before the bell...2020/04/06 · although mr. johnson remains in charge of britain’s government,...

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. ____________________________________________________________________________________________________________________________ © 2020 Ameriprise Financial, Inc. All rights reserved. of 13

Before the Bell Morning Market Brief

April 6, 2020

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

MONDAY MORNING MARKET STRATEGY: David M. Joy, Chief Market Strategist Stocks slumped last week as evidence of the economic toll of the coronavirus continued to mount. In the U.S., a staggering 6.6 million new claims for jobless benefits were filed. In addition, the employment report for March showed the first loss of jobs since 2010, despite being representative of only mid-month labor market activity. In addition, manufacturing, factory orders, vehicle sales, construct spending and consumer confidence all declined. The S&P 500 shed 2.1 percent on the week. It was the fifth weekly decline in the past seven since the current selloff began, leaving the index down 23 percent year-to-date and down 27 percent from its February 19th. peak. Somewhat encouragingly, expected volatility in the S&P 500 declined sharply. The VIX index fell to a reading of 47 from 66 the prior week, extending a decline that began in mid-March when the index reached 83. Stocks outside of the U.S. fell by 2.9 percent in dollar terms for the week.

The yield on the ten-year treasury note slipped 8 basis points to 0.60 percent, just 6 basis points above it March low. And credit spreads widened after contracting last week for the first time since February.

Volatility in the oil patch intensified on rumors of a potential agreement among major exporters to limit production. West Texas Intermediate crude oil began the year at $61.06 a barrel. But in response to the collapse in demand due the virus induced economic slowdown and the ensuing price war between Saudi Arabia and Russia, the price fell to $20.09 by last Monday, a 67 percent decline. But in response to last week’s rumors, the price per barrel shot up to $28.34 on Friday, a rise of 41 percent. Energy stocks rose by little more than 5 percent on the week, but even that was not enough to lift the overall index owing to its less than 3 percent weighting. Talks OPEC members and Russia are expected to take place this week, leaving hopes of some agreement alive, but whether the U.S. industry would take part in any production reduction remains a sticking point.

Over the weekend, the White House and the Surgeon General warned that the next two weeks were going be among the most challenging in the fight against the coronavirus. According to models produced by the Institute for Health Metrics and Evaluation at the University of Washington, the peak date for hospital resource usage will occur on April 15th, and the peak date of mortality will occur on April 16th. Overseas the news was mixed but did contain some cause for optimism. In Europe, there was a welcome slowdown in the rate of mortality, although Japan reported an increase in the rate of infection.

Efforts to mitigate the economic effects of the virus in the U.S. have begun somewhat unevenly. The preparedness of banks to participate in the small business lending program under the Cares Act was lacking, as regulations were not released until just prior to the program’s launch. And the mortgage forbearance provision was met with overwhelming demand that created problems for both banks and mortgage servicers. The program was designed for those mortgage

Before The Bell April 6, 2020 ____________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________ © 2020 Ameriprise Financial, Inc. All rights reserved. of 13

holders who have been financially harmed by the virus, but required no proof and banks are prohibited from requiring any. The result has been an initial surge in demand, raising questions about the definition of financial harm. The FHFA said that it interprets the legislation as requiring that an applicant must have lost a job or income to qualify. Beyond the question of eligibility, is the question of the industry’s financial ability to service the program. The missed mortgage payments must still be forwarded through to bondholders, creating a cash flow problem for mortgage servicers. In response, the industry is urging the federal government to create a liquidity facility for mortgage servicing companies for loans backed by Fannie Mae, Freddie Mac and private label mortgages.

Stocks in Europe and futures in the U.S. are rising as this week gets underway, as investors are focused on evidence of the virus mortality curve flattening in Europe and in New York, the epicenter of the outbreak in the U.S. If the IHME models are accurate, further evidence of flattening in the U.S. should occur in the next ten days to two weeks. Mitigation efforts will certainly need to continue beyond the expected peak to prevent a reacceleration, but sustained evidence of a peak and subsequent flattening of the curve would go a long way to restoring a sustained sense of optimism.

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

higher overnight; West Texas Intermediate (WTI) oil trading at $27.60; 10-year U.S. Treasury yield at 0.65%.

Points To Consider As We Start The Week: The S&P 500 Index fell roughly 2% last week, while the NASDAQ Composite dropped by 1.7%. Given how volatile the last several weeks in the market have been, trading activity over the previous five trading days was pretty calm, in our view. Each index is currently lower by more than 25% from its February 19th highs. And while some technology and consumer-related stocks weathered the storm better than the broader market in the first quarter, U.S. Treasuries, gold, and cash were some of the only major asset classes to show positive returns in Q1.

Please refer to our recently published Committee Perspectives: Q1 Review for more detail about one of the most difficult quarters this country has faced in over a decade. Also, please refer to our other recently published Committee Perspectives, which highlight long-term investment principles to help you navigate this challenging period. Over the coming weeks, you will also see additional reports/content and added context to help you understand the current investment environment. At the end of the first quarter, the Global Asset Allocation Committee modestly adjusted its tactical recommendations, be sure to reference our Tactical Asset Allocation Update report for more detail.

As a new shortened holiday week begins, here are some points for color as markets continue to grapple with COVID-19 headlines and an economic shutdown: Friday’s 701K drop in nonfarm payrolls during March, as well as the nearly 10 million new unemployment

claims filed in the last two weeks of the previous month, were historically ugly. But as we highlighted last week, markets, as well as our estimates, expect the employment picture to darken materially over the near-term. To some extent, we believe the bad news on the jobs front is priced into equity markets today.

Earnings season is quickly approaching. Starting next week, investors will begin to receive more detailed looks into coronavirus impacts on business results. In our view, the information could be an essential gauge in helping determine the next leg in stock market performance. Analysts expect Q1’20 earnings per share (EPS) to drop by 7.3% y/y on sales growth of 1.5%. Over the first quarter, Q1 EPS estimates decreased by 9.1%. The FactSet chart below shows just how aggressive the drop in EPS expectations was over the previous three months, and relative to history. Energy, Consumer Discretionary, Industrials, and Materials are all expected to see EPS declines in excess of 20% y/y in Q1. Communication Services, Utilities, Real Estate, Health Care, and Technology are expected to post positive EPS growth for the quarter.



While volatility is edging lower, stock prices are not moving higher at the moment. The FactSet chart below highlights that stocks continue to struggle in the face of COVID-19 headlines, despite the reduced day-to-day market gyrations last week. In our view, the reduction in volatility is an encouraging first sign of possible market stabilization. However, and as President Trump signaled over the weekend, there are still very difficult days ahead for America and its war with the coronavirus. It is unlikely, in our view, stocks will successfully find a lasting equilibrium without more clarity on the virus outbreak.

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Volatility edging lower, but it's not helping lift stock prices 6-Month

CBOE Volatility Index - Price S&P 500 - Price

The Fed continues to provide liquidity at an aggressive pace. The FactSet chart below shows just how quickly the Federal Reserve has expanded its balance sheet to ensure adequate liquidity across financial markets. While fiscal measures may take more time to help blunt the impact from a shuttered economy, the Fed is an essential ingredient in keeping the economy’s plumbing working today and into the future. During



previous recessions, the Fed’s actions “eventually’ helped provide stability across the economy. Thus this aided market stabilization and helped stock prices to trend higher over time. Though we do not know when this may occur this time or at what market level, history suggests the actions the Fed and government are taking today could be additive and supportive of a better tomorrow.

Asia-Pacific: Asian equities finished higher on Monday. According to FactSet, Japan Prime Minister Shinzo Abe could declare a state of emergency on Tuesday, due to the coronavirus. The declaration could give more powers to local governors in affected areas, which would include issuing stay at home orders. However, given Japanese laws, stay at home orders would most likely be implemented as requests for voluntary compliance.

Europe: Markets across the region are trading in the green at mid-day. Some of Europe’s most significant hotspots, including Spain, France, Italy, and the UK, all reported declines in coronavirus deaths over the weekend. Per FactSet, Italy reported its smallest daily increase in COVID-19 deaths in two weeks.

UK Prime Minister Boris Johnson was admitted to the hospital on Sunday as a precautionary step to treat his coronavirus symptoms. According to Reuters, Mr. Johnson’s aids stressed it was not an emergency admission. But given his age and symptoms, testing his oxygen levels as well as heart and lung functions in a hospital is appropriate. Although Mr. Johnson remains in charge of Britain’s government, Foreign Secretary Dominic Raab will chair today’s COVID-19 meeting Mr. Raab could take on more leadership responsibility in the government if Mr. Johnson becomes too ill to work, per FactSet.

U.S.: Equity futures are pointing to a higher open. Here’s a quick news rundown to start your morning: A few coronavirus headlines leaned a little positive over the weekend, which is helping lift sentiment

heading into the market open today. New York experienced fewer deaths on Sunday, and Governor Andrew Cuomo said data might start to show the state is reaching a plateau, according to FactSet. Despite President Trump saying the country should brace for its “toughest week,” the president struck a more optimistic tone on Sunday, saying he sees “light at the end of the tunnel.” Across Europe, COVID-19 death rates continue to slow at the same time governments across the region have started making plans to ease lockdowns.

But America, as a whole, may continue to face challenging headlines over the coming days. As the virus death toll increases around the country, concerns that other “hotspots” in the U.S. may crop up could keep equities volatile. However, the trading week will be shortened in observance of Good Friday.

As we continue to highlight, the market could have a stock buyback problem moving forward. Several large companies have already suspended their buyback programs, and diminished revenues, reduced capacity to issue high-yield debt, and government restrictions could all pressure more companies to follow



suit. As The Wall Street Journal highlighted, corporate buybacks have been the only net source of money entering the stock market since the financial crisis in 2008. The WSJ cited Reynolds Strategy data, which estimated companies had spent a net $4 trillion on share buybacks since the start of 2009.

Per CNBC, Saudi Arabia and Russia could be nearing an oil production agreement. Bloomberg noted that both countries, as well as other large oil producers, are nearing a deal that could curb oil output, and progress was made on Sunday. However, hurdles remain. Reports suggest Saudi Arabia and Russia want the U.S. to participate in a production cut, which would be very difficult to put in place given the nature of our oil market. And an OPEC+ meeting scheduled for today has only tentatively been rescheduled for Thursday, per FactSet.

WORLD CAPITAL MARKETS 4/6/2020 As of: 8:30 AM ET

Americas % chg. % YTD Value Europe (Intra-day) % chg. %YTD Value Asia/Pacific (Last Night) % chg. %YTD ValueS&P 500 -1.51% -22.56% 2,488.7 DJSTOXX 50 (Europe) 3.85% -25.83% 2,765.6 Nikkei 225 (Japan) 4.24% -20.74% 18,576.3 Dow Jones -1.69% -25.74% 21,052.5 FTSE 100 (U.K.) 2.09% -25.91% 5,528.5 Hang Seng (Hong Kong) 2.21% -15.59% 23,749.1 NASDAQ Composite -1.53% -17.55% 7,373.1 DAX Index (Germany) 4.49% -24.87% 9,953.5 Korea Kospi 100 3.85% -18.46% 1,791.9 Russell 2000 -3.11% -36.69% 1,052.1 CAC 40 (France) 3.42% -27.82% 4,296.8 Singapore STI 3.40% -22.91% 2,470.6 Brazil Bovespa -3.76% -39.87% 69,538 FTSE MIB (Italy) 2.79% -28.35% 16,841.6 Shanghai Comp. (China) -0.60% -9.38% 2,764.0 S&P/TSX Comp. (Canada) -1.22% -23.45% 12,938.3 IBEX 35 (Spain) 3.27% -28.46% 6,796.9 Bombay Sensex (India) -2.39% -32.91% 27,591.0 Mexico IPC -1.53% -23.84% 33,075.4 MOEX Index (Russia) 1.12% -14.34% 2,601.1 S&P/ASX 200 (Australia) 4.33% -19.60% 5,286.8

Global % chg. % YTD Value Developed International % chg. %YTD Value Emerging International % chg. %YTD ValueMSCI All-Country World Idx -1.38% -24.26% 425.4 MSCI EAFE -1.30% -26.30% 1,487.1 MSCI Emerging Mkts -0.81% -25.08% 831.7 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 Commodities Communication Services -2.19% -20.54% 143.8 Equity Income Indices % chg. % YTD Value Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Discretionary -1.47% -23.36% 753.1 JPM Alerian MLP Index -0.16% -57.41% 92.9 CRB Raw Industrials 0.01% -7.41% 418.3 Consumer Staples 0.54% -11.37% 569.1 FTSE NAREIT Comp. TR -1.44% -29.22% 15,113.0 NYMEX WTI Crude (p/bbl.) -3.00% -54.98% 27.5 Energy -1.34% -49.15% 229.3 DJ US Select Dividend -2.55% -33.52% 1,522.7 ICE Brent Crude (p/bbl.) -2.43% -49.58% 33.3 Financials -2.23% -35.81% 326.0 DJ Global Select Dividend 3.05% -36.17% 149.1 NYMEX Nat Gas (mmBtu) 3.27% -23.53% 1.7 Health Care -0.96% -14.50% 1,010.9 S&P Div. Aristocrats -1.36% -26.02% 2,269.5 Spot Gold (troy oz.) 1.30% 8.22% 1,641.9 Industrials -1.55% -30.47% 475.7 Spot Silver (troy oz.) 1.16% -18.47% 14.6

Materials -2.33% -30.14% 267.9 LME Copper (per ton) -1.14% -21.55% 4,824.0 Real Estate -0.76% -23.70% 181.9 Bond Indices % chg. % YTD Value LME Aluminum (per ton) -0.65% -18.70% 1,448.1 Technology -1.65% -15.56% 1,355.6 Barclays US Agg. Bond 0.09% 3.42% 2,301.1 CBOT Corn (cents p/bushel) -0.76% -16.85% 328.3 Utilities -3.62% -19.27% 263.0 Barclays HY Bond -0.64% -14.48% 1,866.8 CBOT Wheat (cents p/bushel) 2.05% -0.22% 560.5

Foreign Exchange (Intra-day) % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) -0.15% -3.82% 1.08 Japanese Yen ($/¥) -0.43% -0.38% 109.02 Canadian Dollar ($/C$) 0.44% -8.15% 1.41British Pound (£/$) 0.16% -7.30% 1.23 Australian Dollar (A$/$) 1.30% -13.47% 0.61 Swiss Franc ($/CHF) -0.15% -1.25% 0.98Data/Price Source: Bloomberg. Equity Index data is total return, inclusive of dividends, where applicable.

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

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

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

1) Communication Services 10.7% Underweight - 2.0% 8.7% 6) Health Care 14.9% Overweight +3.0% 17.9%

2) Consumer Discretionary 9.9% Overweight +2.0% 11.9% 7) Industrials 8.4% Equalweight - 8.4%

3) Consumer Staples 7.6% Equalweight - 7.6% 8) Information Technology 25.7% Equalweight - 25.7%

4) Energy 2.7% Equalweight - 2.7% 9) Materials 2.4% Equalweight - 2.4%

5) Financials 11.2% Underweight - 3.0% 8.2% 10) Real Estate 3.0% Overweight +1.0% 4.0%

11) Utilities 3.5% Underweight - 1.0% 2.5%

Ameriprise Global Asset Allocation Committee Global Equity Region - Tactical View

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

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

1) United States 55.7% Overweight +7.1% 62.8% 5) Latin America 1.0% Equalweight - 1.0%

2) Canada 2.7% Equalweight - 2.7% 6) Asia-Pacific ex Japan 14.4% Equalweight - 14.4%

3) United Kingdom 4.2% Underweight - 2.0% 2.2% 7) Japan 7.2% Underweight - 2.0% 5.2%

4) Europe ex U.K. 13.7% Underweight - 2.0% 11.7% 8) Middle East / Africa 1.1% Underweight - 1.1% -



THE WEEK AHEAD: Russell T. Price, CFA, Chief Economist S&P 500 EPS estimates down sharply but still likely far from a bottom. Full year earnings per share (EPS)

estimates for companies of the S&P 500 have declined a massive $20.18 over just the last two months. On February 3rd, aggregate 2020 EPS estimates for the Index stood at $176.77, suggesting an approximate 7.9% gain over 2019 EPS levels. As of Friday, the full-year EPS estimate stands at $156.59, suggesting a year-over-year decline of nearly 5%. (Note: On February 3rd, most constituents of the Index had not yet reported their fourth quarter results. At the time, EPS for 2019 were thought to be $163.81. The actual number for the year was $164.38, according to FactSet.) Please see the table on page 7.

Of the $20.18 decline, $5.91 of the negative adjustment has come over just the last week. Estimates for Q1 fell an added $0.79 last week, to $36.62, while estimates for Q2 declined an additional $2.37 to $35.94. Even after these large cuts, we believe earnings forecasts are still well above the likely reality – especially for Q2.

If earnings estimates still have material downside, does this mean stock prices do as well? Possibly, but not necessarily, in our view. We believe financial markets are likely to (and will be glad to) put this episode in the rear-view mirror once the viral situation itself starts to clear. Thus, we believe stocks will focus on the recovery rather than this very difficult, yet hopefully very rare, experience. As we mentioned last week, we note that stock prices hit their lows during the Great Recession just after S&P 500 companies reported negative EPS for the fourth quarter of 2008.

The economic calendar is very light in this holiday-shortened week. New sign-ups for unemployment insurance should remain the main focus for investors again this week. Unfortunately, we believe another 5 to 6 million new claims are likely to be reported for the period that ended Saturday, bringing the 3-week total to over 15 million. Such levels are still very likely under representative of the actual situation as most states have reported problems in handling system volumes. Overall, we believe 25 to 32 million people could lose their employment during this situation. Though this would easily be a record in both volume and pace, we believe employment levels should rebound solidly once health concerns fade – which they undoubtedly will at some point.

The University of Michigan’s preliminary read on April Consumer Sentiment is also expected to post a further sharp decline when reported on Thursday. The report is being issued a day early this month as U.S. financial markets are closed on Friday for Good Friday. Passover is also celebrated this week from Wednesday evening through Thursday evening.

Finally, the Labor Department is scheduled to release its March Consumer Price Index (CPI) report on Friday when markets are closed. This is an unusual occurrence but one that we do not see as a particular problem in the current situation given that supply and demand for all but consumer staples has been thrown completely out of whack over the last two months and inflation /deflation are distant concerns under the present circumstances. Regardless, headline CPI is expected to show a rather sharp decline with notable downward pressure from sharply lower gasoline prices. Core inflation is also likely to show a more muted decline as well.

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April 6 7 8 9 10Job Openings Home Building - Canada Initial Jobless Claims Consumer Price Index

Consumer Credit Producer Price Index Good Friday

Manufacturing Activity - Canada U. of M. Consumer Sentiment US Markets Closed

Retail Sales - Brazil Industrial Production - Italy

Industrial Production - Germany Inflation - China Industrial Production - France

Retail Sales - Italy Industrial Production - India Home Prices - Canada

Inflation - Mexico Consumer Confidence - Japan



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.

Please note: The consensus earnings estimates shown below should NOT be relied upon. In this VERY dynamic and rapidly changing environment, analysts have very likely not had time to catch-up to the reality of the situation, and they may not for some time. Ultimately, we believe Q1 aggregate earnings for S&P 500 companies are likely to be significantly lower than that shown below, and potentially negative in Q2. By comparison, S&P 500 earnings per share were negative in just one quarter during the Great Recession, posting an EPS loss of $2.42 in Q4-2008.

Consensus Earnings Estimates: Source: FactSet

S&P 500 Earnings Estimates 2015 2016 2017 20214/6/2020 Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Est. Est. Est. Est. Est.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Quarterly $$ amount $38.72 $41.13 $42.88 $41.32 $38.80 $41.59 $42.21 $41.78 $36.62 $35.94 $40.89 $43.14

change over last week -$0.79 -$2.37 -$1.63 -$1.12

yr/yr 25.4% 25.4% 27.8% 13.7% 0.2% 1.1% -1.6% 1.1% -5.6% -13.6% -3.1% 3.3%

qtr/qtr -1% 6% 4% -4% -6% 7% 1% -1% -12% -2% 14% 6%

Trailing 4 quarters $$ $118.67 $119.64 $133.50 $141.41 $149.74 $159.07 $164.05 $164.13 $164.59 $163.92 $164.38 $162.20 $156.55 $155.23 $156.59 $181.04

yr/yr -0.3% 0.8% 11.6% 22.9% 0.2% -4.7% 15.6%

Implied P/E based on a S&P 500 level of: 2489 15.1 15.3 15.9 16.0 15.9 13.7

2019 20202018



ECONOMIC NEWS OUT TODAY: Economic Releases for Monday, April 6, 2020. All times Eastern. Consensus estimates via Bloomberg. None Scheduled

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

Our Recommendation: Overweight U.S. Government Bonds and Underweight Developed Market Bonds We tactically (6-12 month horizon) recommend adding new money to U.S. Government Bonds in fixed income

allocations and recommend avoiding Developed Market Bonds including those of the Eurozone. See our Tactical Asset Allocation Update report dated April 30 for more information.

Eurozone bank reforms that fell short following the 2008 financial crisis likely resurface and poses challenges for European banks and add complexity around a coordinated European Union or European Central Bank response to the financial crisis. Kicking the can works until it doesn’t. Certainly, the EU and ECB mounted a reasonable initial response to fund a virus response, but next steps may become more complicated but the limited wherewithal the ECB retains to spur growth. This hands the lead to fiscal authorities and is hampered by the potential for higher non-performing loans that scuttle the ability of the banking system to bridge companies across the contraction in economy. Whereas, banks in the U.S. are well capitalized and poised to weather a rise in non-performers, to lead support through the contraction, and to support an economic recovery in our opinion.

In general, European banks discontinued dividends to rebuild capital in recognition of higher non-performers ahead and lagging reforms in the region. While U.S. banks set course to maintain common dividends for now, regulators may seek to curtail dividend distributions to increase the capital levels in anticipation of higher potential write-offs. From a broad fixed income credit perspective, we would like to see banks forego dividends to build liquidity in-line with the mounting liquidity build seen across investment grade credit. That agenda runs counter to the preference for bank stock investors.

We believe new tools unleashed by the ECB may be a harbinger for ideas tapped by the Fed. Further, we believe Europe has a slight lead on enduring the economic contraction and may illuminate the path for economic frictions through the contraction and highlight the political will required to lead through the 2020 contraction. We believe the U.S. is better positioned to navigate economic dynamics ahead, but that many of the lessons learned in Europe may still apply to the U.S. down the road.

U.S Treasury yields have converged with German Bund yields as the Fed cut policy rates (see chart below left). A key measure for European cohesion is the spread between 10-year Germany Bund yields and yields across Europe’s periphery. See chart below.

Fed Supports Bond Market Liquidity; Boost Banks’ Ability to Lend Fed security holdings rise to more than $5 trillion in the week ending April 1, with holdings of Treasuries and agencies

rising by nearly $1 trillion since March 11 as the Fed stepped in to absorb a wave a selling that prompted a temporary dislocation. We believe the Fed’s presence with QE unlimited, repo funding, dealer funding, money market funding, and high-quality corporate bond markets anchor bond markets so investors can count on liquidity in key markets and reasonable execution costs. At the same time, the largely avoided the moral hazard of picking winners and losers in highly impacted industries in our view.



Excess bank reserves rose over the week ending April 1 after the Fed reduced the excess bank reserve requirements and removed U.S. Treasuries from bank leverage ratios. Higher reserves support greater capacity for banks to lend and provide bridge financing to companies seeking liquidity to weather the current downturn. We see the rise in bank reserves to $5.7 trillion in the chart below right as aiding bank liquidity and setting up support for a likely recovery in coming months.

Other Areas of Bond Markets We are Watching Emerging market bonds: Investors withdrew $83.3B from emerging market bonds and stocks in the first quarter.

When global challenges arrive, yields fall in developed government debt, such as U.S. Treasuries, enabling the cheaper funding for fiscal stimulus. Conversely, in emerging markets, money outflows often prompt policy rate hikes to attract or retain foreign capital. Weakening EM currencies make exports more attractive, but also make U.S. dollar denominated debt more difficult to repay. In pandemic situation, higher EM borrowing rates and weaker currencies further challenge a concerted local response to an outbreak. In the end, we recommend an underweight on Emerging Market Bonds over our 6 to 12 month Tactical horizon, until the global economic impact can be established and until we have a better understanding of how IMF virus assistance may impact the trajectory of the pandemic’s impact among a wider range of nations.

The chart below left highlights the degree of spread widening between U.S. High Yield Bond and Emerging Foreign Bond spreads. While ratings on Emerging Market Bonds are generally investment grade, the confluence of factors facing many emerging nations drove spreads wider, and appropriately so in our view.

Municipals: Tax-exempt municipal markets continue to be buffeted by fund outflows. We see the elevated ratios of AAA-rate Municipal Market Analytics (MMA) Index yields to U.S. Treasuries as a buying opportunity for A-rated or higher municipalities (see chart below right). Current fiscal stimulus likely leads to high tax rates in the years ahead, suggesting an additional catalyst for adding to high-quality tax-exempt issuance at present. We recommend an active approach to municipal investing today where possible. See additional commentary from Doug Noah, CFA in Friday’s Morning Research Notes report for guidance on individual bonds, or our Starting Point Fund List for recommended strategies.

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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 Open – 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, CMT, CAIA – Sr Director, Asset Allocation

Cedric Buermann Jr., CFA – Analyst, Asset Allocation Gaurav Sawhney – Research Analyst

Amit Tiwari, CFA – 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, CFA – Analyst – Core Equity

Cynthia Tupy, CFA – Director – 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, CFA – Analyst – Core Taxable & Tax-Exempt Fixed Income

Blake Hockert – Associate – Reporting & Analytics

FIXED INCOME RESEARCH & STRATEGY

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

Stephen Tufo – Director INVESTMENT DUE DILIGENCE

Justin E. Bell, CFA – Vice President

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

Kay S. Nachampassak – Director

Peter W. LaFontaine – Sr. Analyst

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

David Hauge, CFA – Analyst

Bishnu Dhar – Sr. Research Analyst

Parveen Vedi – Sr. Research Associate

Darakshan Ali – Research Process Trainee

INNOVATION AND DEVELOPMENT

Allen Rodrigues – Vice President

Nidhi Khandelwal – Director

Dan Burns – Sr. Manager

Matt Morgan – Sr. Manager

Natasha Wayland – Sr. Manager



The content in this report is authored by American Enterprise Investment Services Inc. (“AEIS”) and distributed by Ameriprise Financial Services, Inc. (“AFSI”) to financial advisors and clients of AFSI. AEIS and AFSI are affiliates and subsidiaries of Ameriprise Financial, Inc. Both AEIS and AFSI are member firms registered with FINRA and are subject to the objectivity safeguards and disclosure requirements relating to research analysts and the publication and distribution of research reports. The “Important Disclosures” below relate to the AEIS research analyst(s) that prepared this publication. The “Disclosures of Possible Conflicts of Interest” section, where applicable, relates to the conflicts of interest of each of AEIS and AFSI, their affiliates and their research analysts, as applicable, with respect to the subject companies mentioned in the report. Each of AEIS and AFSI have implemented policies and procedures reasonably designed to ensure that its employees involved in the preparation, content and distribution of research reports, including dually registered employees, do not influence the objectivity or timing of the publication of research report content. All research policies, coverage decisions, compensation, hiring and other personnel decisions with respect to research analysts are made by AEIS, which is operationally independent of AFSI. IMPORTANT DISCLOSURES As of 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 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.

before the bell...2020/04/06 · although mr. johnson remains in charge of britain’s government,...

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