before the bell · stocks began last week trading lower ... president trump may feel a rising...

Notations:

• For further information on any of the topics mentioned, please contact your Financial Advisor. • Unless specifically stated otherwise, comments contained in this document should not be construed as an investment opinion or

recommendation of any securities mentioned. Charts depicted are from FactSet unless otherwise noted. ____________________________________________________________________________________________________________________________ © 2019 Ameriprise Financial, Inc. All rights reserved. of 12

Before the Bell Morning Market Brief

September 9, 2019

FOR IMPORTANT DISCLOSURES, PLEASE SEE THE DISCLOSURE PAGES AT THE END OF THIS DOCUMENT

MONDAY MORNING MARKET STRATEGY: David M. Joy, Chief Market Strategist Risk assets continue to be held hostage to the latest developments on the U.S.-China trade front. Stocks began last week trading lower, but soon turned around following Wednesday’s announcement that the two sides would meet in Washington in October. The subsequent rally took the index to its highest level since the start of August, and to within 1.5 percent of its record high. The yield on treasury securities traced a similar pattern. After closing the previous week at 1.50 percent, the ten-year note traded as low as 1.43, before rising with the trade news to end the week at 1.56 percent. The two-year note also rose to 1.56 percent from its prior week’s close of 1.51. It goes without saying that in any negotiation, talking is better than not. But the realistic chances of a meaningful breakthrough in the trade negotiations anytime soon would seem to be remote. It is even possible that the U.S. political calendar may play an increasingly important role. President Trump may feel a rising temptation to forge a deal that he can point to on the campaign trail. President Xi, on the other hand, may see a narrowing time frame he must endure until after the U.S. election, if he chooses to wait. But for now, both sides have their lines in the sand and neither side seems interested in offering concessions. And yet investors seem more than willing to latch onto any sliver of hope that a deal can be struck. Meanwhile, the latest batch of economic news offered further evidence that activity continues to slow. In the U.S., manufacturing activity slipped into contraction in August for the first time in over three years. And the August jobs report was less robust than forecast. In Germany, flash manufacturing and industrial production reports continued to weaken, and export volumes in China slowed more than anticipated. In all three countries, however, the service side of the economy continues to show some resilience. This sets the stage for the next round of central bank activity. This week it is the ECB’s turn. Investors expect a substantial new round of easing, with action on both rates and quantitative easing. And the chances for such a package may be enhanced by the fact that Mario Draghi is stepping down and turning the reins over to Christine Lagarde. Next week it is the Fed’s turn, and another quarter point rate cut is expected. Last week, China lowered its banking reserve requirement. Central bankers insist that their policy tools remain effective, even in countries with negative interest rates and slumping business confidence. But many observers are skeptical, insisting that interest rates are already low enough, and pushing them lower still is not the right medicine. The effectiveness of monetary policy, given current conditions, will soon be tested. August retail sales headlines this week’s economic calendar in the U.S. The consumer sector has been doing the heavy lifting to keep the economy chugging along, and any cracks in that activity would be somewhat foreboding. The preliminary September report on consumer sentiment will also provide some insight into the consumer mindset, especially after the August survey suffered a surprisingly steep decline. Producer and consumer price reports are also scheduled.

Before The Bell September 9, 2019 ____________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________ © 2019 Ameriprise Financial, Inc. All rights reserved. of 12

MORNING MARKET COMMENTARY: Anthony M. Saglimbene, Global Market Strategist

• Quick Take: U.S. futures are pointing to a positive open; European markets are trading mixed; Asia ended mostly in the green overnight; West Texas Intermediate (WTI) oil trading at $57.00; 10-year U.S. Treasury yield at 1.60%.

• Considering All The Uncertainty, Stocks Keep Climbing A Wall Of Worry: Last week, the S&P 500 Index rose +1.8%, closing its second week of consecutive gains, a first since July. A weak ISM manufacturing report early in the week, which showed activity contracted for the first time since January 2016, was contrasted by a still expansionary ISM services report and a solid nonfarm labor report on Friday. Although overall economic activity has slowed this year, data suggests much of the slowdown remains on the manufacturing side of the economy and hasn’t spilled over into the larger services economy - at least for now.

• In our view, some positive headlines on trade (which we seriously question their significance) and expectations that major central banks around the world are soon set to ease monetary policy are providing stock prices a tailwind at the moment. However, as the FactSet chart below demonstrates both the S&P 500’s 50-day and 200-day moving average have experienced positive momentum over recent months even in light of growing uncertainty over trade and growth.

• We highlight two points: 1) Outside of last years' fourth quarter drawdown, pullbacks have been short-lived (e.g., May and August) and 2) the moving averages highlight how resilient stocks have been this year in the face of growing uncertainty.

• Until this month, the S&P 500 had been mostly flat over the last year, and the Index continues to underperform bonds over that period – undoubtedly a concern for the bulls. Yet, the close correlation between this year’s performance and 1998 has started to breakdown. Some traders may have been concerned that the close correlation to 1998, and the swift price declines in September and October of that year could again develop this year given the trade and growth concerns. While that is still in the realm of possibility, the break higher in stock prices this month may start to put those suspicions aside — a minor but still relevant point for the bulls.

• We believe stock performance in August and September (thus far) highlights the risk investors take when too aggressively tilting their portfolios in one direction. The chances of being whipsawed in this market remain elevated. Though more caution is certainly warranted given the environment, the longer-term trend in stocks is still positive. For us, this indicates it may be too early on becoming very negative on stock prices. ‘Balanced caution’ that hews portfolio allocations slightly more conservatively and incorporates high-quality investments remains the path forward, in our view.



• Asia-Pacific: Asian equities finished higher on Monday. China’s trade surplus unexpectedly declined in August to $34.8 billion from July’s $45.1 billion. Exports declined by 1.0% y/y and underwhelmed expectations for a +2.0% increase. Exports to the U.S. fell 16.0% y/y last month, indicating a lack of front-loading by U.S. businesses ahead of the new September 1st tariffs.

• According to Politico, China made a proposal to buy a modest amount of agricultural products from the U.S. last week in exchange for the White House dialing back restrictions on Huawei and delaying the October 1st tariff increase. Also, President Trump is said to be considering delaying another round of tariffs on December 15th depending on how negotiations go with Beijing. With that said, both sides remain far apart on a substantive deal. Importantly, China is unwilling to make concessions without the U.S. also softening tariffs. So far, it is unclear if the White House would offer that approach without a more meaningful deal on technology transfers and IP protections.

• Europe: Markets across the region are trading mixed at mid-day. All eyes this week will be on the European Central Bank (ECB) and its policy announcement on Thursday. The ECB is widely expected to ease monetary policy and offer more stimulus measures to help flagging growth in Europe. Several reports suggest the central bank could ease rates by ten basis points this week as well as outline a tiering approach for negative rates. Investors will also carefully want to hear how the ECB is addressing potential harm to the economy from pushing interest rates further into negative territory. There also seems to be a lack of consensus among investors about whether the ECB will relaunch Quantitative Easing (QE) measures. Some expect the central bank to acknowledge the measure this week and offer such stimulus as a contingency plan ‘if’ growth weakness further.

• The bill to stop a no-deal Brexit on October 31st is expected to be passed into law today. Although UK Prime Minister Boris Johnson is said to be drawing up plans to sabotage any Brexit extension, according to the Telegraph, there is expected to be a second vote on Mr. Johnson’s desire to hold a snap election.

• Opposition parties are said they would only favor a new election if the vote was held after October 19th, which is the date that would trigger a delay in Brexit until January. However, the prime minister is considering sending a letter to the European Union (EU) alongside any extension request that would say the UK ‘does not’ want to delay Brexit after October 31st.

• According to the Telegraph report, such a move by Mr. Johnson could take the UK out of the EU without technically breaking the law. Importantly, the EU has to offer a Brexit extension first before the new law would become effective, and in the past, Brussels has indicated it would only do so if the UK were acting in good faith toward a solution. It is unclear, based on where the UK stands on Brexit today if the EU would offer an extension past October 31st.

• Complicating matters, a spokesman for the prime minister said parliament would be suspended from tonight until October 14th. Recent polling suggests Mr. Johnson would perform worse than former Prime Minister Theresa May in a snap election – possibly picking up only 295 to 300 seats. Mr. Johnson has already lost his legislative majority in parliament given recent defections in the Conservative party. Grab your popcorn and soft drinks, because the next several weeks of Brexit drama should be the most intense since the referendum in 2016.

• U.S.: Equity futures are pointing to a positive open this morning. Per the most recent FactSet data, third quarter S&P 500 earnings per share (EPS) are expected to decline by 3.6% y/y. Such a decline would mark the third consecutive quarter of EPS declines – a first since the Q4’15 – Q2’16 period. At the start of the third quarter, analysts expected EPS to decline by just 0.7%. Given the slowdown in global growth and rising trade frictions between the U.S. and China, S&P 500 companies with more global revenue exposure could see double-digit earnings declines in the third quarter. A stronger U.S. dollar is also helping to crimp expectations for multinational profit growth in the current quarter.

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WORLD CAPITAL MARKETS 9/9/2019 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 0.09% 20.51% 2,978.7 DJSTOXX 50 (Europe) 0.03% 20.28% 3,496.1 Nikkei 225 (Japan) 0.56% 7.86% 21,318.4 Dow Jones 0.26% 16.93% 26,797.5 FTSE 100 (U.K.) -0.60% 11.52% 7,238.3 Hang Seng (Hong Kong) -0.04% 6.44% 26,681.4 NASDAQ Composite -0.17% 23.06% 8,103.1 DAX Index (Germany) 0.31% 15.83% 12,230.1 Korea Kospi 100 0.52% -0.62% 2,019.6 Russell 2000 -0.37% 12.63% 1,505.2 CAC 40 (France) -0.13% 21.77% 5,596.9 Singapore STI 0.06% 6.15% 3,146.3 Brazil Bovespa 0.68% 17.12% 102,935 FTSE MIB (Italy) 0.17% 19.98% 21,984.3 Shanghai Comp. (China) 0.84% 21.29% 3,024.7 S&P/TSX Comp. (Canada) -0.24% 17.86% 16,535.3 IBEX 35 (Spain) 0.20% 8.54% 9,008.3 Bombay Sensex (India) 0.44% 4.03% 37,145.5 Mexico IPC -0.06% 4.76% 42,707.7 MOEX Index (Russia) -0.53% 23.94% 2,782.7 S&P/ASX 200 (Australia) 0.01% 22.92% 6,648.0

Global % chg. % YTD Value Developed International % chg. %YTD Value Emerging International % chg. %YTD ValueMSCI All-Country World Idx 0.25% 16.57% 520.8 MSCI EAFE 0.46% 12.68% 1,882.4 MSCI Emerging Mkts 0.49% 6.70% 1,008.0 Note: International market returns shown on a local currency basis. Equity index data is total return, inclusive of dividends.

S&P 500 Sectors % chg. % YTD Value Commodities Communication Services -0.23% 23.59% 169.8 Equity Income Indices % chg. % YTD Value Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Discretionary 0.21% 24.70% 965.1 JPM Alerian MLP Index -0.76% 3.10% 22.9 CRB Raw Industrials -0.23% -7.12% 446.2 Consumer Staples 0.48% 22.76% 628.5 FTSE NAREIT Comp. TR 0.22% 27.80% 21,209.6 NYMEX WTI Crude (p/bbl.) 0.71% 25.35% 56.9 Energy 0.52% 4.93% 433.2 DJ US Select Dividend 0.20% 14.18% 2,124.2 ICE Brent Crude (p/bbl.) 0.52% 14.98% 61.9 Financials 0.02% 16.53% 454.0 DJ Global Select Dividend 0.57% 2.43% 211.8 NYMEX Nat Gas (mmBtu) 0.76% -14.46% 2.5 Health Care 0.31% 6.53% 1,053.7 S&P Div. Aristocrats 0.54% 18.90% 2,850.1 Spot Gold (troy oz.) 0.26% 17.80% 1,510.8 Industrials 0.16% 21.18% 647.7 Spot Silver (troy oz.) 0.00% 17.31% 18.2 Materials 0.48% 14.59% 357.4 LME Copper (per ton) -0.27% -2.35% 5,809.3 Real Estate 0.22% 30.36% 245.9 Bond Indices % chg. % YTD Value LME Aluminum (per ton) 0.41% -5.27% 1,764.5 Technology -0.15% 32.53% 1,426.8 Barclays US Agg. Bond 0.14% 8.93% 2,229.5 CBOT Corn (cents p/bushel) -0.28% -10.82% 354.5 Utilities -0.34% 20.84% 317.1 Barclays HY Bond 0.11% 11.30% 2,125.2 CBOT Wheat (cents p/bushe -0.27% -14.75% 462.5

Foreign Exchange (Intra-day % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) 0.05% -3.78% 1.10 Japanese Yen ($/¥) -0.04% 2.55% 106.96 Canadian Dollar ($/C$) 0.14% 3.66% 1.32British Pound (£/$) 0.61% -3.10% 1.24 Australian Dollar (A$/$) 0.31% -2.58% 0.69 Swiss Franc ($/CHF) -0.25% -0.80% 0.99Data/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 GAACIndex GAAC Tactical Recommended Index GAAC Tactical Recommended

Sector Weight Tactical View Overlay Weight Sector Weight Tactical View Overlay Weight

1) Communication Services 10.2% Underweight - 2.0% 8.2% 6) Health Care 14.3% Overweight +2.0% 16.3%

2) Consumer Discretionary 10.2% Equalweight - 10.2% 7) Industrials 9.3% Equalweight - 9.3%

3) Consumer Staples 7.3% Equalweight - 7.3% 8) Information Technology 21.6% Overweight +2.0% 23.6%

4) Energy 5.0% Equalweight - 5.0% 9) Materials 2.7% Equalweight - 2.7%

5) Financials 12.9% Underweight - 2.0% 10.9% 10) Real Estate 3.1% Overweight +1.0% 4.1%

11) Utilities 3.4% Underweight - 1.0% 2.4%

Index weighting represents relative weightings based on the regional market capitalization balance of the MSCI All-Country World Index; may not add due to rounding. The GAAC Tactical Overlay, as well as Recommended Tactical Weights, is derived from the Ameriprise Global Asset Allocation Committee (GAAC).Views are expressed relative to the Index and are provided to represent investment conviction in each region. Tactical Allocations are designed to augment Index returns over a 6-12 month time horizon. Index weights as of 6/21/19. Numbers may not add due to rounding.

Ameriprise Global Asset Allocation Committee Global Equity Region - Tactical View

MSCI All-Country GAAC GAAC MSCI All-Country GAAC GAACWorld Index GAAC Tactical Recommended World Index GAAC Tactical Recommended

Region Weight Tactical View Overlay Weight Region Weight Tactical View Overlay Weight

1) United States 55.5% Overweight +4.3% 59.8% 5) Latin America 1.5% Equalweight - 1.5%

2) Canada 3.0% Equalweight - 3.0% 6) Asia-Pacific ex Japan 12.2% Equalweight - 12.2%

3) United Kingdom 5.0% Underweight - 1.0% 4.0% 7) Japan 7.0% Underweight - 1.0% 6.0%

4) Europe ex U.K. 14.5% Underweight - 1.0% 13.5% 8) Middle East / Africa 1.3% Underweight - 1.3% -

Index weighting represents relative weightings based on the regional market capitalization balance of the MSCI All-Country World Index; may not add due to rounding. The GAAC Tactical Overlay, as well as Recommended Tactical Weights, is derived from the Ameriprise Global Asset Allocation Committee (GAAC).Views are expressed relative to the Index and are provided to represent investment conviction in each region. Tactical Allocations are designed to augment Index returns over a 6-12 month time horizon. Index weights as of 6/21/19. Numbers may not add due to rounding.



THE WEEK AHEAD: Russell T. Price, CFA, Chief Economist • Economic releases this week: The economic calendar is not especially heavy this week, but it offers a few reports

that should be important to both investors and Fed officials ahead of their decision on interest rate policy next week.

• The economic calendar begins in earnest on Tuesday with the National Federation of Independent Business’s (NFIB) Small Business Sentiment Survey for the month of August. Forecaster’s as surveyed by Bloomberg expect the Index to have lost some ground in August after registering a surprise gain in July. Overall, forecasters expect the index to slip back to a reading of 103 from July’s 104.7, thus leaving it at a generally strong level. The report’s readings on hiring intentions and the general state of the underlying economy will be particularly monitored.

• On Thursday, the Consumer Price Index for August will be released. The headline Index number is expected to show a small gain of just 0.1% as gas prices declined during the month a bit more than they usually do. Core consumer prices, which exclude the influence of fluctuating food and energy prices, meanwhile are expected to see a fairly normalized gain of about +0.2%, resulting in a year-over-year gain of about 2.3%. The yr./yr. rate may seem a bit “hot,” but the gain is partially lifted by the fact that the core rate was particularly weak in the year-ago period. Although businesses are seeing stronger labor cost inflation amid the tight labor market, such upward pressures have generally been offset by weaker commodity prices for food, energy and basic industrial inputs, as well as the strong dollar and a demand environment that limits businesses ability to raise prices without a loss in sales.

• On Friday, retail sales for the month of August are due out. Forecaster’s (as surveyed by Bloomberg) currently have very modest expectations but this is largely due to the very strong results measured in July. Overall, the Bloomberg consensus shows a total retail sales gain of +0.2% expected while we are forecasting total sales to have been flat in the month. Such estimates follow July gains of 0.7% on the headline level, +1.0% when autos are excluded and +0.9% when autos and gasoline are both excluded. On a year--over-year basis, retail sales are likely to have been about 3.5% to 3.75% higher while core sales (i.e., excluding autos and gasoline sales) should be about 4.25% to 4.5% higher.

• Finally, the University of Michigan’s preliminary estimate for September Consumer Sentiment will be out on Friday. Forecasters are looking for somewhat of an improvement after the measure dropped a harsh 8.6 points in August. We should note that the U. of M. survey results can tend to be more volatility that the Consumer Conference Board’s Consumer Confidence Index (which dropped just 0.7 points, from 135.8 to 135.1 in August) or Bloomberg’s Consumer Comfort Index (which, as of September 1st was at 63.4 versus its July-ending level of 64.7.


September 9 10 11 12 13Consumer Credit NFIB Small Bus. Index Producer Price Index Initial Jobless Claims Retail Sales

Trade - China Job Openings Report Wholesale Inventories Consumer Price Index Import Price Index

GDP - Japan Industrial Production - France Industrial Production - Spain Industrial Production - Euro Zone U. of M. Cons. Sentiment

Inflation - China Industrial Production - Italy Machinery Orders - Japan Monetary Policy - Euro Zone Business Inventories

Retail Sales - Brazil Unemployment - U.K. Inflation - India Industrial Production - Japan

Inflation - Mexico Employment - S. Korea Industrial Production - India Trade - Euro Zone

Trade - India



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.

Consensus Earnings Estimates: Source: FactSet

S&P 500 Earnings Estimates 2014 2015 2016 20209/9/2019 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 $30.87 $32.80 $33.54 $36.29 $38.71 $41.13 $42.87 $41.32 $38.80 $41.47 $41.60 $43.06 change over last week -$0.02 -$0.03 -$0.04 -$0.31 yr/yr 13.9% 10.7% 6.7% 15.9% 25.4% 25.4% 27.8% 13.9% 0.2% 0.8% -3.0% 4.2% qtr/qtr -1% 6% 2% 8% 7% 6% 4% -4% -6% 7% 0% 4%

Trailing 4 quarters $$ $119.02 $118.67 $119.64 $123.25 $126.42 $128.53 $133.50 $141.34 $149.67 $159.00 $164.03 $164.12 $164.46 $163.19 $164.93 $182.00 yr/yr 6.8% -0.3% 0.8% 11.6% 22.9% 0.5% 10.3%Implied P/E based on a S&P 500 level of: 2979 18.2 18.1 18.3 18.1 16.4

2018 20192017



BY THE NUMBERS: ECONOMIC ACTUALS AND FORECAST:

ECONOMIC NEWS OUT TODAY: Economic Releases for Monday, September 9, 2019. All times Eastern. Consensus estimates via Bloomberg. Time Period Release Consensus Est. Actual Prior Revised to 3:00 PM JUL Consumer Credit +$16.0B +$14.6B

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

• Treasury Update: Treasury yields are lower (prices higher) this morning and stocks point higher ahead of the open to U.S. equity markets. Once again, its unsettling when both bond and stock prices head in the same direction, and with more central bank asset buying likely ahead, investors are bidding up asset prices.

• The week ahead: The European Central Bank is scheduled to hold its latest policy meeting Thursday, likely rolling out added stimulus. On the economic front, the week holds inflation data here in the U.S. with August PPI Wednesday, August CPI on Thursday and Retail Sales on Friday. Finally, we expect Treasury markets to set-up this week for a quarter point Fed rate cut at next week’s policy meeting.

ECB • Through we have touched on it repeatedly over the past few weeks, central bank policy take center stage here in the

beginning of September. The European Central Bank (ECB) meeting on Thursday, the Fed meeting next Wednesday and

• The central bank of Russia cuts its primary policy rate by a quarter point to 7.00%, marking the third cut in a row and the latest move among emerging market central banks to spur growth. The move follows a string of Asian, European, and African central banks who have lowered key funding rates since June. Monetary stimulus is not just the focus of the ECB and Fed, it spans the globe. Yet, monetary stimulus may not offset uncertainty around U.S./China trade and the growing range of geopolitical risks.

• For the ECB’s meeting on Thursday, we believe the Central Bank lays out plans for additional rate cuts and asset purchases as foreshadowed by ECB President Mario Draghi. There are few tools in the tool chest remaining, and the concept of fiscal expansion and stepped-up central bank buying may find greater limitation given the structure of the European Union as group of strong national rights, and yet a common currency.

• At a high level, central bank stimulus likely prompts some investors to buy the riskiest segments of fixed income as the reach for yields. We believe this is the time to sell those assets; while supported by a strong bid. Global growth continues to decelerate, and the support added yet another round of monetary accommodation may not garner the same response as in the past. Further, we believe fixed income market liquidity is dimming as investors employ a strong bias for quality. We recommend investors exit fringe investments, which take many forms: 1) investments that offered an above market yield over the past few years when investors had been reaching for yield, 2) Providing funding for a market segment that is only liquid in a strong market, such as equity in securitized products, and 3) exotic strategies that garner the lowest quality score in the Ameriprise Complexity levels. We also note that the use of leverage in credit-based funds such as closed-end funds. While strategies may already be trading at a discount to NAV, we suggest the discount is less likely to compress than in the past.

Current Projections:Actual Actual Actual Actual Actual Est. Est. Actual Actual Est. Est.2014 2015 2016 2017 2018 2019 2020 Q1-2019 Q2-2019 Q3-2019 Q4-2019

Real GDP (YOY) 2.5% 2.9% 1.6% 2.4% 2.9% 2.2% 2.1% 3.1% 2.0% 1.9% 2.2%Unemployment Rate 5.6% 5.0% 4.7% 4.1% 3.9% 3.6% 3.5% 3.8% 3.7% 3.6% 3.6%CPI (YoY) 1.6% 0.1% 1.3% 2.1% 2.4% 1.8% 2.1% 1.6% 1.8% 1.9% 2.0%Core PCE (YoY) 1.6% 1.3% 1.7% 1.6% 1.9% 1.8% 1.9% 1.6% 1.5% 1.7% 1.8%

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 Last Updated:

Quarterly

September 6, 2019



• Finally, the role of non-traditional bond funds has been turned on its head in the current market in our view. Markets are not looking for higher rate, and the highly flexible mandates they operate under can become increasingly fragile in the current politically driven, and liquidity charged environment. We recommend investors look to reshape fixed income allocations around core fixed income exposure such as investment grade corporates, Treasury and agency bonds, which comprises 85% of a moderate, long-term fixed income allocation in our view.

• How do you replace yield or achieve strong total return performance? While it’s not what anyone wants to hear, we believe the yield environment likely remains repressed for the next several years. In addition, we recommend against reaching for risk in the as the risk/reward fails to be compelling at this stage of the credit cycle, with modest returns offered, and growing downside risk for performance. The best solution for total return investors is to take risk in liquid markets, such as equities while anchoring fixed income allocations in core-fixed income. For income portfolios, we believe we are entering a period where investors should look to navigate low rate for a longtime by adjusting spending or using other levelers than reaching of yield as the most prudent course.

• For more guidance, see our recent report Committee Perspectives: Selecting Fixed Income Investments dated August 23, 2019.




Ameriprise Investment Research Group Ameriprise Financial 1441 West Long Lake Road, Suite 250, Troy, MI 48098 [email protected] For additional information or to locate your nearest branch office, visit ameriprise.com RESEARCH & DUE DILIGENCE LEADER

Lyle B. Schonberger - Vice President Business Unit Compliance Liaison (BUCL)

Jeff Carlson, CLU, ChFC – Manager

Investment Research Coordinator Kimberly K. Shores Sr Administrative Assistant Jillian Willis EQUITY RESEARCH Equity Research Director Justin H. Burgin – Vice President

Consumer Goods and Services Patrick S. Diedrickson, CFA – Director

Energy/Utilities William Foley, ASIP – Director

Financial Services/REITs Lori Wilking-Przekop – Sr Director

Health Care Daniel Garofalo – Director

Industrials/Materials Frederick M. Schultz – Director

Technology/Telecommunication Curtis R. Trimble – Director

Quantitative Strategies/International Andrew R. Heaney, CFA – Director

STRATEGISTS CHIEF MARKET STRATEGIST David M. Joy – Vice President GLOBAL MARKET STRATEGIST Anthony M. Saglimbene – Vice President

Thomas Crandall, CFA, CAIA – Sr Director, Asset Allocation

Gaurav Sawhney – Research Analyst

Amit Tiwari – Sr Research Associate CHIEF ECONOMIST Russell T. Price, CFA – Vice President MANAGER RESEARCH

Michael V. Jastrow, CFA – Vice President

Jeffrey R. Lindell, CFA – Director – ETFs & CEFs

Mark Phelps, CFA – Director – Multi-Asset Solutions Equities Christine A. Pederson, CAIA, CIMA – Sr Director – Growth Equity, Infrastructure & REIT

Benjamin L. Becker, CFA – Director – International/Global Equity

Alex Zachman – Analyst – Core Equity

Cynthia Tupy, CFA – Analyst – Value and Equity Income Equity Fixed Income & Alternatives Jay C. Untiedt, CFA, CAIA – Sr Director – Alternatives

Steven T. Pope, CFA, CFP® – Director – Non-Core Fixed Income

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

Blake Hockert – Associate – Reporting & Analytics

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 INVESTMENT DUE DILIGENCE

Justin E. Bell, CFA – Vice President

Kurt J. Merkle, CFA, CFP®, CAIA – Sr. Director

Kay S. Nachampassak – Director

Peter W. LaFontaine – Sr. Analyst

James P. Johnson, CFA, CFP® – Sr. Analyst

David Hauge, CFA – Analyst

Bishnu Dhar – Sr. Research Analyst

Parveen Vedi – Sr. Research Associate

Darakshan Ali – Research Process Trainee

INNOVATION AND DEVELOPMENT

Allen Rodrigues – Vice President

Nidhi Khandelwal – Director

Dan Bums – Sr. Manager

Matt Morgan – Sr. Manager

Natasha Wayland – Sr. Manager

The content in this report is authored by American Enterprise Investment Services Inc. (“AEIS”) and distributed by Ameriprise Financial Services, Inc. (“AFSI”) to financial advisors and clients of AFSI. AEIS and AFSI are affiliates and subsidiaries of Ameriprise Financial, Inc. Both AEIS and AFSI 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 AFSI, their affiliates and their research analysts, as applicable, with respect to the subject companies mentioned in the report. Each of AEIS and AFSI 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 AFSI. IMPORTANT DISCLOSURES As of June 30, 2019 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

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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. 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.

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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, Inc. of any order to buy or sell securities. This summary is based exclusively on an analysis of general current market conditions, rather than the suitability 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. AFSI 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, Inc. Member FINRA and SIPC.

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