Before the Bell - cdn.ameriprisecontent.com€¦ · 01.04.2019 · Weekly mortgage applications...

Notations:

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

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

Before the Bell Morning Market Brief

April 1, 2019

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

MONDAY MORNING MARKET STRATEGY: David M. Joy, Chief Market Strategist Stocks ended the first quarter on a strong note, as the S&P 500 rose 1.2 percent last week, putting aside for the moment concerns over the sluggish pace of global growth. After treading water for much of March and having declined in two of the previous three weeks, stocks found some support late in the week as the plunge in bond yields stabilized, bringing its gain in the year’s first three months to 13.1 percent. It was the best quarter for the S&P 500 since the third quarter of 2009, when the economy was first coming out of recession. The drop in the yield on the ten-year treasury note from 2.75 percent at the beginning of March took it all the way down to 2.34 on an intraday basis last Wednesday. But a late week, two-day reversal arrested the slide and pushed the yield back up to 2.41 percent to end the week and eliminating the inversion with the three-month bill. That move higher in yield is being extended in early Monday trading this week, with the ten-year yield trading at 2.44 percent. The search for evidence that the global economy is poised to stabilize in the second quarter got a big boost over the weekend with a surprisingly strong report on Chinese manufacturing activity in March. The official manufacturing PMI rose to 50.5, signaling expansion after spending the previous three months in contraction. While one data point is not conclusive of sustainable economic traction and may have been distorted by the noise surrounding the New Year celebration, it is possible evidence that the country’s stimulus efforts are beginning to take hold. The services PMI was also stronger than forecast, pushing the composite index to a six-month high. Those reports were followed by the private Caixin manufacturing PMI report which rose to its highest level in eight months. That kind of improvement can’t come fast enough for export-oriented Germany, where manufacturing activity in March fell even more than expected. Stocks in Germany are up more than 1 percent in Monday trading on the news from China. Also contributing to the better tone in China were the ongoing trade talks, which took place last week in Beijing and continue this week in Washington. Both sides insist that progress is being made and that they are aiming to have an agreement by the end of April. One group that got a welcome lift from the stabilization in bond yields last week were the financials, banks in particular. After plunging more than 8 percent during the prior week as bond yields collapsed, bank stocks climbed 2 percent last week, leaving the group still trailing the index for the quarter with a gain of 9 percent, but feeling a lot better. Home builders continued to be lifted by the general decline in interest rates during the quarter. That group added another 2.3 percent gain last week, bringing its surge in the quarter to 18.5 percent. Weekly mortgage applications rose almost nine percent last week, their strongest showing since the first week of the year. A strong percentage of applications to purchase was joined by a rise in applications to refinance as well, as mortgage rates fell to their lowest in over a year. That strength was reflected in a strong rise in new home sales in February and a strong upward revision to January’s total, although housing starts and pending sales remained soft. Last week’s U.S. economic data also included a modest downward revision to fourth quarter GDP to 2.2 from 2.3 percent, avoiding the worst fears that the quarter was even weaker than thought. The calendar also included the final

Before The Bell April 1, 2019 ____________________________________________________________________________________________________________________________

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

consumer sentiment tally for March, which showed an unexpected rebound to its best level since last October. If the good feeling engendered by the Chinese manufacturing data is to be extended, U.S. data this week has to do its part. Topping the list this week is Friday’s jobs report. The Bloomberg consensus anticipates the creation of 175,000 new non-farm jobs, a nice rebound from the 20,000 created in February, and much closer to the 186,000 three-month average. Also watched carefully will be the wage component of the report, especially in light of market expectations of a Fed rate cut despite mild pushback on that notion by certain Fed officials. Also on the calendar are February retail sales and durable goods orders, and March manufacturing. With the first quarter now concluded, earnings season is fast approaching. According to FactSet, earnings in the U.S. are now expected to decline in the quarter by almost 4 percent year-over-year. While the comparison to last year is a difficult hurdle to overcome, the sluggish outlook is also a reflection of the generally weak expected performance of the economy in the first quarter, which included the government shutdown, ongoing trade uncertainty, the still unresolved Brexit, and a lot of bad weather. But both the economy and earnings are expected to rebound in the second quarter, leaving full-year GDP expectations slightly above 2 percent and earnings growth expectations at 3.7 percent. MORNING MARKET COMMENTARY: Anthony M. Saglimbene, Global Market Strategist

• Quick Take: U.S. futures are pointing to a positive open; Europe is trading in the green; Asia surged higher overnight; West Texas Intermediate (WTI) oil trading at $60.83; 10-year U.S. Treasury yield at 2.44%.

• What To Watch For In The Second Quarter: The S&P 500 Index finished the first quarter of the year higher by +13.7% on a total return basis, its best start to a year since 1998. The rapid rise in asset prices during the first quarter was not exclusive to U.S. large-caps either. U.S. small-cap and mid-cap stocks outperfomed the S&P 500 in Q1 and even regions such as the UK and Eurozone were able to post double-digit gains during the quarter.

• WTI soared +32.4% in Q1, its best start since 2002, while U.S. High Yield Credit gained +7.3%--its strongest start to a year since 2003. Despite risk appetite declining in the final weeks of the quarter, as the yield curve inverted, Emerging Market Debt rose +6.6% in Q1 and posted its best first quarter since 2012. Closer to home, U.S. Investment-Grade Debt posted a +5.1% gain, its strongest start to a year since 1995.

• All told, most international and domestic assets rallied off their end of December lows and gave investors a second chance to adjust portfolios at more stable prices. As we have highlighted for weeks, the market environment is changing. Economic and corporate profit growth has slowed, trade issues remain unresolved, some recession warnings have started to flash caution, and the economic cycle is long in the tooth. In our view, the second quarter could be a very telling inflection point for the state of the global economy, and could help answer the question: Is the current economic expansion still on pace to become the longest in history? Simply put, if the answer is yes, risk assets are likely to rise in the second quarter. If the answer is no, then investors should expect more volatility across their portfolio in the coming months. Below are a few quick-hitting items to keep tabs on as the second quarter unfolds.

• For markets to continue their trek higher we believe the following three macro items need to also trend in a positive direction: 1) Global economic data needs to stabilize and improve. 2) U.S. profit growth, particularly sales trends, need to hold or surpass expectations. 3) A trade deal between the U.S. and China needs to materialize.

• On the economic front, U.S. data has shown more resiliency over the last few months compared to Europe and Asia, which has been a plus for domestic assets. Weather, a government shutdown, and trade issues can all be forgivable items that economists and investors may discount within the Q1 data. However, as second quarter manufacturing and home data become available investors will expect to see a pickup in each. Lower interest rates, a Federal Reserve on pause, and a robust labor market are all factors investors expect to help drive economic growth in Q2. We anticipate asset prices will be susceptible to the direction of incoming data on these fronts over the coming months.

• Analyst expectations for first quarter earnings are very low. In our view, this could either be a blessing or a curse for companies as they report results in April and May. The low hurdle rate allows U.S. companies an excellent opportunity to surpass expectations, which we believe would be greeted favorably by investors through rising stock prices. Better yet, if companies can provide a positive spin on their Q2 outlooks, risk assets could perform well. Nevertheless, if companies barely meet or miss analyst profit forecasts and at the same time guide sales expectations lower for Q2, stocks may face



a challenging quarter. Earnings season is always crucial for investors, but this season holds considerable weight, in our view.

• Here’s the KISS (Keep It Simple Stupid) version on trade. The market wants a trade deal done in the second quarter. From the market’s perspective, it needs to know tariffs will not increase this year, and possibly some of the existing tariffs on Chinese goods could even come off the table over time. For investors to feel comfortable taking risk assets higher in the second quarter, we believe they need to feel relatively confident the U.S. and China will not derail economic and profit growth through rising tariffs. Even keeping status quo conditions in place could help risk assets trend higher in Q2 if there is confidence tariffs will not get worse. Bottom line: There is little room in the economy for trade tensions to exert more pressure on growth and investors patience with the trade fight is wearing thin.

• Lastly, watch the yield curve. If the 10-year/3-month U.S. Treasury yield curve remains inverted throughout the second quarter and presses even further into inversion, we will become more concerned. Additionally, if the 10-year/2-year U.S. Treasury curve inverts, and stays inverted, we believe a more defensive posture may be warranted. For now, it’s a critical market item to watch, but one that should not inform portfolio positioning quite yet.

• Asia-Pacific: Asian equities finished higher on Monday. Manufacturing activity in China unexpectedly moved back into expansion last month helping stock prices across Asia surge overnight. China official manufacturing PMI rose to 50.5 in March, which was better than the 49.5 expected and topped February’s level of 49.2. Caixin manufacturing PMI rose to 50.8 last month from 49.9 in the prior month, as new orders and production expanded. However, exports shrunk for the 10th straight month in the official PMI sub-reading, though the rate of decline did moderate. In our view, policy easing measures may be starting to show some positive signs in the data, though Lunar New Year distortions in February and March could also still be at play.

• Europe: Markets across the region are trading in the green at midday. Economic data out of Europe continues to disappoint. Final German manufacturing PMI for March slipped to an 80-month low, coming in at 44.1 versus a flash reading of 44.7. March’s data was worse than February's level of 47.6 and represented the third straight month German PMI has sat below the expansion level of 50. As a reminder, PMI levels below 50 indicate a contraction in activity. According to the data, new orders and export sales are falling at rates not seen since the financial crisis. Brexit, softer global growth, and trade uncertainty were the most significant factors cited as headwinds to the manufacturing data.

• More broadly, final March Eurozone manufacturing PMI came in at 47.5 versus a flash reading of 47.6, but better than the 44.7 level in February. Additionally, the flash reading on Eurozone inflation also showed slower activity. The headline reading came in at +1.4% versus the +1.5% expected and matched the prior level. Inflation levels have somewhat decoupled from higher oil prices and likely continues to support the idea that the European Central Bank (ECB) will continue to remain accommodative for the foreseeable future.

• According to Bloomberg, UK Prime Minister Theresa May is taking steps to prepare for a snap election if parliament cannot move forward with a Brexit strategy. Conservative members of parliament (MPs) are at odds on how to proceed, with some supporting a no-deal exit on April 12th, while other MPs indicated they would resign if the UK heads into a no-deal Brexit. Another series of indicative votes are scheduled for today in an attempt for MPs to coalesce around a path forward. Several reports suggest Mrs. May could bring her deal forward for a fourth vote and as a run-off between her deal and a plan that MPs support.

• In Turkey, President Recep Erdogan is on track to lose control of the country’s two largest cities for the first time in his 16 years of power. During local elections on Sunday, the president’s party was defeated in Ankara, the nation’s capital as well as in Istanbul. Along with a string of defeats across other provinces, preliminary results suggest voters are penalizing the president for what has been a very difficult time for Turkey citizens. High inflation, rising unemployment, corporate debt issues, and a currency crisis last year have all converged to sack growth in the country. The Council of Europe has urged Erdogan to embark on a period of political normalization following Sunday’s results.

• U.S.: Equity futures are pointing to a higher open this morning. After markets soared higher in the first quarter, The Wall Street Journal discussed how some investors might increasingly feel like their missing out on the rally. The ‘fear of missing out’ of FOMO can be a powerful motivator and help lift stock prices for brief periods when investors have become too defensive or under-allocated to equities. In our view, retail fund flows over recent months suggest investors have been hesitant to increase equity exposure in this uncertain environment. As the article points out, however, a more dovish Federal Reserve, the steady nature of rising stock prices in Q1, and an expected U.S./China trade deal all point to the possibility that investors may feel compelled to jump back into



stocks. As we highlighted in our headline commentary, that confidence will likely have to be accompanied by stable-to-improving fundamentals.

• Interestingly, the S&P 500 Index fell more than 1.0% in a session just three times in the first quarter, while falling earnings estimates have now pushed valuations higher. As we have stated before, stock prices are fairly valued, in our view, ‘if’ companies can meet earnings estimates. And if companies can surpass those earnings estimates, we believe some upside may still be left in stock prices.

• According to Bespoke Investment Group, the S&P 500 has seen an average gain of +1.5% in April with positive returns 71% of the time, going back to 1983. The average April gain since the financial crisis has been even stronger, with the Index rising +1.8%, with gains every year except 2012.

• This morning, investors will get a look at retail sales and ISM manufacturing activity for March.

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 0.67% 13.65% 2,834.4 DJSTOXX 50 (Europe) 0.67% 13.04% 3,374.1 Nikkei 225 (Japan) 1.43% 8.34% 21,509.0 Dow Jones 0.82% 11.81% 25,928.7 FTSE 100 (U.K.) 0.69% 10.26% 7,329.7 HK Hang Seng ( H. Kong) 1.76% 14.82% 29,562.0 NASDAQ 0.78% 16.81% 7,729.3 DAX Index (Germany) 1.08% 10.34% 11,650.9 Korea Kospi 100 1.29% 6.23% 2,168.3 Russell 2000 0.30% 14.57% 1,539.7 CAC 40 (France) 0.72% 14.21% 5,389.2 Singapore STI 1.17% 6.34% 3,250.5 Brazil Bovespa 1.09% 8.56% 95,414.6 FTSE MIB (Italy) 0.45% 16.69% 21,381.4 Shanghai Comp. (China) 2.58% 27.14% 3,170.4 S&P/TSX Comp. (Canada) -0.33% 13.32% 16,102.1 IBEX 35 (Spain) 0.56% 9.51% 9,292.4 Bombay Sensex (India) 0.51% 7.98% 38,871.9 Mexico IPC 0.79% 4.23% 43,281.3 Russia TI 1.19% 7.07% 4,483.0 S&P/ASX 200 (Australia) 0.59% 12.02% 6,217.0

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

MSCI All-Country World Idx 0.67% 12.33% 508.5 MSCI EAFE 0.51% 10.16% 1,875.4 MSCI Emerging Mkts 1.24% 9.90% 1,058.1 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 0.52% 15.73% 901.2 JPM Alerian MLP Index 0.51% 14.47% 25.5 Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Staples 0.69% 12.01% 580.1 FTSE NAREIT Comp. -0.18% 17.17% 19,445.9 CRB Raw Industrials 0.63% 2.95% 494.6 Energy -0.16% 16.43% 489.4 DJ US Select Dividend 0.45% 11.08% 2,066.5 NYMEX WTI Crude (p/bbl.) 1.20% 34.02% 60.9 Financials 0.32% 8.56% 427.2 DJ Global Select Dividend 0.81% 6.57% 220.4 ICE Brent Crude (p/bbl.) 1.55% 27.57% 68.6 Real Estate -0.11% 17.53% 224.4 S&P Div. Aristocrats 0.72% 12.48% 2,696.2 NYMEX Nat Gas (mmBtu) 0.75% -8.78% 2.7 Health Care 1.18% 6.59% 1,062.5 Spot Gold (troy oz.) -0.02% 0.76% 1,292.2 Industrials 1.01% 17.20% 632.4 Spot Silver (troy oz.) -0.02% -2.45% 15.1 Materials 0.76% 10.30% 347.3 Bond Indices % chg. % YTD Value LME Copper (per ton) 1.99% 9.04% 6,486.5 Technology 0.98% 19.86% 1,299.2 Barclays US Agg. Bond -0.09% 2.94% 2,106.8 LME Aluminum (per ton) 0.36% 1.62% 1,893.0 Communication Services 0.29% 13.98% 157.7 Barclays HY Bond 0.21% 7.26% 2,047.9 CBOT Corn (cents p/bushel) 0.70% -6.27% 359.0 Utilities 0.60% 10.84% 295.2 CBOT Wheat (cents p/bushel) 0.16% -10.19% 458.5

Foreign Exchange (Intra-day) % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) 0.2% -2.0% 1.12 Japanese Yen ($/¥) -0.10% -1.15% 110.97 Canadian Dollar ($/C$) -0.1% 2.1% 1.34 British Pound (£/$) 0.6% 2.8% 1.31 Australian Dollar (A$/$) 0.35% 1.02% 0.71 Swiss Franc ($/CHF) 0.0% -1.3% 0.99 Data/Price Source: Bloomberg; Equity Index data is total return, inclusive of dividends where applicable.

Ameriprise Global Asset Allocation Committee Global Equity Region - Tactical View

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

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

1) United States 54.7% Overweight +3.1% 57.8% 5) Latin America 1.4% Equalweight - 1.4%

2) Canada 3.0% Equalweight - 3.0% 6) Asia-Pacific ex Japan 12.6% Overweight +1.0% 13.6%

3) United Kingdom 5.2% Underweight - 1.0% 4.2% 7) Japan 7.4% Underweight - 1.0% 6.4%

4) Europe ex U.K. 14.6% Underweight - 1.0% 13.6% 8) Middle East / Africa 1.1% Underweight - 1.1% -

Index weighting represents relative weightings based on the regional market capitalization balance of the MSCI All-Country World Index; may not add due to rounding. The GAAC Tactical Overlay, as well as Recommended Tactical Weights, is derived from the Ameriprise Global Asset Allocation Committee (GAAC).Views are expressed relative to the Index and are provided to represent investment conviction in each region. Tactical Allocations are designed to augment Index returns over a 6-12 month time horizon. Index weights as of 2/28/19. Numbers may not add due to rounding.



THE WEEK AHEAD: Russell T. Price, CFA • Markets will be looking for evidence of the economy “bouncing-back” in this week’s economic data. There are a

number of important economic releases this week, but two reports in particular will be closely watched for signs of a recovery in consumer conditions: retail sales and job growth. As per the retail sales report, the Commerce Department is still playing catch-up from the government shutdown as today’s report (for February) comes about three weeks later than usual. Given the weakness in retail sales numbers in December and January, the report carries additional investor interest in-light of the importance of consumers to U.S. economic prospects.

• Meanwhile, financial markets took the weak nonfarm payrolls report for February (+20,000) as a fluke. Another month of well-below trend growth would likely rekindle recession fears and send markets into another period of uncertainty induced volatility. However, we see little reason for another month of weakness (unless it comes with a serious upside revision to February), but the ISM reports and Wednesday’s ADP report should provide guidance ahead of the official Employment release.

• The Institute of Supply Management’s (ISM) Manufacturing Index is also out on Monday. Consensus forecasts for today’s March Index (54.5) is expected to be generally flat with its February reading of 54.2. Though such numbers still indicate a solid pace of month-over-month expansion, the pace is clearly slower than that of a few months ago. Over the last three months (Dec. through Feb.) the Index has averaged 55.0, which is down from the average of 59.4 seen over the first nine months of 2018. We note, however, that price pressures, as incicated by the report’s Prices Paid component, have also weakened considerably, thus easing inflaiton fears and concerns that rising labor costs could narrow coproate profit margins over the near-term.

• On Wednesday, the ADP estimate of March employment growth should offer a preview of job growth via the labor Department measure on Friday. There was a significant diverge between the two reports in February, however, as the ADP measure (which only looks at private-sector payrolls) showed a strong gain of +183,000 while the Labor Department’s measure showed just +20,000. Through a mix of prior month revisions and reported results for March, we’re likely to see trend rates for the two numbers converge with this week’s releases.

• Currently, forecasters as surveyed by Bloomberg are looking for Friday’s Employment report from the Labor Department to show 175,000 net new jobs to have been created in March. This would leave the general pace of net new job growth at healthy 3 and 6-month averages of +170k to +200k, respectively.

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 10.3% Equalweight - 10.3% 6) Health Care 14.6% Overweight +2.0% 16.6%

2) Consumer Discretionary 10.1% Equalweight - 10.1% 7) Industrials 9.3% Equalweight - 9.3%

3) Consumer Staples 7.3% Underweight - 2.0% 5.3% 8) Information Technology 21.2% Equalweight - 21.2%

4) Energy 5.4% Overweight +2.0% 7.4% 9) Materials 2.6% Equalweight - 2.6%

5) Financials 12.7% Underweight - 2.0% 10.7% 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 3/22/19. Numbers may not add due to rounding.

April 1 2 3 4 5Retail Sales Durable Goods Orders ADP Employment Estimate Initial Jobless Claims Employment ReportConstruction Spending U.S. Auto Sales ISM Non-Manufacturing Index Challenger Layoff Notices Consumer CreditISM Manufacturing Index Unemployment - Euro Zone Retail Sales - Euro Zone Manufacturing Activity - Canada Industrial Production - Germany

Markit Final PMI Industrial Production - Brazil Industrial Production - Spain

Business Inventories Employment - Canada

Business Sentiment - Japan

Inflation - Euro Zone

Trade - 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 Q3 trailing 12-month earnings per share) while others use earnings per share that are updated for Q4 using a combination of actual and estimated earnings per share. The calculation of earnings (operating earnings versus ‘as reported’ or GAAP) also often differs modestly from one data source to another due to the proprietary use of calculation methodologies. The “average” shown in the charts below represent averages for the period shown.

Consensus Earnings Estimates: Source: FactSet

S&P 500 Earnings Estimates 2014 2015 2016 20204/1/2019 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 $30.87 $32.80 $33.54 $36.29 $38.71 $41.13 $42.88 $41.42 $37.31 $41.46 $43.77 $44.89 change over last week -$0.13 $0.00 $0.00 -$0.02 yr/yr 13.9% 10.7% 6.7% 15.9% 25.4% 25.4% 27.8% 14.1% -3.6% 0.8% 2.1% 8.4% qtr/qtr -1% 6% 2% 8% 7% 6% 4% -3% -10% 11% 6% 3%

Trailing 4 quarters $$ $119.02 $118.67 $119.64 $123.25 $126.42 $128.53 $133.50 $141.34 $149.67 $159.01 $164.14 $162.74 $163.07 $163.96 $167.43 $187.81 yr/yr 6.8% -0.3% 0.8% 11.6% 23.0% 2.0% 12.2%Implied P/E based on a S&P 500 level o 2834 17.3 17.4 17.4 17.3 16.9 15.1

2018 20192017



ECONOMIC NEWS OUT TODAY: Economic Releases for Monday, April 1, 2019. All times Eastern. Consensus estimates via Bloomberg. Time Period Release Consensus Est. Actual Prior Revised to 8:30 AM FEB Retail Sales (MoM) +0.2% -0.2% +0.2% +0.7% 8:30 AM FEB Retail Sales–ex. autos (MoM) +0.3% -0.4% +0.9% +1.4% 8:30 AM FEB Retail Sales–ex. autos & gas (MoM) +0.3% -0.6% +1.2% +1.7% 10:00 AM MAR ISM Manufacturing Index 54.5 54.2 10:00 AM MAR ISM Prices Paid 52.5 49.4 10:00 AM FEB Construction Spending (MoM) -0.1% +1.3% 10:00 AM JAN Business Inventories (MoM) +0.5% +0.6% Economic Perspective: Russell T. Price, CFA – Chief Economist • Retail sales for the month of February came-in below expectations this morning, but the shortfall versus estiamtes

was more than made-up by upward revisions to the data for January. Clearly, the Commerce Department is still struggling to get the data back in-order from the month-long government shutdown that started the year.

• According to today’s report, total retail sales in February were a weak 2.2% above year-ago levels. Confidence in the numbers, however, are likely still low given the significant revisions and volatility the data has recently exhibited.

• Sales for the month were expected to have been fairly soft due to flat auto sales in the month and delayed tax refund checks. Although February is typically one of eh weakest months of the year for retail activity, spending does usually see a boost from tax refunds. This year’s delays very likely constrained spending in the month but it should be made-up in the next few months as the IRS has recently been catching-up with its processing of tax filings. March sales, however, are still likely to be constrained modestly by this year’s late Easter.

• The chart at right is sourced from FactSet and HAS been updated to reflect today’s release.

• Despite the recent trend in retail sales, we continue to see consumer fundamentals as strong. The job market remains very strong, incomes are growing at a healthy pace, the savings rate is relatively high, inflation is reasonable, and debt levels remain very manageable relative to income.

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

Time to Re-evaluate Bond Portfolios • Last week saw prices risk on both risk-free Treasuries and on risk assets such as corporate bonds. Moves such as

these are ideal times to evaluate fixed income allocations. • Picking up pennies in front of a train, bus or steam-roller can be hazardous for your health. This lesson easily applies

to fixed income investing since many investors own fixed income for the regular income, and even total return investors see the benefit from the coupon portion of returns. A key difference between equities and fixed income is that fixed equities have rather symmetric up-side/down-side potential, while with fixed income you are generally paid a coupon to accept just the down-side risk to the principal invested. As a result, seasoned fixed income investors tend to be somewhat cynical and particularly sensitive to risk that could result in the loss of principal.

• Why credit markets can be fickle: In our view, credit markets have already seen their best days of this credit cycle for borrowers with the lowest yields (essentially the fullest prices) for the current cycle. We believe the disconnect seen in credit markets at the end of 2018 is an indication that credit markets may be more fragile than perceived over the past two years of strong new corporate issuance. We believe bond markets may become more fragile as the credit



cycle evolves for several reasons including: 1) corporate profit margins may have peaked in 2018 suggesting that cash flow available to pay interest and principal on debt likely declines in the quarters ahead, 2) foreign investment that flowed to U.S. credit markets may recede in response to foreign economic conditions, and 3) securitization markets that tend to support risk assets in the good times, tend to be sensitive toward changes in investor sentiment when caution signs appear. Collectively, these factors converge to make credit markets fickle at this stage of the credit cycle.

• As a result, we look to be early in our timing. While the economic cycle may still have years to run, we recommend evaluating fixed income portfolios, given the potential distortion to both asset allocation and asset selection that may have resulted from the past decade of central bank yield repression. To the extent positions were made to reach down in quality or out the curve to capture yield, now would be a perfect time to reshape fixed income portfolios. This includes dialing in on the right risk tolerance with the dislocation we saw at the end of 2018 in mind, as well as exiting any positions that made you think twice in over the past five years. Now is the perfect time to exit in our view; when bids are strong.

• This is not to say we do not want any risk in our fixed income portfolios, we simply look to fine tune risk tolerances and assets picked to express fixed income allocations given each client’s priorities and sensitivities. In blended portfolios (bonds and equities), bonds are expected to be the ballast for equity risk; not another portion of the portfolio that sees materially lower prices when markets sell off. Today, with reasonable yields achievable in fixed income segments, such as the 3.63% yield to worst on the Bloomberg Barclays US Investment Grade Corporate Index and the 2.38% yield to worst for the Bloomberg Barclays US Treasury Index. Even short-maturity Treasuries offer a reasonable yield with 2.38% on 3-month Treasuries.

Source: Bloomberg L.P.

This space intentionally left blank.

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2-Yr 5-Yr 7-Yr 10-Yr 30-Yr

Recent U.S. Treasury YieldsCompared to 2018 Highs on November 8

3/29/2019

12/31/2018

11/8/2018

5.5%

6.5%

7.5%

8.5%

3.0%

3.5%

4.0%

4.5%

Bloomberg Barclay's Capital Index YieldsYield to Worst (YTW)

IG Corporates (LHS) HY Corporates (RHS)



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

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

Kirk D. Dedenbach – Senior Manager

Jeff Carlson, CLU, ChFC – Manager Investment Research Coordinator Kimberly K. Shores Sr. Administrative Assistant Jillian Willis EQUITY RESEARCH Equity Research Director Justin H. Burgin – Vice President

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

Energy/Utilities Justin H. Burgin – Vice President

Financial Services/REITs Lori Wilking-Przekop – Sr Director

Health Care Daniel Garofalo – Director

Industrials/Materials Frederick M. Schultz – Director

Technology/Telecommunication Curtis R. Trimble – Director

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

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

Thomas Crandall, CFA, CAIA – Director, Asset Allocation

Daniel Balter, CFA – Analyst – Quantitative, Asset Allocation

Gaurav Sawhney – Research Analyst

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

Michael V. Jastrow, CFA – Vice President

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

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

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

Alex Zachman – Analyst – Core Equity

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

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

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

Blake Hockert – Associate – Reporting & Analytics

FIXED INCOME RESEARCH & STRATEGY

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

Stephen Tufo – Director, Credit Analyst INVESTMENT DUE DILIGENCE

Justin E. Bell, CFA – Vice President

Kurt J. Merkle, CFA, CAIA – Sr Director

Kay S. Nachampassak – Director

Peter W. LaFontaine – Sr Analyst

James P. Johnson, CFA, CFP® – Analyst

David Hauge, CFA – Analyst

Bishnu Dhar – Sr. Research Analyst

Parveen Vedi – Sr. Research Associate

Darakshan Ali – Research Process Trainee



The content in this report is authored by American Enterprise Investment Services Inc. (“AEIS”) and distributed by Ameriprise Financial Services, Inc. (“AFSI”) to financial advisors and clients of AFSI. AEIS and AFSI are affiliates and subsidiaries of Ameriprise Financial, Inc. Both AEIS and AFSI are member firms registered with FINRA and are subject to the objectivity safeguards and disclosure requirements relating to research analysts and the publication and distribution of research reports. The “Important Disclosures” below relate to the AEIS research analyst(s) that prepared this publication. The “Disclosures of Possible Conflicts of Interest” section, where applicable, relates to the conflicts of interest of each of AEIS and AFSI, their affiliates and their research analysts, as applicable, with respect to the subject companies mentioned in the report. Each of AEIS and AFSI have implemented policies and procedures reasonably designed to ensure that its employees involved in the preparation, content and distribution of research reports, including dually registered employees, do not influence the objectivity or timing of the publication of research report content. All research policies, coverage decisions, compensation, hiring and other personnel decisions with respect to research analysts are made by AEIS, which is operationally independent of AFSI. IMPORTANT DISCLOSURES As of March 31, 2018 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

http://www.ameriprise.com/legal/disclosures/

http://www.ameriprise.com/research-market-insights/

http://www.sec.gov/

http://www.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.

http://www.ameriprise.com/legal/disclosures

Before the Bell - cdn.ameriprisecontent.com€¦ · 01.04.2019 · Weekly mortgage applications...

Documents

Transcript of Before the Bell - cdn.ameriprisecontent.com€¦ · 01.04.2019 · Weekly mortgage applications...