Fifth Third Private Bank
January 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 December.
Global Trends Trending Neutral
Global Trends

The U.S. dollar had its worst annual performance since 2005, pushing the euro above $1.20 to end the year. The euro was the best performing currency against the dollar compared to its G-10 peers. Commodities ended the year on a high note, as crude oil, copper, and gold soared in December. West Texas Intermediate crude oil rose above $60 a barrel in December, as it capped the commodity’s second consecutive annual gain, and ended 2017 at its highest level in more than two years.
Central Bank Policy Trending Neutral
Central Bank Policy

Global central banks continued to move towards removal of accommodation. The Federal Reserve hiked rates by 25 basis points at its December meeting, a move that was widely anticipated by markets. The ECB continued to hold rates unchanged, after announcing a gradual tapering of asset purchases. The Bank of Japan needs greater assurance that it is successfully boosting inflation and real growth before it begins reducing accommodation.
Equity Performance Trending Positive
Equity Performance

Global equities rose in 2017, enjoying their best performance since 2009. Emerging market equities led developed international, which outperformed domestic issues. U.S. stocks had their best annual returns since 2013, with large cap stocks outperforming small caps; and growth outperforming value. Optimism around corporate tax cuts, unexpected robust economic data, a supportive policy environment, and strong corporate earnings helped drive gains in U.S. equities. The MSCI All Country World Index recorded a total return of approximately 24 percent in 2017, while the S&P 500 Index added nearly 22 percent.
Interest Rates And Growth Trending Positive
Interest Rates And Growth

The yield on the 10-year Treasury ended 2017 at 2.41 percent, little changed in the month of December and down 3 basis points from its 2016 year-end value. Inflation continues to be moderate and many high quality sovereign yields abroad continue to be negative; the combination of these factors acts as a weight upon yields. Gross domestic product rose at a 3.2 percent annualized rate in the third quarter, slower than a previous estimate of 3.3 percent. The euro-area economy grew 2.6 percent last quarter from a year earlier, reflecting a pickup from the second quarter.
Political And Regulatory Trends Trending Positive
Political And Regulatory Trends

President Trump signed new tax legislation into law in late December that included tax cuts at both the individual and corporate level. The corporate tax rate was cut to 21 percent from 35 percent, while the top individual tax rate dropped to 37 percent from 39.6 percent. Several companies responded by announcing bonuses and higher minimum wages for employees based on anticipated savings from the bill.
Investment Trends Trending Positive
Investment Trends

The economy and stock prices were strong in 2017 as small business and CEO confidence rose throughout the year. The unemployment rate remains at multi-year lows and payroll gains continue to be robust, though wage inflation is still muted. The third quarter S&P 500 earnings season was generally stronger than expected, and analysts are forecasting more growth for the fourth quarter. Bitcoin continued its year-to-date climb in December, as some trading exchanges brought futures online for the cryptocurrency.

Market commentary provided by Fifth Third Bank. Source of statistics is Bloomberg.com. Returns are calculated from market close on 12/1/17 through 12/31/17. 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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