before the bell...jan 07, 2019 · one affected agency is the bureau of economic analysis which is...

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 13

Before the Bell Morning Market Brief

January 7, 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 The bounce in U.S. equities off the Christmas Eve low now amounts to an impressive 7.7 percent, although the move has certainly been vertiginous, as a 2.5 percent down day in the S&P 500 last Thursday was followed by an almost 3.5 percent gain on Friday. But at week’s end, stocks had climbed 1.9 percent. The big move on Friday came after Federal Reserve Chairman Powell said the Fed would be patient in normalizing monetary policy, temporarily relieving the anxiety of the more skittish Fed watchers. Reports of trade talks in Beijing this week contributed to the better tone, as did the blowout jobs report that saw the creation of 312,000 new non-farm jobs, well ahead of the consensus estimate of 185,000. In addition, the previous two-month total was revised higher by 58,000 and year-over-year average hourly wages edged higher to 3.2 percent. It all added up to some good news in the three primary areas of concern currently weighing on market sentiment, namely trade, monetary policy, and economic growth. Of course, positive developments are not the same as policy breakthroughs, but investors will take good news when and where they can find it. Not unexpectedly, the recent rally in stocks has been accompanied by a similar decline in expected volatility as measured by the VIX index. After surging to a level of 36 on Christmas Eve, just below last year’s February high of 37, the VIX has since tumbled all the way back down to 21, near its prevailing average in the two months through mid-December, before the Fed disappointed investors by signaling two rate hikes in 2019 at its December 19th meeting. Other measures of market sentiment were recently at levels of extreme pessimism as well. The Investors Intelligence ratio of bulls versus bears last week fell below 1.0 for the first time in three years. Two weeks ago, the American Association of Individual Investors bull/bear ratio also fell to a three-year low but rebounded slightly last week. The S&P 500 managed to find support at its 200-week moving average at the recent low, but remains more than 4 percent below its 50 day moving average at 2645 and more than 7 percent below its 200 day moving average at 2742. Last week’s good news will need to be sustained for stocks to manage enough momentum to retake those levels. And we will soon add earnings to the list of immediate market concerns, beyond just the general wringing of hands over lowered full-year 2019 expectations, which currently sit at 7.4 percent. Fourth quarter 2018 earnings season is about to get underway, with growth of 11.4 percent expected, according to FactSet, down from 15.2 percent at the start of the quarter. The firm dollar, lower oil prices, which fell 38 percent in the quarter, and the trade war with China are each expected to have taken their toll to some extent. By how much and on which companies specifically will be the question. Most prominently, Apple lowered its first quarter revenue guidance last week due, in large part, to weakness in China. Apple stock fell 10 percent in response, before rebounding somewhat at week’s end. What managements in general have to say about the expected future impact of trade will be a particular focus. Stock prices weren’t the only asset to enjoy a strong rally last Friday. In another sign of diminished risk aversion, at least for one day, the yield on the B of A Merrill Lynch High yield index fell 25 basis points to 7.73 percent. By comparison, at the start of the fourth quarter the yield was 6.50 percent. The Friday moved pushed the spread over government yields down 39 basis points, to 505, as the yield on the ten-year treasury climbed 12 basis points to 2.67 percent.

Before The Bell January 7, 2019 ____________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________ © 2019 Ameriprise Financial, Inc. All rights reserved. of 13

Lastly, several departments of the federal government remain closed and a deal to fund them remains elusive. One result is a delay in the compilation and release of regular economic reports. One affected agency is the Bureau of Economic Analysis which is contained within the Commerce Department, which remains unfunded. The Labor Department, on the other hand, is funded and this week’s report on December consumer prices, which is compiled by the Bureau of Labor Statistics, should not be affected. MORNING MARKET COMMENTARY: Anthony M. Saglimbene, Global Market Strategist

• Quick Take: U.S. futures are pointing to a flat open; Europe is trading mostly lower; Asia finished in the green overnight; West Texas Intermediate (WTI) oil trading at $49.01; 10-year U.S. Treasury yield at 2.64%.

• Stocks Are Up Smartly From Their December Lows, Can They Continue To Climb? As the embedded FactSet chart below shows, the S&P 500 Index is higher by almost +8.0% from its December lows. The Index finished a highly volatile first week of 2019 up +1.9% on a price alone basis. Helping to highlight just how volatile stock trading has become of late is last Friday’s +3.4% gain in the S&P 500, which followed a 2.5% loss on Thursday. The broad-based U.S. stock barometer is still off nearly 14% from its 52-week high hit in September.

• The almost stealth-like gains in the market over the last 8-to-10 trading days has lifted the NASDAQ out of bear market territory and also put the Russell 2000 Index on the precipice of exiting its bear market. With that said, the +3.0% to +4.0% price gains in both indexes on Friday went a long way to helping fulfill this small achievement, in what otherwise has been a persistent down-trending market since October.

• Importantly, it would be ill-advised to draw concrete conclusions from such a short window of trading activity in a market environment that has trended down over such an extended period.

• When oversold conditions approach extreme points, it is natural for stocks to bounce higher at some point. In our view, the last week or so of trading could be a technical reaction to extremely oversold market conditions. Basing portfolio decisions on a few positive days in the market or trying to find a silver lining in one or two days of positive returns, is not a sound investment strategy. Worse, attempting to use such a short window of time as justification or validation for an investment view could create a false sense of security that may not be supported by the larger themes driving market momentum. In our view, corporate earnings, trade, and interest rates are the major market items influencing the fundamental environment. Everything else is just noise and technical trading.

• With that caveat in mind, we do believe there are some fundamental changes taking shape in the market that could extend this bounce if fundamentals remain on course. Below are a few high-level points investors should consider as they watch markets attempt to discount the forward outlook for stock prices and make sense of the economic and corporate environment for 2019.



• U.S. economic fundamentals are sound: In December, nonfarm payrolls increased by +312K and well ahead of the +180K expected. More workers entered the workforce last month, the number of jobs created was revised higher for previous months, and average hourly earnings hit a cycle-high. Although softer demand and trade friction created headwinds for manufacturing activity last month, data suggests the economy continues to expand. Currently, the Atlanta Federal Reserve’s GDPNOW forecast sees the U.S. economy growing by +2.6% q/q annualized in the fourth quarter, which if achieved, would still be above the longer-term average of roughly +2.2% GDP growth since the end of the financial crisis. While economic growth is certainly moderating, we believe the economy could grow by almost +2.5% in 2019, which is a pace that may be supportive for higher stock prices over time.

• The Federal Reserve could soften its normalization policy if conditions worsen: One of the largest market worries that have developed over this stock market correction has been growing fears of a policy mistake from the Fed. Last week, Fed Chair Jerome Powell appeared to dampen those fears by saying policymakers could be patient given that inflation remains in check and market conditions have been volatile. Importantly, Mr. Powell added that the Fed was prepared to adjust policy quickly and would be flexible in how much it shrank its balance sheet if conditions worsened. Bottom line: The Fed is saying it’s listening to the market and will not raise rates or reduce its balance sheet in a vacuum. In our view, the Fed’s recent sensitivity and acknowledgment of changing market circumstances could help reduce the chances of a policy mistake this year. As a result, stocks may react more positively to an environment where monetary policy remains accommodative, or at worst, neutral.

• We expect corporate earnings to grow: One of the most important long-term drivers of stock price direction is earnings growth. Though fourth quarter earnings are expected to decelerate from the +25% growth pace they achieved in the first three quarters of 2018, S&P 500 companies are projected to generate earnings per share (EPS) growth of +11.4% in the fourth quarter. U.S. companies also tend to beat analyst earnings expectations by roughly 4.8% on average over the last five years after actual earnings are reported — meaning S&P 500 Q4’18 EPS could come in above +15.0% y/y. Combined with our expectations for mid-single digit EPS growth for full-year 2019, the fundamental corporate backdrop remains on firm footing, in our view.

• Investors may be close to capitulation: U.S. money market funds took in $8.5 billion in the week ending January 2nd, increasing the ‘cash-like’ fund category’s total take of new money over the last nine weeks to $175 billion, according to data from the Investment Company Institute. The streak and volume of money market inflows are similar to October 2008 and during the peak of the financial crisis. Conversely, U.S. equity funds saw $6.5 billion head for the exits in the most recent week, marking four straight weeks of outflows for the domestic stock category. In a nutshell, investors are very bearish on the prospects for equities today, and their sentiment could be a contrarian signal for those willing to stomach the volatility over the intermediate-term and have a long-term time horizon. Capitulation by institutional and retail investors alike may create a window of opportunity for stocks to bounce further, particularly if the Fed remains on hold through the first half of 2019 and economic and corporate fundamentals develop as we expect this year.

• Fingers crossed, trade frictions could subside in 2019: Of course, how trade tensions between the U.S. and China ultimately develop will also play a critical role in where markets go from here. The U.S. and China resume trade talks this week, and on the whole, is a positive development, in our view. Where these talks progress and what they ultimately produce, however, is less clear at the moment. Nevertheless, it is not in either countries best interest to pull their economies down further or prompt a potential recession. By this summer, the White House will be gearing up for the 2020 presidential election. We doubt the Trump administration wants to head into a campaign cycle with a weak economy or a possible recession on their hands, due to a deteriorating trade situation with China. Therefore, we believe the U.S. and China will find some common ground in 2019 to help reduce trade frictions and ease pressure on their respective economies. It’s important to recognize, however, U.S. grievances on China’s intellectual property abuses may still be an issue despite any potential reprieve in trade tensions this year.

• As it stands today, we believe there are reasons for investors to be optimistic on the forward path for stock prices. A still solid fundamental backdrop and more attractive valuations offer a better entry point than just a few months ago.

• But as we highlighted in our 2019 Investment Themes report, investors should take the opportunity to reduce risk if needed and align portfolios with their longer-term strategic starting point. Fundamentally, the market is changing in our view, but this change has been quite visible for some time. Financial conditions are tightening, leading to a less accommodative environment for stocks and bonds. Pile on trade uncertainties and late-cycle economic conditions and investors should not be surprised that volatility remains elevated. We believe this environment is likely to continue well into the year.



• Asia-Pacific: Asian equities closed higher on Monday. Most of the market narrative overnight focused on mid-level U.S./China trade talks that began in Beijing. A further thaw in relations helped market sentiment and after a strong day of U.S. equity gains on Friday. In our view, the trade discussions this week will be deemed a success if Beijing sends a top-level delegation to Washington soon afterward.

• Europe: Markets in the region are trading mostly lower at midday. The BBC is reporting that UK Prime Minister Theresa May is having difficulty winning support for her Brexit plan, despite setting out to ease Conservative concerns over the Irish backstop. Following discussions last week with the European Union (EU), Mrs. May did not win a more legally binding agreement on this transition matter, which we believe reduces the chances her party will support her Brexit approach. Reports suggest the UK parliament could schedule a January 15th vote after it brings up for debate the Brexit withdrawal bill on Wednesday.

• Separately, Eurozone investor sentiment fell for a fifth consecutive month and dipped to its lowest level since December 2014. A hard Brexit scenario, political unrest in France, and wider global growth concerns are sapping investor confidence in the region.

• U.S.: Equity futures are pointing to a flat open this morning. Over the weekend, President Trump said trade talks with China were going very well and that the weakness in the Chinese economy has prompted Beijing to get a deal done, according to Reuters. Although a breakthrough deal is unlikely this week, as mid-level trade talks between both sides resume today, the discussions could set the table for a higher-level meeting at a later date. Per the South China Morning Post, Trump may hold a sideline trade meeting with the Chinese Vice President at the World Economic Forum in Davos, Switzerland later this month.

• Lastly, out of Washington, President Trump reiterated his demands on a border wall after discussions with leading Congressional Democrats over the weekend failed to open the government. The President indicated he could declare a national emergency to bypass the budget stalemate and receive funding for his border wall without Congressional approval. In our view, such a move would further elevate tensions with Democrats and likely face stiff legal challenges. Because of the continued impasse, the partial U.S. government shutdown carries on. Many more federal workers in affected agencies could soon see further furloughs or be asked/required to work without pay. Although the long-term effects on the economy from government shutdowns are negligible, the longer this carries on, the greater the chances Q1’19 GDP growth could be negatively impacted.

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WORLD CAPITAL MARKETS (all data as of approximately 8:00 AM ET)

Americas % chg. % YTD Value Europe (Intra-day) % chg. %YTD Value Asia/Pacific (Last Night) % chg. %YTD Value

S&P 500 3.43% 1.03% 2,531.9 DJSTOXX 50 (Europe) -0.58% 0.76% 3,024.3 Nikkei 225 (Japan) 2.44% 0.12% 20,039.0 Dow Jones 3.29% 0.50% 23,433.2 FTSE 100 (U.K.) -0.48% 1.15% 6,804.4 HK Hang Seng ( H. Kong) 0.82% -0.04% 25,835.7 NASDAQ 4.26% 1.58% 6,738.9 DAX Index (Germany) -0.55% 1.42% 10,708.5 Korea Kospi 100 1.34% -0.19% 2,037.1 Russell 2000 3.75% 2.40% 1,380.7 CAC 40 (France) -0.59% -0.45% 4,709.3 Singapore STI 1.42% 1.11% 3,102.8 Brazil Bovespa 0.62% 5.15% 92,413.5 FTSE MIB (Italy) 0.28% 3.05% 18,883.7 Shanghai Comp. (China) 0.72% 1.57% 2,533.1 S&P/TSX Comp. (Canada) 1.50% 0.73% 14,426.6 IBEX 35 (Spain) -0.09% 2.27% 8,730.0 Bombay Sensex (India) 0.43% -0.60% 35,850.2 Mexico IPC 0.98% 1.96% 42,455.1 Russia TI Closed 1.77% 4,261.0 S&P/ASX 200 (Australia) 1.14% 0.65% 5,683.2

Global % chg. % YTD Value Developed International % chg. %YTD Value Emerging International % chg. %YTD Value

MSCI All-Country World Idx 2.62% 0.96% 459.9 MSCI EAFE 1.55% 0.98% 1,736.7 MSCI Emerging Mkts 1.62% -0.06% 965.0 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 Equity Income Indices % chg. % YTD Value Commodities Consumer Discretionary 3.50% 2.18% 798.5 JPM Alerian MLP Index 0.00% 7.28% 23.9 Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Staples 2.15% 0.99% 527.0 FTSE NAREIT Comp. 1.22% -0.31% 16,544.2 CRB Raw Industrials 0.48% 0.17% 481.3 Energy 3.58% 4.56% 443.4 DJ US Select Dividend 2.55% 1.24% 1,883.5 NYMEX WTI Crude (p/bbl.) 2.36% 8.10% 49.1 Financials 3.28% 1.79% 402.5 DJ Global Select Dividend 0.43% 2.46% 211.9 ICE Brent Crude (p/bbl.) 2.17% 8.36% 58.3 Real Estate 1.03% -0.79% 190.8 S&P Div. Aristocrats 2.66% 0.12% 2,400.0 NYMEX Nat Gas (mmBtu) -2.33% 1.12% 3.0 Health Care 3.01% -0.62% 994.8 Spot Gold (troy oz.) 0.60% 0.87% 1,293.7 Industrials 3.85% 1.24% 548.9 Spot Silver (troy oz.) 0.57% 1.89% 15.8 Materials 3.91% 1.49% 321.3 Bond Indices % chg. % YTD Value LME Copper (per ton) 3.21% -0.87% 5,897.3 Technology 4.40% -0.79% 1,079.3 Barclays US Agg. Bond -0.46% 0.21% 2,051.0 LME Aluminum (per ton) 1.37% 0.38% 1,869.8 Communication Services 4.07% 3.84% 144.1 Barclays HY Bond 1.05% 1.21% 1,932.5 CBOT Corn (cents p/bushel) 0.00% 2.13% 383.0 Utilities 1.48% -0.23% 268.0 CBOT Wheat (cents p/bushel) -0.34% 2.38% 515.3

Foreign Exchange (Intra-day) % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) 0.5% -0.2% 1.14 Japanese Yen ($/¥) 0.20% 1.29% 108.29 Canadian Dollar ($/C$) 0.2% 2.2% 1.33 British Pound (£/$) 0.3% 0.1% 1.28 Australian Dollar (A$/$) 0.34% 1.25% 0.71 Swiss Franc ($/CHF) 0.7% 0.1% 0.98 Data/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 15.5% Overweight +2.0% 17.5%

2) Consumer Discretionary 9.8% Equalweight - 9.8% 7) Industrials 9.2% Equalweight - 9.2%

3) Consumer Staples 7.5% Underweight - 2.0% 5.5% 8) Information Technology 20.2% Equalweight - 20.2%

4) Energy 5.3% Overweight +2.0% 7.3% 9) Materials 2.6% Equalweight - 2.6%

5) Financials 13.3% Equalweight - 13.3% 10) Real Estate 3.0% Overweight +1.0% 4.0%

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 12/20/18. 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 54.1% Overweight +3.1% 57.2% 5) Latin America 1.4% Equalweight - 1.4%

2) Canada 3.0% Equalweight - 3.0% 6) Asia-Pacific ex Japan 12.5% Equalweight - 12.5%

3) United Kingdom 5.4% Underweight - 1.0% 4.4% 7) Japan 7.6% Equalweight - 7.6%

4) Europe ex U.K. 14.9% Underweight - 1.0% 13.9% 8) Middle East / Africa 1.1% Underweight - 1.1% -

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 12/20/18. Numbers may not add due to rounding.



THE WEEK AHEAD: Russell T. Price, CFA • The ongoing partial government shut-down will likely affect some economic releases scheduled for this week,

but not all: This week’s scheduled reports on Factory Orders (November) and International Trade (November) are unlikely to be released unless there is a very quick resolution of the shut-down. The Labor Department, however, is not part of the shut-down, so initial claims on Thursday and Friday’s inflation report (Consumer Price Index) should be released as normal.

• Delayed reports will be added to the list of measures already delayed which include New Home Sales, Construction Spending, and the Advance report on Trade in Goods (all for the month of November). These releases would likely be issued soon after the partial government shutdown concludes.

• Given the above-mentioned delays, the economic calendar is likely to be somewhat slow this week although with a few potentially market-moving releases on the docket. Today, the Institute of Supply Management (ISM) releases is December Non-Manufacturing Index (Services). The report is likely to show a decline, but the drop versus November levels is not likely to be a significant as its sister report on the manufacturing side issued last Thursday. Services activity in oil producing regions is likely to offer some pressure on the Index, but a strong holiday season for retailers should offset some of this downside. Overall, forecasters as surveyed by Bloomberg expect the report to show a reading of 59 versus the 60.7 reported for November. As a reminder, the ISM reports are diffusion indexes, meaning that numbers above 50 indicate expansion for the respective sectors of the economy while numbers below 50 indicate contraction.

• On Tuesday, the National Federation of Independent Business’s (NFIB) Small Business Optimism Survey is expected to show a further decline after dropping 2.6 points in November. Forecaster’s as surveyed by Bloomberg expect the report to post a reading of 103.0 for December, versus the 104.8 reported for November. The report has declined for three straight months after reaching a better than 3-0-year high of 108.8 in August and is thus still at what are historically high levels.

• On Friday, the Consumer Price Index (CPI) for December is expected to be flat to down slightly given falling gasoline prices during the month. As a result, forecasters expect the headline Index to post a year-over-year gain of just 1.9%, but the more important core rate is expected to show a 2.1% to 2.2% yr/yr increase. Although labor costs are rising and thus pressuring business cost structures, lower commodity costs and a moderating growth outlook could leave some companies reluctant to raise prices at this time, or for consumers to accept them.

• Although we expect the core rate to come-in generally well contained, a larger than expected increase for the month would certainly be a negative trigger for markets sensitive to inflation data at this juncture. The chart at right (as sourced from FactSet) depicts the Core CPI Index and the Fed’s preferred inflation measure, the Core Personal Consumption Expenditure (PCE) Deflator through the month of November.

January 7 8 9 10 11ISM Services Index NFIB Small Business Index Unemployment - Euro Zone Initial Jobless Claims Consumer Price Index

Factory Orders Trade Balance Home Building - Canada Wholesale Inventories GDP - U.K.

Retail Sales - Euro Zone Economic Sentiment - Euro Zone Monetary Policy - Canada Industrial Production - France Industrial Production - Spain

Retail Sales - Germany Industrial Production - Germany Inflation - China Industrial Production - Mexico

Consumer Confidence - Japan Trade - China Industrial Production - India

Industrial Production - Brazil Industrial Production - Italy

Trade - Canada



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 Q3 trailing 12-month earnings per share) while others use earnings per share that are updated for Q4 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 20201/7/2019 Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Est. Est. 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 $41.03 $42.85 $40.60 $39.88 $42.81 $44.62 $45.41 change over last week -$0.34 -$0.34 -$0.19 -$0.17 -$0.29 yr/yr 13.9% 10.7% 6.7% 15.9% 25.4% 25.1% 27.8% 11.9% 3.0% 4.3% 4.1% 11.8% qtr/qtr #DIV/0! 6% 2% 8% 7% 6% 4% -5% -2% 7% 4% 2%

Trailing 4 quarters $$ $119.02 $118.67 $119.64 $123.25 $126.42 $128.53 $133.50 $141.34 $149.57 $158.88 $163.19 $164.36 $166.14 $167.91 $172.72 $192.12 yr/yr 6.8% -0.3% 0.8% 11.6% 22.2% 5.8% 11.2%Implied P/E based on a S&P 500 level of: 2532 15.5 15.4 15.2 15.1 14.7 13.2

2018 20192017



ECONOMIC NEWS OUT TODAY: Economic Releases for Monday, January 07, 2019. All times Eastern. Consensus estimates via Bloomberg. Time Period Release Consensus Est. Actual Prior Revised to 10:00 AM DEC ISM Non-Manufacturing Index 59.0 60.2 10:00 AM DEC Factory Orders (MoM) 17.5M 17.5M FIXED INCOME NEWS & VIEWS: Brian M. Erickson, CFA, Fixed Income Research & Strategy

Treasury Market Rout Level Yields Suggest New Yield Lows May Have Been Set • Treasury markets sold off sharply Friday after a series of three punches. First, the People’s Bank of China cut

reserves by half a percent to 13.50%. Second, December Non-farm payrolls showed 312k new jobs were added in December, leading to a second half 2018 average of 222K new jobs added per month. Though markets appear anchored in pessimism through year-end, the stunning strength of U.S. labor markets remains intact. Third, a speech by Fed Chairman Powell Friday added the knock-out punch to Friday’s session that staved off a rally through the balance of trading on Friday. Though we viewed his comments as reinforcing the Fed’s data-dependent mantra that serves as a perennial starting point for Fed decisions, markets received his tone as dovish and were re-assured by the affirmation that Fed policy was not on a set path.

• While markets may continue to have jitters around how current, higher fed funds rate policy may impact asset values, we believe the Fed’s reaction function is truly unchanged, grounded on how economic conditions, including market volatility may be flowing through into decisions made by consumers or corporations. We see the Federal Open Market Committee watching how the economy is responding, both in how pessimism may slow consumer spending (contrasting with the best holiday season on record according to Redbook) and how tight labor markets could prompt inflation when making rate decisions at each policy meeting this year. While Fed Chairman Powell’s comments comforted markets, the strength of December payroll data and the rise in the participation rate are likely to keep the Fed aware that labor market conditions tightened further. That may not appear as inflationary in the near-term given market pessimism but should U.S. growth simply downshift from 3% in 2018 to 2%+ in 2019, inflation may not remain completely off the table as markets currently perceive and as found in breakeven levels between Treasuries and TIPs. Overall, we affirm our more constructive view on 2019 prospects as outlined in our Committee Perspectives report this morning.

• Looking back, our concern of a rout grew in the final week of trading last year as Treasury yields seemed to endlessly seek new lows. We noted that safe-haven yields had become coiled like a spring that could release if markets paused long enough to see strength in U.S. fundamentals by contrasting in our Before the Bell comments Thursday and Morning Research Notes Comments Friday around the substantial decline in the Treasury curve and around the expectations we saw priced into the market. We believe a new low may have been set for Treasury yields in the near-term, and that investors should be prepared for underperformance in Treasury exposures if markets find support from fundamentals. We believe that though the pace of U.S. growth likely slows in 2019 relative to 2018, we forecast above potential growth and few hurdles that could cause a cycle ending slow down present in U.S.

• Ten-year Treasuries sold off by a point to $103-29, sending yields 11 basis points higher to 2.66%. The greatest pain was reserved for the long-bond that sold off more than a point and a half to $107-23, adding eight basis points back to yields on the long-end and nearly returning to the 3% level with a close at 2.98% Friday. Finally, the short-end didn’t get left out as 2-year Treasuries adding back the modest possibility of a Fed hike in 2019 based on the strength of the December jobs report.

• This morning, Treasury yields are moving higher as investors continue to digest the wave of news from Friday.



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U.S. Treasury Yield Change (As of Yesterday's Close, in basis points)

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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)

Kirk D. Dedenbach – Senior Manager

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 Justin H. Burgin – Vice President

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 – Director, Asset Allocation

Daniel Balter, CFA – Analyst – Quantitative, 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 – Senior 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 – Senior 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, Credit Analyst INVESTMENT DUE DILIGENCE

Justin E. Bell, CFA – Vice President

Kurt J. Merkle, CFA, CAIA – Sr Director

Kay S. Nachampassak – Director

Peter W. LaFontaine – Sr Analyst

James P. Johnson, CFA, CFP® – Analyst

David Hauge, CFA – Analyst

Bishnu Dhar – Sr. Research Analyst

Parveen Vedi – Sr. Research Associate

Darakshan Ali – Research Process Trainee



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 December 31, 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

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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. 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, 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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before the bell...jan 07, 2019 · one affected agency is the bureau of economic analysis which is...

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