Fifth Third Private Bank
September 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 August.
Global Trends Trending Neutral
Global Trends

The U.S. dollar strengthened in August amid global trade developments and geopolitical tensions in emerging market countries. The dollar rose 0.62 percent in August and is now up 3.27 percent year-to-date against a basket of major currencies. Economic data from the U.S. has been 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 continued to move gradually towards removal of accommodation. Federal Reserve officials continue to signal intentions to gradually lift borrowing costs, as economic activity remains strong. The FOMC is widely expected to hike interest rates by 25 basis points at its September meeting. The European Central Bank voted to keep its interest rate and bond buying program policy unchanged at its most recent meeting and signaled that it would likely 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 Neutral
Equity Performance

Domestic equity returns were robust in August as the strength in corporate profits overshadowed concerns over trade tensions and geopolitical worries. The S&P 500 Index rose 3.26 percent in total return, higher for a fifth straight month. The tech-heavy Nasdaq 100 returned 5.85 percent while the Dow gained 2.56 percent. International equities marched lower in August, as trade tensions and a modestly higher U.S. dollar weighed on performance. Emerging market equities, as measured by the MSCI Emerging Market Index fell 2.68 percent, while the MSCI Europe, Australasia and Far East Index declined by 1.90 percent.
Interest Rates And Growth Trending Neutral
Interest Rates And Growth

Yields fell during August as geopolitical tensions pushed bond prices higher. The 10-year U.S. Treasury yield ended the month at 2.86 percent, falling 10 basis points during the month. The yield curve flattened 6 basis points, as the 2-year U.S. Treasury yield fell 4 basis points to 2.63 percent in July, bringing the spread between the benchmark yields to 23 basis points. The U.S. economy expanded at a 4.2 percent annual rate in the second quarter, much faster than the 2.2 percent increase in the first quarter. This is the strongest growth rate since the third quarter of 2014, led by sizable increases in consumer spending and business investment.
Political And Regulatory Trends Trending Neutral
Political And Regulatory Trends

Trade developments between the U.S. and China deteriorated in August, as both countries implemented further tariffs and threatened even more. Tensions between the U.S. and Turkey also escalated during the month, as the U.S. decided to increase tariffs on Turkish steel and aluminum imports in retaliation for the imprisonment of a U.S. citizen in Turkey. At the end of August, the U.S. and Mexico reached an agreement on revisions to the Nafta accord as talks continue with Canadian trade negotiators.
Investment Trends Trending Positive
Investment Trends

Trade tensions continued to dominate investment themes in August. Business sentiment remains strong, despite these developments. The NFIB Index of Small Business Optimism in the U.S. rose to a 35-year high in July as firms indicated recent tariff escalation has not materially hindered economic activity or hiring plans. Other economic data in the United States continued to show strength. In addition to the strong second-quarter GDP reading, the labor market remained robust, with employers adding 157,000 jobs in July and the unemployment rate ticking lower to 3.9 percent. Global manufacturing purchasing manager indices (PMI) remain high, well above the level of 50 that indicates expansion.

Market commentary provided by Fifth Third Bank. Source of statistics is Bloomberg.com. Returns are calculated from market close 7/31/18 through 8/31/18. 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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