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 August.

GLOBAL
TRENDS

Yellow Arrow Pointing Right - Neutral

The COVID-19 pandemic continued to have an impact on daily life across the globe, and therefore economic activity, employment and corporate earnings. Economies still remain partially closed due to pandemic-related restrictions, although several pharmaceuticals have made major developments in vaccine production. Tensions between the U.S. and China appeared to ease as both countries reaffirmed their commitment to the Phase One trade deal. The coronavirus impact, 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.

CENTRAL BANK
POLICIES

Green Arrow Pointing Up - Positive

Global central banks continued to support the global economy by maintaining low interest rates and implementing programs to increase market liquidity in response to the coronavirus outbreak. Federal Reserve Chair Powell announced that the central bank will target inflation that averages 2% over time, reflecting the Fed’s willingness to allow inflation to run higher and labor markets to run hotter by keeping interest rates lower for longer. Officials from both the Bank of Japan and European Central Bank also reiterated their respective commitments to adjust monetary policy to stimulate their economies further.

EQUITY
PERFORMANCE

Green Arrow Pointing Up - Positive

Global equities continued to rise in August, extending the rebound from the pandemic-related sell-off seen in the first quarter. The S&P 500 Index rose 7.2% in total return for the month, its best monthly performance in more than three decades. The benchmark index rose for a fifth straight month and reached a new record. The tech-heavy NASDAQ Composite rose 9.7%, and the blue-chip Dow Jones Industrial Average rose 7.9%, turning positive year-to-date. International equities also rose, with the MSCI All Country World Index (ACWI) of both developed and emerging market shares rising 6.2% last month. International developed equities fared better than emerging market equities, with the MSCI EAFE and MSCI Emerging Market indexes up 5.2% and 2.2% respectively for the month.

INTEREST RATES
AND GROWTH

Yellow Arrow Pointing Right - Neutral

Yields moved higher in August as improving economic data and an accommodative Fed boosted risk sentiment for investors. The yield curve, or the spread between longer and shorter-dated Treasuries, steepened in August. A steeper yield curve reflects confidence that the Fed will have a positive impact in sustaining growth and lowering any deflation risks. The 10-year U.S. Treasury yield rose by 17 basis points month-over-month to end at 0.70%. The 2-year U.S. Treasury yield rose 2 basis points to 0.13%. After a staggering 31.7% contraction in the economy reported for the second quarter, a potential economic recovery will depend on the combination of COVID-19 containment and subsequent lifting of economic restrictions.

POLITICAL AND
REGULATORY TRENDS

Yellow Arrow Pointing Right - Neutral

While many provisions of the Coronavirus, Aid, Relief, and Economy Securities Act (CARES Act) expired on July 31st, investors awaited an agreement from the U.S. Congress on additional fiscal stimulus that never came. With a Democratic House and Republican Senate drafting various versions, no agreement was reached before the Congress went into recess in the middle of the month. The U.S. Presidential election came into scope this month as both Democrat and Republican parties held their respective national conventions. As former Vice President Joe Biden and his newly announced running mate Senator Kamala Harris challenge President Trump for the presidency, the upcoming election will be at the forefront for investors as the outcome is uncertain.

INVESTMENT
TRENDS

Yellow Arrow Pointing Right - Neutral

Uncertainty remains a key theme as the world continues to battle against the COVID-19 pandemic. Central banks and governments continue to offer monetary and fiscal stimulus support in hopes of providing an economic cushion amid the downfall of growth as many businesses are still struggling to operate fully. While markets are feeding off of economic information that certain indicators, such as consumer spending and housing, are improving, other areas of the economy remain severely depressed. As governments and pharmaceuticals pour resources into the development of a potential vaccine, investors remain hopeful that COVID-19 will be better contained and that a stimulated economy will recover.