Fifth Third Private Bank
March 2018
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 Trending Neutral
Global Trends

The U.S. dollar climbed 1.7 percent against a basket of major currencies in February 2018, after a drop of 3.3 percent in January, following its worst annual performance in over a decade in 2017. Weaker economic data in Europe aided the dollar’s strength, including Eurozone inflation data that disappointed consensus estimates. Oil fell 4.8 percent in the month to $60.99 a barrel, as rising U.S. inventories, record output and a stronger dollar outweighed reports of high OPEC compliance with supply cuts.
Central Bank Policy Trending Neutral
Central Bank Policy

Global central banks continued to move towards removal of accommodation. Federal Reserve officials reiterated intentions to hike rates at least three times this year, acknowledging stronger growth and signaling more confidence that inflation will rise. Minutes from the European Central Bank’s January meeting showed the bank’s willingness to adjust policy language in the first quarter, though communication will evolve gradually and will depend on inflation. The Bank of Japan needs greater assurance that it is successfully boosting inflation and real growth before it begins reducing accommodation.
Equity Performance Trending Negative
Equity Performance

Global equities fell in February as volatility picked up and inflation fears rocked markets. The S&P 500 Index had its worst month in two years, dropping 3.69 percent. The Dow plummeted more than 3,200 points, or 12 percent, in just two weeks before stocks rallied to end the month down 3.96 percent. Large cap stocks outperformed small caps; and growth outperformed value. Emerging market equities continued to lead major equity categories, with the MSCI Emerging Market Index dropping 3.25 percent in the month.
Interest Rates And Growth Trending Neutral
Interest Rates And Growth

Yields continued to climb in February, with the 10-year Treasury yield adding about 16 basis points, ending the month at 2.86 percent. Yields were pushed higher by expectations that the Fed will continue to remove accommodation and inflation may be rising. The U.S. economy's growth rate for the fourth quarter was revised slightly downward as inventories subtracted more than previously estimated. Gross domestic product grew at a 2.5 percent annualized rate, matching estimates.
Political And Regulatory Trends Trending Neutral
Political And Regulatory Trends

Congress passed a two-year budget deal on February 9, 2018 that ended an hours-long partial government shutdown. The measure suspended the debt ceiling until March 2019 and a compromise budget added roughly $300 billion for defense and non-defense spending. Immigration policy remained a major theme in February, though lawmakers failed to agree on a deal. Gun control came into focus after seventeen people were killed in a school shooting in Parkland, Florida on February 14.
Investment Trends Trending Negative
Investment Trends

Volatility returned to markets in February, after the S&P 500 had its longest-ever period without a 3 percent drop. The VIX, a closely watched gauge that measures expectations for future volatility, picked up from record low levels. After years of low interest rates since the 2008 financial crisis, the market is now facing the reality that an improving economy and job market will lead to higher inflation and in turn, higher borrowing costs. Investors signaled worry that the Federal Reserve will raise short-term rates too aggressively this year, pressuring equities.

Market commentary provided by Fifth Third Bank. Source of statistics is Bloomberg.com. Returns are calculated from market close 1/31/18 through 2/28/18. 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 EMF (Emerging Markets Free) Index – is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2006 the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

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.

Oil ($ barrel)/WTI – Bloomberg USCRWTIC Index representing West Texas Intermediate (WTI) Cushing Crude Oil Spot Price.

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.

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).

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