April 2016

Financial Market Roundup

Produced by Fifth Third's Investment Management Group

Trends at a Glance

Global Trends

Central Bank Policy

Equity Performance

Interest Rates and Growth

Political and Regulatory Trends

Investment Trends

In the following piece, Fifth Third's Investment Management Group recaps the market and how it reacted to various events in the month of March. I hope you find this Financial Market Roundup helpful and informative.

Global Trends

Though China’s troubles seem to have subsided following last year’s fumbling of their currency policy, there remain signs of danger ahead. Investors note that China now finds itself in a “trilemma,” which is an economy that cannot simultaneously have monetary policy independence, a fixed exchange rate and free flowing capital. According to the impossible trinity of economics, a central bank can only pursue two of the three aforementioned policies at the same time.

Central Bank Policy

All three of the big central banks (Federal Reserve, European Central Bank and Bank of Japan) met in March. The ECB announced an unexpected barrage of measures to strengthen the eurozone’s economy, which was a welcome deviation from the lackluster measures announced in their December meeting. The BOJ introduced additional policy that was more or less on top of expectation. The Fed’s communication was not nearly as hawkish as expected, effectively taking an April rate hike off the table and making July or September the most likely alternatives.

Equity Performance

U.S. equities benefited in March (up 6.6 percent) from a rally in crude prices, a weakening dollar, and narrowing credit spreads. However, a five-week winning streak was snapped near the end of the month following news of terrorist attacks in Brussels. Emerging market stocks were the big winners for the month (up 13 percent), despite continued concern over the health of China’s economy. Developing nations laden with dollar-denominated debt cheered the sharp decline (down about 4 percent) in the American currency.

Interest Rates and Growth

The yield on the 10-year Treasury started March on the upswing, which is a continuation of risk-off sentiment that permeated markets in the second half of February. However, interest rates changed course mid-month following generally dovish comments from the three major central banks. The 10-year Treasury yield finished March higher by 4 basis points to 1.77 percent. The third and final calculation for fourth-quarter gross domestic product (the value of all goods and services produced in the U.S.) came in at 1.4 percent, revised higher from 1.0 percent a month earlier. That puts growth for all of 2015 at 2.4 percent, matching the figure for all of 2014.

Political and Regulatory Trends

In March, Donald Trump and Ted Cruz split victories in Republican contests in Arizona and Utah, setting up a showdown in Wisconsin to determine whether the billionaire is on his way to the party nomination or the effort to stop him has momentum. On the Democratic side, Hillary Clinton won the Arizona primary, and Bernie Sanders dominated the caucuses in Utah and Idaho. The outcomes allowed Clinton to maintain her overwhelming lead in delegates and to begin looking toward the general election.

Investment Trends

As corporate revenue and profit margins declined over the last 12 months, earnings growth slowed, increasing the importance of share reduction in meeting earnings-per-share growth targets. Data shows that corporate managers are using more inorganic methods, such as share repurchases, to reduce their number of outstanding shares. In the fourth quarter of 2015, 76 percent of S&P 500 companies reported having repurchased at least some of their own shares.

Market commentary provided by Fifth Third Bank. Source of statistics is Bloomberg.com. Returns are calculated from market close on 3/1/16 through 3/31/16. 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.

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