Broker Check

3901 Georgia St. NE Suite A-3

Albuquerque, NM 87110

505-798-6947

                                                                             

Q2 Market Outlook Summary

Q2 Market Outlook Summary

| March 31, 2016

Investing in Range-Bound Markets

Global markets experienced a volatile first quarter. Weak economic data in January stoked recessionary fears and sent equity markets sharply lower during the early part of the quarter. However, some stabilization in economic data and mounting evidence of a rapidly tightening U.S. labor market helped drive a broad-based market rally that began in mid-February. Arguably, some of the equity market’s newfound strength was based on the perception that the economy is likely strong enough to avoid recession but not too strong to force the U.S. Federal Reserve (Fed) to raise interest rates faster than the consensus expects. Looking ahead, our view is that crosscurrents will keep global equity markets largely range-bound (not sharply higher or lower) for much of this year.

The financial markets are facing a multitude of crosscurrents – tailwinds likely to limit significant market weakness and headwinds likely to limit significant market strength. On the positive side, probably the most significant market tailwind is stable and improving economic data. Since the end of the Great Recession, we have witnessed steadily improving labor and housing markets. They have been recently augmented by improving manufacturing data, a pickup in consumer spending, and signs of rising wage growth. As witnessed by investor reaction in the first quarter, economic data plays an important role in determining market direction. Other tailwinds include the Fed being cautious about further raising interest rates and central banks in Europe and Japan using monetary policy to improve their economies.

Since it is possible that much of the improving economy has already been factored in by investors, the current market valuation is a significant headwind that we are watching very closely. The 12-month forward price-to-earnings (P/E) ratio of the S&P 500 is well above its 10-year average. Regarding the "price" of the P/E ratio, the bull market that began in March of 2009 has led to a nearly 7 year appreciation in stock prices. With respect to the "earnings" of the P/E ratio, the consensus expectation is the S&P 500 will experience a decline in earnings growth for a fourth consecutive quarter. This combination has led to stretched valuations of U.S. stocks, which signals the market may be overvalued relative to earnings. Other potential headwinds include further weakening of economic growth in China and unexpected inflation that might cause the Fed to raise interest rates faster-than-expected.

We believe the current secular bull market should continue, albeit with more measured gains. Considering slower global growth projections and current market valuations in general, we would expect long-term returns in stocks and bonds to be below average, accompanied by higher volatility. Globally, central bank stimulus should provide support to financial markets and backstop against any type of major bear market selloff. We expect equities to trade within a range, though we still see more upside potential from current levels. We also feel that companies that are able to grow, despite an anemic economic backdrop, are likely to command a premium and therefore continue to favor growth over value across the market cap spectrum. From a global perspective, we still favor domestic equities. However, opportunities in international developed markets have increased with more accommodative central bank policies in Europe and Japan, coupled with more attractive valuations and being in earlier stages of economic recovery.

Within fixed income, we continue to maintain a somewhat defensive position, with duration slightly below the benchmark, and a solid allocation to credit sensitive and high yield bonds. With the expectation that interest rates may remain lower for a longer period, due to a lack of inflation and only a modest economic growth environment, we have lowered our long-term range of expectations for bond yields. As we bounce off the bottom of this new range, we will likely begin reducing our defensive positioning. Lastly, to mitigate unforeseen volatility in an increasingly uncertain environment, we believe it prudent to retain an allocation to alternative investments that have low correlations to traditional investments.

Please see the Market Outlook Second Quarter Market Outlook for additional insight.

This report is created by Cetera Investment Management LLC

2

About Cetera Investment Management

Cetera Investment Management LLC is an SEC registered investment adviser owned by Cetera Financial Group

®. It provides investment research, portfolio and model management, and investment advice to its affiliated broker-dealers, dually-registered broker-dealers and registered investment advisers.

About Cetera Financial Group

Cetera Financial Group ® is a leading network of independent retail broker-dealers empowering the delivery of objective financial advice to investors across the country through trusted financial advisors and financial institutions. The network is comprised of ten firms: four legacy Cetera-branded firms (Cetera Advisors, Cetera Advisor Networks, Cetera Investment Services, marketed as Cetera Financial Institutions, and Cetera Financial Specialists) along with First Allied Securities, Investors Capital, Legend Equities Corporation, Summit Brokerage, VSR Financial Services and Girard Securities.

Cetera Financial Group is the second-largest independent financial advisor network in the nation by number of advisors, as well as a leading provider of retail services to the investment programs of banks and credit unions. Cetera Financial Group delivers award-winning wealth management and advisory platforms, comprehensive broker-dealer and registered investment adviser services, and innovative technology to approximately 9,500 independent financial professionals and over 500 financial institutions nationwide. Through its distinct firms, Cetera Financial Group offers the benefits of a large, established broker-dealer and registered investment adviser, while serving independent and institutions-based financial advisors in a way that is customized to their needs and aspirations. Cetera Financial Group is committed to helping advisors grow their businesses and strengthen their relationships with clients. For more information, visit www.ceterafinancialgroup.com.

The material contained in this document was authored by and is the property of Cetera Investment Management LLC. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by affiliated and non-affiliated registered investment advisers. Your registered representative or investment adviser representative is not registered with Cetera Investment Management and did not take part in the creation of this material. He or she may not be able to offer Cetera Investment Management portfolio management services.

Nothing in this presentation should be construed as offering or disseminating specific investment, tax, or legal advice to any individual without the benefit of direct and specific consultation with an investment adviser representative authorized to offer Cetera Investment Management services. Information contained herein shall not constitute an offer or a solicitation of any services. Past performance is not a guarantee of future results.

For more information about Cetera Investment Management strategies and available advisory programs, please reference the Cetera Investment Management LLC Form ADV disclosure brochure and the disclosure brochure for the registered investment adviser your adviser is registered with. Please consult with your adviser for his or her specific firm registrations and programs available.

No independent analysis has been performed and the material should not be construed as investment advice. Investment decisions should not be based on this material since the information contained here is a singular update, and prudent investment decisions require the analysis of a much broader collection of facts and context. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The opinions expressed are as of the date published and may change without notice. Any forward-looking statements are based on assumptions, may not materialize, and are subject to revision.

3

All economic and performance information is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot directly invest in unmanaged indices. Please consult your financial advisor for more information.

Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards. A High Yield Fund yield is high due, in part, to the volatility and risk of the high securities market. High yield funds are also known as "junk bonds." While diversification may help reduce volatility and risk, it does not guarantee future performance.

The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.