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 February.

GLOBAL
TRENDS

Red Arrow Pointing Down - Negative

The World Health Organization designated the coronavirus outbreak a public health emergency of international concern in January and raised the risk level to Very High in February. The virus continued to spread outside of China, though cases seemed to peak in China late month. Oil prices tumbled more than 13%, as the virus threatened to choke oil demand. The U.S. dollar strengthened against a basket of major currencies in January, up 0.8% for the month. The coronavirus impact, trade developments, tightening financial conditions, geopolitical threats, and central bank policy mistakes are risks the Investment Management Group is actively monitoring.

CENTRAL BANK
POLICIES

Green Arrow Pointing Up - Positive

While global central banks want to gradually move toward removal of accommodation, the coronavirus outbreak, slowing economic data, below target inflation, and tightening financial conditions have led to recent dovish commentary and policy decisions. Major central banks held steady to start the year, but have now signaled a willingness to act as needed to support the economy. The Federal Reserve cut interest rates by 50 basis points in early March between regularly scheduled meetings, in the first emergency rate move since the financial crisis.

EQUITY
PERFORMANCE

Red Arrow Pointing Down - Negative

Global equities declined in February, amid concerns over the economic impact of the coronavirus. U.S. equities dropped sharply, with the S&P 500 Index ending the month down 8.2% in total return. The blue chip Dow Jones Industrial Average fell 9.8% month-over-month and the tech-heavy Nasdaq Composite lost 6.2%. Growth stocks outperformed value for the month, while large cap outperformed small cap. International equities declined, with the MSCI All Country World Index (ACWI) of both developed and emerging market shares dropping 8.0% last month. Emerging market equities fared slightly better than developed market shares, though the MSCI Emerging Markets Index still lost 5.3% for the month.

INTEREST RATES
AND GROWTH

Red Arrow Pointing Down - Negative

Yields fell in February amid concerns about the impact of the coronavirus outbreak on the economy, coupled with expectations that global central banks will provide supportive monetary policy. The 10-year U.S. Treasury yield tumbled 36 basis points month-over-month to end at 1.15% as yields hit new record lows. The 2-year U.S. Treasury yield fell 40 basis points to 0.91%. The U.S. economy grew at a 2.1% annualized rate in the fourth quarter, matching the third quarter growth rate. Notably, consumer spending grew slower than anticipated and business investment continued to contract.

POLITICAL AND
REGULATORY TRENDS

Yellow Arrow Pointing Right - Neutral

In domestic political news, the race for the Democratic presidential nomination continued. Senator Bernie Sanders emerged as the frontrunner after the first three state primaries, heading into more elections in March. With the rapid approach of the 2020 presidential election, the political situation in the U.S. has the potential to cause additional volatility in financial markets, and will likely influence the growth prospects of the global economy. While predicting the outcome of the 2020 election is outside of our scope, domestic politics will increasingly matter to the investing landscape. In international political news, the European Union and United Kingdom started negotiations on a trade deal, after the U.K. officially left the block at the end of January.

INVESTMENT
TRENDS

Red Arrow Pointing Down - Negative

Concerns about the virus impact continued to dominate investment themes in February. The month started off strong with concerns largely limited to China, but concerns grew as the virus spread outside of China and investors assessed the potential economic damage. While the news flow of the virus’s spread and associated economic disruptions will continue, easing by the Federal Reserve, 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.