Before the Bell...2019/12/16 · Eurozone. December flash Eurozone services PMI came in at 52.4, better than the 52 level expected, and 51.9 reading in November. Note: PMI readings

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. Page 1 of 13

Before the Bell Morning Market Brief

December 16, 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 What a week for trade! There was nothing but good news last week on the trade policy front, offering some relief from what has been a major headwind for markets throughout the year. The U.S. and China agreed on a so-called phase one deal that avoided new tariffs and rolled back some existing ones. And while there remain important issues that will likely take far longer to sort through, the deal came as a relief to markets that had been expecting something similar to what was announced, but had grown nervous that it might never actually materialize. U.S. equities rose in response, but the reaction was somewhat muted, perhaps the result of prices already anticipating a deal, and some initial lack of clarity about the actual details. For the week, the S&P 500 rose 0.8 percent, taking the index to another record high at 3168.80. The index has now advanced by 26.4 percent on the year.

In the UK, Boris Johnson not only won reelection as prime minister, he did so with the largest Conservative party majority in 32 years, bolstering his chances of securing approval from parliament for the Brexit deal he has negotiated with the EU and delivering Brexit on the timetable he has promised, which is aggressive. To the extent that the election results make the way forward for Brexit somewhat clearer, both the pound and equities rallied on the news. The FTSE 100 climbed 1.6 percent for the week, while the more domestically focused FTSE 250 surged by 2.8 percent, in part on a relief rally by stocks subject to nationalization had the Labor party won. The German DAX index, a bellwether of Eurozone sentiment climbed 0.9 percent last week, as the week’s positive trade developments were welcome news for the German economy.

It may surprise some to know that the big winner last week was Mexico. The S&P/BMV IPC index rallied by 5.6 percent in peso terms. Not only did the index rally on the news of the U.S.-China trade deal, along with other markets in Latin America, it got a boost earlier in the week from the announced agreement between the House of Representatives and the White House regarding changes to the United States-Mexico-Canada Agreement, often referred to as the new NAFTA, clearing the way for its ratification in the Senate early next year. The economic data from Mexico has been exceptionally weak of late, suggesting an element of relief at the trade developments.

As welcome as last week’s trade developments were, they certainly don’t resolve all of the questions still confronting the U.S. and global economies. In the U.S., November retail sale were disappointing, raising some questions not about the ability of consumers to spend, which is widely considered to be quite healthy, but rather their willingness to spend. On a positive note, October retail sales were revised higher, and one month of weakness does not make a trend. In addition, some are pointing to the possible distorting effects of a late Thanksgiving. But to the extent that manufacturing remains under pressure and consumer spending remains the primary engine of growth, November’s weakness does bear watching. At the same time, the Federal Reserve indicated last week its expectation that rates could remain on

Before The Bell December 16, 2019 ____________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________ © 2019 Ameriprise Financial, Inc. All rights reserved. Page 2 of 13

hold throughout 2020, ensuring a supportive monetary environment. A crowded economic calendar this week includes housing data, industrial production, flash manufacturing, leading indicators, personal income and spending, and the PCE deflator.

Lastly, China appears poised to target a 6 percent growth target in 2020, down from this year’s 6-6.5 percent target. Improving trade relations with the U.S. should help, but targeted spending on infrastructure projects will be relied upon as well. The economic calendar this week includes the latest readings on industrial production and retail sales for November, as well as fixed asset investment.

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 mixed overnight; West Texas Intermediate (WTI) oil trading at $60.07; 10-year U.S. Treasury yield up to 1.85%.

• 2020 Outlook, Targets & Investment Themes: Today, we share our annual market/economic outlook for next year entitled Committee Perspectives: 2020 Investment Themes — ‘Bull or Bear,’ Not the Only Debate in 2020. The report includes high-level themes for the new year, our macro scenario analysis, 2020 targets for the S&P 500, U.S. GDP, and 10-Year Treasury yield as well as detail the key considerations for your portfolio. Below is a quick look at some of the report's important points. 2020 Year-End Targets:

Big Picture Themes For 2020 • Trade issues complicate the outlook — The U.S. and China may be headed for a longer-term economic cold

war. However, a trade truce could calm growth fears and lift market sentiment. A further decay in trade elevates the risk of a global downturn.

• Heightened U.S. political anxiety creates periods of market volatility amid policy uncertainty — A contentious U.S. presidential election could magnify political divides as well as complicate the regulatory and policy environment for large industries. Markets tend to perform well in an election year, but it could be a volatile ride.

• Geopolitical tensions could rise — The trend towards more nationalistic social/economic policies could continue globally. The U.S. may continue to turn inward as Europe attempts to redefine itself in the context of Brexit, China grapples with ongoing social issues, and Iran and North Korea agitate.



Expect Modest Equity & Fixed Income Returns • Investors should continue to favor U.S. assets, though an acceleration in growth and reduction in trade

frictions next year could favor attractively priced foreign investments. Nevertheless, asset returns across categories in 2020 are very likely to be lower compared to 2019.

• Business/investor confidence could ebb and flow based on changes in the trade and political environment. In our view, there is little room for stock multiples to expand from here without a material shift higher in profit growth next year. We expect U.S. companies in aggregate to post positive but modest profit growth in 2020, which could lend a degree of support for stock prices during periods of market turbulence. Investors should target companies with strong profitability, competitive advantages, and clean balance sheets. A stable/growing dividend is a plus in a low interest rate environment. Importantly, seek to increase the quality of the companies in your portfolio and take a long-term approach to stock ownership.

• Within fixed income, investors should focus on high-quality companies (e.g., investment-grade corporate debt) that offer financial flexibility to weather a market/economic downdraft. Avoid over-allocating to high-yield debt, which could face larger price declines if economic conditions dim. Total returns within fixed income may be limited to interest payments in 2020, with little opportunity for price appreciation given the current rate environment.

• Bottom line: Our base case for 2020 calls for modest economic growth accompanied by low but positive market gains. But the wildcards of trade and politics cast a decidedly large shadow over the outlook. The best defense against a wide range of outcomes is to stay diversified and understand your comfort-zones when it comes to risk.

• Please refer to our 2020 Investment Themes report, attached in today’s Morning Research Notes, for more detail.

• Asia-Pacific: Asian equities finished mixed on Monday. Investors received an update on China’s economy through a series of data releases overnight. China's industrial production rose +6.2% y/y in November, better than the +5.1% expected and +4.7% growth in October.

• Retail sales also grew at +8.0% y/y, beating consensus as well as the prior month. Fixed asset investment held steady at +5.7% year-to-date, matching estimates, but remains at its weakest level since at least 1998, according to FactSet. Although a phase one deal could help quell some of the uncertainty for businesses and China’s economy, the effects of reduced tariffs are likely to be a measured benefit, in our view.

• Europe: Markets across the region are trading up at mid-day. December flash Eurozone manufacturing PMI came in at 45.9, versus an estimate for 47.3, and a prior month reading of 46.9. The weaker than expected manufacturing data out of Europe was driven by lower momentum in both Germany and France. The data could dampen the global growth recovery story heading into next year. Nevertheless, services PMIs were more encouraging across the Eurozone. December flash Eurozone services PMI came in at 52.4, better than the 52 level expected, and 51.9 reading in November. Note: PMI readings above 50 show expansion in activity, while levels below 50 signal contraction

• U.S.: Equity futures are pointing to a strong open this morning. Following last week’s announcement of a completed U.S./China phase one trade deal, skepticism about the benefits of the deal continues to trickle out. Per The Washington Post, a phase one deal likely will not remove the uncertainty for businesses, particularly multi-national entities. Some firms will continue to be subject to the 25% tariffs on $250 billion in Chinese imports. Also, large questions remain on how China will ramp its agricultural purchases up to $40 to $50 billion a year. In 2017, China spent $24 billion on agricultural products, with its largest purchase amount in 2013 at $29 billion. Importantly, Beijing has been rather quiet about the details of the plan and not confirmed the agricultural purchase amount.

• Over the weekend, U.S. Trade Representative Robert Lighthizer told CBS Face the Nation there is no date scheduled for ‘phase two’ trade talks. Mr. Lighthizer said both sides would be focused on implementing the phase one trade agreement, which is expected to be signed in January. Importantly, plans for a phase two deal will depend largely on how the first phase is implemented and enforced.

• The U.S. economic docket is light this week and heading into the final holiday push. Housing data throughout the week, as well as a final look at November consumer sentiment on Friday, will be the highlights on the economic front.



WORLD CAPITAL MARKETS 12/16/2019 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 0.01% 28.89% 3,168.8 DJSTOXX 50 (Europe) 0.89% 29.98% 3,764.4 Nikkei 225 (Japan) -0.29% 22.03% 23,952.4 Dow Jones 0.01% 23.57% 28,135.4 FTSE 100 (U.K.) 2.34% 16.86% 7,525.9 Hang Seng (Hong Kong) -0.65% 10.28% 27,508.1 NASDAQ Composite 0.20% 33.06% 8,734.9 DAX Index (Germany) 0.73% 26.72% 13,380.3 Korea Kospi 100 -0.10% 6.90% 2,168.2 Russell 2000 -0.42% 23.07% 1,638.0 CAC 40 (France) 1.12% 30.60% 5,985.0 Singapore STI -0.25% 8.63% 3,206.1 Brazil Bovespa 0.47% 28.69% 113,098 FTSE MIB (Italy) 0.70% 28.21% 23,492.8 Shanghai Comp. (China) 0.56% 19.67% 2,984.4 S&P/TSX Comp. (Canada) 0.33% 22.23% 17,003.1 IBEX 35 (Spain) 0.78% 17.06% 9,638.5 Bombay Sensex (India) -0.17% 14.78% 40,938.7 Mexico IPC 2.45% 9.31% 44,254.4 MOEX Index (Russia) 0.37% 35.62% 3,007.7 S&P/ASX 200 (Australia) 1.63% 27.83% 6,849.7 Note: International market returns shown on a local currency basis. Equity index data is total return, inclusive of dividends.

Global % chg. % YTD Value Developed International % chg. %YTD Value Emerging International % chg. %YTD ValueMSCI All-Country World Idx 0.58% 24.98% 555.4 MSCI EAFE 1.29% 21.38% 2,015.6 MSCI Emerging Mkts 1.51% 15.53% 1,086.9

S&P 500 Sectors % chg. % YTD Value Commodities Communication Services -0.32% 30.22% 178.3 Equity Income Indices % chg. % YTD Value Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Discretionary 0.04% 24.94% 963.4 JPM Alerian MLP Index -1.14% -6.22% 208.9 CRB Raw Industrials 0.07% -6.58% 448.8 Consumer Staples 0.33% 26.21% 641.2 FTSE NAREIT Comp. TR 0.07% 23.93% 20,566.2 NYMEX WTI Crude (p/bbl.) 0.02% 32.31% 60.1 Energy -0.91% 8.11% 441.4 DJ US Select Dividend -0.23% 20.84% 2,248.1 ICE Brent Crude (p/bbl.) 0.31% 21.60% 65.4 Financials -0.47% 31.05% 507.6 DJ Global Select Dividend 0.98% 13.79% 235.3 NYMEX Nat Gas (mmBtu) 0.78% -21.29% 2.3 Health Care -0.11% 18.29% 1,163.7 S&P Div. Aristocrats -0.37% 26.42% 3,030.4 Spot Gold (troy oz.) 0.10% 15.23% 1,477.8 Industrials -0.28% 29.02% 686.2 Spot Silver (troy oz.) 0.61% 9.95% 17.0 Materials -0.81% 21.78% 377.6 LME Copper (per ton) -0.40% 2.63% 6,105.8 Real Estate 0.18% 24.01% 231.7 Bond Indices % chg. % YTD Value LME Aluminum (per ton) -0.31% -5.71% 1,756.4 Technology 0.64% 46.12% 1,566.9 Barclays US Agg. Bond 0.45% 8.87% 2,228.2 CBOT Corn (cents p/bushel) 1.51% -4.98% 386.8 Utilities 0.84% 22.84% 319.6 Barclays HY Bond 0.21% 13.33% 2,163.8 CBOT Wheat (cents p/bushel) 1.74% -2.12% 541.8

Foreign Exchange (Intra-day) % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) 0.21% -2.82% 1.11 Japanese Yen ($/¥) -0.03% 0.26% 109.41 Canadian Dollar ($/C$) 0.37% 3.96% 1.31British Pound (£/$) 0.09% 4.62% 1.33 Australian Dollar (A$/$) 0.22% -2.24% 0.69 Swiss Franc ($/CHF) 0.13% -0.08% 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 GAACIndex GAAC Tactical Recommended Index GAAC Tactical Recommended

Sector Weight Tactical View Overlay Weight Sector Weight Tactical View Overlay Weight

1) Communication Services 10.5% Underweight - 2.0% 8.5% 6) Health Care 13.9% Equalweight - 13.9%

2) Consumer Discretionary 10.0% Overweight +2.0% 12.0% 7) Industrials 9.3% Equalweight - 9.3%

3) Consumer Staples 7.4% Equalweight - 7.4% 8) Information Technology 21.8% Overweight +2.0% 23.8%

4) Energy 4.6% Equalweight - 4.6% 9) Materials 2.7% Equalweight - 2.7%

5) Financials 13.1% Underweight - 2.0% 11.1% 10) Real Estate 3.2% Overweight +1.0% 4.2%

11) Utilities 3.5% Underweight - 1.0% 2.5%

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 9/20/19. Numbers may not add due to rounding.

Ameriprise Global Asset Allocation Committee Global Equity Region - Tactical View

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

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

1) United States 55.6% Overweight +7.3% 62.9% 5) Latin America 1.4% Equalweight - 1.4%

2) Canada 3.1% Equalweight - 3.1% 6) Asia-Pacific ex Japan 12.0% Equalweight - 12.0%

3) United Kingdom 4.8% Underweight - 2.0% 2.8% 7) Japan 7.3% Underweight - 2.0% 5.3%

4) Europe ex U.K. 14.5% Underweight - 2.0% 12.5% 8) Middle East / Africa 1.3% Underweight - 1.3% -

Index weighting represents relative weightings based on the regional market capitalization balance of the MSCI All-Country World Index; may not add due to rounding. The GAAC Tactical Overlay, as well as Recommended Tactical Weights, is derived from the Ameriprise Global Asset Allocation Committee (GAAC).Views are expressed relative to the Index and are provided to represent investment conviction in each region. Tactical Allocations are designed to augment Index returns over a 6-12 month time horizon. Index weights as of 9/20/19. Numbers may not add due to rounding.



THE WEEK AHEAD: Russell T. Price, CFA, Chief Economist • Housing and manufacturing activity are the primary focus of the economic calendar this week. • On Tuesday, the Commerce Department will report on new housing starts for the month of November. The report

is expected to show a fairly solid 2.0% month-over-month (mo/mo) gain which would equate to a year-over-year increase of about 11.5%. We are looking for a more muted increase of +0.8% in new starts as difficult weather across the mid-west may have slowed activity somewhat. According to Bloomberg, total new starts (on an annualized basis) are forecast to come-in at about 1.34 million units. We note that this total figure encompasses both single-family units and multi-family units (which are primarily apartments). The data on new home construction can often be volatile given that the start of a few large apartment complexes can offer considerable month-to month swings in the data. For example, in September, total new starts were shown to be down 8% but this was largely reflective of the fact that it was coming after a reported 14% gain reported for August.

• Meanwhile, Tuesday’s report on November Industrial Production is expected to show a solid rebound in reflection of a resumption of auto production at General Motors. The IP report and some other measures were negatively affected over recent months after the UAW initiated a labor strike at General Motors in mid-September. The action, along with declines in utility demand and mineral extraction, led to a sharp 0.8% decline in the Index in October. Based on consensus estimates as compiled by Bloomberg, the Index is expected to see a 0.8 to 0.9% recovery ion the month of November.

• On Thursday, Existing Home Sales for the month of November are reported. Sales are expected to see a slight decline in the month after a nearly 2% jump in October. By all appearances demand in the marketplace remains strong and very low interest rates are certainly accommodative, but the availability of properties remains very tight relative to historical standards, especially within the “affordable” segments of the market. In October, the month’s supply of inventory for existing homes was 3.9 months, according to the National Association of Realtors, versus the level of about 6.0 months that is widely seen as the sectors equilibrium and healthy balance. The November consensus sales estimate (via Bloomberg) of 5.43 million (annualized) would represent a year-over-year gain of about 4.2% if achieved.

• Finally, on Friday, the Commerce Department will issue reports on November Personal Income and Spending, as well as its final short-course update to Q3 Real GDP. No major changes to the GDP numbers are expected but we believe the number (currently at +2.1% for the quarter) could be revised slightly lower to +2.0% due to a modest negative revision to September retail sales.

• Personal income, meanwhile should see a solid gain of about 0.4% for the month of November. The strong gain is at least partially reflective of the previously mentioned labor strike at General Motors. Although the number of striking workers was very small relative to the overall U.S. workforce, sudden month-to-month changes due to large strikes can have an outsized influence on these numbers as they are annualized. Consumer spending, is expected to show a fairly steady pace of expansion with the Bloomberg consensus showing a 0.3% gain, which would put the year-over-year number at about +3.7%.

This space intentionally left blank.

December 16 17 18 19 20Empire Mfg. Index Housing Starts Inflation - Eurozone Initial Jobless Claims Personal Income & SpendNAHB Housing Mkt. Index Building Permits Inflation - Canada Leading Econ. Indicators Q3 GDP - 3rd estimateRetail Sales - China Job Openings Report Philly Fed Mfg. Index U of M Cons. Sentiment Industrial Production - China Industrial Production Existing Home Sales Kansas City Fed Mfg. IndexFixed Investment - China Capacity Utilization Retail Sales - U.K. Monetary Policy - Japan

Trade - India Trade - Eurozone Monetary Policy - U.K. GDP - U.K.

Trade - Japan Employment - Canada Retail Sales - Canada

Manufacturing Activity - Canada Inflation - 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 Q2 trailing 12-month earnings per share) while others use earnings per share that are updated for Q3 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 2015 2016 2017 202112/16/2019 Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Est. Est. Est. Est. Est. Est.

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

Quarterly $$ amount $38.78 $41.12 $42.88 $41.27 $38.85 $41.47 $42.18 $40.83 $40.96 $44.13 $46.32 $46.70 change over last week $40.83 na na na na yr/yr 25.4% 25.4% 27.8% 13.8% 0.2% 0.9% -1.6% -1.1% 5.4% 6.4% 9.8% 14.4% qtr/qtr -1% 6% 4% -4% -6% 7% 2% -3% 0% 8% 5% 1%

Trailing 4 quarters $$ $118.67 $119.64 $133.50 $141.40 $149.72 $159.05 $164.05 $164.12 $164.47 $163.77 $163.33 $165.44 $168.10 $172.24 $178.11 $197.18 yr/yr -0.3% 0.8% 11.6% 22.9% -0.4% 9.0% 10.7%Implied P/E based on a S&P 500 level of: 3169 19.4 19.2 18.9 18.4 17.8 16.1

2019 20202018



BY THE NUMBERS: ECONOMIC ACTUALS AND FORECAST:

ECONOMIC NEWS OUT TODAY: Economic Releases for Monday, December 16, 2019. All times Eastern. Consensus estimates via Bloomberg. Time Period Release Consensus Est. Actual Prior Revised to 8:30 AM DEC Empire Manufacturing Index +5.0 +3.5 +2.9 10:00 AM DEC NAHB Home Builder Index 70 70

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

Treasuries Wip-sawed by Potential Trade Deal • Long-term Treasury yields leapt higher Thursday afternoon on President Trumps Tweet around a Phase 1 deal. Ten-

year Treasury yields rose from a low of 1.77% ahead of the open to U.S. equity trading Thursday to close the session 12 basis points higher at 1.89%. Ten-year yields reached 1.94% Friday morning before trailing lower to end the week yielding 1.82%. All-told the roundtrip spanned 17 basis points yet left 10-year yields only 5 basis points higher than Thursday’s low. With higher yield representing lower prices for bonds, 10-year Treasury yields peaked at $99-24 and fell to $98-07; spanning a price move of more than $1.5.

• This morning, 10-year Treasury yields once again drift higher, up two basis points from the closing level on Friday. Ten-year Treasury yield bounce higher Thursday and return

Source: Bloomberg L.P.

Current Projections:Actual Actual Actual Actual Est. Est. Actual Actual Actual Est. Est.2015 2016 2017 2018 2019 2020 Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020

Real GDP (YOY) 2.9% 1.6% 2.4% 2.9% 2.2% 2.1% 3.1% 2.0% 2.1% 1.9% 2.0%Unemployment Rate 5.0% 4.7% 4.1% 3.9% 3.5% 3.5% 3.8% 3.7% 3.5% 3.5% 3.5%CPI (YoY) 0.1% 1.3% 2.1% 2.4% 1.8% 2.1% 1.6% 1.8% 1.8% 2.0% 2.3%Core PCE (YoY) 1.3% 1.7% 1.6% 1.9% 1.7% 1.9% 1.6% 1.6% 1.7% 1.6% 1.9%

Sources: Historical data via FactSet. Estimates (Est.) via American Enterprise Investment Services, Inc.

YoY = Year-over-year, Unemployment numbers are period ending. GDP: Gross Domestic Product; CPI: Consumer Price Index

PCE: Personal Consumption Expenditures Price Index. Core excludes food and energy Last Updated:

Quarterly

December 4, 2019



Our 2020 Fixed Income Outlook • We released our 2020 Fixed Income Outlook Friday highlighting our views on rates, credit, municipals, and foreign

bonds next year. The report leverages out corporate credit team, offering view on all industry credit sectors including sector outlooks and how catalysts support our issuers on our Corporate Bond Recommended List.

• Rate forecasts: We anticipate global monetary policy remains accommodative, forming the backdrop for our fed funds target range and 10-year U.S. Treasury yield forecasts for 2020. Our big-picture political themes suggest likely bouts of volatility, offering both upside and downside catalysts to our outlook. Rate forecasts depicted below are built upon macro scenario conditions outlined in our 2020 Top Themes report dated December 13 on page 4.

• In our Base Case, 2020 year-end targets for the fed funds rate are unchanged on the year, ending next year at 1.50% - 1.75% for the target range. We also forecast 2.00% for the 10-year Treasury yield at the end of next year. Finally, our Optimistic and Adverse macro scenario conditions encapsulate likely reference points for rates markets should conditions improve or deteriorate next year as global growth reaches an inflection point and geopolitical event risk remains as a constant risk.

• Our outlook for Corporate and Consumer credit markets starts our view of full valuations heading into 2020. Spreads

appear poised to end 2019 near the narrowest levels in 18 months. Yet, we believe liquidity is undervalued and underappreciated by fixed income investors today.

• Corporate credit: The ratio of downgrades to upgrades was 2.2x year to date through September compared to 1.1x in full year 2018 according to Moody’s Investors Services. More companies are getting downgraded due to weakening fundamentals alone. As of November, more Moody’s industry sector outlooks flashed negative than positive; even more than seen in 2016 following the sharp drop in commodity prices. Today, trouble lingers in autos, media, and the energy patch, in our view. At this point technology and health care segments appear most attractive given healthy cash flow prospects.

• We believe corporate operating margins have likely seen a cycle peak. We are closely watching the potential for decelerating revenue growth and the possible pressures on profit margins in 2020. We believe slowing global growth drives a rise in corporate defaults toward Moody’s long-term average of 4.1%, up from 2.8% in November on a trailing 12-month basis. We believe it is time to move up in quality and ride the next stage of growth in higher quality companies.

• Consumer credit: Consumer credit, referred to as household-sector debt in the chart to the right receded as a share of GDP after peaking following the 2008 financial crisis. Bond market segments comprised of consumer credit exposure include mortgage backed securities at $9.7 trillion and a large slice of the $1.6 trillion asset backed securities market at the end of 2018. We believe consumers remain on solid footing, and that consumer credit provides diversified risk exposure when mixed with government and corporate debt. Investors using core bond funds or core plus strategies tend to access a blend of government, corporate and consumer exposure within investment grade funds.

Favorable Scenario Macro Conditions

Base Scenario Macro Conditions

Adverse Scenario Macro Conditions

Source: American Enterprise Investment Services Inc.

Ameriprise 2020 Year-End Rate Forecasts

Fed Funds Target Range

1.50% - 1.75%

Ten-year Treasury 2.75%


1.50% - 1.75%



1.00% - 1.25%




• Foreign Bonds: We touch on both Foreign Developed Bonds and Foreign Emerging Bond segments in the report as well. In developed markets, yields and credit spreads are severely depressed by highly accommodative central bank policies. While the ECB and BOJ likely adjust policies further to spur growth, we believe current rate policies and public asset purchases are near practical limits. This suggests sovereign bonds, a large share of which already garner negative yields, have little upside total return potential and little or no coupon returns to support performance in a sideways market. The Bloomberg Barclays Global Aggregate Ex-USD offered a modest +0.68% yield to worst and +34 basis point spread on December 11. In addition, more than $11 trillion of global debt in the index trades at a negative yield.

• Among Emerging Foreign Bonds, we see the outlook for 2020 hinging on China’s ability to execute a soft landing as growth decelerates. Though a soft landing is difficult for free market economies, central coordination increases prospects for China’s economy. Valuations are full in our view, with the spread on the JPMorgan Emerging Market Bond Index narrowing to +300 basis points on December 11, just shy of cycle lows even with the overhang of geopolitical uncertainties. We believe countries dependent on commodity exports such as crude oil, ore, or cement that supported China’s infrastructure expansion likely face a permanent reduction in demand going forward as China’s economy transitions away from real estate development toward services. It is too soon to gauge if a U.S./China Phase One trade deal is enough to lift business sentiment into a more resilient, sustainable gear.

• Municipals: we expect to remain supply constrained with continued demand from individual investors in top tax brackets and from foreign investors as well. Municipal bonds outperformed taxable bonds, represented by the Bloomberg Barclays U.S. Aggregate, in four out of the past five years. While municipal credit fundamentals remain solid for the vast majority of municipal issuers, we believe the key catalysts for performance are technical related. After peaking at more than $3.9 trillion of outstanding municipal bonds in 2010, the sector contracted even as Treasury and Corporate bond markets significantly expanded.

• Even with most municipalities retaining high investment grade ratings and stable outlooks, there are municipal issuers that face challenges from evolving communities and regions, or from a lack of political will to address financial hurdles. Here again, selection remains key. Issues include severely underfunded pension plans or generous pension benefits in an aging area; the impacts of climate change (i.e. severe weather, flooding, rising water levels); impacts from demographics (i.e. population declines, aging workforce), and technology impacts (i.e. falling renewable energy costs impacting coal producing regions).

This space intentionally left blank.



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

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

Jeff Carlson, CLU, ChFC – Manager

Investment Research Coordinator Kimberly K. Shores Sr Administrative Assistant Jillian Willis EQUITY RESEARCH Equity Research Director Justin H. Burgin – Vice President

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

Energy/Utilities William Foley, ASIP – Director

Financial Services/REITs Lori Wilking-Przekop – Sr Director

Health Care Daniel Garofalo – Director

Industrials/Materials Frederick M. Schultz – Director

Technology/Telecommunication Curtis R. Trimble – Director

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

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

Thomas Crandall, CFA, CMT, CAIA – Sr Director, Asset Allocation

Gaurav Sawhney – Research Analyst

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

Michael V. Jastrow, CFA – Vice President

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

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

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

Alex Zachman, 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 September 30, 2019 The views expressed regarding the company(ies) and sector(s) featured in this publication reflect the personal views of the research analyst(s) authoring the publication. Further, no part of research analyst compensation is directly or indirectly related to the specific recommendations or views contained in this publication. A part of a research analyst’s compensation may be based upon overall firm revenue and profitability, of which investment banking, sales and trading, and principal trading are components. No part of a research analyst’s compensation is based on a specific investment banking transaction, nor is it based on sales, trading, or principal trading. A research analyst may have visited the material operations of one or more of the subject companies mentioned in this research report. No payment was received for the related travel costs. Additional information and current research disclosures on individual companies mentioned in this research report are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor. You may also submit a written request to Ameriprise Financial, Inc., 1441 West Long Lake Road, Troy MI, 48098. Independent third-party research on individual companies is available to clients at ameriprise.com/research-market-insights. SEC filings may be viewed at sec.gov. Tactical asset class recommendations mentioned in this report reflect The Ameriprise Global Asset Allocation Committee’s general view of the financial markets, as of the date of the report, based on then current conditions. Our tactical recommendations may differ materially from what is presented in a customized long-term financial plan or portfolio strategy. You should view our recommendations in conjunction with a broader long-term portfolio strategy. Not all products, services, or asset classes mentioned in this report may be available for sale at Ameriprise Financial Services, Inc. Please consult with your financial advisor. Diversification and Asset Allocation do not assure a profit or protect against loss. RISK FACTORS Dividend and interest payments are not guaranteed. The amount of dividend payment, if any, can vary over time and issuers may reduce or eliminate dividends paid on securities in the event of a recession or adverse event affecting a specific

industry or issuer. Should a company be unable to pay interest on a timely basis a default may occur and interruption or reduction of interest and principal occur. Investments in a narrowly focused sector may exhibit higher volatility than investments with broader objectives and is subject to market risk and economic risk. Income Risk: We note that dividends are declared solely at the discretion of the companies’ boards of directors. Dividend cuts or eliminations will likely negatively impact underlying company valuations. Published dividend yields are calculated before fees and taxes. Dividends paid by foreign companies to ADR holders may be subject to a withholding tax which could adversely affect the realized dividend yield. In certain circumstances, investors in ADR shares have the option to receive dividends in the form of cash payments, rights shares or ADR shares. Each form of dividend payment will have different tax consequences and therefore generate a different yield. In some instances, ADR holders are eligible to reclaim a portion of the withholding tax. International investing involves increased risk and volatility due to political and economic instability, currency fluctuations, and differences in financial reporting and accounting standards and oversight. Risks are particularly significant in emerging markets. Market Risk: Equity markets in general could sustain significant volatility due to several factors. As we have seen recently, both economic and geopolitical issues could have a material impact on this model portfolio and the equity market as a whole. Quantitative Strategy Risk: Stock selection and portfolio maintenance strategies based on quantitative analytics carry a unique set of risks. Quantitative strategies rely on comprehensive, accurate and thorough historical data. The Ameriprise Investment Research Group utilizes current and historical data provided by third-party data vendors. Material errors in database construction and maintenance could have an adverse effect on quantitative research and the resulting stock selection strategies. PRODUCT RISK DISCLOSURES Exchange Traded Funds (ETF) trade like stocks, are subject to investment risk and will fluctuate in market value. For additional information on individual ETFs, see available third-party research which provides additional investment highlights. SEC filings may be viewed at sec.gov

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

Documents

Before the Bell...2019/12/16 · Eurozone. December flash Eurozone services PMI came in at 52.4, better than the 52 level expected, and 51.9 reading in November. Note: PMI readings