Oklahoma, 8,000 in New York, 3,000 in California, and by 3,000 in Florida. Claims increased by 6,000 in Wisconsin and by 5,000 in Texas.
  •  Nonfarm payrolls rose by 4.8 million in June versus expectations for an increase of 3.2 million
  • Private sector employment in the ADP rose by 2.4 million versus expectations for an increase of 2.9 million
  • The unemployment rate fell to 11.1% versus expectations for a reading of 12.5%
  •  Average hourly earnings fell -1.2% versus expectations for a decline of -0.8% and the year-over-year rate rose 5.0%
  • Factory orders increased by 8.0% versus expectations for an increase of 8.6%
  • Pending home sales rose by 44.3% versus expectations for an increase of 19.3%
  • The S&P/Case-Shiller home price index rose by 0.3% versus expectations for an increase of 0.5%
  • The Conference Board index of consumer confidence rose by 12.2 points to 98.1 versus expectations for a reading of 91.5
  • The ISM manufacturing index rose by 9.5 points to 52.6 versus expectations for a reading of 49.8
  • Construction spending fell by -2.1% versus expectations for an increase of 1.0%

Fact of the Week

  • In 2000, Bobby Bonilla was let go from the New York Mets. Instead of receiving the $5.9 million he was due in his contract, the two parties agreed to defer payment until 2011, when the Mets would begin paying Bonilla $1.19 million every July 1st, through 2035. To this day, he has received $11.9 million dollars from the Mets. If he had instead taken the $5.9 million and invested it into the S&P500 on January 1st 2000, he would have $12.5 million. (Source: ESPN, Bloomberg)

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves CFA® – (630) 801-2217 smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com

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Bank Regulations, Coronavirus “hotspots”: O2 Wealth Economic Update, June 26, 2020

U.S. and World News

  • During this Thursday’s stress test of the banking industry, it was discovered that several banks could reach minimum capital requirement levels, prompting the Fed to take action. The Federal Reserve placed new restrictions on the banking industry that requires big banks to cease share repurchases and cap dividends at their current levels for the next quarter. Additionally, banks will need to prove a specified level of net income from the previous four quarters in order to qualify to pay a dividend going forward. Banks are expected to reveal their plans with regards to dividends on Monday, June 29th.
  • COVID-19 “hotspots” have begun to develop in the United States that include Arizona, Florida, Texas, and California, many of which reporting the largest one-day spike in new cases on record. As a result of the surge in new cases, Houston area hospitals have reached their ICU capacity, leading the state of Texas to roll back their reopening plans and order bars to close immediately. Harris country Texas, the third-largest in the United States by population, just declared a “top level emergency” regarding COVID-19. Shortly after, Florida, which reported a record 8,942 cases yesterday followed suit and ordered all bars to close. Also, the positivity rate in Florida has increased from 4.39% on June 13th to 15.84% this Tuesday, raising questions about the correlation between increased testing and increased cases. The White House coronavirus task force is holding a news briefing regarding the issue today for the first time in nearly two months.

Markets

  • Markets are lower after another volatile week. The S&P 500 fell -2.86% and closed at 3,009. The Dow Jones dropped -3.31% and closed at 25,016. Year-to-date, the S&P 500 is down -5.97% and the Dow Jones is down -11.23%.
  • Yields also fell lower this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.30% and 0.64%, respectively.
  • The spot price of WTI Crude oil fell this week. Prices fell -4.22% and closed at $38.15 per barrel. Year to date, Oil prices are down -37.52%.
  • The spot price of Gold rose 1.53% and closed at $1,770.55 per ounce. Year to date, Gold prices are up 16.69%.

Economic Data

  • Initial jobless claims fell by 60,000 to 1.5 million and the four-week moving average of claims fell by 161,000 to 1.6 million. Claims increased by 22,000 in California, 11,000 in Indiana, and by 10,000 in Florida. Claims fell by 36,000 in Oklahoma, 26,000 in Kentucky, and by 11,000 in Massachusetts.
  • New orders for durable goods rose by 15.8% versus expectations for an increase of 10.5%
  • Durable goods orders ex-transports rose 4.0% versus expectations for an increase of 2.1%
  • Core capital goods orders rose 2.3% versus expectations for an increase of 1.0%
  • Core capital goods shipments rose by 1.8% versus expectations for a decline of -1.0%
  • Personal consumption fell by -6.8%, in-line with expectations
  • Personal income fell by -4.2% versus expectations for a decline of -6.0%
  • Personal spending rose by 8.2% versus expectations for an increase of 9.3%
  • Wholesale inventories fell by -1.2% versus expectations for an increase of 0.4%
  • Existing home sales fell -9.7% to a seasonally-adjusted-annualized-rate of 3.91 million units versus expectations for a decline of -5.6%, led by the Northeast (-13.0%)
  • Sales of new single-family homes rose by 16.6% to a seasonally-adjusted-annualized-rate of 676k units versus expectations for a reading of 640k units
  • The PCE price index rose by 0.1% versus expectations for an unchanged reading and the year-over-year figure rose 0.6% versus expectations for a 0.5% increase
  • The core PCE price index rose by 0.1% versus expectations for an unchanged reading and the year-over-year rate rose 1.0% versus expectations for an increase of 0.9%
  • The University of Michigan’s index of consumer sentiment fell by 0.8 points to 78.1 versus expectations for a reading of 79.2

Fact of the Week

  • At the end of 2019, 61% of the world’s foreign exchange reserves (cash held by central banks around the world) was in US dollars. In total, the world’s central banks held $6.745 Trillion, with the second largest reserve position was the Euro at €2.275 Trillion. (Source: International Monetary Fund)

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves CFA® – (630) 801-2217 smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

China trade, India v. China: O2 Wealth Economic Update, June 19, 2020

U.S. and World News

  • In January, the United States and China agreed to a “Phase One” trade deal where China would be responsible for buying $36.5 billion in U.S agriculture products, an increase from $24 billion in 2017. Year-to-date, China has only purchased $4.65 billion, which is almost half as much purchased during the same period in 2017. Yesterday, Secretary of State Mike Pompeo said China’s top foreign policy official is still committed to the $36.5 billion in purchases for the year, despite the current shortfall. Pompeo tweeted on Thursday “During my meeting with CCP Politburo Member Yang Jiechi, he recommitted to completing and honoring all of the obligations of Phase 1 of the trade deal between our two countries”.
  • iran-china-1225077759_370For the first time in about 50 years, a border clash between India and China broke out after weeks of rising tensions along the disputed and undefined Line of Actual Control (LAC) that separates China and India in Ladakh and the Tibet region. The high altitude and sub-zero temperatures in the mountainous region led to the death of 20 wounded Indian troops. China has not confirmed the death of any of its troops and has accused the Indian army of provoking and attacking Chinese personnel. Both sides have held talks over the phone, agreeing to cool down tensions, expressing that they do not seek escalation to war. Despite the agreed de-escalation, China and India have sent additional military personnel to the region.

Markets

  • Markets rebounded higher this week. The S&P 500 spiked 1.28% and closed at 3,098. The Dow Jones rose 0.33% and closed at 25,871. Year-to-date, the S&P 500 is down -3.68% and the Dow Jones is down -8.98%.
  • Yields were relatively unchanged this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.34% and 0.71%, respectively.
  • The spot price of WTI Crude oil fell this week. Prices fell -1.42% and closed at $38.84 per barrel. Year to date, Oil prices are down -36.39%.
  • The spot price of Gold fell -0.34% and closed at $1,724.80 per ounce. Year to date, Gold prices are up 13.68%.

Economic Data

  • Initial jobless claims fell by 58,000 to 1.5 million and the four-week moving average of claims fell by 235,000 to 1.8 million. Claims increased by 22,000 in Georgia and by 16,000 in New York. Claims fell by 20,000 in Maryland, 16,000 in Massachusetts, and by 16,000 in Oklahoma.
  • Retail sales rose by 17.7% versus expectations for an increase of 8.4%
  • Core retail sales rose by 11.0% versus expectations for an increase of 5.2%
  • Industrial production rose by 1.4% versus expectations for an increase of 3.0%
  • Business inventories fell by 1.3% versus expectations for a decline of 1.0%
  • The level of housing starts rose by 4.3% to 974k units versus expectations for an increase of 23.5%
  • Building permits rose by 14.4% versus expectations for an increase of 16.8%

Fact of the Week

  • The nation’s 13.3% jobless rate as of 5/31/20 (released on Friday 6/05/20) would have been an estimated 16.3% if the workers who were being paid wages from funds obtained through a “Payroll Protection Program” (PPP) loan were counted as “temporarily laid off” instead of “actively employed” (source: Bureau of Labor Statistics).

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves CFA® – (630) 801-2217 smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

Coronavirus, Vaccine, Expansion: O2 Wealth Economic Update, June 12, 2020

U.S. and World News

  • iStock-1205972800_370On Thursday, the FOMC announced that it will leave the fed funds target rate range unchanged at 0-0.25%. The Fed expects no change in the rate through 2022. The statement’s characterization of the current economic situation was mostly unchanged from the April FOMC meeting, and continued to acknowledge the “tremendous human and economic hardship” caused by the virus outbreak. The statement once again noted “sharp” declines in economic activity, “a surge” in job losses, and that weaker demand and lower oil prices are “holding down” inflation. The FOMC outlined its economic projections for the next 3 years, expecting GDP growth of -6.5% for 2020, +5% for 2021, and +3.5% for 2022. They also noted that they will increae holdings of UST as well as residental and commercial MBS in order to “sustain smooth market functioning”.
  • The Wall Street Journal reported this week that the National Institute of Health will be funding and conducting studies for three potential COVID-19 vaccines beginning this summer. Trials for Moderna’s mRNA-1273 will begin next month, Oxford University and AstraZeneca’s AZD1222 will begin in August, and Johnson & Johnson’s As26.COV2-S will begin in Septerber. The NIH may include additional large-scale studies of other candidates as well, according to Dr. Larry Corey, a member of the committe advising the NIH.
  • The National Bureau of Economic Research (NBER) annouced Monday that the business cycle peaked in February, marking the end of the expansion that began in June 2009 and the beginning of a recession. The expansion lasted 128 months, the longest expansion in the history of U.S buisness cycles, dating back to 1854. The previous longest was the 120 month expanison from March 1991 to March 2020.

Markets

  • The markets faded after a strong week last week. The S&P 500 fell -4.73% and closed at 3,041. The Dow Jones was down -5.51% and closed at 25,605. Year-to-date, the S&P 500 is down -4.98% and the Dow Jones is down -9.20%.
  • Yields fell this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.33% and 0.71%, respectively.
  • The spot price of WTI Crude fell as well this week. Prices fell -7.91% and closed at $36.42 per barrel. Year to date, Oil prices are down -40.35%.
  • The spot price of Gold gained 2.79% and closed at $1,732.14 per ounce. Year to date, Gold prices are up 14.16%.

Economic Data

  • Job openings declined 965,000 in April and the outright decline in layoffs was consistent with the stronger than expected May jobs report.
  • The May core CPI price index fell by 0.06% month-over-month, lowering the year-on-year rate by two tenths to 1.2%, both below consensus.
  • The producer price index (PPI) increased by 0.4% in May, three tenths above consensus expectations, led by an increase in food prices (+6%) and energy prices (+4.5%).
  • Initial jobless claims declined to 1.5 million in the week ended June 6, in line with consensus expectations. Continuing claims fell by 339,000 to 20.9 million.
  • The University of Michigan’s index of consumer sentiment rose by 6.6 points to 78.9 in the June preliminary report, above expectations.

Fact of the Week

  • From 1927 to 1981, dividend’s accounted for about 60% of stocks total return, while price movement accounted for 40%. Since 1982, dividends only make up about 25% of annualized return (Source: Strategas).

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves CFA® – (630) 801-2217 smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

George Floyd, SpaceX: O2 Wealth Economic Update, June 5, 2020

U.S. and World News

  • police-1202429977_370On Memorial Day in Minneapolis, George Floyd, an unarmed black man died while being restrained by a police officer with three officers nearby, all of which have been charged with his death. The tragedy was captured in a cell phone video that went viral and sparked nationwide demonstrations last weekend, some of which escalated to violence and looting. The demonstrations have continued throughout the week and are expected to continue during the weekend resulting in curfews being put in place by major U.S. cities. The National Guard has been called in by nearly half of the country to help police protect communities in the event of violence. A memorial was held yesterday in Minneapolis for George Floyd that was broadcast on networks nationwide.
  • Nearly a decade after the United States shelved the space shuttle program, a private U.S. company has launched astronauts into orbit for the first time ever. Private company SpaceX, founded by Elon Musk, launched its Falcon 9 rocket with two American astronauts on board last Saturday to travel to the International Space Station.  An estimated 10.3 million people viewed the broadcast of the launch, the most-watched event that NASA has ever tracked. SpaceX currently holds a $2.6 billion contract with NASA to conduct five more of the crewed flights to the International Space Station.

Markets

  • The markets extended their rally this week. The S&P 500 spiked 4.96% and closed at 3,194. The Dow Jones jumped 6.85% and closed at 27,111. Year-to-date, the S&P 500 is down -0.26% and the Dow Jones is down -3.90%.
  • Yields spiked this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.46% and 0.88%, respectively.
  • The spot price of WTI Crude climbed higher this week. Prices rose 10.74% and closed at $39.30 per barrel. Year to date, Oil prices are down -35.64%.
  • The spot price of Gold fell -2.77% and closed at $1,682.26 per ounce. Year to date, Gold prices are up 10.87%.

Economic Data

  • Initial jobless claims fell by 246,000 to 1.9 million and the four-week moving average of claims fell by 325,000 to 2.3 million. Claims increased by 57,000 in California, 47,000 in Florida. Claims fell by 134,000 in New York, 21,000 in Georgia, and by 21,000 in Pennsylvania.
  • The ISM manufacturing index rose by 1.6 points to 43.1 versus expectations for a reading of 43.8
  • The ISM non-manufacturing index rose by 3.6 points to 45.4 versus expectations for a reading of 44.4
  • Private sector employment in the ADP fell by 2.8 million versus expectations for a decline of 9 million
  • Factory orders fell by 13.0% versus expectations for a decline of 13.4%
  • Nonfarm payrolls rose 2.5 million versus expectations for a decline of 7.5 million
  • The unemployment rate came in at 13.3% versus expectations for a reading of 19.0%
  • Average hourly earnings fell 1.0% versus expectations for an increase of 1.0% and the year-over-year rate rose 6.7%

Fact of the Week

  • The S&P 500 has returned 37.7% over the last 50 trading days, making it the benchmark index’s largest 50-day rally in history. (Source: LPL Financial)

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves CFA® – (630) 801-2217 smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

IL Coronavirus, China: O2 Wealth Economic Update, May 29, 2020

U.S. and World News

  • salon-1223523705_370Today the state of Illinois transitions to Phase 3 of Governor J.B. Pritzker’s reopening plan, while Chicago Mayor Lori Lightfoot has the city of Chicago on hold until June 3rd. Outdoor dining at restaurants and bars, hair salons, and non-essential retail businesses are set to reopen with capacity limitations, social distancing, and enhanced sanitary requirements. In addition to businesses reopening, people may begin gathering in groups of up to 10 people. Illinois is expected to move to Phase 4 of the five-phase plan in late June given all of the requirements are met. In New York, five regions are looking enter Phase 2 of their plan, while New York City is on hold until further notice. All 50 states in America are now at least partially reopened and the COVID-19 test positivity rate continues to decline.
  • Political tensions are rising between the United States and China as a result of the controversial national security law that was approved this week. Secretary of State Mike Pompeo stated that “No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given the facts on the ground.” President Trump held a press conference today announcing that certain foreign Chinese nationals would be suspended from entering the United States and that Chinese officials responsible for the Hong Kong bill would be sanctioned. Additionally, the administration will begin eliminating policy exemptions granted to Hong Kong, as a result of their lack of autonomy from China. President Trump also announced that he is terminating the relationship between the United States and the World Health Organization, claiming that they are “China centric”.

Markets

  • Markets rose significantly again this week. The S&P 500 jumped 3.04% and closed at 3,044. The Dow Jones rose 3.85% and closed at 25,383. Year-to-date, the S&P 500 is down -5.00% and the Dow Jones is down -10.06%.
  • Yields declined this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.30% and 0.65%, respectively.
  • The spot price of WTI Crude rose this week. Prices rose 5.53% and closed at $35.09 per barrel. Year to date, Oil prices are down -42.53%.
  • The spot price of Gold fell -0.14% and closed at $1,732.23 per ounce. Year to date, Gold prices are up 14.17%.

Economic Data

  • Initial jobless claims fell by 315,000 to 2.1 million and the four-week moving average of claims fell by 436,000 to 2.6 million. Claims rose by 17,000 in Pennsylvania, 15,000 in Virginia, and by 14,000 in Kentucky. Claims fell by 48,000 in Florida, 43,000 in New York, and by 34,000 in California.
  • New orders for durable goods fell by -17.2% versus expectations for a -19.0% decline
  • Durable goods orders ex-transports fell by -7.4% versus expectations for a decline of -15.0%
  • Personal consumption fell -6.8% versus expectations for a decline of -7.5%
  • Personal income rose by 10.5% versus expectations for a decline of -5.9%
  • Personal spending fell by -13.6% versus expectations for a decline of -12.8%
  • The Conference Board index of consumer confidence rose by 0.9 points to 86.8 versus expectations for a reading of 87.0
  • Sales of new single-family homes rose by 0.6% to a seasonally-adjusted-annualized rate of 623,000 units versus expectations for a reading of 480,000 units.
  • Pending home sales fell -21.8% versus expectations for a decline of -17.3%
  • First-quarter real GDP growth was revised down to -5.0% versus expectations for a reading of -4.8%
  • The PCE price index fell by -0.5% versus expectations for a decline of -0.6% and the year-over-year rate rose by 0.5%, in-line with expectations
  • The core PCE price index fell by 0.4% versus expectations for decline of -0.3% and the year-over-year rate rose by 1.0% versus expectations for an increase of 1.1%
  • Wholesale inventories rose by 0.4% versus expectations for a -0.7% decline
  • The University of Michigan’s index of consumer sentiment fell by 1.4 points to 72.3 versus expectations for a reading of 74.0

Fact of the Week

  • Since bottoming on March 23rd, the S&P 500 gained 32.6% over the next 43 days through 5/20. It was the second best 43 day period for the index in that last 30 years, behind the 37.8% that the S&P 500 gained from 3/09/09 – 5/08/09 (BTN Research).

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves CFA® – (630) 801-2217 smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.

China, Michigan flood: O2 Wealth Economic Update, May 22, 2020

U.S. and World News

  • The People’s Republic of China proposed a national security bill for Hong Kong which could result in Chinese intelligence agencies setting up bases there, threatening the independence and pro-democracy movement in Hong Kong. Pro-democracy lawmakers called the plans “the end of Hong Kong”, arguing that it is a violation of the “one country, two systems” agreement created when Britain returned Hong Kong to China in 1997. In the proposal, China would annex laws into Hong Kong’s mini-constitution, the Basic Law, without any local legislative scrutiny and are intended to safeguard the central government’s “overall jurisdiction” as well as Hong Kong’s “high autonomy” given Hong Kong’s “increasingly notable national security risks”. Currently, China can take no enforcement action in the city of Hong Kong, but this proposal would allow agencies to be set up in the city, expanding China’s presence. President Trump warned that the United States would react “very strongly” if China put the bill into law, and Secretary of State Mike Pompeo said that it would be the “death knell” for Hong Kong’s autonomy.
  • flood-1150729894Residents of Midland, Michigan began returning to their homes and assessing the damage from what is being called the “500-year flood” caused by a long period of heavy rain and the failure of two dams protecting the city. Nearly 11,000 people were evacuated from the city as the Tittabawassee River rose to a record 35.05 feet, much higher than the flood stage of 24 feet and left Midland underwater. Concerns over potential spread of toxic contamination arose as floodwaters overtook containment ponds at the nearby Dow chemical plant. Flood warnings remain in effect for the entire area and a forecast exists for more rain next week

Markets

  • Markets surged this week as states begin reopening. The S&P 500 spiked 3.27% and closed at 2,955. The Dow Jones jumped 3.43% and closed at 24,465. Year-to-date, the S&P 500 is down -7.77% and the Dow Jones is down -13.40%.
  • Yields rose higher this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.34% and 0.66%, respectively.
  • The spot price of WTI Crude rallied higher this week. Prices rose 13.38% and closed at $33.47 per barrel. Year to date, Oil prices are down -45.16%.
  • The spot price of Gold fell -0.50% and closed at $1,734.98 per ounce. Year to date, Gold prices are up 14.35%.

Economic Data

  • Initial jobless claims fell by 249,000 to 2.4 million and the four-week moving average of claims fell by 501,000 to 3 million. Claims rose by 59,000 in New York, 41,000 in Washington, and 36,000 in California. Claims fell by 55,000 in Georgia, 46,000 in Kentucky, and 35,000 in New Jersey.
  • The Philadelphia Fed manufacturing index rose by 13.5 points to -43.1 versus expectations for a reading of -40.0
  • The level of housing starts fell 30.2% to 891,000 versus expectations for a decline of 25.9%
  • Building permits fell by 20.8% versus expectations for a decline of 25.9%
  • Existing home sales fell by 17.8% to a seasonally-adjusted-annualized rate of 4.33 million units versus expectations for a 19.9% decline.

Fact of the Week

  • This week in 1991, Michael Jordan won his second MVP title. When Jordan first launched his iconic Air Jordan sneaker with Nike in 1984, the company put a sales goal of $3million over 2 years for the shoe. The original Air Jordan went on to sell $126 million in the first year alone. (Source: Bleacher Report)

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves CFA® – (630) 801-2217 smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz – (630) 906-5467 ejgorenz@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Mike Cava CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC nor any govt agency; not a deposit of, or guaranteed by, the bank; may lose value.