Before the Bell...2021/05/27 · Markets Looking For Direction: Through the first 100 trading days,...

FOR IMPORTANT DISCLOSURES PLEASE SEE THE DISCLOSURE PAGES AT THE END OF THIS DOCUMENT 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. ____________________________________________________________________________________________________________________________ © 2021 Ameriprise Financial, Inc. All rights reserved. of 10

Before the Bell Morning Market Brief

May 27, 2021

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

overnight; West Texas Intermediate (WTI) oil trading at $65.77; 10-year U.S. Treasury yield at 1.62%.

Markets Looking For Direction: Through the first 100 trading days, the S&P 500 Index has risen more than +11.0% in 2021. According to Bespoke Investment Group, that’s more than triple the median year-to-date gain of +3.1% the Index typically sees at the same point in the year. Over the last eleven years (including this year), the S&P 500 has been positive ten times at this point in the year (last year the exception).

As Bespoke notes, stock gains through the rest of the year tend to be positive, but declines tend to be more common than over the first 100 trading days. Of course, with more of the year ahead than in the rearview mirror, it would stand to reason mathematically there would be more opportunities for declines to occur. Nevertheless, just because returns have been stronger than average over the first 40% of the trading year doesn’t necessarily mean the market has pulled forward its gains.

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In the other 24 periods where the S&P 500 gained more than +10% through the first 100 trading days, going back to 1928, the median return through the rest of the year was +9.3%, per Bespoke. Over these periods, the Index was positive 75% of the time. Bottom line: Returns thus far in the year have been stronger than average, and at least historically, the set-up through the rest of the year appears favorable.

With that said, the S&P 500 has traded in a much tighter range since mid-April, as shown in the FactSet chart above. From a technical perspective, stocks don’t appear overbought based on the relative strength index, but it seems some buyer exhaustion has set in. In our view, stocks are consolidating some of the strong gains seen since late last year, and investors are likely looking for the next catalysts that could shape direction.

As the FactSet chart above shows, the gap in performance between the Dow Jones Industrials Average and NASDAQ Composite remains relatively wide in 2021. The table below shows that while cyclical value areas of the market continue to lead, returns have moderated over trailing periods. Notably, growth areas have seen performance flatline or turn negative in May.

S&P 500 Sector% Change 6-

Month% Change 3-

Month% Change MTD

Materials (CYC) 21.5 18.0 4.4

Energy (CYC) 32.6 8.1 4.8

Financials (CYC) 31.5 16.2 3.4

Consumer Staples (DEF) 6.2 12.4 2.2

Health Care (DEF) 13.9 9.5 1.6

Industrials (CYC) 16.7 14.5 1.6

Real Estate (DEF) 17.8 15.7 0.6

S&P 500 15.6 10.1 0.4

Comms Services (CYC) 19.5 11.0 0.0

Technology (CYC) 13.5 6.1 -0.8

Utilities (DEF) 1.4 11.8 -2.6

Consumer Discretionary (CYC) 8.1 6.6 -3.9

Sources: American Enterprise Investment Services, Inc., & FactSet. Price data as of May 26, 2021.

(CYC) = Cyclical. (DEF) = Defensive.



In our view, markets are currently devoid of any directional drivers at the moment. First quarter earnings season is almost a wrap, and current inflation dynamics and Fed commentaries/speeches on policy suggest the current landscape is well understood by investors. In some respects, the market may have to wait for more data to roll in over the coming months to confirm or refute embedded assumptions about growth and profits. We believe positive/negative surprises on the economic front (as we highlighted in Before the Bell on Tuesday) could help to shape price action through the end of the quarter. Also, any company/industry guidance, especially in cyclical areas with strong price momentum, may be additive to directing stock traffic at a macro level. For now, a consolidation pattern should be welcomed and allow for markets and investors to catch their breath after a solid start to the year.

Asia-Pacific: Asian equities finished mixed on Thursday. U.S. Trade Representative Katherine Tai and China Vice Premier Liu He held their first phone conversation under the Biden administration overnight. While details of their talks are sparse, Bloomberg highlighted that the conversation was “candid and constructive.” Staff-level talks on Tuesday showed Chinese officials continue to seek the roll-back of tariffs, and U.S. officials continue to highlight Beijing is behind on its phase one commitments. Along with trade and competitive dynamics, under the surface, Taiwan, Hong Kong, the South China Sea, and human rights abuses continue to be considerable headwinds in U.S./China relations. In our view, markets will likely continue to struggle with discounting how the two economic superpowers will evolve their complex relationship.

Europe: Markets across the region are trading mixed at midday. The Financial Times highlighted some investors might be underappreciating the impact the European Union’s bailout fund could have on the European recovery in the second half of the year. The most economically significant countries in the Eurozone have submitted spending plans for their share of as much as €800 billion of funding over the next five years. Unlike pandemic stimulus in the U.S., the EU’s bailout was delayed and designed to spread over time. As those stimulus funds begin to be released in the second half, combined with an economic recovery, European assets could benefit. Combined with funds from boosted national budgets, countries like Italy, France, Spain, and Germany could see improved growth trends over the coming quarters. On the whole, European equities are keeping pace with U.S. stocks this year and in local currency terms. But if economic trends continue to accelerate in Europe, we believe the added stimulus could help provide a boost to equity prices in the region

U.S.: Equity futures are pointing to a flattish open. Here is a quick news rundown to start your morning: Republicans ready an infrastructure proposal worth roughly $1 trillion. According to FactSet, Republican

senators will unveil their new proposal today. Politico noted that President Biden in private had expressed comfort with GOP leaders of a deal around that level. Politico also reported that Biden might be willing to extend negotiations past his Memorial Day deadline. Further, Axios noted that some Senate Republicans might agree to deficit spending on a scaled-back infrastructure plan to avoid raising taxes. With that said, some Democrats may balk at the scaled-back proposal and/or a plan that does not include higher taxes on corporations and wealthy Americans.

Markets in a holding pattern in front of a long holiday weekend. Continuing our headline commentary above, U.S. stock futures look set to open near the flatline this morning. U.S. Federal Reserve asset purchase tapering seems to be an ongoing undercurrent in the market this week. Fed officials continue to highlight that the Fed should begin discussions on how to reduce its $120 billion a month in bond purchases over the next several meetings. While this is likely to start a course of tapering sometime next year, markets continue to fret over a policy mistake and inflation levels that could complicate the Fed’s timeline for beginning its stimulus wind down.

Crypto download: On Wednesday, the Senate Banking Committee grilled U.S. Bank CEOs on various topics in its annual oversight hearing. While much of the exchange between senators and the heads of the largest banks revolved around their pandemic response, cryptocurrencies entered the discussion. Bank chiefs expressed a high degree of caution around dealing in cryptos. As the Financial Times noted, Congress and regulators are looking for ways to respond to the explosive growth and volatility in crypto while seeking answers to improve investor protections. At the same time, financial institutions are trying to answer the growing demand and appetite for digital assets. In their testimony, several prominent bank CEOs stated they are taking a cautious approach to cryptos. Some either do not bank companies focused on cryptocurrencies or are taking a measured approach to how they engage. Conversely, several firms are involved in using blockchain technology to complete internal book transfers of cross-border payments and other ledger activities. Notably, Wells Fargo CEO Charles Scharf highlighted that cryptos have “emerged as alternative investment products, though their status as a currency and mechanism of payment remains fluid.”



WORLD CAPITAL MARKETS 5/27/2021 As of: 8:30 AM ET

Americas % chg. % YTD Value Europe (Intra-day) % chg. %YTD Value Asia/Pacific (Last Night) % chg. %YTD ValueS&P 500 0.19% 12.38% 4,196.0 DJSTOXX 50 (Europe) 0.22% 15.78% 4,040.4 Nikkei 225 (Japan) -0.33% 4.76% 28,549.0 Dow Jones 0.03% 13.02% 34,323.1 FTSE 100 (U.K.) -0.19% 10.30% 7,013.8 Hang Seng (Hong Kong) -0.18% 7.95% 29,113.2 NASDAQ Composite 0.59% 6.89% 13,738.0 DAX Index (Germany) -0.25% 12.34% 15,411.7 Korea Kospi 100 -0.09% 10.30% 3,165.5 Russell 2000 1.97% 14.28% 2,249.3 CAC 40 (France) 0.76% 17.88% 6,440.2 Singapore STI 0.60% 13.04% 3,164.8 Brazil Bovespa 0.81% 4.18% 123,989 FTSE MIB (Italy) 0.59% 12.11% 24,924.8 Shanghai Comp. (China) 0.43% 3.91% 3,608.9 S&P/TSX Comp. (Canada) 0.93% 14.51% 19,745.5 IBEX 35 (Spain) 0.27% 14.90% 9,221.3 Bombay Sensex (India) 0.19% 7.27% 51,115.2 Mexico IPC 0.57% 12.65% 49,103.5 MOEX Index (Russia) 0.24% 14.87% 3,719.9 S&P/ASX 200 (Australia) 0.03% 9.94% 7,094.9

Global % chg. % YTD Value Developed International % chg. %YTD Value Emerging International % chg. %YTD ValueMSCI All-Country World Idx 0.18% 10.57% 708.5 MSCI EAFE -0.12% 10.15% 2,328.8 MSCI Emerging Mkts 0.48% 5.31% 1,352.0

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

S&P 500 Sectors % chg. % YTD Value Commodities Communication Services 0.58% 16.60% 257.6 Equity Income Indices % chg. % YTD Value Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Discretionary 0.90% 6.21% 1,380.4 JPM Alerian MLP Index 1.01% 35.82% 188.4 CRB Raw Industrials -0.06% 14.17% 583.08 Consumer Staples -0.18% 5.80% 729.7 FTSE NAREIT Comp. TR 0.40% 17.62% 23,829.3 NYMEX WTI Crude (p/bbl.) -0.69% 35.51% 65.75 Energy 0.93% 39.03% 389.3 DJ US Select Dividend 0.39% 26.54% 2,765.9 ICE Brent Crude (p/bbl.) -0.76% 31.95% 68.35 Financials 0.33% 27.84% 622.5 DJ Global Select Dividend -0.04% 24.00% 262.6 NYMEX Nat Gas (mmBtu) -0.96% 18.08% 3.00 Health Care -0.56% 9.14% 1,435.5 S&P Div. Aristocrats 0.03% 15.58% 3,853.0 Spot Gold (troy oz.) -0.11% -0.20% 1,894.59 Industrials 0.34% 17.46% 875.3 Spot Silver (troy oz.) -0.08% 4.77% 27.66

Materials 0.05% 20.10% 544.1 LME Copper (per ton) 0.61% 28.55% 9,961.25 Real Estate 0.23% 18.90% 268.7 Bond Indices % chg. % YTD Value LME Aluminum (per ton) 1.28% 19.98% 2,368.00 Technology -0.01% 6.59% 2,432.4 Barclays US Agg. Bond -0.07% -2.30% 2,337.1 CBOT Corn (cents p/bushel) 0.44% 30.61% 627.25 Utilities 0.00% 4.95% 330.3 Barclays HY Bond 0.05% 2.10% 2,387.2 CBOT Wheat (cents p/bushel) 1.89% 5.17% 660.75

Foreign Exchange (Intra-day) % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) 0.02% -0.17% 1.22 Japanese Yen ($/¥) -0.19% -5.59% 109.36 Canadian Dollar ($/C$) 0.30% 5.28% 1.21British Pound (£/$) 0.37% 3.67% 1.42 Australian Dollar (A$/$) 0.01% 0.65% 0.77 Swiss Franc ($/CHF) -0.14% -1.59% 0.90Data/Price Source: Bloomberg. Equity Index data is total return, inclusive of dividends, where applicable.



BY THE NUMBERS: ECONOMIC ACTUALS AND FORECAST:

ECONOMIC NEWS OUT TODAY: Economic Releases for Thursday, May 27, 2021. All times Eastern. Consensus estimates via Bloomberg. Time Period Release Consensus Est. Actual Prior Revised to 8:30 AM May 15 Initial Jobless Claims 450k 406k 473k 478k 8:30 AM May 8 Continuing Claims 3630k 3642k 3751k 3738k 8:30 AM APR New Orders for Durable Goods (MoM) +0.8% -1.3% +0.8% +1.3% 8:30 AM APR New Orders Ex. transports (MoM) +0.8% +1.0% +1.9% +3.2% 8:30 AM Q1-S Q1 Real GDP – Second estimate +6.5% +6.4% +6.4% 8:30 AM Q1-S Q1 Personal Consumption – 2nd est. +11.0% +11.3% +10.7% 10:00 AM APR Pending Home Sales (MoM) +0.5% +1.9% 10:00 AM APR Pending Home Sales (YoY) +62.0% +25.3% Economic Perspective: Russell T. Price, CFA – Chief Economist Good economic news for investors to consider this morning. Durable goods orders fell last month but the drop

was essentially all due to the known factor of automotive production constraints resulting from ongoing semiconductor supply problems. It was unknown at what point the major automakers would have dealers hold back on new orders given their rapidly building backlogs, but it appears that that time has come.

More importantly, core durable goods orders (excluding transports) showed a strong month-over-month gain and the results for March were revised significantly higher as well.

Business spending related new orders (new orders for non-defense capital goods excluding aircraft), meanwhile, were a strong 2.3% higher m/m in April after rising 1.6% in March. Year-ago comparisons are distorted by the pandemic onset but the 3-month annualized pace of new orders in this segment were up 11.4% through April.

Overall, despite the supply constraints currently offered in some key industries,



we believe the outlook for manufacturing activity remains quite strong. The chart at right is sourced from FactSet and HAS been updated for today’s release.

New claims for unemployment insurance also declined rather sharply last week, although as we have noted in recently commentaries, we believe the series has become somewhat less reliable recently given widespread reports of fraudulent claims being filed.

Adjusting our outlook, modestly… The constant release of new economic information leads us to continually update

our economic forecasts, if necessary. With that in mind, we are trimming our Q2 real GDP growth estimate modestly this morning, although our full-year real GDP forecast remains at +6.5%. Please see the table at the top of the previous page depicting our estimates.

Supply constraints and restaffing challenges lead us to trim our near-term expectations and we are lowering our Q2 real GDP forecast to +10.0% versus our prior, short-lived, estimate of +11.5%. Of course, even with the trim, these are still remarkable growth rates. Our revised estimate is also still above the +9.0% rate we had projected in April.

Supply dynamics should largely dictate the economy’s growth prospects this year. In our view, there is little room to question the demand side of the economic equation given flush consumer finances, accelerating business spending and substantial government stimulus that will flow through the system for quarters to come.

Our inflation expectations have also bumped up. We now forecast the Consumer Price Index (CPI) to see a near-term peak rate of +4.5% in May before year-over-year rates begin to slowly ease as year-ago comparisons rise. Nevertheless, we now expect CPI to close the year at a lofty +3.6%. A growing number of contributing inflation sources seems likely to enable price hikes to linger longer than previously expected.

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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 – Sr. Manager Investment Research Coordinator Kimberly K. Shores Sr. Administrative Assistant Jillian Willis 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 – Quantitative, Asset Allocation

Gaurav Sawhney – Research Analyst

Amit Tiwari, CFA – Sr. Research Associate Chief Economist Russell T. Price, CFA – Vice President 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/Comm Services Andrew R. Heaney, CFA – Director

Quantitative Strategies/International Open

MANAGER RESEARCH

Michael V. Jastrow, CFA – Vice President

Mark Phelps, CFA – Director – Multi-Asset Solutions ETFs, CEFs, UITs Jeffrey R. Lindell, CFA – Director

James P. Johnson, CFA, CFP® – Sr. Analyst Alternatives Justin E. Bell, CFA – Vice President – Head of Quantitative Research and Alternatives

Kay S. Nachampassak – Director - Alternatives Quantitative Research Kurt J. Merkle, CFA, CFP®, CAIA – Sr. Director

Peter W. LaFontaine – Sr. Analyst

David Hauge, CFA – Analyst

Blake Hockert – Sr. Associate

Bishnu Dhar – Sr. Research Analyst

Parveen Vedi – Sr. Research Associate

Darakshan Ali – Research Process Trainee Equities Christine A. Pederson, CAIA, CIMA – Sr. Director – Growth Equity, Infrastructure & REIT

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

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

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

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

FIXED INCOME RESEARCH & STRATEGY

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

Stephen Tufo – Director

RETIREMENT RESEARCH

Open – Vice President

Open – Director

Matt Morgan – Sr. Manager



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Before the Bell...2021/05/27 · Markets Looking For Direction: Through the first 100 trading days,...

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Transcript of Before the Bell...2021/05/27 · Markets Looking For Direction: Through the first 100 trading days,...