before the bell...2019/08/26 · as the factset chart above shows, stocks have been on a...

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

August 26, 2019

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

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

• Quick Take: U.S. futures are pointing to a positive open; European markets are trading mostly higher; Asia ended in the red overnight; West Texas Intermediate (WTI) oil trading at $54.75; 10-year U.S. Treasury yield at 1.51%.

• Trade Tensions Keep Ratching Higher – As A Result, The Growth Outlook Is Dimming: In a nutshell, this is what you need to know about recent trade events, which sent stocks swooning lower on Friday and we believe could further jeopardize the global growth outlook:

• Beijing announced before Friday’s U.S. market open it would apply new tariffs on $75 billion of U.S. goods (including oil and soybeans) and a resumption of penalties on U.S. automobiles starting on September 1st. This is in response to an earlier announcement from the White House it would apply new tariffs on $300 billion in Chinese goods starting on September 1st.

• During Friday’s trading day, President Trump “ordered” (through a tweet) that U.S. companies “immediately start looking for an alternative to China.” It is unclear if the White House has the legal authority to make such a proclamation, but it spooked the market nonetheless.

• If that wasn’t enough to increase the unease regarding trade, President Trump also tweeted out on Friday (after the market close) the U.S. would raise tariffs from 25% to 30% on $250 billion in Chinese goods starting on October 1st. Additionally, the tariff level on the final $300 billion in Chinese goods (not scheduled to go into effect until September 1st) will be implemented at 15% versus the previous 10% rate first announced. China has not specified its response to this new development other than issuing a warning to the U.S.

• Plain and simple, if this series of added tariffs go into place as planned, the trade war could have a more meaningful and negative effect on the global economy and stock prices. Business confidence and investment, as well as global trade around the world, is already on the decline. Recent events will only dent the macro-environment further.

• The events outlined above ‘will not’ instill risk-taking among corporate leaders. In fact, companies should be expected to draw inward as long as the trade war rages on, which could sow the seeds for less hiring, capital investment, and possibly the next recession.

• In our view, investors should not discount how poorly the trade situation has become between the U.S. and China. At this weekend’s G7 summit the rest of the world condemned the U.S. for its ratcheting up of tensions. And instead of the rest of the world coming to President Trump’s side and supporting U.S. efforts to create a level playing field in China, Trump’s actions on Friday was interpreted by world leaders as ‘pouring gas on an already out-of-control fire.’

• For those still holding out hope, however, there is still the small possibility the U.S. and China could dial-back this latest round in tariff threats before they go into effect next month. President Trump said today postponing the new tariffs was still possible. Such a move would return the growth outlook to where it stood before Friday.

Before The Bell August 26, 2019 ____________________________________________________________________________________________________________________________

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

• Importantly, there is very little incentive for the U.S. and China to push their economies into recession for various reasons. In our view, the most logical conclusion, eventually, would be for both sides to come back to the table and deescalate trade tensions.

• As we all know, markets hate uncertainty. In our view, the ramp in trade war tensions on Friday increases the probability of further economic drag from slowing global trade, which could lead to negative effects on corporate profits in the quarters ahead. As the FactSet chart above shows, stocks have been on a rollercoaster ride this month. As a result, stocks are off by more than 5.0% month-to-date. Yet, the S&P 500 Index is still only 6% from its July 26th all-time high, and as we highlighted in Friday’s Before the Bell, risk assets have been incredibly resilient in the face of all this uncertainty.

• With that said, it could be a rocky week for stocks. Friday’s trade developments had very little time to be fully reflected in prices, and the market will likely try to work through all the possible ramifications this week as well as discount to current prices where growth is headed.

• Stocks are also very susceptible to trade headlines at the moment, good and bad. Despite today’s conflicting/mixed reports from the U.S. and China, trade headlines are more positive. Hence pre-market activity is pointing to higher stock prices. Nevertheless, the S&P 500 has been trading below its 50-day moving average all month and has failed a few tests to get back above it. Any break below the 200-day moving average (roughly below the psychologically important 2800 level) could indicate further technical damage ahead. In our view, investors should brace for further volatility this week and let the dust settle before plotting their next course of action.

• Asia-Pacific: Asian equities finished lower on Monday, following Friday’s U.S. market swoon on Friday. Per The Wall

Street Journal, Washington and Tokyo are said to have reached a deal “in principle” that could pave the way for more U.S. farm exports to Japan. President Trump agreed to drop the threat of increased tariffs on Japanese autos, and Japan Prime Minister Shinzo Abe agreed to buy more agricultural products such as corn. U.S. stockpiles of corn have increased as a result of the U.S./China trade war.

• Europe: Markets across the region are trading up at mid-day. Italy’s government continues to be in flux, as Five Star Movement and the Democratic Party (PD) are struggling to agree on who will lead Rome, according to Reuters. Thus far, each party has been unable to agree on the prime minister role. If the two sides can’t agree Five Star may seek a renewed alliance with League. New elections in November are still a possibility if a stable government is unlikely to be formed in this process.

• U.S.: Equity futures are pointing to a stronger open this morning. Stocks are looking to rebound on Monday following positive trade comments from President Trump and after a sharp drop on Friday. Per Bloomberg, President Trump said China reached out to the White House over the weekend to restart trade discussions. Trump highlighted in a G7 press conference today in France that U.S. officials had two “very productive” calls with Beijing officials this weekend and wanted to make a deal. Also, and as hinted at in our headline comments, the president also indicated he could still decide to ditch the latest round of tariff hikes. However, Chinese officials have not confirmed the discussions or acknowledged they are willing to hold talks above and beyond the technical level. Also, specifics from the U.S. side are lacking the detail of China’s outreach over the weekend, and press conferences with



President Trump in France continue to muddy the story. Nevertheless, markets are taking the news as positive and futures are higher this morning.

• According to The Wall Street Journal, President Trump said on Sunday he has no plans to invoke emergency powers to force companies out of China and relocate operations. This comes after his tweet on Friday ordering U.S. companies to look for alternatives to China. The president subsequently tweeted he could force U.S. companies to leave China through a law known as the International Emergency Economic Powers Act (IEEPA) of 1977. Both U.S. Treasury Secretary Steven Mnuchin and White House economic advisor Larry Kudlow walked back that idea and suggested that Trump was indicating U.S. companies should move supply chains away from China because the trade war was intensifying. In our view, that is a very loose interpretation of a tweet from the president that includes “hereby ordered.”

• Between Friday’s events and this morning’s news, investors would be forgiven if they are confused about which way the trade winds are blowing. The trade situation remains highly dynamic with nearly daily changes. As we indicated above, we believe this is the time to sit tight and wait for the story on trade to develop more fully. With that said, the story is getting worse, not better.

• The big take away from the central bank confab at Jackson Hole Wyoming over the weekend is that monetary policy cannot solve all the world’s problems. Federal Reserve Chairman Powell said there is no precedent to guide policy when it comes to a trade war, and any reasonably minded person would agree with that assessment. An aggressive monetary policy response from the Fed is still not in the cards, though we believe a September interest rate cut is almost certain at this point. Importantly, the Fed’s ability to combat the negative effects of a building trade war between the world’s two largest economies is limited. Although easier monetary policy could mitigate some of the blow-back from a trade war, it is not a panacea, which was the overall message from central bankers this weekend.

• Lastly, Josh Bolton, President, and Chief Executive Officer of the Business Roundtable told CBS’s ‘Face the Nation’ on Sunday that U.S. businesses cannot quickly move supply chains out of China or easily stop doing business in the world’s second-largest economy.

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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 -2.59% 15.09% 2,847.1 DJSTOXX 50 (Europe) 0.41% 15.15% 3,347.9 Nikkei 225 (Japan) -2.17% 2.43% 20,261.0 Dow Jones -2.37% 11.67% 25,628.9 FTSE 100 (U.K.) Closed 9.18% 7,095.0 HK Hang Seng ( H. Kong) -1.91% 2.03% 25,680.3 NASDAQ -3.00% 17.68% 7,751.8 DAX Index (Germany) 0.37% 10.38% 11,655.0 Korea Kospi 100 -1.64% -5.70% 1,916.3 Russell 2000 -3.09% 9.15% 1,459.5 CAC 40 (France) 0.47% 16.44% 5,352.1 Singapore STI -1.45% 3.39% 3,065.3 Brazil Bovespa -2.34% 11.13% 97,667.5 FTSE MIB (Italy) 0.89% 12.72% 20,655.2 Shanghai Comp. (China) -1.17% 17.47% 2,863.6 S&P/TSX Comp. (Canada) -1.33% 14.13% 16,037.6 IBEX 35 (Spain) 0.29% 4.52% 8,675.0 Bombay Sensex (India) 2.16% 5.00% 37,494.1 Mexico IPC -0.70% -2.30% 39,862.1 Russia TI -0.13% 15.40% 4,585.5 S&P/ASX 200 (Australia) -1.27% 18.16% 6,440.1

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

MSCI All-Country World Idx -1.57% 12.01% 500.9 MSCI EAFE -0.14% 9.22% 1,826.7 MSCI Emerging Mkts -0.20% 2.98% 973.7 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 -2.76% 18.24% 916.4 JPM Alerian MLP Index -2.29% 3.19% 23.0 Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Staples -1.64% 19.26% 611.4 FTSE NAREIT Comp. -1.34% 23.95% 20,569.7 CRB Raw Industrials -0.34% -7.52% 444.3 Energy -3.37% -0.61% 410.7 DJ US Select Dividend -2.46% 9.34% 2,034.2 NYMEX WTI Crude (p/bbl.) 1.27% 20.81% 54.9 Financials -2.53% 10.70% 431.8 DJ Global Select Dividend -0.25% -2.01% 202.6 ICE Brent Crude (p/bbl.) 0.83% 11.21% 59.8 Real Estate -1.29% 26.20% 238.2 S&P Div. Aristocrats -2.44% 13.18% 2,712.9 NYMEX Nat Gas (mmBtu) 1.39% -25.78% 2.2 Health Care -2.32% 3.58% 1,025.5 Spot Gold (troy oz.) 0.17% 19.27% 1,529.6 Industrials -2.70% 14.76% 614.1 Spot Silver (troy oz.) 1.16% 13.76% 17.6 Materials -2.44% 9.90% 343.5 Bond Indices % chg. % YTD Value LME Copper (per ton) -0.84% -5.65% 5,613.0 Technology -3.31% 25.48% 1,351.1 Barclays US Agg. Bond 0.41% 8.87% 2,228.1 LME Aluminum (per ton) 0.22% -6.36% 1,744.3 Communication Services -2.60% 17.19% 161.1 Barclays HY Bond -0.09% 10.46% 2,109.1 CBOT Corn (cents p/bushel) 0.68% -6.86% 370.3 Utilities -1.05% 18.10% 310.5 CBOT Wheat (cents p/bushel) 0.37% -11.61% 479.5

Foreign Exchange (Intra-day) % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) -0.3% -3.1% 1.11 Japanese Yen ($/¥) -0.53% 3.53% 105.95 Canadian Dollar ($/C$) -0.2% 2.5% 1.33 British Pound (£/$) -0.3% -4.1% 1.22 Australian Dollar (A$/$) 0.12% -4.04% 0.68 Swiss Franc ($/CHF) -0.6% 0.2% 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 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 • Earnings season update: Markets suffered a dramatic pull-back on Friday afternoon amid the emergence of a

now familiar fear – further escalation of the U.S. /China trade war. So far, the dispute has brought business investment here in the U.S., and in many parts of the world, to a near halt, given the high uncertainty it presents to business leaders.

• Amid this situation, media reports often focus on the magic “recession” word. As we’ve noted many times previously, this binary “yes or no” question should be considered a distant secondary concern for investors, as it is corporate profits – which have already been declining notably - that should be monitored most closely.

• The second quarter earnings release season is essentially complete. As of Friday, 96% of S&P 500 companies had reported their results with aggregate earnings per share (EPS) looking likely to post a year-over-year decline of -0.4%, according to FactSet. This is better than the 1.7% decline forecast at the end of June but cuts to earnings expectations over the quarters ahead have been notable.

• Since the year began, consensus estimates for the second half of 2019 have fallen by $5.68 (about -6.3%), according to FactSet, while estimates for 2020 are down $9.84, or about 5%. Certainly, with added tariffs pending, and no clear end in sight to this situation, the numbers are likely to go lower.

• Economic releases this week: The economic calendar is fairly steady this week but could offer an unusual twist. Given that consumers are the primary source of economic growth currently, investors are likely to look past the week’s measures of actual business activity (new orders for durable goods and consumer income and spending) and instead concentrate more intently on the week’s consumer confidence and sentiment readings. Although consumers currently enjoy strong financial health in aggregate (inn our opinion) they could always pull-back their spending amid a sharp escalation of trade-related economic fears.

• Overall, we expect the week’s activity measures to be fairly sound. Monday’s report on New Orders for Durable Goods is expected to see a positive bounce, partly from a resumption of non-737 aircraft orders at Boeing.

• Tuesday’s report on Consumer Confidence, meanwhile is expected to show a fairly sharp decline. Forecasters as surveyed by Bloomberg expect the Index to drop to 129.0, which would be a near-reversal of the 11.4 point gain the Index posted in July to a level of 135.7. Since December, the Index has fluctuated notably, bouncing from just under 125 to just over 130 – often based on trade related developments.

• On Thursday, the Commerce Department will offer its second estimate of Q2 Real GDP. Forecasters expect little change from the first report which showed a quarter-over-quarter annualized gain of +2.1%.

• On Friday, Personal Income and Spending are both expected to have had a solid July. Spending growth should see a strong month-over-month gain of about 0.5% based on the +0.7% gain already reported for retail sales (which make-up approximately half of the measure). Income growth, meanwhile is expected to have grown by about +0.3% in the month. Incomes have grown by +0.4% for four straight quarters but a slight deceleration is expected in July in light of modestly slower employment growth. Still, income growth should remain close to its recent average of about +5.0%.

August 26 27 28 29 30Durable Goods Orders S&P /CaseShiller Home $$$ Initial Jobless Claims Pers. Income & Spending

Dallas Fed Mfg. Index Consumer Confidence Q2 GDP - second estimate U. of M. Cons. Sentiment

Richmond Fed Index Q2 Personal Consumption Inflation - Euro Zone

GDP - Germany Pending Home Sales Unemployment - Euro Zone

Retail Sales - Germany Economic Sentiment - Euro Zone Manufacturing PMI - China

Trade - Mexico GDP - France Retail Sales - Spain

Retail Sales - Mexico Employment - Canada GDP - India

Jobseekers - France Industrial Production - Japan GDP - Canada

Consumer Sentiment - S. Korea Consumer Confidence - Japan

Retail Sales - Japan

GDP - Brazil



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 20208/26/2019 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 $41.68 $43.13 change over last week $0.09 -$0.07 -$0.10 -$0.19 yr/yr 13.9% 10.7% 6.7% 15.9% 25.4% 25.4% 27.8% 13.9% 0.2% 0.8% -2.8% 4.4% qtr/qtr -1% 6% 2% 8% 7% 6% 4% -4% -6% 7% 1% 3%

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 $163.27 $165.08 $182.28 yr/yr 6.8% -0.3% 0.8% 11.6% 22.9% 0.6% 10.4%Implied P/E based on a S&P 500 level of: 2847 17.3 17.3 17.4 17.2 15.6

2018 20192017



BY THE NUMBERS: ECONOMIC ACTUALS AND FORECAST:

ECONOMIC NEWS OUT TODAY: Economic Releases for Monday, August 26, 2019. All times Eastern. Consensus estimates via Bloomberg. Time Period Release Consensus Est. Actual Prior Revised to 8:30 AM JUL New Orders for Durable Goods (MoM) +1.1% +2.1% +1.9% +1.8% 8:30 AM JUL Durables ex. Transports -0.5% -0.4% +1.0% +0.8% Economic Perspective: Russell T. Price, CFA – Chief Economist • New orders for durable goods for the month of July came-in ahead of expectations this morning. On a year-over-

year basis, new orders were a solid (relatively speaking) +3.1% higher, while orders were up +1.2% when the volatile transports sector is removed from the calculation. Shipments were down in the month (by 1.1%) but this comes after a gain of +1.0% in June and 0.5% in May. Overall, shipments were 2.5% higher than year-ago levels.

• The report’s business investment spending proxy, new orders for non-defense capital goods excluding aircraft, showed a third straight monthly gain with an 0.4% increase. Orders in the space are a very slim 0.6% above their year-ago levels but June’s gain represented the 6th gain out of the last 7 months.

• Demand for manufactured goods is currently suffering a few pressures. A sharp slowdown in business investment related to trade rule uncertainty, lower export demand, the ongoing situation at Boeing as related to its 737 troubles and the need to reduce business inventories generally across the economy and the recent drop in oil prices which have weigh on demand for equipment in the energy sector this year.

• As seen in the chart at right (which HAS been updated to reflect today’s release), aside from the challenges mentioned above, yr./yr. growth rates also face difficult year-ago comparisons. This factor, however, should ease in the months ahead.

• As a result of these factors, the manufacturing sector has slowed, and we believe is likely to slow further in the months and quarters ahead without some positive developments on the trade front.

• However, as mentioned above, we believe overall demand for manufactured goods is holding up rather encouragingly given these challenges. The chart at right, depicting business investment related new orders, HAS been updated for today’s release and is sourced from FactSet.

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% 2.1% 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% 2.1% 2.1% 1.6% 1.7% 2.0% 2.2%Core PCE (YoY) 1.6% 1.3% 1.7% 1.6% 1.9% 1.8% 2.0% 1.5% 1.6% 1.7% 1.7%

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

August 14, 2019



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

• Treasury Update: Treasury yields stand little changed this morning shortly ahead of the open to U.S. equity markets, while equity markets point to a moderately higher open this morning following Friday’s rout. Friday, the curve shifted lower by 6 to 8 basis points sending 10-year yields to 1.53% Friday, narrowly above the August 15 multi-year low.

• The Week Ahead: This week is filled with economic data on July Durable Goods Orders, August Consumer Confidence, and capped off with July Personal Income and Spending data Friday. With the Fed’s policy approach potentially more linked to economic data (see our comment below) bond markets may respond to incoming data as supporting a path for Fed policy.

Treasury Yield Curve Comparison July 26 (higher curve) vs. August 26 (lower curve) (In basis points)

Source: Bloomberg L.P.

Fed Likely to Lag Rather Than Pre-empt; Trump Labels Fed’s Powell an “Enemy” • Minutes of the July 30-31 Fed policy meeting last week laid out a broad range of views by Fed policy committee

members ranging from two that opposed the rate cut to others seeking a bolder approach. Our primary take-away was how difficult it may be to build consensus among committee members going forward and leaving Fed that much more reliant on economic data to form the basis for policy moves.

• Text of Federal Reserve Chairman Jerome Powell’s keynote speech at the Kansas City Fed’s Jackson Hole Symposium highlighted that the economy was in a favorable place but still faces significant risks. Powell noted, “we have seen further evidence of a global slowdown, notably in Germany and China. Geopolitical events have been much in the news, including the growing possibility of a hard Brexit, rising tensions in Hong Kong, and the dissolution of the Italian government.” While the Fed sees the U.S. economy in good standing, risks to the downside are growing. Though uncertainty around trade remains a focal point for markets, Powell stated that the Fed “cannot provide a settled rule book for international trade.” We see this as Powell’s effort to delineate that monetary policy is not the tool to provide the necessary clarity business leaders need to expand and grow corporate America through a trade war. As we have noted in the past, we concur with his comments that a preemptive Fed approach, as requested by President Trump would be a potentially dangerous policy move given the Fed’s mandate and the medium-term time frame monetary policy is geared for.

• Fed independence: Tweets from President Trump blurred the lines of political independence between the Fed and the Executive branch indicating, “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” When others are not responding as he desires, President Trump’s rhetoric tends to go too far. Labeling Chairman Xi as an enemy may have ramifications well beyond Trump’s frustration not getting his way with Fed policy. Second, given the



imperative that Fed policy stands beyond political influence in order for Fed policy and markets to remain aligned with economic realities, threatening the Fed may actually have the opposite impact of pushing the Fed to be all the more rigorous in tracking with income economic data.

• While President Trump continues to put the Fed between a rock and a hard spot, we believe the legacy and professionalism of members of the Fed’s Federal Open Market Committee will keep Fed policy grounded in its legislative mandate of independently navigating the economy toward full employment and price stability. We envision the Fed maintaining its data-driven approach to maintain independence and assure markets that the firm hand of the Fed remains in sync with and attentive to the same biorhythms that drive bond markets, rather than a political agenda that might chart a troubled course.

• Looking ahead, we anticipate central bank policy meetings over the next four weeks; perfect timing as investment staffs globally return from summer holidays. The European Central Bank is schedule to lead on September 12 with a new array of stimulus roughly 6 weeks before Christine Lagarde takes the helm from outgoing ECB President Mario Draghi. The following week the Fed wraps up its next policy meeting on September 18 followed by the Bank of England and the Bank of Japan the next morning. In sum, the next wave of policy support is likely only weeks away, which likely keep the wheels on markets even through rapid fire escalations in the U.S./China trade war. As we have seen in the past, escalations are often followed by some mild form of retreat. A new phase may be emerging where the desire to find some resolution is replaced by a desire to have the other side capitulate. Should negotiations have truly evolved, we recommend investors verify investment risk tolerances still fit. Should volatility prove too much, review investment goals to confirm they have not changed. Next consider adjusting risk tolerances lower, should lower risk be a better fit now that volatility reasserted itself this month.

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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)

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

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 – 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, 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



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

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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...2019/08/26 · as the factset chart above shows, stocks have been on a...

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