EUR 231.76 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Market Observations:

• We remain bullish on the equities markets. The 10-year Treasury
yield remains in a defined trading range, which we think will persist.

• Much is happening within individual Sectors, however. Last week
we downgraded the Energy Sector to an underweight and reduced
to underweight the “defensive” Consumer Staples and Utilities
Sectors. This was prudent as Energy has become a source of
funds, after crude oil's trend has lost momentum and direction so
far in 2017, while the market rotates toward a higher-beta mentality,
driving most indices to new highs.

• The Consumer Discretionary Sector is starting to show signs of
life, but it's early. Restaurants have vaulted to a shared leadership
position alongside the homebuilders and related stocks. See
Insights report emailed last week entitled, “Hungry Restaurants.”
The retailers, long the drag on the Sector, are showing signs of
stabilization as well.

• The Communications and Health Care Sectors are the latest upand-
comers. Media and Internet-related companies/Groups are the
standouts in Communications. If the Telecomm Services area was
acting better, we'd feel compelled to upgrade the recommended
weighting. Health Care is showing much-improved breadth, as
leadership from devices is being complemented by continued improving
breadth in biotech.

• Technology continues to be the dominant market leadership; from
semis, to data storage, to software, the breadth is tremendous.

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