May 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 April. I hope you find this Financial Market Roundup helpful and informative.

Global Trends

In April, crude prices finished their best month in a year, reaching levels not seen since last November. This is despite the failure to reach a production freeze agreement at a summit in Doha, Qatar. Cost per barrel appears to be heading back towards $50, but some question the longevity of the recent rally. Benchmark oil futures rose 20 percent in April and have surged just over 75 percent since establishing a bottom in mid-February, a 13-year low. However, global investors are concerned that the recent rise in price could entice producers to flood the market with new supply before stockpiles are depleted.

Central Bank Policy

The Federal Reserve and the Bank of Japan held their policy meetings near the end of the month with both electing to hold steady. Market participants analyzed the nuances of the Federal Open Market Committee's (FOMC's) statement, and reactions varied. Doves cheered the Fed's signal to proceed gradually amid steady growth, while hawks pointed to tone that downplayed global risks. The overall cautious language lowered investors' expectations for a June rate hike, dropping from 31 to 19 percent.

Equity Performance

U.S. equities finished the month of April essentially unchanged. Mid-month, the S&P 500 Index came within 150 basis points of its all-time high following strong Chinese trade data. However, stocks eventually sold off after Japan’s central bank announced no additional stimulus measures, which underwhelmed global investors. So far, expectations for disappointing first quarter earnings in the U.S. have yet to make a negative impact on domestic stocks.

Interest Rates and Growth

The yield on the 10-year Treasury moved higher for a second straight month, finishing April at 1.83 percent. Investors optimistically suggest higher interest rates are indicative of abating global risks, noting falling inflation expectations, a cautious Fed and expanding negative interest rate policy. The first estimate for first quarter gross domestic product (the value of all goods and services produced in the U.S.) slowed to a 0.5 percent annualized growth rate, though many are predicting a spring rebound.

Political and Regulatory Trends

The political landscape continues to rapidly evolve in this election year. Sen. Ted Cruz unexpectedly named Carly Fiorina as his running mate a day after he lost to Donald Trump by a landslide in the primaries of five Northeastern states. The following week, Cruz and Kasich both suspended their campaigns after losing to Trump in Indiana. Trump can’t secure the 1,237 delegates he needs to clinch the nomination until the last day of primary balloting on June 7, but he has become the presumptive Republican Party nominee.

Investment Trends

There is growing acceptance that weakness overseas and in crude prices will prevent the manufacturing and energy sectors from supporting growth in the U.S. for the near-to-intermediate term. With these engines of growth temporarily stalled, many are looking to the U.S. consumer to do much of the heavy lifting. This does not seem to be a huge ask given the progress being made in the labor economy, but without a pickup in wages, it's hard to imagine today’s “smarter” consumer reducing his or her savings rate.

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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