Fifth Third Private Bank
November 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 October.
Global Trends Trending Neutral
Global Trends

The U.S. dollar strengthened in October against a basket of major currencies, as U.S. economic data remained strong. The dollar is now up 5.43 percent year-to-date. Economic data from the U.S. continues to be relatively stronger than data from the Eurozone, Asia, and South America. Additionally, negative global trade headlines have acted as a headwind to developed and emerging market currencies as many of these economies are export driven, and growth initiatives have been financed by U.S. dollars.
Central Bank Policy Trending Neutral
Central Bank Policy

Global central banks continue to move gradually towards removal of accommodation. The Federal Reserve hiked interest rates by 25 basis points in September and officials continue to reiterate plans to slowly raise rates. Fed funds futures suggest a roughly 75 percent chance the Fed will hike again in December. The European Central Bank continues to signal that it will hold interest rates steady until summer 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 fell in October as strong corporate earnings failed to offset fears of escalating trade tensions and rising interest rates. The S&P 500 Index suffered its worst month in seven years, dropping 6.84 percent in total return. The tech-heavy Nasdaq lost more than 9 percent in October, while the Dow Jones Industrial Average fared better comparatively, dropping 4.98 percent. Emerging market equities continued to lag in October, with the MSCI Emerging Market Index falling 8.70 percent. The MSCI Europe, Australasia and Far East Index of international developed market shares lost 7.95 percent.
Interest Rates And Growth Trending Neutral
Interest Rates And Growth

Yields rose in October amid strong economic data and expectations for further tightening from the Fed. The 10-year U.S. Treasury yield ended the month at 3.15 percent, 9 basis points higher in the period. The yield curve steepened slightly, as the 2-year U.S. Treasury yield rose 5 basis points to 2.87 percent in October, bringing the spread between the benchmark yields to 28 basis points. The U.S. economy expanded at a 3.5 percent annual rate in the third quarter, an expected downtick from the second quarter’s 4.2 percent growth rate.
Political And Regulatory Trends Trending Negative
Political And Regulatory Trends

Trade developments between the U.S. and China continued to deteriorate in October. President Trump has imposed, proposed, and threatened tariffs on all Chinese imports, with China retaliating with similar tariffs on U.S. goods. The U.S. plans to announce tariffs on all remaining imports from China by early December if negotiations between the two countries are not productive. Geopolitical tensions rose in Europe, as the European Commission pushed back on Italy’s proposal to increase its budget deficit target to 2.4 percent of gross domestic product.
Investment Trends Trending Neutral
Investment Trends

Fears of an escalating trade dispute between the U.S. and China, pared with concerns of rising interest rates dominated investment themes and fueled market volatility in October. Third quarter earnings continued to show strength, though investors expressed concern that profits may be peaking. 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 9/30/18 through 10/31/18. 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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