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 May.


Yellow Arrow Pointing Right - Neutral

The COVID-19 pandemic continued to have a massive impact on daily life across the globe, and therefore economic activity, employment and corporate earnings. Economies began to reopen in phases, though many restrictions remain in place. Tensions between the U.S. and China escalated in May as President Trump continued to criticize China’s early response to the virus outbreak and as the U.S. condemned a new security law on Hong Kong. The coronavirus impact, tightening financial conditions, energy market volatility, trade developments, geopolitical threats, and central bank policy actions are items of interest that the Investment Management Group is actively monitoring.


Green Arrow Pointing Up - Positive

Global central banks are moving aggressively and rapidly to support the global economy by lowering interest rates and implementing programs to increase market liquidity in response to the coronavirus outbreak. The Federal Reserve cut interest rates by a total of 150 basis points in March to a target range of 0%-0.25% in emergency rate moves between regularly scheduled meetings. The Fed has also announced several measures to boost liquidity and committed to purchasing as many government bonds as necessary. Fed Chair Jerome Powell has reiterated that the central bank has more ammunition and that additional fiscal support from Washington could help the recovery. The European Central Bank is expected to introduce more stimulus measures in early June. The Bank of Japan also expanded monetary stimulus in response to the outbreak.


Green Arrow Pointing Up - Positive

Global equities continued to march higher in May, after stocks plummeted on coronavirus-related concerns in the first quarter. The S&P 500 Index rose 4.8% in total return for the period, while the blue chip Dow Jones Industrial Average rose 4.7% month-over-month and the tech-heavy Nasdaq Composite added 6.9%. Growth stocks outperformed value for the month, while mid-cap stocks outperformed large and small cap peers, according to Russell style indices. International equities also rose, with the MSCI All Country World Index (ACWI) of both developed and emerging market shares rising 4.4% last month. Emerging market equities fared worse than developed market shares, with the MSCI Emerging Markets Index up just 0.8% for the month.


Red Arrow Pointing Down - Negative

Yields were mixed in May amid expectations of ultra-supportive monetary policy and drastically declining economic output, along with optimism surrounding reopening economies. The 10-year U.S. Treasury yield rose 1 basis point month-over-month to end at 0.65% after yields hit record lows in March. The 2-year U.S. Treasury yield fell 4 basis points to 0.16%. The U.S. economy shrank at a 5.0% annualized rate in the first quarter, the first contraction since 2014 and the largest decline since 2008. Consumer spending declined at the fastest pace since 1980, amid widespread shutdowns and stay-at-home orders. Economists expect the current quarter to be much worse.


Yellow Arrow Pointing Right - Neutral

In response to the expected economic hardships following the coronavirus mandated shutdown of commerce, the U.S. Congress passed three phases of fiscal stimulus packages in March to help consumers and businesses cope with the disruptions, including the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Lawmakers passed an additional $484 billion of aid in April and discussions continued in May about further stimulus. Governments across the world continued to implement measures to contain the spread of the coronavirus, while several major countries began reopening their economies. States in the U.S. began relaxing restrictions, with guidelines from the Trump administration. Protests began in late May across the United States in response to the death of George Floyd at the hands of a police officer.


Green Arrow Pointing Up - Positive

Optimism about reopening economies and the subsequent rebound in economic activity dominated investment themes in May, despite evidence of severe economic damage. While evidence of the economic damage of the pandemic proved dismal, investors were encouraged by signs that the damage may be short-lived. Markets cheered signs of potential treatments for the virus and plans to reopen economies. While the news flow of the virus’s spread and associated economic disruptions will continue, easing by central banks, the boost to consumers and businesses from record low interest rates, the possibility of greater political clarity, and a global focus on health preparedness suggest to us that not all the news will be negative.