before the bell · 2020. 7. 27. · trends have improved since april. data on consumer confidence,...

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Before the Bell Morning Market Brief

July 27, 2020

MONDAY MORNING MARKET STRATEGY: David M. Joy, Chief Market Strategist Strength in U.S. equities faded as the week drew to a close, leading to the first weekly loss in the past four. The decline was modest, just 0.3 percent in the S&P 500, but it followed evidence that the labor market remained under pressure and both the manufacturing and service components of the flash PMI were weaker than expected. Along with a slowdown in certain high frequency data points, there is growing concern that economic momentum is slowing. The sun belt surge in new COVID infections, hospitalizations and deaths is a contributing factor. Not helping is the rising tension with China which resulted last week in respective consulate closures. Also not helping has been the seemingly lack of consensus in Washington over the structure of the latest economic support bill, with extended unemployment benefits about to expire at month’s end, along with the federal moratorium on evictions. However, the outline of a $1T Republican agreement with the White House is now reportedly ready for release this week, which contains $1,200 in direct payments and reduced extended unemployment benefits. Negotiations with the House, which passed its own more sizeable package in May, will follow.

Weekly jobless claims rose for the first time in sixteen weeks, as 1.416 million new claims were filed. That represents an arguably modest increase from the prior week’s 1.307 million new claims and is dramatically better than the weekly peak of 6.867 new claims on March 27th. But it is also a warning sign that the steady improvement of the past four months is in danger of stalling at a time when the unemployment rate is 11.1 percent and continuing jobless claims total 16.2 million. And on Friday, after service sector activity in the Eurozone in July reportedly surged, hopes for a similar report for the U.S. were met with disappointment as the service PMI failed to even reach breakeven. The tepid reports have kept interest rates under pressure. But that has led to one of the bright spots in this economy, namely housing. Thirty-year fixed rate mortgages recently fell to their lowest rate ever, below 3.0 percent, and that decline has contributed to a sharp increase in housing activity. In June, new homes sales surged by 13.8 percent, well above the 3.6 percent expected increase, led by a 90 percent increase in the northeast. And existing home sales climbed by 20.7 percent, just below the expected 21.4 percent increase.

In addition to the mixed economic data last week there was a stumble in the technology sector that has been a market leader all year. Microsoft reported earnings that beat expectations, but investors were disappointed in the pace of growth in its cloud business. The stock, which been up 34 percent for the year through last Wednesday, fell 5 percent to close out the week. And Intel plunged 16 percent on Friday after it surprised investors with comments about its longer-term manufacturing strategy. Overall, the sector fell 1.5 percent for the week, its second straight weekly decline. Energy, financials and consumer discretionary stocks led the gainers, while technology was joined on the downside by communication services and healthcare.

High yield credit spreads narrowed for the fourth straight week and have now recovered three-quarters of the widening that occurred between February 19th and March 23rd. The ten-year treasury note ended the week at a yield of 0.59

Before The Bell July 27, 2020 ____________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________ © 2020 Ameriprise Financial, Inc. All rights reserved. of 12

percent, its lowest weekly close ever according to Bloomberg, and is trading at 0.57 percent in early Monday trading. The DXY dollar index fell for the fifth straight week, and since May 15th has declined by 6 percent. The euro, now trading above 1.17, has climbed more than 8 percent versus the dollar since mid-May.

This week brings the first look at second quarter GDP, and it could be historic. The Bloomberg consensus anticipates an annualized decline of 35 percent. Weekly jobless claims are expected to edge higher once again. Durable goods orders, consumer confidence, and pending home sales are also on the calendar. The Federal reserve also meets this week. No policy changes are expected, but what the Fed says about its view of the economy and its plans for providing ongoing support will be watched carefully.

MORNING MARKET COMMENTARY: Anthony M. Saglimbene, Global Market Strategist Quick Take: U.S. futures are pointing to a higher open; European markets are trading mixed; Asia ended mixed

overnight; West Texas Intermediate (WTI) oil trading up to $41.66; 10-year U.S. Treasury yield at 0.58%.

Where Markets Stand Heading Into The Week: U.S. equities finished last week lower, as technology stocks and momentum areas of the market struggled to gain traction. Overall direction proved mixed with the coronavirus spreading in economically significant states, economic momentum starting to stall, the details of the fifth round of coronavirus relief still uncertain, and U.S./China tensions flaring.

As the FactSet chart below shows, stocks have already traversed a wild ride this year. Facebook, Amazon, Apple, Microsoft, and Alphabet now account for 22% of the S&P 500, up from 19% in January and 16% one year ago. As Goldman Sachs recently noted, these five stocks currently trade at a 70% price-to-earnings (P/E) premium compared to other S&P 500 constituents — the largest gap in 20 years. Some overcrowded positioning, high expectations for second quarter earnings reports, and regulatory headlines acted to weigh on Tech and Communication Services last week. We would note, however, Tech and Communication Services account for an outsized portion of earnings growth relative to other industries, and on average, trade at lower multiples compared to early 2000.



Importantly, there is growing concern that economic activity is starting to stall after an initial surge in momentum following the March-April lockdown and given the continued spread of COVID-19. Last Thursday, weekly initial jobless claims moved higher for the first time since their March spike. Homebase data also showed six states, including Florida and Texas, saw the number of employees going to work decline by at least 5% from mid-June. Along with moderation in high-frequency data points, such as OpenTable dining reservations, and mobility trends, the pace of stock gains has started to slow more recently.

As we start the week, we believe the following items will capture investors' attention: Earnings. Earnings. Earnings. While actual second quarter profit results may be less influential on overall

stock direction, what investors can glean from company reports and conference calls could influence how analysts dial in their growth expectations for the second half of the year and beyond. This week 38% of the S&P 500 will report Q2 results, making it one of the busiest weeks of the season. Apple, Amazon, and Facebook all report results this week.

Republicans will unveil their version of the next coronavirus stimulus bill this week. By itself, the timing ensures Congress will miss the deadline to continue enhanced unemployment benefits that expired over the weekend. As was the case when House Democrats passed their $3 trillion coronavirus spending bill in May, Republican's anticipated $1 trillion plan will be dead on arrival. While House and Senate leaders, as well as the White House, are involved in discussions to form a bill that can become law, the timing of a competed deal is uncertain. On Sunday, both U.S. Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows said Republican's plan would include enhanced unemployment benefits, but replace the $600 federal supplement at 70% of prior wages. Democrats have said such a plan is unworkable, as their bill extended the $600 benefit through year-end. Stimulus checks, as well as liability protections for businesses, are also expected to be included in the Republican's plan. In the meantime, workers and families displaced by the virus may see benefits disrupted for a period of time.

Investors will get their first look at how lousy the economy was in the second quarter. On Thursday, first-look second quarter GDP will be released. Bloomberg consensus estimates look for a quarter-over-quarter, annualized decline of 35%. The very backward-looking data is expected to show substantial declines in activity across all GDP components due to mandatory closures across the country. However, economists expect a massive rebound in Q3 growth, as employment, mobility, business, and consumer trends have improved since April. Data on consumer confidence, personal income, durable goods, and initial jobless claims also line the economic calendar this week.

The FOMC meets on Tuesday and Wednesday. While the market expects little change in terms of policy and guidance, Federal Reserve Chair Jerome Powell could continue to take a cautious stance given worsening trends in COVID-19. Though the Beige Book indicated economic activity improved in every District, it remains well below pre-COVID-19 levels. The bounce higher in jobless claims, uncertainties over the next fiscal package, and rising geopolitical risks could keep Mr. Powell and company leaning toward communicating a very accommodative stance following this week's meeting.

It's worth noting the S&P 500 is roughly 5% away from its all-time high and positive for the year on a total return basis. Stocks have already traversed a historic ride this year, and worsening trends in the coronavirus, as well as slowing momentum across the economy, create added risks for asset prices. With potential election volatility right around the corner, we believe this is the time to ensure your portfolio can weather more unexpected bumps in the road.

Asia-Pacific: Asian equities finished mixed on Monday. Trading overnight was quiet, with rising U.S./China tensions continuing to receive much of the attention. On Friday, China's Foreign Ministry ordered the U.S. to shut down its consulate in Chengdu in retaliation for the U.S. ordering Beijing to close its consulate in Houston. Over the weekend, The New York Times discussed how China hawks in the Trump administration are attempting to engineer an irreversible deterioration in the U.S./China relationship to put America on a more competitive footing against the world's second-largest economy. The Hill discussed how American businesses are concerned about the deteriorating relationship. Still, for now, they have no immediate plans to exit China, given the profit incentive, and hopes that the two sides can repair their relationship.

Europe: Markets across the region are trading mixed at midday. The economic calendar in Europe is full this week, with first-look Q2 GDP readings, final July survey indicators on the docket, preliminary inflation reports, and labor market data. Q2 GDP reports are expected to be very weak in Spain and Italy, where the coronavirus outbreak was most severe. Eurozone Q2 GDP is expected to show Europe entered a severe recession, though investors already know that. However, preliminary PMI readings in Europe last week showed a slight expansion with business confidence improving — indicating some of the backward-looking data for the second quarter may already be stale.



U.S.: Equity futures are pointing to a positive open. Here's a quick news rundown to start your morning: Coronavirus cases slow over the weekend. Hotspot states, such as Florida, Arizona, California, Texas, and

New York, experienced lower virus case counts and deaths over the weekend. Former FDA Commissioner Scott Gottlieb told CBS on Sunday there are "unmistakable signs" the pandemic is slowing in Texas and Arizona due to mask mandates and bar closures. However, Mr. Gottlieb said trends were mixed in Florida and California, while cases are heating up in Illinois, Indiana, and Ohio.

Gold up, dollar down. The spot price for the precious metal topped $1,944 an ounce in trading this morning and currently sits at its highest level in over thirty years. Meanwhile, the U.S. dollar is tracing its weakest levels since October 2018. Significant fiscal stimulus, geopolitical tensions, and rising concerns regarding U.S. government debt levels have attracted investors to the precious metal. Gold ETFs have seen record inflows this year, also adding to metal's push higher.

WORLD CAPITAL MARKETS 7/27/2020 As of: 8:30 AM ET

Americas % chg. % YTD Value Europe (Intra-day) % chg. %YTD Value Asia/Pacific (Last Night) % chg. %YTD ValueS&P 500 -0.62% 0.61% 3,215.6 DJSTOXX 50 (Europe) 0.02% -9.56% 3,311.6 Nikkei 225 (Japan) -0.16% -2.91% 22,715.9 Dow Jones -0.68% -6.00% 26,469.9 FTSE 100 (U.K.) -0.20% -17.40% 6,111.8 Hang Seng (Hong Kong) -0.41% -10.51% 24,603.3 NASDAQ Composite -0.94% 16.17% 10,363.2 DAX Index (Germany) 0.31% -2.80% 12,878.4 Korea Kospi 100 0.79% 1.20% 2,217.9 Russell 2000 -1.52% -11.36% 1,467.6 CAC 40 (France) -0.15% -15.59% 4,948.9 Singapore STI -0.14% -18.06% 2,575.8 Brazil Bovespa 0.09% -11.47% 102,382 FTSE MIB (Italy) -0.26% -14.82% 20,023.5 Shanghai Comp. (China) 0.26% 5.09% 3,205.2 S&P/TSX Comp. (Canada) -0.13% -4.41% 15,997.1 IBEX 35 (Spain) -1.47% -22.94% 7,187.2 Bombay Sensex (India) -0.51% -7.25% 37,934.7 Mexico IPC -0.20% -13.45% 37,357.5 MOEX Index (Russia) 0.99% -1.43% 2,891.5 S&P/ASX 200 (Australia) 0.33% -7.80% 6,044.2

Global % chg. % YTD Value Developed International % chg. %YTD Value Emerging International % chg. %YTD ValueMSCI All-Country World Idx -0.83% -1.71% 547.9 MSCI EAFE -0.83% -6.95% 1,859.8 MSCI Emerging Mkts -1.59% -3.27% 1,060.5

Note: International market returns shown on a local currency basis. The equity index data shown above is on a total return basis, inclusive of div idends.

S&P 500 Sectors % chg. % YTD Value Commodities Communication Services -0.06% 4.66% 188.4 Equity Income Indices % chg. % YTD Value Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Discretionary 0.33% 14.50% 1,122.6 JPM Alerian MLP Index -0.86% -40.66% 129.5 CRB Raw Industrials -0.16% -4.81% 430.08 Consumer Staples -0.14% 0.02% 636.5 FTSE NAREIT Comp. TR -0.70% -13.65% 18,438.7 NYMEX WTI Crude (p/bbl.) 0.99% -31.71% 41.70 Energy -0.59% -36.03% 284.1 DJ US Select Dividend -0.62% -18.69% 1,862.1 ICE Brent Crude (p/bbl.) 0.92% -33.73% 43.74 Financials -0.37% -20.08% 402.9 DJ Global Select Dividend -0.08% -21.99% 179.0 NYMEX Nat Gas (mmBtu) -1.94% -19.00% 1.77 Health Care -1.11% 4.13% 1,224.5 S&P Div. Aristocrats -0.35% -4.77% 2,921.4 Spot Gold (troy oz.) 1.84% 27.67% 1,937.08 Industrials -0.80% -10.79% 606.9 Spot Silver (troy oz.) 6.54% 35.87% 24.26

Materials -0.32% 1.47% 386.8 LME Copper (per ton) -2.13% 4.57% 6,430.25 Real Estate -0.40% -8.64% 216.0 Bond Indices % chg. % YTD Value LME Aluminum (per ton) -0.06% -6.62% 1,663.25 Technology -1.19% 15.64% 1,850.2 Barclays US Agg. Bond -0.04% 7.40% 2,389.6 CBOT Corn (cents p/bushel) 0.15% -16.65% 335.50 Utilities -0.63% -5.10% 306.4 Barclays HY Bond 0.06% -0.13% 2,180.0 CBOT Wheat (cents p/bushel) -1.30% -6.37% 532.50

Foreign Exchange (Intra-day) % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) 0.77% 4.75% 1.17 Japanese Yen ($/¥) 0.71% 3.06% 105.39 Canadian Dollar ($/C$) 0.20% -2.97% 1.34British Pound (£/$) 0.42% -3.09% 1.28 Australian Dollar (A$/$) 0.34% 1.54% 0.71 Swiss Franc ($/CHF) -0.17% 4.81% 0.92Data/Price Source: Bloomberg. Equity Index data is total return, inclusive of dividends, where applicable.

Ameriprise Global Asset Allocation Committee U.S. Equity Sector - Tactical View

S&P 500 GAAC GAAC S&P 500 GAAC GAAC

Index GAAC Tactical Recommended Index GAAC Tactical RecommendedSector Weight Tactical View Overlay Weight Sector Weight Tactical View Overlay Weight

1) Communication Services 10.9% Underweight - 2.0% 8.9% 6) Health Care 14.6% Overweight +2.0% 16.6%

2) Consumer Discretionary 10.8% Overweight +2.0% 12.8% 7) Industrials 8.0% Overweight +2.0% 10.0%

3) Consumer Staples 7.0% Underweight - 2.0% 5.0% 8) Information Technology 27.1% Overweight +2.0% 29.1%

4) Energy 2.9% Equalweight - 2.9% 9) Materials 2.5% Equalweight - 2.5%

5) Financials 10.3% Underweight - 2.0% 8.3% 10) Real Estate 2.8% Equalweight - 2.8%

11) Utilities 3.1% Underweight - 2.0% 1.1%As of: July 1 , 2020



THE WEEK AHEAD: Russell T. Price, CFA, Chief Economist Q2 earnings season ramps up considerably this week… but reports are off to a good start. The second quarter

earnings release season kicks into high gear this week with 192 S&P 500 companies scheduled to release their results, including 12 that are also components of the Dow Jones Industrial Average. Thus far, the season (with about 26% of the S&P 500 having reported) is progressing well given the circumstances, which is most notably highlighted by rising forward estimates.

As we’ve mentioned many times in the past, forward looking earnings estimates typically decline during any given earnings release season as management teams discuss the reality of their environment against the near perfect landscape analysts often have “baked-in.” Although it is still very early in the current reporting period, estimates for every quarter through the end of 2021 increased over the last week, according to FactSet compiled consensus estimates. We stress that the outlook continues to offer a much higher degree of uncertainty than is the historical norm due to the coronavirus and its related challenges, but this unusual pattern of upward adjustments is still a “win”, in our view.

Through last Friday, 81% of 130 S&P 500 companies to have released results, reported better than expected earnings per share (EPS) for Q2 while 71% reported better than expected sales.

Full year 2020 earnings per share for the S&P 500 are now forecast at $125.76. Though this is down nearly $50 (-$49.94) versus where consensus estimates stood in early February, it has narrowed three out of the last four weeks. Two weeks ago, analyst estimates for the full-year had been cut by $51. 02 from their pre-pandemic levels as seen on February 10th. Data depicted in the chart at right is sourced form FactSet.

The economic calendar also ramps up considerably this week. The week kicks off with the Commerce Department’s report in New Orders for Durable Goods for the month of June. Total new orders are expected to have been about 7% higher month-over-month as manufacturing activity got back up and running across much of the country in the month. Order cancelations at Boeing, however, are once again expected to be a notable drag on the results, as the dollar value of new orders is reduced by cancelations. The negative pressure from Boeing, however, is expected to be more than outweighed by a resumption of activity in the auto industry. Consumer demand for autos has remained fairly solid and dealer inventories have become quite thin as production had been curtailed.

On Tuesday, the Conference Board’s Consumer Confidence reading for July is expected to have declined by about 4 points (to a level of 94.4) after gaining more than 11 points in June. Many measures of consumer attitudes had previously posted strong gains in May and June as economic activity re-opened. However, in recent weeks the improvement trends have reversed as the coronavirus has experienced a sharp resurgence in many parts of the country, and more recently, in many parts of the world as well.

The Commerce Department’s first estimate of Q2 real GDP could be considered the highlight of the economic

Ameriprise Global Asset Allocation Committee Global Equity Region - Tactical View

MSCI All-Country GAAC GAAC MSCI All-Country GAAC GAAC

World Index GAAC Tactical Recommended World Index GAAC Tactical RecommendedRegion Weight Tactical View Overlay Weight Region Weight Tactical View Overlay Weight

1) United States 56.0% Overweight +5.1% 61.1% 5) Latin America 1.0% Equalweight - 1.0%

2) Canada 2.7% Equalweight - 2.7% 6) Asia-Pacific ex Japan 14.7% Overweight +2.0% 16.7%

3) United Kingdom 3.9% Underweight - 2.0% 1.9% 7) Japan 7.0% Underweight - 2.0% 5.0%

4) Europe ex U.K. 13.6% Underweight - 2.0% 11.6% 8) Middle East / Africa 1.1% Underweight - 1.1% -

As of July 1, 2020



week. Forecaster’s as surveyed by Bloomberg currently predict a 35% annualized decline in real GDP for the period while our forecast looks for a 40% annualized decline (representing a quarter-over-quarter decline of about 12%). Changes in business inventories, which are very hard to predict, could carry significant sway with the Q2 report given what is expected to be a very significant decline. In its last estimate, as published on July 17th, the Atlanta Federal Reserve Bank’s GDPNow Forecast looked for a contraction in business inventories amounting to $332 billion that would shave 5.2 percentage points from the aggregate number for the period. We are currently forecasting a $270 billion cut in inventories that would shave about 4.2 percentage points from growth.

Where Market Fundamentals Stand Heading into The Week:

S&P 500 Trailing and Forward P/E valuations: Source: FactSet Please note: Although we try to maintain consistency as much as possible, Price to Earnings (P/E) ratios may differ modestly from once source to another. Most notably, P/E numbers can often show their most notable differences during an earnings release season as some sources may still use the last full ‘actual’ earnings number (for instance, currently Q4 trailing 12-month earnings per share) while others use earnings per share that are updated for Q1 using a combination of actual and estimated earnings per share. The calculation of earnings (operating earnings versus ‘as reported’ or GAAP) also often differs modestly from one data source to another due to the proprietary use of calculation methodologies. The “average” shown in the charts below represent averages for the period shown.

July 27 28 29 30 31New Orders Durable Goods Consumer Confidence Advance Trade - Goods Initial Jobless Claims Personal Income

Dallas Fed Mfg. Index S&P / CaseShiller Home $$$ Pending Home Sales Q2 Real GDP (1st estimate) Personal Spending

Employment - Mexico Unemployment - Spain FOMC Rate Decision Q2 Personal Consumption Chicago Purch. Mgrs Index

Trade - Mexico Consumer Sentiment - S. Korea Employment - Brazil Economic Sentiment - Euro Zone U of M Consumer Sentiment

Jobseekers - France Industrial Production - Japan Manufacturing PMI - China Manufacturing Activity - Canada

Retail Sales - Spain Unemployment - Eurozone

Employment - Canada

Retail Sales - S. Korea



Please note: The consensus earnings estimates shown below should not be fully relied upon. In this very dynamic and rapidly changing environment, forecasts have more uncertainty than usual.

Consensus Earnings Estimates: Source: FactSet

BY THE NUMBERS: ECONOMIC ACTUALS AND FORECAST:

ECONOMIC NEWS OUT TODAY: Economic Releases for Monday, July 27, 2020. All times Eastern. Consensus estimates via Bloomberg. Time Period Release Consensus Est. Actual Prior Revised to 8:30 AM JUN New Orders for Durable Goods (MoM) +7.0% +7.3% +15.7% +15.1% 8:30 AM JUN Durables ex-transports (MoM) +3.6% +3.3% +3.7% +3.6% Economic Perspective: Russell T. Price, CFA – Chief Economist June new orders for durable goods were very close to expectations, as reported this morning by the Commerce

Department. On a year-over-year basis, new orders were still down about 13%, as would be expected given the background circumstances.

Civilian aircraft orders, a category dominated by Boeing, were again negative in the month in reflection of order cancelations due to the severe strain the pandemic has placed on airlines around the world. In total, new orders for nondefense aircraft and their parts were adjusted lower by $10.4 billion in aggregate.

Meanwhile, new orders for non-defense capital goods excluding aircraft, the commonly viewed proxy for business spending, grew by 3.3% month-over-month. On the surface, this appears as a weak rebound, but business spending related orders had not declined all that much through the pandemic period. In fact, in June new orders in the category were only down 0.7% from their year-ago levels. We believe business investment spending could grow more negative in the months ahead but not by significant levels. Overall, business investment will remain important to maintaining momentum in the broader economic recovery.

S&P 500 Earnings Estimates 2015 2016 2017 2021

7/27/2020 Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Est. Est. Est. Est.Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Quarterly $$ amount $38.72 $41.13 $42.88 $41.32 $38.80 $41.59 $42.21 $41.78 $33.32 $23.85 $32.00 $36.59

change over last week $0.65 $0.16 $0.04

yr/yr 25.4% 25.4% 27.8% 13.7% 0.2% 1.1% -1.6% 1.1% -14.1% -42.7% -24.2% -12.4%

qtr/qtr -1% 6% 4% -4% -6% 7% 1% -1% -20% -28% 34% 14%

Trailing 4 quarters $$ $118.67 $119.64 $133.50 $141.41 $149.74 $159.07 $164.05 $164.13 $164.59 $163.92 $164.38 $158.90 $141.16 $130.95 $125.76 $164.41

yr/yr -0.3% 0.8% 11.6% 22.9% 0.2% -23.5% 30.7%

Implied P/E based on a S&P 500 level of: 3216 19.6 20.2 22.8 24.6 25.6 19.6

2019 20202018

Current Projections:Actual Actual Actual Actual Est. Est. Actual Actual Est. Est. Est.2016 2017 2018 2019 2020 2021 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020

Real GDP (YOY) 1.6% 2.4% 2.9% 2.3% -5.8% 3.7% 2.1% -5.0% -40.0% 30.0% 6.0%

Unemployment Rate 4.7% 4.1% 3.9% 3.5% 9.0% 6.0% 3.5% 4.4% 11.1% 10.0% 9.0%

CPI (YoY) 1.3% 2.1% 2.4% 1.8% 0.9% 2.0% 2.0% 2.1% 0.6% 0.6% 0.6%

Core PCE (YoY) 1.7% 1.6% 1.9% 1.6% 1.4% 1.7% 1.6% 1.8% 1.2% 1.1% 1.1%

Sources: Historical data via FactSet. Estimates (Est.) via American Enterprise Investment Services, Inc.

YoY = Year-over-year, Unemployment numbers are period ending. GDP: Gross Domestic Product; CPI: Consumer Price Index

PCE: Personal Consumption Expenditures Price Index. Core excludes food and energy.

Please note: Due to the very dynamic nature of current economic conditions, economic forecasts may change measurably and quickly.

Full Year Quarterly

July 6, 2020Last Updated:



FIXED INCOME NEWS & VIEWS: Brian M. Erickson, CFA, Fixed Income Research & Strategy

Checking in on Fixed Income Markets Treasury yields settled lower over the past month with 10-year Treasury yields Treasuries falling to 0.57% Friday, the

bottom of the post-March 10 trading range. We believe Treasury yields reflect the rebound in virus cases and the expectation that the Federal Reserve support underpins the road ahead for rates markets. Further, progress toward a European Union stimulus package reflects the global nature of central bank stimulus today, supporting low government bond yields globally.

Since the start of July, corporate credit markets regained their footing, and renewed their march toward tighter levels. We continue to view high yield credit spreads as tight relative to the defaults and potential geopolitical and virus risks that remain. With the difference in credit spreads compressed, we recommend moving up in quality. Investors allocating to High Yield Bonds should take an active approach in our view, given prospects for further defaults to erode passive returns in the space.

Fed Policy Meeting Wednesday The next Federal Open Market Committee meeting is scheduled for Wednesday. We anticipate the Fed holds rate

policy unchanged and affirms support for bond buying and Fed loan programs for corporate and consumer lending. Though the persistence of elevated Covid cases in the U.S. increased bond market expectation for further Fed support, we believe the Fed likely points to the dry powder across programs already announced and leaves yet another incremental increase in policy, such as rate targeting, until the September meeting.

Since the last meeting, concerns over the pace of Coronavirus cases and the tensions between the U.S. and China increase the cross current to robust fiscal and monetary policy responses in the U.S. and around the globe. We continue to see Fed and Congressional support as running a three-legged race to support the economy. Should one side falter the over may need to overcompensate to keep sentiment on track. Looking ahead to year-end and into 2021, we anticipate strong cross currents to persist, requiring protracted engagement to support the recovery and valuations.

The Fed still provides bold support for the economy and leaving Fed Chairman Powell the opportunity to echo the Fed’s ongoing support and willingness to do more should it become necessary.

This space intentionally left blank. .



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MANAGER RESEARCH

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Cynthia Tupy, CFA – Director – Value and Equity Income Equity

Alex Zachman, CFA – Analyst – Core Equity Fixed Income Steven T. Pope, CFA, CFP® – Sr Director – Non-Core Fixed Income

Douglas D. Noah, CFA – Sr Analyst – Core Taxable & Tax-Exempt Fixed Income

FIXED INCOME RESEARCH & STRATEGY

Fixed Income Research Brian M. Erickson, CFA – Vice President High Yield and Investment Grade Credit Jon Kyle Cartwright – Sr. Director

Stephen Tufo – Director

RETIREMENT RESEARCH

Jay C. Untiedt, CFA, CAIA, RICP – Vice President

Nidhi Khandelwal – Director

Matt Morgan – Sr. Manager



The content in this report is authored by American Enterprise Investment Services Inc. (“AEIS”) and distributed by Ameriprise Financial Services, LLC (“AFS”) to financial advisors and clients of AFS. AEIS and AFS are affiliates and subsidiaries of Ameriprise Financial, Inc. Both AEIS and AFS are member firms registered with FINRA and are subject to the objectivity safeguards and disclosure requirements relating to research analysts and the publication and distribution of research reports. The “Important Disclosures” below relate to the AEIS research analyst(s) that prepared this publication. The “Disclosures of Possible Conflicts of Interest” section, where applicable, relates to the conflicts of interest of each of AEIS and AFS, their affiliates and their research analysts, as applicable, with respect to the subject companies mentioned in the report. Each of AEIS and AFS have implemented policies and procedures reasonably designed to ensure that its employees involved in the preparation, content and distribution of research reports, including dually registered employees, do not influence the objectivity or timing of the publication of research report content. All research policies, coverage decisions, compensation, hiring and other personnel decisions with respect to research analysts are made by AEIS, which is operationally independent of AFS. IMPORTANT DISCLOSURES As of June 30, 2020 The views expressed regarding the company(ies) and sector(s) featured in this publication reflect the personal views of the research analyst(s) authoring the publication. Further, no part of research analyst compensation is directly or indirectly related to the specific recommendations or views contained in this publication. A part of a research analyst’s compensation may be based upon overall firm revenue and profitability, of which investment banking, sales and trading, and principal trading are components. No part of a research analyst’s compensation is based on a specific investment banking transaction, nor is it based on sales, trading, or principal trading. A research analyst may have visited the material operations of one or more of the subject companies mentioned in this research report. No payment was received for the related travel costs. Additional information and current research disclosures on individual companies mentioned in this research report are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor. You may also submit a written request to Ameriprise Financial, Inc., 1441 West Long Lake Road, Troy MI, 48098. Independent third-party research on individual companies is available to clients at ameriprise.com/research-market-insights. SEC filings may be viewed at sec.gov. Tactical asset class recommendations mentioned in this report reflect The Ameriprise Global Asset Allocation Committee’s general view of the financial markets, as of the date of the report, based on then current conditions. Our tactical recommendations may differ materially from what is presented in a customized long-term financial plan or portfolio strategy. You should view our recommendations in conjunction with a broader long-term portfolio strategy. Not all products, services, or asset classes mentioned in this report may be available for sale at Ameriprise Financial Services, Inc. Please consult with your financial advisor. Diversification and Asset Allocation do not assure a profit or protect against loss. RISK FACTORS Dividend and interest payments are not guaranteed. The amount of dividend payment, if any, can vary over time and issuers may reduce or eliminate dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer. Should a company be unable to pay interest

on a timely basis a default may occur and interruption or reduction of interest and principal occur. Investments in a narrowly focused sector may exhibit higher volatility than investments with broader objectives and is subject to market risk and economic risk. Income Risk: We note that dividends are declared solely at the discretion of the companies’ boards of directors. Dividend cuts or eliminations will likely negatively impact underlying company valuations. Published dividend yields are calculated before fees and taxes. Dividends paid by foreign companies to ADR holders may be subject to a withholding tax which could adversely affect the realized dividend yield. In certain circumstances, investors in ADR shares have the option to receive dividends in the form of cash payments, rights shares or ADR shares. Each form of dividend payment will have different tax consequences and therefore generate a different yield. In some instances, ADR holders are eligible to reclaim a portion of the withholding tax. International investing involves increased risk and volatility due to political and economic instability, currency fluctuations, and differences in financial reporting and accounting standards and oversight. Risks are particularly significant in emerging markets. Market Risk: Equity markets in general could sustain significant volatility due to several factors. As we have seen recently, both economic and geopolitical issues could have a material impact on this model portfolio and the equity market as a whole. Quantitative Strategy Risk: Stock selection and portfolio maintenance strategies based on quantitative analytics carry a unique set of risks. Quantitative strategies rely on comprehensive, accurate and thorough historical data. The Ameriprise Investment Research Group utilizes current and historical data provided by third-party data vendors. Material errors in database construction and maintenance could have an adverse effect on quantitative research and the resulting stock selection strategies. PRODUCT RISK DISCLOSURES Exchange Traded Funds (ETF) trade like stocks, are subject to investment risk and will fluctuate in market value. For additional information on individual ETFs, see available third-party research which provides additional investment highlights. SEC filings may be viewed at sec.gov



All fixed income securities are subject to a series of risks which may include, but are not limited to: interest rate risk, call risk, refunding risk, default risk, inflations risk, liquidity risk and event risk. Please review these risks with your financial advisor to better understand how these risks may affect your investment choices. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. This means you may lose money if you sell a bond prior to maturity as a result of interest rate or other market movement. Any information relating to the income or capital gains tax treatment of financial instruments or strategies discussed herein is not intended to provide specific tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional. A real estate investment trust or REIT is a company that owns and operates income-producing real estate. In addition, some REITs participate in the financing of real estate. To qualify as a REIT, a company must: I) invest at least 75% of its total assets in real estate assets, II) generate at least 75% of its gross income from real property or interest, and III) pay at least 90% of its taxable income to shareholders in the form of distributions. A company that qualifies as a REIT is permitted to deduct the distributions paid to shareholders from its corporate taxes. Consequently, many REITs target to payout at least 100% of taxable income, resulting in virtually no corporate taxes. An investment in a REIT is subject to many of the same risks as a direct investment in real estate including, but not limited to: Illiquidity and valuation complexities, redemption restrictions, distribution and diversification limits, tax consequences, fees, defaults by borrowers or tenants, market saturation, balloon payments, refinancing, bankruptcy, decreases in market rates for rents and other economic, political, or regulatory occurrences affecting the real estate industry. Ratings are provided by Moody’s Investors Services and Standard & Poor’s. Non-Investment grade securities, commonly known as "high-yield" or "junk" bonds, are historically subject to greater risk of default, including the loss of principal and interest, than higher-rated bonds, which may result in greater price volatility than experienced with a higher-rated issue. Securities offered through AFSI may not be suitable for all investors. Consult with your financial advisor for more information regarding the suitability of a particular investment. For further information on fixed income securities please refer to FINRA’s Smart Bond Investing at FINRA.org, MSRB’s Electronic Municipal Market Access at emma.msrb.org, or Investing in Bonds at investinginbonds.com. Alternative investments cover a broad range of strategies and structures designed to be low or non-correlated to traditional equity and fixed-income markets with a long-term expectation of illiquidity. Alternative investments involve substantial risks

and are more volatile than traditional investments, making them more suitable for investors with an above-average tolerance for risk. Growth securities, at times, may not perform as well as value securities or the stock market in general and may be out of favor with investors. Value securities may be unprofitable if the market fails to recognize their intrinsic worth or the portfolio manager misgauged that worth. DEFINITIONS OF TERMS Agency – Agency bonds are issued by Government Sponsored Enterprises (GSE), but are NOT direct obligations of the U.S. government. Common GSE’s are the Federal Home Loan Mortgage Corp. (Freddie Mac) Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Bank (FHLB). Beta: A measure of the risk arising from exposure to general market movements as opposed to company-specific factors. Betas in this report, unless otherwise noted, use the S&P 500 as the market benchmark and result from calculations over historic periods. A beta below 1.0, for example, can suggest the equity has tended to move with lower volatility than the broader market or, due to company-specific factors, has had higher volatility but generally low correlations with the overall market. Corporate Bonds – Are debt instruments issued by a private corporation. Non-Investment grade securities, commonly known as “high-yield” or “junk” bonds, are historically subject to greater risk of default, including the loss of principal and interest, than higher-rated bonds, which may result in greater price volatility than experienced with a higher-rated issue. Mortgage Backed Securities – Bonds are subject to prepayment risk. Yield and average lives shown consider prepayment assumptions that may not be met. Changes in payments may significantly affect yield and average life. Please contact your financial advisor for information on CMOs and how they react to different market conditions. Municipal Bonds – Interest income may be subject to state and/or local income taxes and/or the alternative minimum tax (AMT). Municipal securities subject to AMT assume a “nontaxable” status for yield calculations. Certain municipal bond income may be subject to federal income tax and are identified as “taxable”. Gains on sales/redemptions of municipal bonds may be taxed as capital gains. If the bonds are insured, the insurance pertains to the timely payment of principal (at maturity) and interest by the insurer of the underlying securities and not to the price of the bond, which will fluctuate prior to maturity. The guarantees are backed by the claims-paying ability of the listed insurance company. Treasury Securities – There is no guarantee as to the market value of these securities if they are sold prior to maturity or redemption. Price/Book: A financial ratio used to compare a company’s market share price, as of a certain date, to its book value per



share. Book value relates to the accounting value of assets and liabilities in a company’s balance sheet. It is generally not a direct reflection of future earnings prospects or hard to value intangibles, such as brand, that could help generate those earnings. Price/Earnings: An equity valuation multiple calculated by dividing the market share price, as of a certain date, by earnings per share. Trailing P/E uses the share price divided by the past four-quarters’ earnings per share. Forward P/E uses the share price as of a certain date divided by the consensus estimate of the future four-quarters’ EPS. Price/Sales: An equity valuation multiple calculated by dividing the market share price, as of a certain date, by the company’s sales per share over the most recent year. INDEX DEFINITIONS An index is a statistical composite that is not managed. It is not possible to invest directly in an index. Definitions of individual indices mentioned in this report are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor. DISCLAIMER SECTION Except for the historical information contained herein, certain matters in this report are forward-looking statements or projections that are dependent upon certain risks and uncertainties, including but not limited to, such factors and considerations as general market volatility, global economic and geopolitical impacts, fiscal and monetary policy, liquidity, the level of interest rates, historical sector performance relationships as they relate to the business and economic cycle, consumer preferences, foreign currency exchange rates, litigation risk, competitive positioning, the ability to successfully integrate acquisitions, the ability to develop and commercialize new products and services, legislative risks, the pricing environment for products and services, and compliance with various local, state, and federal health care laws. See latest third-party research reports and updates for risks pertaining to a particular security. This summary is based upon financial information and statistical data obtained from sources deemed reliable, but in no way is warranted by Ameriprise Financial, Inc. as to accuracy or completeness. This is not a solicitation by Ameriprise Financial Services, LLC of any order to buy or sell securities. This summary is based exclusively on an analysis of general current market conditions, rather than the appropriateness of a specific proposed securities transaction. We will not advise you as to any change in figures or our views. Past performance is not a guarantee of future results. Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Ameriprise Financial Services, LLC and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Ameriprise Financial Services, LLC. Member FINRA and SIPC.

before the bell · 2020. 7. 27. · trends have improved since april. data on consumer confidence,...

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