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 June.

GLOBAL
TRENDS

Yellow Arrow Pointing Right - Neutral

The COVID-19 pandemic has continued to have a major impact on life across the globe, and therefore economic activity, employment, and corporate earnings. Governments around the world are loosening strict COVID-19 related guidelines as global cases wane. Several countries have approved COVID-19 vaccines and are beginning distribution starting with those most at risk. About 46.7% of the total U.S. population was fully vaccinated as of June 30. The Biden administration has implemented aggressive plans in distributing the vaccine that will allow for further opening and proper functioning of the economy. Lingering COVID-19 economic restrictions, vaccine distribution and administration data, government fiscal stimulus measures, central bank policy actions, geopolitical tensions, and inflation measures are topics that the Investment Management Group is monitoring.

CENTRAL BANK
POLICIES

Green Arrow Pointing Up - Positive

Global central banks continued to support the global economy by maintaining low interest rates and implementing programs to increase market liquidity in response to the COVID-19 pandemic. The Federal Reserve held rates steady at its June meeting and officials expect rates to be on hold until 2023. Officials signaled that the pace of the economic recovery in the U.S. may warrant a reduction in policy support sooner than previously anticipated, but Chair Jerome Powell reiterated that no changes would be made until we see substantial further progress. The central bank remains committed to using its full range of tools to continue to provide support for the recovery. The European Central Bank (ECB) left rates unchanged at its June meeting and confirmed that the elevated pace for its bond-buying program will continue into the third quarter. The Bank of Japan maintained monetary policy settings at its latest meeting and maintained its economic growth forecast.

EQUITY
PERFORMANCE

Green Arrow Pointing Up - Positive

Global equities were positive in June as investors weighed vaccine progress and massive fiscal stimulus against concerns about inflation. The MSCI All Country World Index of developing and developed market stocks rose 1.35% in total return in June, while the S&P 500 Index increased 2.33%, rising for a fourth consecutive month. The blue-chip Dow Jones Industrial Average rose only 0.02% while the tech-heavy NASDAQ Composite jumped 5.55% for June. Emerging market stocks outperformed international developed stocks, with the MSCI Emerging Markets Index gaining 0.17% and the MSCI EAFE Index of developed international equities falling 1.09% in total return in June.

INTEREST RATES
AND GROWTH

Yellow Arrow Pointing Right - Neutral

Yields declined in June. The yield on the benchmark 10-year U.S. Treasury fell 12 basis points in June to end the month at 1.47% but remains 56 basis points higher than at year-end 2020. The move higher in yields in the first quarter may have been driven by increasing inflation expectations amid a strong macroeconomic environment, solid corporate earnings, improving COVID-19 trends and expectations for more fiscal stimulus. The U.S. economy expanded at a 6.4% annualized rate in the first quarter of 2021, according to data from the Bureau of Economic Analysis. Personal consumption, the largest contribution to GDP, increased at an annualized rate of 11.4%, the second-fastest pace since the 1960s. Economists currently expect second quarter growth to be even stronger as the U.S. economy continues to reopen.

POLITICAL AND
REGULATORY TRENDS

Yellow Arrow Pointing Right - Neutral

The U.S. government passed an additional $1.9 trillion COVID-19 relief bill in March after several weeks of discussion. The major highlights of the bill included $1,400 payments to individuals, an extension of unemployment insurance and funding towards vaccine distribution. The Biden Administration introduced the American Families plan in late April which would request $1.8 trillion towards new spending on childcare, education and paid leave, in addition to the $2.0 trillion infrastructure bill proposed in late March. These initiatives, which have yet to be passed, are expected to be funded in part by an increase in the corporate tax rate and are part of the administration’s efforts to support economic growth after COVID-19’s global disruption. The White House and a bipartisan group of senators agreed on a $1.2 billion infrastructure plan in June that has elements of the previously mentioned proposals, however, passing the bill through Congress could be a challenge.

INVESTMENT
TRENDS

Green Arrow Pointing Up - Positive

Inflation concerns continued to dominate investment themes in June, amid disrupted supply chains and a tightening labor market, with market participants debating whether inflationary factors will prove transitory. Domestic political outcomes have been settled, vaccine distribution is well underway, and central banks and governments continue to offer monetary and fiscal stimulus; the combination of which has lowered overall economic and financial market uncertainty. While markets are feeding off of massive fiscal stimulus and indicators of improving economic data, some areas of the economy, including labor and travel industries, remain depressed. The strong efforts that both governments and pharmaceutical companies have put into a vaccine are starting to prove well placed and has helped many investors remain hopeful that the COVID-19 pandemic will be better contained, and that economies will continue to recover.