Oil, Brexit, Fed market funding: Wealth Economic Update September 20, 2019

U.S. and World News

  • oil-1090135110_370Weekend drone strikes on the heart of the Saudi oil industry forced the kingdom to shut down half its crude production, amounting to a loss of 5.7M barrels a day, or roughly 5% of the world’s daily production of crude oil. Yemen’s Iranian-aligned Houthi rebels claimed credit for the attack, saying they sent 10 drones to strike at important Aramco facilities, including the world’s largest oil processing plant and a major oil field. The disruption sent WTI futures as much as 15.5% higher overnight to $63.34, the biggest intraday percentage gain since June 22, 1998, while President Trump authorized a release of crude from the Strategic Petroleum Reserve, as necessary. For the global oil market, the 5.7M bpd Saudi halt is the single worst sudden disruption ever, surpassing the loss following the Invasion of Kuwait and Iranian Revolution.
  • The stakes couldn’t be higher given the current Brexit turmoil as Britain’s highest court begins hearing arguments today on whether the government’s decision to suspend Parliament was lawful (judges in England and Scotland previously came to contrasting conclusions). Boris Johnson argues that he asked the Queen to prorogue the lower house in order to introduce a new legislative agenda, but critics accuse him of attempting to stymie debate and push through a no-deal Brexit before an Oct. 31 deadline.
  • Policymakers have been thrown another unexpected curveball as cash available to banks for their short-term funding needs all but dried up on Monday and Tuesday. That forced the New York Fed to make an emergency injection of more than $50B, its first since the financial crisis, to bring down key short-term rates that had spiked to as high as 10%. Fed traders will be back this morning to restore calm by offering another $75B of cash to the market.


Markets

  • Markets receded slightly this week. The S&P 500 was down 0.5% and closed at 2992.03. The Dow Jones fell by 1.05% and closed at 26,935.07. Year-to-date, the S&P is up 21.04% and the Dow Jones is up 17.49%.
  • Yields came back down after a pop last week. The 5 year and 10 year U.S. Treasury Notes are yielding 1.6% and 1.715%, respectively.
  • The spot price of WTI Crude soared after the attack in Saudi Arabia. Prices rose 5.9% and closed at $58.09 per barrel. Year to date, Oil prices are up 27.92%.
  • The spot price of Gold gained 1.87% and closed at $1,516.29 per ounce. Year to date, Gold prices are up 18.23%.

Economic Data

  • Existing home sales rose by 1.3% to a seasonally adjusted annualized rate of 5.49 million units in the August report, against consensus expectations for a 0.7% decline. August home sales rose for both single-family units (+1.2%) and condos and co-ops (+1.7%). Sales increased in three of four regions, led by the Northeast (+7.6%), and followed by the Midwest (+3.1%) and South (+0.9%). Sales declined in the West (-3.4%).
  • The level of housing starts increased to 1,364k in August above expectations for a more moderate increase. Single-family starts increased by 4.4% while the volatile multi-family category increased by 32.8%. August housing starts increased in three out of four regions, led by the Northeast (+30.5%), and followed by the Midwest (+15.4%) and South (+14.9%). Housing starts were flat in the West.
  • Building permits increased 7.7%, above expectations, with a 4.5% increase in single-family permits alongside a 13.3% increase in multi-family permits. Permits increased in the Northeast (+26.9%), Midwest (+14.5%), and South (+11.0%), and declined in the West (-7.8%).
  • Industrial production rose by 0.6% in August, against consensus expectations for a smaller increase. Manufacturing production rose by 0.5%, driven by a 0.6% increase in ex-auto manufacturing and offset by a 1.0% decline in auto manufacturing. The capex-sensitive business equipment category rebounded 1.0%. The utilities component, an input into consumption in the GDP accounts, rose 0.6% further, after rising 3.7% in July. Industrial production growth in July was revised up by 0.1pp to -0.1%.

Fact of the Week

  • The median household income (adjusted for inflation) was the highest ever recorded in the USA at $63,179. It was the third consecutive year (2016-2018) that the USA has produced an all time high in adjusted median household income. Prior to 2016, the record high was set in 1999. (Source: Federal Reserve Bank of St. Louis)

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

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

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China tariffs, Brexit: Wealth Economic Update August 24, 2019

U.S. and World News

  • Early this morning, China announced its plan to impose retaliatory tariffs on $75 billion of American goods including soybeans, automobiles, and oil as a response to the Trump administrations planned additional tariffs on Chinese imports. The new retaliatory tariffs are scheduled to take effect on September 1st and December 15th, the same schedule as the United States 10% tariff on $300 billion of Chinese goods goes into effect. This new set of retaliatory tariffs targets U.S. farms and factories, bringing the total tariff on U.S. automobile exports to 50%. The announcement comes as the G7 summit takes place in France and the Federal Reserve meeting in Jackson Hole Wyoming, two critical meetings where the trade war with China will be discussed.
  • British Prime Minister Boris Johnson traveled to Germany and France this week to continue to push his message that Brexit will not be stopped, with or without negotiations. Boris Johnson also wrote a letter to European Council President Donald Tusk stating the the Irish backstop plan is “unviable” and must be removed, hinting that if it were, it could lead to a Brexit deal being approved by parliament before the Brexit deadline. Brexiteers believe that the Irish backstop poses a threat to the independence of the U.K. from the European Union post-Brexit as the U.K. would be restricted from making trade deals with other countries. The European Union has stated that the Irish backstop is necessary for the free movement of goods, services, and people.


Markets

  • Markets plummeted this week as the trade war with China has ramped up again. The S&P 500 fell 1.42% and closed at 2,847. The Dow Jones declined by 0.98% and closed at 25,629. Year-to-date, the S&P is up 15.07% and the Dow Jones is up 11.64%.
  • Yields fell slightly this week. The 5 year and 10 year U.S. Treasury Notes are yielding 1.41% and 1.53%, respectively.
  • The spot price of WTI Crude fell this week. Prices declined 1.72% and closed at $53.87 per barrel. Year to date, Oil prices are up 18.63%.
  • The spot price of Gold rose 0.82% and closed at $1,525.91 per ounce. Year to date, Gold prices are up 18.98%.

Economic Data

  • Initial jobless claims fell by 12,000 to 209,000. The four week moving average of claims rose by 1,000 to 215,000. Claims fell by 6,000 in California.
  • Existing home sales rose by 2.5% to a seasonally adjusted annualized rate of 5.42 million, in-line with expectations
  • Sales of new single-family homes fell by 12.8% to a seasonally adjusted annualized rate of 635k units versus expectations of 647k units

Fact of the Week

  • The bond market (as measured by the Bloomberg Barclays Aggregate bond index) has had a negative total return just 3 of the last 40 years. Those years were 1994, 1999, 2013. The year to date total return of the Bloomberg Barclays Aggregate ETF (AGG) as of close 8/22 is 8.14%. (Source: Bloomberg)

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

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

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Brexit calls for resignation, China trade: Wealth Economic Update May 24, 2019

U.S. and World News

  • iStock-1057358690British Prime Minister Theresa May’s last ditch effort to deliver Brexit through a deal filled with compromises with the Labour Party has failed as calls for her resignation only grew louder. The U.K. participated in European elections this week, putting a sour taste into the mouths of British politicians who had originally planned to watch this event from the sidelines. Results of the European Union elections will be announced after 10P.M on Sunday and British Conservatives are expected to suffer a dramatic defeat. Theresa May has announced that she will resign on June 7th and stated that “It is and will always remain a matter of deep regret to me that I have not been able to deliver Brexit”. The British Pound has fallen substantially amid all of the uncertainty and the process to elect a new leader will begin next week.
  • Chinese President Xi Jinping tone has shifted in regards to the trade war with the United States when he stated on Monday that China is embarking on a “new Long March, and we must start all over again!”. In addition, a propaganda song, titled “Trade War” about the U.S.-China trade war has gone viral in China. Reports say that China is exploring a retaliation move in response to the Huawei ban that will likely include cutting natural gas purchases from the United States. The Trump administration has announced a $16 billion trade aid program for American farmers who have been hurt by the trade war. Soybean farmers have been impacted the most as the value of soybean exports to China fell 74% in 2018.


Markets

  • Markets continued to fall this week. The S&P 500 fell 1.14% and closed at 2,826. The Dow Jones fell 0.63% and closed at 25,586. Year to date, the S&P is up 13.66% and the Dow Jones is up 10.78%.
  • Yields also fell further this week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.12% and 2.32, respectively.
  • The spot price of WTI Crude oil plummeted this week. Prices dropped 6.34% and closed at $58.93 per barrel. Year to date, Oil prices are up 29.77%.
  • The spot price of Gold rose 0.56% this week and closed at $1,284.69 per ounce. Year to date, Gold prices are up 0.17%.

Economic Data

  • Initial jobless fell to 211,000 this week. The four-week moving average of claims fell by 5,000 to 220,000. Claims fell by 2,000 in California and Illinois.
  • Existing home sales fell 0.4% to a seasonally adjusted rate of 5.19 million units versus expectations for a 2.7% increase
  • Sales of new single-family homes fell by 6.9% in April to a seasonally-adjusted annualized rate of 673k units versus expectations for 675k units
  • Durable goods orders fell by 2.1% versus expectations for a decline of 2.0%
  • Durable goods orders ex-transport was unchanged versus expectations for a 0.1% increase
  • Core capital goods orders fell 0.9% versus expectations for a 0.3% decline

Fact of the Week

  • It would cost about $334 per person per year in Illinois to cover the funding costs for the 5 state pension funds. Illinois law current requires that the pensions funds be 90% funded by 2045. (Source: BTN Research)

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

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

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China, Brexit, EU: Wealth Economic Update May 17, 2019

U.S. and World News

  • china_us-1035146880Earlier this week, China announced new tariffs on $60 billion of American imports in response to the tariff increase by the United States. The Trump administration will subsidize U.S. farmers with $15 billion in aid, in addition to the Department of Agriculture’s $12 billion compensation plan that was put into place last year. President Trump has stated his intention to meet Chinese President Xi Jinping at the G20 summit in June. The United States also has banned China’s Huawei Technologies from buying U.S. technology without special approval and has restricted its equipment from being any part of U.S. telecom networks. Equipment produced by Huawei Technologies, the world’s third largest smartphone maker, is allegedly used by the Chinese to spy, however Huawei has denied those allegations.
  • Brexit drama heats up again after weeks of negotiations between Theresa May and opposition party leader Jeremy Corbyn have closed with Jeremy Corbyn telling the media that his party will oppose the deal. The Conservative Party has been enraged with Theresa May over the past month for negotiating with the Labour Party and Theresa May has finally set a timetable for her departure as prime minister in the beginning of June. Jeremy Corbyn added that the strong probability of Theresa May soon being replaced had contributed to his decision to oppose her deal.
  • As trade negotiations with China have been extended into the foreseeable future, the Trump administration has delayed tariffs on cars and auto part imports from the European Union and Japan for up to six months. In February, the Commerce Department had found that car imports and certain auto parts harm national security, leading to the planned auto tariffs. Agreements have already been made with Canada, Mexico, and Korea, while the European Union and Japan have rejected the idea.


Markets

  • Markets are lower after another volatile week. The S&P 500 fell 0.69% and closed at 2,860. The Dow Jones fell 0.61% and closed at 25,764. Year to date, the S&P is up 14.96% and the Dow Jones is up 11.48%.
  • Yields continued to fall this week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.18% and 2.39, respectively.
  • The spot price of WTI Crude Oil rose this week. Prices climbed 1.67% and closed at $62.69 per barrel. Year to date, Oil prices are up 38.05%.
  • The spot price of Gold fell 0.63% this week and closed at $1,277.97 per ounce. Year to date, Gold prices are down 0.35%.

Economic Data

  • Initial jobless fell to 212,000 this week. The four-week moving average of claims rose by 5,000 to 225,000. Claims rose by 4,000 in California
  • The Philadelphia Fed manufacturing index rose 8.1 points to 16.6 versus expectations for a reading of 9.0
  • Housing starts rose 5.7% to 1,235k versus expectations for a 6.2% increase to 1,209k
  • Building permits rose by 0.6% versus expectations for a 0.1% increase
  • Import prices rose by 0.2% versus expectations for a 0.7% increase
  • Import prices ex-petroleum fell by 0.6% versus expectations for a 0.2% increase
  • Retail sales fell by 0.2% versus expectations for a 0.2% increase
  • Retail sales ex-auto & gas fell by 0.2% versus expectations for a 0.3% increase
  • Industrial production fell by 0.5% versus expectations for an unchanged reading
  • The University of Michigan’s index of consumer sentiment rose by 5.2 points to 102.4 in the preliminary report versus expectations for a reading of 97.2.

Fact of the Week

  • From its closing high of 2946 on April 30th, the S&P 500 has fallen 3.56% to 2859. Since the beginning of the bull market on 3/10/09, the market has had 12 pullbacks of at least 5%, including 6 drops at least 10% and 3 of at least 15%. (Source: BTN Research)

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

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

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China, Brexit, Iran: Wealth Economic Update May 11, 2019

U.S. and World News

  • china-1053768454_370On Sunday night, just days before a Chinese trade delegation would depart for Washington to wrap up 18 months of trade negotiations, President Trump tweeted that tariffs on $200 billion of Chinese goods would rise to 25% from 10% by the end of the week, accusing China of “reneging” on its trade promises. President Trump also shared his intention to impose a 25% tariff on the remaining $325 billion of Chinese goods that aren’t currently taxed, making virtually all Chinese exports to the United States subject to a 25% tariff. The Chinese trade delegation led by Vice Premier Liu He did travel to the White House on Thursday for negotiations that ended earlier today, and the 10% tariff rate on $200 billion in Chinese goods did increase to 25% at midnight last night. China’s Commerce Ministry has announced that they will be taking countermeasures against the tariff increase, but that specifically has not yet been revealed. There have been numerous statements from officials of both countries regarding trade talk progress or lack thereof while markets respond in volatile fashion and struggle for direction, however, the only things we actually know to be true at this point is the fact that there is no done deal, and the tariff rate on $200 billion of Chinese goods has risen to 25% from 10%.
  • British Prime Minister Theresa May’s future has once again, been called into question as members of the committee are talking about a rule change that would allow another no-confidence vote to oust her. Currently, the Prime Minister is protected by a rule that does not allow more than one no-confidence vote within 12 months of the previous one that occurred in December. Committee members are growing frustrated that a timetable for Theresa May’s departure has not been set out. Both parties experienced losses in last week’s elections and a new offer is on the table, a deal that would result in a customs union-type arrangement lasting until 2022, Britain’s next general election. At that point in time, it would be decided whether to move toward a full customs union or a deal that would allow Britain to make trade deals with other countries.
  • After American sanctions on Iran have begun to cripple their economy, President Trump has offered to meet and negotiate with Iran’s leadership team about giving up their nuclear program, which was quickly rejected. The United States deployed the Abraham Lincoln carrier through Egypt’s Suez Canal and B-52 bombers to the U.S. base in Qatar yesterday as a warning to Iran. Iran’s leader, Ayatollah Tabatabai-Nejad responded by saying “Their billion dollar fleet can be destroyed with one missile” and “if they attempt any move, they will face dozens of missiles”.


Markets

  • Markets experienced volatility as a result of trade drama with China and finished the week lower. The S&P 500 fell 2.10% and closed at 2,881. The Dow Jones fell 1.96% and closed at 25,942. Year to date, the S&P is up 15.74% and the Dow Jones is up 12.15%.
  • Yields fell this week as investors fled to bonds. The 5 year and 10 year U.S. Treasury Notes are yielding 2.26% and 2.47, respectively.
  • The spot price of WTI Crude Oil ended the week relatively unchanged. Prices fell 0.37% and closed at $61.71 per barrel. Year to date, Oil prices are up 35.90%.
  • The spot price of Gold rose 0.54% this week and closed at $1,286.05 per ounce. Year to date, Gold prices are up 0.28%.

Economic Data

  • Initial jobless fell to 228,000 this week. The four-week moving average of claims rose by 7,000 to 220,000. Claims rose by 11,000 in New York and by 2,000 in Illinois.
  • The producer price index (PPI) rose by 0.2% versus expectations for a 0.3% increase
    PPI ex-food and energy rose by 0.1% versus expectations for a 0.2% increase
  • The trade deficit rose to $50.0 billion, as expected
  • Wholesale inventories fell by 0.1% versus expectations for no change
  • The consumer price index (CPI) rose by 0.32% versus expectations for a 0.4% increase and the year-over-year rate came in at 2.0% versus expectations for 2.1%
  • Core CPI rose by 0.14% versus expectations for a 0.2% increase and the year-over-year rate came in at 2.07%, in-line with expectations

Fact of the Week

  • Sell in May? Since 1989, the 6 month period beginning November 1st has outperformed the 6 month period beginning May 1st 19 out of 30 times. Total return for the 6 month periods starting November 1st were +731%, while total returns for the 6 month periods starting May 1st were only +119% over the 30 year period. (Source: BTN Research)

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

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

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Iran Oil: Wealth Economic Update May 3, 2019

U.S. and World News

  • oil-509843570The sanctions imposed on Iran by the United States in November have cut Iran’s oil exports by roughly 1 million barrels per day, and after Thursday’s waivers have expired to some of Iran’s biggest customers, exports are expected to fall by another several hundred thousand barrels per day. At a time of heightened tensions, Iran’s oil minister warned that OPEC is “likely to collapse” due to unilateralism by certain members. Iran appears to be referring to Saudi Arabia’s and the United Arab Emirates’ cooperation with the United States in offsetting the reduction in supply of oil to stabilize prices, and causing substantial economic damage to Iran. Iranian Oil Minister Bijan Zangeneh told an Iranian news agency that “Iran is an OPEC member just for its interests and if certain OPEC members want to threaten and endanger Iran, Iran will not refrain from responding to them”. The next OPEC meeting is scheduled for June 25-26 in Vienna, where the members will decide whether to keep in place an oil supply limit that was established in January.


Markets

  • Markets ended the week relatively unchanged from last week. The S&P 500 rose 0.22% and closed at 2,946. The Dow Jones fell 0.14% and closed at 26,505. Year to date, the S&P is up 18.21% and the Dow Jones is up 14.37%.
  • Yields rose higher this week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.32% and 2.53, respectively.
  • The spot price of WTI Crude Oil dropped this week. Prices fell 2.27% and closed at $61.68 per barrel. Year to date, Oil prices are up 35.83%.
  • The spot price of Gold fell 0.55% this week and closed at $1,279.11 per ounce. Year to date, Gold prices are down 0.26%.

Economic Data

  • Initial jobless remained unchanged at 230,000 for the week. The four-week moving average of claims rose by 7,000 to 213,000. Claims rose by 7,000 in New York, 5,000 in New Jersey, and by 2,000 in Pennsylvania.
  • Nonfarm productivity rose by 3.6% versus expectations for a 2.4% increase
  • The core PCE index rose by 0.06% versus expectations for a 0.1% increase and the year-over-year rate fell to 1.55% versus expectations for 1.70%
  • Personal income rose by 0.1% versus expectations for a 0.4% increase
  • Personal spending rose by 0.9% versus expectations for a 0.7% increase
  • The Conference Board index of consumer confidence rose by 5.0 points to 129.2 versus expectations for a reading of 126.8
  • Pending home sales rose by 3.8% versus expectations for a 1.5% increase
  • Private sector employment rose by 275,000 versus expectations for a 180,000 increase
  • The ISM manufacturing index fell 2.5 points to 52.8 versus expectations for a reading of 55.0
  • The ISM non-manufacturing index fell 0.6 points to 55.5 versus expectations for a reading of 57.0
  • Construction spending fell by 0.9% versus expectations for a flat reading
  • Factory orders rose by 1.9% versus expectations for a 1.6% increase
  • Nonfarm payrolls rose by 263,000 versus expectations for a 190,000 increase
  • The unemployment rate fell to 3.6% versus expectations for a reading of 3.8%
  • Average hourly earnings rose 0.2% versus expectations for a 0.3% increase and the year-over-year rate remained stable at 3.2%

Fact of the Week

  • On Wednesday 5/01/19, the USA began its 119th month of an economic expansion. The average length of all 33 expansions in the country since 1854 (not counting the current expansion) is 58 months(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
Brad Johnson, CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Mike Cava, CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Jacqueline Runnberg, CFP® – (630) 966-2462 jrunnberg@oldsecond.com

Visit Old Second Wealth Management

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

 

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

U.S. and World News

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


Markets

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

Economic Data

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

Fact of the Week

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

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

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

Visit Old Second Wealth Management

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

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

U.S. and World News

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


Markets

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

Economic Data

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

Fact of the Week

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

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

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

Visit Old Second Wealth Management

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

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

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

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

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

 

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

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

Visit Old Second Wealth Management

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

Brexit, Saudi relations: Wealth Economic Update Oct. 19, 2018

U.S. and World News

  • Brexit negotiations have been a story of two steps forward, one step back and the discussion over the Irish border situation has been a roadblock for reaching a deal. Businesses, consumers, and investors have become increasingly concerned that more delays will only result in unresolved differences. European Union Chief Negotiator Michel Barnier stated that “A Brexit deal with the U.K. is 90% done” while debates continue over the Irish border and Theresa May attempts to create yet another delay and extend the post-Brexit transition period until 2021.
  • saudi-629324102_370Tensions rose rapidly this week between the United States and Saudi Arabia amidst the unexplained sudden disappearance of an American journalist. Secretary of State Mike Pompeo traveled to Saudi Arabia to meet with King Salman bin Abdulaziz earlier this week to discuss the issue, at which time the King denied allegations that Saudi Arabia orchestrated the disappearance of the American journalist. Reports surfaced during the week stating that Khashoggi was killed as a result of an interrogation that went wrong. President Trump stated that he wants to get to the bottom of what actually happened and if Saudi Arabia is found responsible, that the American response would be “very severe”. Saudi Arabia has shared interests with the United States that include containing Iran and sharing defense contracts.


Markets

  • Stocks were relatively unchanged from last week after another very volatile week. The S&P 500 rose 0.05% and closed at 2,768. The Dow Jones rose by 0.45% and closed at 25,444. Year to date, the S&P is up 5.10% and the Dow Jones is up 4.73%.
  • Yields climbed higher this week. The 5 year and 10 year U.S. Treasury Notes are yielding 3.05% and 3.19%, respectively.
  • The spot price of WTI Crude Oil continued its slide this week, losing 2.89% and closing at $69.28 per barrel. Year to date, Oil prices are up 15.26%.
  • The spot price of Gold rose 0.08% this week, and closed at $1,226.75 per ounce. Year to date, Gold prices are down 5.84%.

Economic Data

  • Initial jobless claims fell by 5,000 to 210,000 this week. The four-week moving average of claims increased by 2,000 to 212,000. Claims fell by 4,000 in North Carolina, and by 8,000 in Kentucky.
  • The Philadelphia Fed manufacturing index fell by 0.7 points to 22.2 for October versus expectations for a reading of 20.0.
  • Retail sales rose 0.1% month-over-month in September versus expectations for a 0.6% increase. The weaker than expected figure reflects lower sales at gas stations.
    • Retail sales core/control (ex-autos, gasoline, and building materials) increased 0.5% month-over-month in September versus expectations for a 0.4% increase.
  • Job openings increased to 7,136k in August versus expectations for 6,900k.

Fact of the Week

  • In 2008, Japan’s economy was larger that China’s economy ($4.9 trillion vs $4.5 trillion). China’s $12 trillion economy is now more than double that of Japan, who’s economy is $5 trillion. (Source: BTN Research)

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

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

Visit Old Second Wealth Management

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