Coronavirus, Oil: O2 Wealth Economic Update, Mar. 27, 2020

U.S. and World News

  • capitol-1078283986_370Coronavirus cases across the world has eclipsed half a million and the United States has surpassed every other country in the world in number of cases, currently at about 95,000. At the epicenter of the virus, New York City Mayor Bill de Blasio projects “over half the people in this city will ultimately be infected.” In the United Kingdom, Prime Minister Boris Johnson has tested positive for coronavirus, after instating a “stay-at-home” order earlier this week. The U.S. House of Representatives was prepared for a voice vote on the $2 trillion coronavirus relief bill passed by congress earlier this week, until one lawmaker announced his opposition to the bill late last night. This announcement led to House members scrambling back to Washington to hold a recorded vote. The bill passed in the House early this afternoon and is now being sent to the President’s desk. The relief bill includes one-time direct payments to individuals, added unemployment insurance, and loans to businesses.
  • The oil price war led by Saudi Arabia has resulted in the worst crude oil crash in a generation and even lower prices are anticipated. Secretary of State Mike Pompeo urged Saudi Arabia to curb production on Wednesday as weakening global demand is compounding on the issue, but Saudi Arabia shows no signs of slowing down. The U.S. shale industry is at risk and is running out of options now as most of the U.S. economy is shut down along with Europe and India. U.S. shale producers are now asking for radical solutions such as a tariff on international oil. Yesterday, leaders of the Group of 20 met to discuss the global pandemic, but the statement made no mention of the oil crisis.

Markets

  • Markets rebounded in what was the best week since 2009. The S&P 500 jumped 10.28% and closed at 2,541. The Dow Jones rose 12.48% and closed at 21,637. Year-to-date, the S&P 500 is down 20.96% and the Dow Jones is down 23.72%.
  • Yields fell further this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.39% and 0.68%, respectively.
  • The spot price of WTI Crude tumbled further this week. Prices fell 4.77% and closed at $21.55 per barrel. Year to date, Oil prices are down 64.71%.
  • The spot price of Gold rose by 8.22% and closed at $1,621.92 per ounce. Year to date, Gold prices are up 6.89%.

Economic Data

  • Initial jobless claims rose by a record 3 million to 3.28 million and the four-week moving average of claims rose 766,000 to 998,000. Claims rose by 398,000 in Pennsylvania, 213,000 in Ohio, and by 179,000 in New Jersey.
  • Personal consumption rose by 1.8% versus expectations for an increase of 1.7%
  • New home sales came in at 765,000 versus expectations for a reading of 750,000
  • Durable goods orders rose by 1.2% versus expectations for a decline of 0.9%
  • Durable goods orders ex-transports fell by -0.6% versus expectations for a decline of -0.4%
  • Personal income rose by 0.6% versus expectations for a 0.4% increase
  • Personal spending rose by 0.2%, in-line with expectations
  • The PCE price index rose by 0.1%, in-line with expectations and the year-over-year rate rose by 1.8% versus expectations for a 1.7% increase
  • The core PCE price index rose by 0.2%, in-line with expectations and the year-over-year rate rose by 1.8% versus expectations for 1.7%
  • The University of Michigan’s index of consumer sentiment fell 6.8 points 89.1 versus expectations for a reading of 90.0

Fact of the Week

  • The United States currently has about 95,000 confirmed cases of coronavirus and a population of 327.2 million (0.029% infection rate) while Italy has about 86,500 confirmed cases and a population of 60.5 million (0.14% infection rate). The United States has a population that is 5X the size of Italy, but Italy has an infection rate that is about 6X higher than the U.S. (Source: John Hopkins).

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.

Coronavirus, Unemployment, Markets: Special Wealth Update, Mar. 26, 2020

virus-1209738265Last night, the Senate passed “phase 2” of the Virus Relief Bill which will provide free testing, expanded funding for food security programs and ensures paid sick leave.  In addition, news passed that the floor of the New York Stock Exchange (NYSE) would be closed Monday March 23rd.  THE MARKETS WILL REMAIN OPEN!  Only the NYSE floor will be closed.  Though this is not normal operating procedure, today the vast of majority of trades on the NYSE occur in an electronic format.

On March 6th, the VIX index (the markets “FEAR” index) increased to over the 50 mark for the first time since March 5th of 2009.  This fear index measures uncertainty in the market and has subsequently increased to over 80 as 5%-10% market swings have become then norm over the last few days.  These levels are consistent with what we experienced during the debt crisis.

While concerns over Covid-19 certainly contribute to this uncertainty, understand that most market participants have shifted to remote trading since March 6th.  This shift to remote trading over the last two weeks is likely as large of a contributor to market volatility as are Covid-19 headlines. The closing of the floor on the NYSE on Monday and shifting to electronic trading will certainly be a shift, but most firms have already moved trading operations to remote locations over the last two weeks.

With increased uncertainty around Covid-19 and ongoing media hysteria, markets will remain volatile.  But as market participants become more accustomed to their new remote operations, they will become more accustomed to properly evaluating the long-term outlook for investments.  This should positively impact market volatility and provide price relief for stocks.

As public officials continue to adjust the health-care response to the ever changing landscape of the Covid-19 pandemic and the Federal Reserve exercises monetary measures to provide economic support, we continue to process this new information.  “Phase 3” of the Virus Relief Bill is estimated at $1.3 trillion and has proposed direct payments to families ($500 billion) with a second round of payments if the emergency persists.  The bill would also include $50 billion in loans to the airline sector and $150 billion to distressed sectors.

In consideration of these uncertain times, we remain very cautious around short-term market moves and continue to adjust client portfolios accordingly.  Yet, the Investment Team at Old Second Wealth Management maintains a long-term perspective on evaluating the trajectory of the economy and opportunities for client portfolios. Should you have any questions please reach out to your Relationship Manager or Investment Officer.

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: O2 Wealth Economic Update, Mar. 20, 2020

U.S. and World News

  • at_home-925104536_370The coronavirus pandemic has turned life around for many people around the world, and America is beginning to share the pain that many other countries have experienced in the past couple of months. As of today, there are just over 14,000 confirmed cases of the virus in America and about 210 deaths. Schools and businesses have closed, millions of employees are working from home, and unemployment is on the rise as “social distancing” has brought the economy to a screeching halt. California, New York, and Illinois have taken unprecedented action and declared state-wide “stay-at-home” or “Shelter-in-place” orders. These laws involve all non-essential businesses to close, but do allow citizens to go out only to pick up food, medicine, or other essential items and to go outside for a walk. The laws will be enforced by issuing a misdemeanor to citizens found in violation. The U.S. government and the Federal Reserve are doing everything that they possibly can to heal the sick, stop the spread of the virus, and keep the economy afloat by taking massive fiscal and monetary stimulus measures. The Federal Reserve slashed the fed funds rate to zero and initiated a security purchases program that continues to grow by the day. The government is spending over $1 trillion on a stimulus package that includes paid family leave, enhanced unemployment insurance, payments to individuals, and corporate bailouts.

Markets

  • Markets fell further this week as economic activity slows significantly, the S&P 500 lost 14.96% and closed at 2,305. The Dow Jones dropped 17.30% and closed at 19,174. Year-to-date, the S&P 500 is down 28.30% and the Dow Jones is down 32.40%.
  • Yields moved lower this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.49% and 0.88%, respectively.
  • The spot price of WTI Crude continued to fall this week. Prices fell 21.85% and closed at $22.43 per barrel. Year to date, Oil prices are down 63.26%.
  • The spot price of Gold dropped by 1.75% and closed at $1,488.10 per ounce. Year to date, Gold prices are down 1.92%.

Economic Data

  • Initial jobless claims rose by 70,000 to 281,000 and the four-week moving average of claims rose 17,000 to 232,000. Claims rose by 14,000 in California and by 9,000 in Washington State as a result of the coronavirus.
  • The Philadelphia Fed manufacturing index fell 49.4 points to -12.7 versus expectations for a reading of 8.0
  • Retail sales fell 0.5% versus expectations for an increase of 0.2%
  • Core retail sales was flat versus expectations for an increase of 0.4%
  • Industrial production rose by 0.6% versus expectations for an increase of 0.4%
  • Housing starts fell by 1.5% to 1,599k units versus expectations for a decrease of 4.3% to 1,500k units.
  • Building permits fell 5.5% versus expectations for a decline of 3.2%
  • Existing home sales rose by 6.5% to a seasonally-adjusted-annualized rate of 5.77 million units versus expectations for an increase of 0.9%

Fact of the Week

  • The average daily percentage change in the Dow Jones since March 21, 2007 has been 0.76%. Since the beginning of March, we have only had 2 days were the Dow moved less than 2% and the average daily percentage change has been 5.66%. (Source: Macrotrends)

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.

Coronavirus: Special Wealth Update, Mar. 19, 2020

Last night, the Senate passed “phase 2” of the Virus Relief Bill which will provide free testing, expanded funding for food security programs and ensures paid sick leave.  In addition, news passed that the floor of the New York Stock Exchange (NYSE) would be closed Monday March 23rd.  THE MARKETS WILL REMAIN OPEN!  Only the NYSE floor will be closed.  Though this is not normal operating procedure, today the vast of majority of trades on the NYSE occur in an electronic format.

On March 6th, the VIX index (the markets “FEAR” index) increased to over the 50 mark for the first time since March 5th of 2009.  This fear index measures uncertainty in the market and has subsequently increased to over 80 as 5%-10% market swings have become then norm over the last few days.  These levels are consistent with what we experienced during the debt crisis.

While concerns over Covid-19 certainly contribute to this uncertainty, understand that most market participants have shifted to remote trading since March 6th.  This shift to remote trading over the last two weeks is likely as large of a contributor to market volatility as are Covid-19 headlines. The closing of the floor on the NYSE on Monday and shifting to electronic trading will certainly be a shift, but most firms have already moved trading operations to remote locations over the last two weeks.

With increased uncertainty around Covid-19 and ongoing media hysteria, markets will remain volatile.  But as market participants become more accustomed to their new remote operations, they will become more accustomed to properly evaluating the long-term outlook for investments.  This should positively impact market volatility and provide price relief for stocks.

As public officials continue to adjust the health-care response to the ever changing landscape of the Covid-19 pandemic and the Federal Reserve exercises monetary measures to provide economic support, we continue to process this new information.  “Phase 3” of the Virus Relief Bill is estimated at $1.3 trillion and has proposed direct payments to families ($500 billion) with a second round of payments if the emergency persists.  The bill would also include $50 billion in loans to the airline sector and $150 billion to distressed sectors.

In consideration of these uncertain times, we remain very cautious around short-term market moves and continue to adjust client portfolios accordingly.  Yet, the Investment Team at Old Second Wealth Management maintains a long-term perspective on evaluating the trajectory of the economy and opportunities for client portfolios. Should you have any questions please reach out to your Relationship Manager or Investment Officer.

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.

Coronavirus: Special Wealth Update, Mar. 16, 2020

For the third time in two weeks, the New York Stock Exchange halted trading due to the circuit breaker of a 7% intra-day loss being breached. This comes after a sharply higher Friday trading session, another weekend of worsening headlines as it relates to the spread of the Coronavirus and significant action from the Federal Reserve and other global central banks.

iStock-1044047026Late in last Friday’s trading session, President Trump declared the Coronavirus pandemic a national emergency and announced a number of measures aimed at combatting Covid-19 and stemming the economic turmoil that has taken place over the last few weeks. The declaration opens up billions of dollars to help fight spread and Trump vowed a massive increase in the number of tests available as a result. Among other items, he announced a number of partnerships with the private sector. There’s a Google-led web portal for citizens to log their symptoms and arrange for testing if needed. Retailers such as Wal-Mart have also pledged to ramp up their supply chains in efforts to keep their shelves stocked as well as offering up portions of their stores’ parking lots for drive thru testing. Trump also announced large purchases of oil into the United States’ Strategic Petroleum Reserve in an attempt to stabilize oil prices and stockpile oil at low costs in case of supply issues in the future. Interest on all federally held student loans has been waived as well.

Over the weekend, the House passed an emergency Coronavirus bill. The bill includes free testing, expanded medical leave for small business employees (under 500 employees), paid sick leave and additional funding to state’s experience spikes in unemployment. Congressional committees are expected to work through this week’s regularly scheduled recess to continue examining what can be done to soften the health-related and economic impact of the virus.

Many states are announcing their own courses of actions. In the State of Illinois, Governor J.B. Pritzker announced that schools will be closed beginning on Tuesday. He has also announced that all restaurants and bars are to close for dine-in customers, allowing for only pick-up and delivery from these establishments.

The CDC has laid out stricter guidelines in terms of public gatherings, recommending the cancellation or postpone of events of over 50 people for the next 8 weeks. They also continue the efforts to flatten the curve by encouraging proper hygiene, social distancing and remote work when available. The Center will be releasing additional guidelines in a press conference this morning.

Sunday evening the Federal Reserve announced a 100 basis point cut to the Fed Funds Rate, bringing the overnight lending rate essentially to 0%. The statement also called for a new $700 billion round of Quantitative Easing in which the Fed will purchase $500 billion in Treasury securities and $200 billion in mortgage backed securities. It was also announced that there was coordinated action on the part of the Fed in conjunction with the central banks of Canada, England, Europe, Japan and Switzerland to enhance liquidity across the global financial system in this time of stress. This announcement was in addition to its emergency cut of 50 basis points on March 3rd and was done so ahead of and in lieu of the Federal Reserve’s regularly scheduled meeting this week. 

Markets are still dealing with a great level of uncertainty as to how this public health crisis plays out economically. With the Federal Reserve having used a great deal of their available monetary measures, it will be up to the fiscal and health-related response to largely restore confidence in the markets. As always during turbulent times like this, the Investment Team at Old Second Wealth Management continues to monitor these situations closely and how they long term trajectory of the economy. Should you have any questions please reach out to your Relationship Manager or Investment Officer.

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.

Coronavirus, OPEC Oil: O2 Wealth Economic Update Mar. 13, 2020

U.S. and World News

  • virus-1206354421_370This week, the United States response to the coronavirus began to ratchet higher as the World Health Organization declared the virus a global pandemic and community spread within the country worsened. During President Trump’s address to the nation on Wednesday night, he announced a suspension of all travel from Europe to the United States for 30 days, as the spread throughout Europe has escalated dramatically. Italy remains on a nationwide lockdown and ordered all non-essential shops and services to close, leaving only supermarkets and pharmacies open. President Trump also announced plans for deferred tax payments, payroll tax relief, and low interest business loans. All of the major sports organizations have either canceled or delayed activities, including the NCAA tournament. State governments have also taken emergency measures such canceling large public events. Grocery stores have taken measures to contain supply, with grocery retailer Kroger placing limits on the amount of sanitary products and cold medicine that customers can buy per order, as Americans rush for supplies.
  • OPEC+, the organization responsible for the regulation of oil prices, failed to agree on production cuts to combat the collapsed demand for oil prices as a result of the coronavirus. Saudi Arabia launched a price war in response to Russia’s disagreement, pumping as much oil as they have capacity for to flood the market, causing the price of oil to fall under $30 per barrel. The sharp decline in prices as a result of Saudi Arabia’s actions are a threat to the United States energy independence, as U.S. oil companies are facing a drop in production of more than 1 million barrels per day. The drop in U.S. oil production could be enough to change the United States from being a net exporter, to a net importer of oil.

Markets

  • Markets dropped in a historic week as coronavirus concerns struck fear into investors. The S&P 500 dropped 8.73% and closed at 2,711. The Dow Jones fell 10.24% and closed at 23,186. Year-to-date, the S&P 500 is down 15.73% and the Dow Jones is down 18.19%.
  • Yields ended the week higher. The 5 year and 10 year U.S. Treasury Notes are yielding 0.74% and 0.98%, respectively.
  • The spot price of WTI Crude declined significantly this week. Prices fell 19.19% and closed at $33.36 per barrel. Year to date, Oil prices are down 45.37%.
  • The spot price of Gold dropped by 9.06% and closed at $1,522.23 per ounce. Year to date, Gold prices are up 0.33%.

Economic Data

  • Initial jobless claims fell by 4,000 to 211,000 and the four-week moving average of claims rose 1,000 to 214,000. Claims fell by 3,000 in New York, 1,000 in Georgia, and by 1,000 in Michigan.
  • The producer price index (PPI) fell 0.6% versus expectations for a decline of 0.1%
  • PPI excluding food and energy fell by 0.3% versus expectations for an increase of 0.1%
  • The consumer price index (CPI) rose 0.1%, in-line with expectations and the year-over-year rate rose 2.3%, in-line with expectations
  • The Core CPI index rose 0.2%, in-line with expectations and the year-over-year rate rose by 2.4%, in-line with expectations
  • The University of Michigan’s index of consumer sentiment fell 5.1 points to 95.9 in the preliminary report versus expectations for a reading of 95.0

Fact of the Week

  • The S&P 500’s recent low was off nearly 913 points since it peaked at 3,393.52. On a point basis, over the period, the S&P 500 loss was larger than the overall value of the index when the 11-year bull market began. (Source: Applied Finance Group)

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.

Coronavirus, Markets: Special Wealth Economic Update Mar. 13, 2020

SPECIAL UPDATE

basketball-183379378_370Yesterday markets had their largest single day drop since October of 1987 in the wake of the Coronavirus concerns.  We also saw all major sports in U.S. suspend their seasons and the NCAA cancel both the Men’s and Women’s basketball tournament.  Perhaps the rationale was that there is already enough madness this March.

On a serious note, the concerns over the economic impact resulting from cancelations, suspensions and layoffs resulting from Coronavirus are real.  Travel and Leisure industries were the first to be impacted and the rest of the market has followed suit.  As public officials begin to take proactive measures to stem a mass influx of Coronavirus cases on the medical infrastructure, cancelations are sure to become the norm moving forward.  These are unprecedented times for all of us, and certainly within the financial markets.

What does this mean from an investment perspective?  I was asked this morning, “What is a bear market?”  A bear market is a term used in the financial markets when an index drops 20% from its former peak.  Wednesday, the Dow Jones Industrial average dropped 20.3% and the Nasdaq and S&P followed suit Thursday when they crossed below that twenty percent threshold.

So is it time to invest?  Historically, by missing the 10 best days in the market over a 20-year period, you would cut your returns in half, and half of the markets best days in history have happened during bear markets. Further, by missing the best 30 recorded days in the market, your long-term cumulative return would actually be negative, so yes you should be invested. Yet, at this time we must be careful not to fall victim to behavioral biases.  Trying to time the market can be costly!  Just because markets are down consecutive days does not mean the markets are “due” and if we get a short-term rally we should not assume markets will continue to rally.  We should ensure we are invested consistent with our long-term goals and tolerance for risk and those factors shouldn’t be impacted by short-term market events.

During these uncertain times, the Investment Team at Old Second Wealth Management continues to monitor these situations closely and how they affect the fundamentals of the economy. As always, should you have any questions please reach out to your Relationship Manager or Investment Officer

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.

Coronavirus, Markets: Special Wealth Economic Update Mar. 12, 2020

SPECIAL UPDATE

stock-1209053608-370For the second time this week, the New York Stock Exchange halted trading due to the circuit breaker of a 7% intra-day loss being breached. Investors remain concerned of the impact from the Coronavirus through the U.S. as well as the rest of the world. As markets evaluate the economic impact and potential effect on corporate earnings, volatility has surged in the market with the VIX index reaching levels not experienced since the financial crises of 2008.

While investors look to Washington for guidance and some sort of backstop to the negative financial impact of “social distancing”, school and business closures, travel restrictions, and loss of revenue; they have been disappointed by the lack of fiscal response and health guidance provided by the current administration.

During times of market stress, we must remind ourselves that the overall future expectations for corporate earnings remains healthy. While this short-term uncertainty will certainly impact current earnings levels, near-term earnings have little impact on company valuations. Yet, this near-term uncertainty has created an environment where future guidance has been limited, resulting in uncertainty on future earnings and increased volatility. This spike in volatility has significantly impacted current price levels.

During these uncertain times, the Investment Team at Old Second Wealth Management continues to monitor these situations closely and how they affect the fundamentals of the economy. As always, should you have any questions please reach out to your Relationship Manager or Investment Officer.

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.

Coronavirus, Markets, Oil production: Special Wealth Economic Update Mar. 9, 2020

SPECIAL UPDATE

virus_oil-1209053811_370The New York Stock Exchange halted trading this morning due to the circuit breaker of a 7% intra-day loss being breached on the heels of Coronavirus spread and the surprise decision made by Saudi Arabia to slash prices and increase production of oil. These circuit breakers were put in place in an effort to calm market trading during times of extreme stress & panic. Markets have been experiencing wide spread volatility over the course of the last two weeks and this past weekend’s events added to the market’s fears. While the effect on stocks has certainly been front and center, the fear has gripped the bond markets, sending interest rates to their lowest levels in history. The entirety of the U.S. Treasury curve going out to 30 years is now below a 1% yield.

One major catalyst for the heightened volatility was the plunge in oil prices as a result of Saudi Arabia’s decision at the weekend OPEC meeting to instigate a price war on oil. Early on during OPEC’s meeting in Vienna last week, Russia refused to agree upon a cartel-wide production cut in order to bolster already falling oil prices, believing that the move would be too beneficial to U.S. shale producers. In response to their non-compliance, Saudi Arabia put forth plans to slash prices and increase production in a direct shot at Russia’s market share. The response in the oil markets was precipitous, with more than a -20% drop and WTI crude pricing in the low $30’s per barrel. The size of the drop in prices signals not only a price war being waged, but also a steep decline in demand based on lower economic activity, which we believe to be overstated. Oil experienced a similar shock toward the end of 2015 when crude fell to $25/barrel as U.S. supply rose and OPEC made the decision to keep their cartel’s production at the same level.

The impact of the Coronavirus continues to expand globally. Reports came out this weekend that the Northern Italian region of Lombardy which is home to 16 million people will be quarantined until April 3rd. Here in the U.S., the number of confirmed cases stands at over 500, while deaths rose to 22.  The U.S. has ramped up efforts to contain the spread of the disease, including the cancellation of some widely attended events and temporary school closings. The lasting effects of Covid-19 and its containment efforts are still unclear but previous infectious disease episodes have resulted in temporary, albeit painful, economic disruptions.

Global central banks have been active in easing and maintaining liquidity in the markets with our own Federal Reserve announcing a 50 basis point cut to the Fed Funds Rate last week with potentially more cuts coming. The Federal Reserve also announced today that they will increase the amount of short-term loans it is offering to money markets to due to funding strains resulting from the coronavirus and an increased demand for short-term lending. This adjustment was designed to make sure the supply of bank deposits held at the Fed, called reserves, “remains ample and to mitigate the risk of money market pressures that could adversely affect policy implementation,” the New York Fed said. “They should help support smooth functioning of funding markets as market participants implement business resiliency plans in response to the coronavirus.” Coordinated fiscal policy efforts are being discussed and would be a welcome development, as they have a more direct influence on day-to-day activities than monetary policy and would have a larger impact on damaged consumer sentiment.

The Investment Team at Old Second Wealth Management continues to monitor these situations closely and how they affect the fundamentals of the economy. As always, should you have any questions please reach out to your Relationship Manager or Investment Officer.

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.

Coronavirus, Oil production: Special Wealth Economic Update Mar. 6, 2020

U.S. and World News

  • President Donald Trump signed an $8.3 billion emergency spending package this morning to fight the coronavirus. At this point, there are have been more than 100,000 confirmed coronavirus cases in the world, including over 230 cases in the United States that include 14 deaths. Italy is now the worst-affected country outside of Asia with 2,502 cases and 79 deaths, which led to all schools and universities to be closed across the country. The coronavirus began to spread in several communities across the United States this week, closing schools and putting California in a state of emergency after their first death. According to the International Air Transport Association, airlines are expected to lose $63 billion to $113 billion in revenue for passenger traffic globally in 2020, depending on the future spread of the virus.
  • Looking to provide some stability to the price of oil, OPEC+ met this week in Vienna to discuss production cuts. Saudi Arabia was pushing for a cut of 1M-1.5M barrels per day in the second quarter and for an extension until the end of 2020 for existing cuts of 2.1M barrels per day that will expire this month. Russia, a country that is typically reluctant to agree to production cuts, announced that it would not back the additional cuts. The 14-member group is not scheduled to meet again until June 9th to review the policy. The price of oil fell 8% on the news.

Markets

  • Markets ended the week higher, despite the Dow Jones having 1,000 point swings nearly every day. The S&P 500 rose 0.65% and closed at 2,972. The Dow Jones gained 1.79% and closed at 25,865. Year-to-date, the S&P 500 is down 7.68% and the Dow Jones is down 8.95%.
  • Yields dropped sharply this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.61% and 0.76%, respectively.
  • The spot price of WTI Crude fell this week. Prices fell 7.42% and closed at $41.44 per barrel. Year to date, Oil prices are down 32.13%.
  • The spot price of Gold rose by 5.61% and closed at $1,674.61 per ounce. Year to date, Gold prices are up 10.37%.

Economic Data

  • Initial jobless claims fell by 3,000 to 216,000 and the four-week moving average of claims rose 3,000 to 213,000. Claims fell by 3,000 in Illinois, but increased by 5,000 in Ohio.
  • ISM manufacturing fell 0.8 points to 50.1 versus expectations for a reading of 50.5
  • The ISM non-manufacturing index rose by 1.8 points to 57.3 versus expectations for a reading of 54.8
  • Construction spending rose 1.8% versus expectations for an increase of 0.6%
  • Private sector employment rose by 183,000 versus expectations for an increase of 170,000
  • Factory orders fell by 0.5% versus expectations for a 0.1% decline
  • Nonfarm payrolls rose by 273,000 versus expectations for a 175,000 increase
  • The unemployment rate fell to 3.5% versus expectations for a reading of 3.6%
  • Average hourly earnings rose by 0.3%, in-line with expectations

Fact of the Week

  • During the 11 year bull market that began 3/10/09, the S&P 500 has had 7 “corrections” between 10 and 30 percent. The first was 07/02/10, and the last started when we entered correction territory last Friday. (Source: 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
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.