Fifth Third Private Bank
June 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 May.
Global Trends Trending Positive
Global Trends

Oil prices fell modestly in May, as U.S. production hit record highs and OPEC members considered boosting supply, despite strong global demand for the commodity. West Texas Intermediate Crude (WTI) fell 2.23 percent to end the month at $67.04 per barrel. The U.S. dollar continued to strengthen, rising 2.33 percent versus a basket of major world currencies. Political tensions in Europe pressured the region’s common currency, which fell 3.19 percent against the U.S. dollar during May.
Central Bank Policy Trending Neutral
Central Bank Policy

Global central banks continued to move gradually towards removal of accommodation. The Federal Reserve's Federal Open Market Committee left the federal funds target range unchanged at its May meeting and continued to signal expectations for at least two more rate hikes this year. The European Central Bank reaffirmed its pledge to move slowly in removing stimulus and continued rhetoric that it would support the euro as needed. The Bank of Japan unexpectedly trimmed purchases of bonds, taking advantage of a global decline in yields.
Equity Performance Trending Positive
Equity Performance

U.S. equities rose in May amid a strong first quarter earnings season and robust economic data. The S&P 500 Index rose 2.41 percent in total return for the month as constituent companies posted earnings per share growth of 24 percent year-over-year. Small and mid-cap domestic equities fared the best, with the Russell 2500 Index posting a 4.70 percent monthly gain. International equities underperformed, with the MSCI EAFE Index of developed market shares and the MSCI Emerging Markets Index dropping 2.25 percent and 3.54 percent, respectively.
Interest Rates And Growth Trending Negative
Interest Rates And Growth

Yields were mixed during the month of May. The 10-year U.S. Treasury yield ended the month at 2.86 percent, nine basis points lower than the end of April, despite hitting 3.1 percent within the period. The yield curve flattened somewhat, as the 2-year U.S. Treasury yield fell six basis points. The U.S. economy's growth rate for the first quarter came in lower than expected at 2.20 percent, compared to the preliminary 2.30 percent estimate. Personal consumption, the largest part of the economy, rose 1.00 percent, also slightly lower than the initial estimate.
Political And Regulatory Trends Trending Negative
Political And Regulatory Trends

Political developments in Italy drove bond markets at the end of the month, as the country struggled to form a government and populist parties suggested the country consider leaving the European Union. German government bond yields fell as investors looked for safe havens, while Italian yields rose on the developments. Trade discussions continued and tensions heightened as the Trump administration moved forward with tariffs against goods imported from several key partners.
Investment Trends Trending Neutral
Investment Trends

Geopolitics, trade developments and first quarter earnings continued to dominate investment themes in May. Volatility in equity markets remained, with heightened political risk driving market concerns. Economic data in the U.S. was largely positive, with the labor market showing considerable strength. Strong labor market data raises the concern that the Federal Reserve may tighten faster than previously expected. Investors continue to watch closely for signs of the path ahead for interest rates and the impact on capital markets.

Market commentary provided by Fifth Third Bank. Source of statistics is Bloomberg.com. Returns are calculated from market close 4/30/18 through 5/31/18. 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 100 Stock Index – is a modified capitalization-weighted index of the 100 largest and most active non-financial domestic and international issues listed on the NASDAQ. No security can have more than a 24 percent weighting.

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.

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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