September 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 August. I hope you find this Financial Market Roundup helpful and informative.

Global Trends

Three-month Libor (London Interbank Offered Rate), a key benchmark rate that some of the world’s leading banks charge each other for short-term loans, has risen over 20 basis points since late June and over 50 basis points since the third quarter of last year. However, the sudden spike in Libor is not a reflection of tightening credit conditions, but could be due to a combination of money market reforms and a rise in demand for short-term dollar financing from overseas investors.

Central Bank Policy

At the annual policy symposium for global central bank officials in Jackson Hole, Wyoming, Fed Chair Janet Yellen made the case for the next rate increase here in the U.S., increasing the likelihood of a rate hike in the Fed’s September meeting. On the other end of the policy spectrum, the Bank of Japan’s Governor Kuroda vowed to “act decisively” on monetary policy if needed, which includes taking rates even further into negative territory.

Equity Performance

As of the last day of August, the S&P 500’s streak of consecutive trading days without a 1-percent move remained intact at 38 (July 8, 2016). Though U.S. stocks reached new highs in August, their monthly gains were erased amid thin trading volume and mounting concerns of a potential Fed rate hike in September. Developed international stocks (Europe, Japan, and U.K.) fared the best in August, benefiting from expectations for additional monetary stimulus and subsiding fears over Brexit.

Interest Rates and Growth

The yield on the 10-year Treasury looks to have established a bottom, finishing the month higher by 13 basis points at 1.58 percent. Many see the turnaround in the direction of rates as a sign that the market is pricing in a growth rebound in the second half of the year. The U.S. economy grew less than previously reported (1.1 percent vs. 1.2 percent) in the second quarter due to lower government outlays and a bigger depletion of inventories, capping a sluggish first-half performance supported mainly by consumer spending.

Political and Regulatory Trends

Hillary Clinton’s post-convention bump appears to be holding up, as polls are reporting a national lead for the Democratic nominee. Donald Trump has responded by shaking up his campaign staff and, most recently, softening his stance on immigration. The first presidential debate is scheduled for Monday, September 26, and may prove to be another chance for Trump to re-establish the momentum that handed him the Republican nomination.

Investment Trends

Consumer confidence increased to an almost one-year high in August as Americans became more optimistic about the U.S. labor market. Payrolls gains, coupled with heightened expectations for a growth rebound in the second half of the year might prove to be the catalyst that finally pushes interest rates higher. This could benefit the financial sector (banks, insurance companies, pension funds) but may dampen the return prospects for fixed income and real estate.

Market commentary provided by Fifth Third Bank. Source of statistics is Bloomberg.com. Returns are calculated from market close on 8/1/16 through 8/31/16. 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.

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.

S&P 500 Index is a composite of 500 companies, amongst the largest based in the United States, and it often used as a measure of the overall U.S. stock market.

US Treasury - A debt obligation backed by the U.S. government.

Federal Funds Rate (Fed Funds) – The interest rate at which depository institutions actively trade balances held at the Federal Reserve.

FOMC – Federal Open Market Committee reviews economic and financial conditions, determines appropriate stance of monetary policy, and assesses the risk to it’s long-run goals of price stability and sustainable economic growth.

GDP – Gross domestic product is the market value of the goods and services produced by labor and property located in the United States.

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.

Gold Index is the U.S. dollar per Troy ounce.

Oil ($ barrel) - WTI - Bloomberg USCRWTIC Index representing West Texas Intermediate (WTI) Cushing Crude Oil Spot Price.

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