Fifth Third Private Bank
January 2019
Financial Market Roundup
Produced by Fifth Third's Investment Management Group
In the following piece, Fifth Third's Investment Management Group recaps the market and how it reacted to various events in the month of December.
Global Trends Trending Negative
Global Trends

The U.S. dollar weakened in December against a basket of major currencies, as the U.S. government ended the year with a shutdown. The dollar finished the year up 4.40 percent. Oil tumbled last month, dropping 10.8 percent and posting its worst annual performance since 2015. Escalating global trade tensions, central bank policy mistakes, geopolitical threats, and inflation in global economies are risks the Investment Management Group is actively monitoring. While acknowledging that risks to the global economy have risen recently, we do not believe the global economic expansion will collapse in the near-term.
Central Bank Policy Trending Neutral
Central Bank Policies

Global central banks continue to move gradually towards removal of accommodation. In line with expectations, the Federal Reserve hiked rates in December by 25 basis points, despite increasing stock market pressures and the slowdown in global economic growth. Central bankers signaled a slowdown in the pace of rate hikes in 2019, but continued to emphasize the strength of the U.S. economy. The European Central Bank ended quantitative easing in December as expected and continues to signal that it will hold interest rates steady until summer of 2019.The Bank of Japan will likely continue its ultra-easy monetary policy until there is solid evidence that inflation and real economic growth persist.
Equity Performance Trending Negative
Equity Performance

Global equities dropped sharply in December as volatility continued to rock markets. The S&P 500 Index lost 9.0 percent in total return, while the tech-heavy Nasdaq fell 9.4 percent and the Dow Jones Industrial Average dipped 8.6 percent. International shares outperformed in December, though still saw significant losses to end the year. The MSCI Emerging Markets Index dropped 2.8 percent, to end the year down 14.5 percent. The MSCI Europe, Australasia and Far East Index of international developed market shares fell 4.8 percent in December, down 13.3 percent for the year.
Interest Rates And Growth Trending Negative
Interest Rates And Growth

Yields declined in December to the lowest level since February amid market volatility. The 10-year U.S. Treasury yield ended the month at 2.68 percent, 30 basis points lower in the period. The yield curve held steady, as the 2-year U.S. Treasury yield also fell 30 basis points to 2.49 percent in December, keeping the spread between the benchmark yields near 20 basis points. Updated growth data showed the U.S. economy expanded at a 3.4 percent annual rate in the third quarter, down from the second quarter’s 4.2 percent growth rate.
Political And Regulatory Trends Trending Neutral
Political And Regulatory Trends

In the U.S., the government was partially shut for the last 10 days of the year and remained shut to start 2019 after lawmakers and President Trump were unable to agree on a spending deal. Democrats take control of the House of Representatives on January 3rd, as the new Congress convenes. In mid-December, President Trump unexpectedly announced that he will be pulling U.S. troops out of Syria and Defense Secretary James Mattis resigned his post. President Trump expressed optimism about progress in trade discussions with China at the end of the month.
Investment Trends Trending Negative
Investment Trends

Concerns about slowing global economic growth, escalating trade tensions and the path of the interest rates contributed to the risk-off tone that gripped markets in December. At Fifth Third, we have isolated three indicators that have consistently warned in the past when a recession is looming: surveys of manufacturing purchasing managers, the differential between short- and long-term interest rates, and credit spreads (the borrowing costs of corporations vs. the rates paid by the U.S. government). All three of our “early warning” signals point to a continuation of the economic expansion.

Market commentary provided by Fifth Third Bank. Source of statistics is Bloomberg.com. Returns are calculated from market close 11/30/18 through 12/31/18. This information is current as of the date of this letter and the opinions expressed are subject to change at any time, based on market and other conditions. This information is intended for educational purposes only and does not constitute the rendering of investment advice or specific recommendations on investment activities and trading. The mention of a specific security within this letter is not intended as a solicitation to buy or sell the specific security. Index performance shown within this letter is not representative of any Fifth Third managed account.

Investing involves risk, including the possible loss of principal invested. Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment loss. Past performance is no guarantee of future results.

Indexes are unmanaged, do not incur investment management fees, do not represent the performance of any particular investment, and may not be invested directly into by investors. Small company investing involves specific risks not necessarily encountered in large company investing such as increased volatility. Investments in foreign markets entail special risks such as currency, political, economic and market risks.

Consumer Price Index (CPI) – measures changes in the price level of a market basket of consumer goods and services purchased by households.

DJIA/DOW – the Dow Jones Industrial Average is a price weighted average of 30 blue-chip stocks that are generally the leaders in their industry.

Fed – The Federal Reserve System (FRS) is the central bank of the United States and is commonly known as “The Fed”. It regulates the U.S. monetary and financial system. The Fed's mandate is to promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest rates.

Federal Funds Rate (Fed Funds) – The interest rate at which depository institutions actively trade balances held at the Federal Reserve.

FOMC – The Federal Open Market Committee is the policy-making branch of the Federal Reserve that reviews economic and financial conditions and determines an appropriate stance of monetary policy by setting a target for the federal funds rate. GDP – Gross domestic product is the market value of the goods and services produced by labor and property located in the United States.

GDP – Gross domestic product is the market value of the goods and services produced by labor and property located in the United States.

Gold Index – is the U.S. dollar per Troy ounce.

MSCI All Country World Index (ACWI) – is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. It is comprised of stocks from both developed and emerging markets.

MSCI EAFE Index – The Morgan Stanley Capital International Index (MSCI EAFE Index) is a market capitalization weighted index composed of companies representative of the market structure of 20 Developed Market countries in Europe, Australasia and the Far East. Net of taxes is calculated for Morgan Stanley Capital International Equity Indices in U.S. dollars as dividend reinvested minus withholding taxes retained at the source for non-resident individuals who do not benefit from a double taxation treaties.

MSCI Emerging Markets Index – The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. As of May 2017, the MSCI Emerging Markets Index consisted of the following 23 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

MSCI US REIT Index – is a free float- adjusted market capitalization weighted index that is comprised of equity REITs that are included in the MSCI US Investable Market 2500 Index, with the exception of specialty equity REITs that do not generate a majority of their revenue and income from real estate rental and leasing operations. The index represents approximately 85% of the US REIT universe.

MSCI World Index – is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,Sweden, Switzerland, the United Kingdom, and the United States.

NASDAQ Index – is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100.

Oil ($ barrel)/WTI – West Texas Intermediate (WTI) is a grade of crude oil used as a benchmark in oil pricing.

Organization of Petroleum Exporting Countries (OPEC) – is a group consisting of 12 of the world's major oil-exporting nations. OPEC aims to manage the supply of oil in an effort to set the price of oil on the world market, in order to avoid fluctuations that might affect the economies of both producing and purchasing countries.

Personal Consumption Expenditures (PCE) Index – measures price changes in consumer goods and services. Expenditures included in the index are actual U.S. household expenditures. Data that pertains to services, durables and non-durables are measured by the index.

Purchasing Managers Index (PMI) – is an indicator of economic health for manufacturing and service sectors. The purpose of the PMI is to provide information about current business conditions to company decision makers, analysts and purchasing managers.

Russell 2500 – The Russell 2500 Index measures the performance of the smallest 2,500 companies in the Russell 3000 Index. This index is constructed to give a comprehensive and unbiased barometer for the small and mid-cap segment of the U.S. equity universe.

S&P 500 Index – The Standard and Poor’s 500 index is a capitalization weighted index of 500 benchmark stocks and is often used as a measure of the overall U.S. stock market.

US Treasury – A debt obligation backed by the U.S. government with a fixed interest rate and a maturity between one and 10 years.

Unemployment Rate – The unemployment rate tracks the number of unemployed persons as a percentage of the labor force (the total number of employed plus unemployed).

VIX Index – The Chicago Board Options Exchange Volatility Index reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for a wide rate of strikes. Fifth Third Securities is the trade name used by Fifth Third Securities, Inc., member FINRA/SIPC, a wholly owned subsidiary of Fifth Third Bank, a registered broker-dealer, and a registered investment advisor registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training.

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