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

Global Trends

In mid-July, the focus on the U.K.’s referendum to leave the European Union (“Brexit”) was temporarily diverted following the news of another terrorist attack in France and an attempted military coup in Turkey. The coup failed and Turkey began punishment of the alleged ringleaders, placing top generals under arrest. Turkish President Recep Erdogan blamed the coup on a U.S.-based Islamic preacher and demanded that the U.S. government extradite him to Turkey.

Central Bank Policy

The Federal Reserve left interest rates unchanged at the July Federal Open Market Committee (FOMC) meeting. The post-meeting statement suggests the Fed is waiting for overwhelming evidence of a strong U.S. economy and for global risks to abate before raising rates any further. Outside the U.S., expectations are high for another round of monetary stimulus, specifically from the European Central Bank, the Bank of Japan and certainly from the Bank of England.

Equity Performance

Global stocks recorded their biggest monthly gain since March, thanks to positive corporate earnings and signs that central banks will step in to support economic growth. The S&P 500 finished July up about 3.5 percent, which puts the index up a little over 6 percent year-to-date, just shy of its all-time high.

Interest Rates and Growth

The yield on the 10-year Treasury made a new all-time low early in July (1.36 percent), but rebounded by month’s-end (1.45 percent). In the second quarter, the U.S. economy expanded 1.2 percent, less than the forecasted 2.5 percent, and the first quarter expansion was revised lower, from 1.1 percent down to 0.8 percent. The report showed that companies slimmed down inventories and remained wary of investing amid shaky global demand.

Political and Regulatory Trends

Both the Republican and Democratic National Conventions came and went without too much disruption in July. The candidates also selected their running mates, with Donald Trump choosing Indiana Governor Mike Pence and Hillary Clinton selecting Virginia Senator Tim Kaine. Neither VP is particularly flashy, in a race that’s still way too close to call. The first presidential debate is scheduled for Monday, September 26, at Hofstra University in Hempstead, New York.

Investment Trends

Improving global economic data and expectations for additional monetary policy (or postponement of rate hikes from the Fed) may be giving a boost to global equities. With Brexit in the rearview mirror, and no immediate fallout outside the U.K., it’s hard for those who are bearish to make their case for a decline in global risk assets in the near-term. Having yields on sovereign debt near or at all-time lows is also supportive of global stocks.

Market commentary provided by Fifth Third Bank. Source of statistics is Bloomberg.com. Returns are calculated from market close on 7/1/16 through 7/29/16. 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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