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Perspectives from Above the Noise -- Week of May 22nd, 2017

| May 22, 2017
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U.S. stocks ended a volatile week little changed, with most global equity markets stabilizing after being rocked by dual political debacles this week in Washington and Brazil. After falling 1.8% on Wednesday, the S&P 500 pared intra-day gains Friday after the Washington Post released late afternoon news that, according to unnamed persons, law enforcement has a senior White House adviser “as a person of interest” in the investigation that the Trump administration may have had inappropriate ties to Russia. Overall, stocks recovered much of Wednesday's losses, as investors set aside for now the latest political upsets that threaten to derail or delay passage of President’s Trump’s plans for tax cuts and infrastructure spending. Investor sentiment continues to be buoyed by positive first quarter earnings, which are wrapping up with the best quarterly profit growth in five years. Brazil’s Ibovespa equity index, however, ended 8.2% lower last week, its largest correction since October 2008, on a newspaper allegation that a secret tape recording has Brazil President Temer approving a political payoff.

For the week, the S&P 500 fell by -0.32%, the Dow Industrials declined -0.44%, and the MSCI EAFE (developed international) rose +0.98%.

What We’re Reading

Quick Dip Recovery Continues -- Fox Business

Saudi-U.S. Arms Deals -- Bloomberg

North Korea Ready to Mass Produce -- Reuters

Chart of the Week: Total Retail Shows the Consumer is Not Dead

Wall Street’s focus over the past few weeks has been on retailers’ continued earnings struggle. Notably, the department stores and apparel retailers have been hit the hardest in this challenging operating environment. How is it, then, that the consumer discretionary sector is the second best-performing sector in the S&P 500 Index? As of the market close on Friday, the sector is up 10% on a year-to-date total return basis, second only to technology (+17.7% YTD). Part of the answer lies in the fact that traditional retail accounts for a little more than just one-fifth of consumer discretionary performance. Traditional retail (as it is most often defined, combines specialty retail and multiline retail industries, and excludes the internet and direct marketing retailer industry) accounts for 21% of the consumer discretionary sector by market capitalization.

Secondly, the areas within retail that have exhibited strength are the e-commerce (online) retailers and, more recently, health and personal care stores, home improvement, and electronic and appliance categories. Many of the companies that stood out in the first quarter will likely also drive growth for the remainder of the year, according to CFRA. As Chart 1 shows, consumer services and overall retailing are the industry groups expected to lead growth this year. Of these, the majority of growth will come from consumer services, which includes restaurants, hotels and leisure companies. Internet retail will also likely be a large driver of growth in retail in 2017, offsetting expected declines from department stores.

Some materials are chosen by the Cetera Investment Management team and summarized by Jason Vitucci who is not affiliated or registered with Cetera. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Cetera Investment Management individuals who provide investment management services are not associated persons with any broker-dealer. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.

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