QAURTERLY MARKET TALK 2ND QUARTER - 2017

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Overview

We at Sterling Capital Management feel very privileged to partner with AE Wealth Management. As the outsourced Chief Investment Officer for the AE Wealth Management platform, our team is engaged in three key support areas for you and your clients: providing custom asset allocation frameworks, selecting high-quality investment managers and constructing well-diversified portfolios. Importantly, of course, we remain engaged every day with the ongoing monitoring and periodic rebalancing of those portfolios over time.

Today, we are pleased to provide a review of global financial markets during the second quarter of 2017, to reflect on changes we made to our portfolios during the quarter and to update our current positioning and outlook.

Equity Market Review

Beginning with equity markets, recent positive momentum carried into the second quarter with key U.S. indexes setting new all-time highs. The Russell 3000 broad U.S. equity market index rose 3 percent in the second quarter, marking the 19th time in the last 20 quarters the index has posted a positive return. No meaningful pro-growth policy progress was made in the second quarter, and economic data releases during the quarter generally fell short of expectations, but strong first-quarter earnings reports helped propel equities higher. Approximately two-thirds of S&P 500 companies reported sales above estimates, and three-quarters came in ahead of earnings estimates. Further, S&P 500 earnings growth was 14 percent in the first quarter, which represented the highest quarterly growth rate since the third quarter of 2011.

Looking at size and style components of the U.S. market, large-cap stocks outperformed mid-cap and small-cap stocks during the quarter. Small-caps did experience resurgence, though, later in the quarter, led by a rotation into banks, REITs and biotechnology companies. On the style spectrum, growth continued to outperform value by a wide margin across all U.S. market capitalizations. Large-cap growth stocks were the top-performing segment of the U.S. equity market in the second quarter, driven by strength in technology, health care and consumer discretionary companies. Small-cap value was the worst-performing segment of the market during the quarter, partially driven by underperformance from energy companies.

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