Consumer Cyclical: The Themes Driving Retail's Rebound

• Consumer cyclical sector valuations remain slightly elevated with a weighted average price/fair value ratio of 1.05, edging higher from last quarter's 1.04. We attribute this to healthy consumer sentiment, low unemployment rates, and stable asset market valuations.
• We've long held the belief that those physical retailers that offer a combination of specialization, convenience, and experience were best positioned to compete in an Amazon world. While concerns about potential disruption from Amazon linger, we've seen a rebound among several traditional retailers that have embraced these qualities in 2018.
• We continue to have a favorable view of the specialized auto part retail industry's trajectory. Although growth in miles driven has slowed and fuel prices are rising, we believe that low unemployment and fleet characteristics should propel industry results.
• Retailers that have shown a willingness to invest in convenience and in-store experience--Williams-Sonoma and Nordstrom come to mind--continue to outperform peers across multiple channels.

The market continues to favor consumer cyclical names, with the group continuing to trade at a weighted average price/fair value of 1.05 (roughly in line with the 1.04 ration the group traded at last quarter). We continue to attribute the bullish market sentiment on a number of factors, including healthy consumer sentiment in the U.S. and many other developed nations, low unemployment rates and wage rate increases that are helping to drive middle class consumption globally, and equity and housing market conditions that have been conducive to wealth effect spending.