before the bell · 4/27/2020 · goodyear, ford, delta airlines, boeing, marriott, occidental...

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recommendation of any securities mentioned. Charts depicted are from FactSet unless otherwise noted. ____________________________________________________________________________________________________________________________ © 2020 Ameriprise Financial, Inc. All rights reserved. of 14

Before the Bell Morning Market Brief

April 27, 2020

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

MONDAY MORNING MARKET STRATEGY: David M. Joy, Chief Market Strategist By recent standards, the past two weeks have been relatively calm in equity markets. The S&P 500 fell 1.3 percent last week, after rising 3.0 the previous week. Normally those would be typical moves, but in this environment they seem downright somnolent. By comparison, the previous seven weeks ending 4/10 included moves of -11 percent, + 1, -9, -15, +10, -2, and +12. During those seven weeks, the VIX index of implied volatility averaged 55, and peaked on March 16th. at 83. However, on Friday the VIX fell 13 percent to end the week 36. And while that level remains well above its ten-year average of 17, it has declined steadily of the past month. The last three weekly closes on the S&P 500 have been 2789, 2874, and 2836, a comparatively narrow range as volatility has subsided.

Certainly, the massive fiscal and monetary response to the dead stop of the economy accounts for much of that moderation. But investors also now well understand that for the next few months economic data are going to be exceptionally weak and are taking it in stride. Stocks barely moved following this week’s reports on weekly jobless claims, flash PMIs, and durable goods, all of which showed the economy decelerating sharply. There is always a chance that investor reaction might be more pronounced once we get a look at April’s data, which will reflect a full month of shutdown impact. But that remains to be seen. Investors also seem to be taking the optimistic view of progress on slowing the spread of the coronavirus and the steps in some states to slowly reopen their economies, despite the continued reticence of the healthcare community. These steps to reopen will be watched carefully for their relative success, and the implications for other states.

We are now approximately one-fourth of the way through first quarter earnings season. According to FactSet, earnings are now expected to decline by 16 percent, down from an expected decline of 7 percent at the end of the quarter. There have been a few positive surprises, but the results so far have primarily reinforced expectations. Earnings expectations overall have declined, and we have seen further weakness in cyclical sectors and relative strength in growth sectors. Since earnings season began on April 14th, healthcare is the best performing sector with a gain of almost 7 percent. Healthcare also happens to be the best performing sector year-to-date with a loss of 1.5 percent. Consumer discretionary is the second-best performing group since April 13th with a gain of 5.3 percent, followed by communication services, up 4.3 percent. Technology is higher by 3.8 percent, followed somewhat surprisingly by energy with a gain of 1.6 percent, but energy is the worst performing sector year-to-date with a 42 percent loss. Financials, with the highest percentage of companies already having reported at 56 percent, are the worst performers, down 3.5 percent. Real Estate and Utilities are also lower.

With the economy locked down, consumer spending has been focused, not surprisingly, on staples. Companies with a web presence catering to groceries and household products have benefitted, while apparel has not. Travel, leisure,

Before The Bell April 27, 2020 ____________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________ © 2020 Ameriprise Financial, Inc. All rights reserved. of 14

hospitality and restaurant groups have suffered as well. Vehicle sales have slowed sharply. Rail and trucking volumes have plunged. Technology stocks have fared relatively well, especially those benefitting from the shift to remote working arrangements and data services.

A number of companies have cut or suspended their dividends. Among the notables are Gap, Macy’s, Nordstrom, Goodyear, Ford, Delta Airlines, Boeing, Marriott, Occidental Petroleum, and Schlumberger. More are expected. During the financial crisis, approximately 25 percent of S&P 500 companies reduced their dividends and we could experience something similar this time. The year-end S&P 500 dividend futures contract is down 21 percent from the start of the year. A number of companies have also suspended their stock buyback programs, and more are expected.

Earnings in the second quarter are now expected to decline by 33 percent, and by 15 percent for the full year, according to FactSet, as expectations have deteriorated steadily throughout the year and have accelerated to the downside in the past several weeks. But a lack of visibility into the depth and duration of the economic slowdown has caused a number of companies to eliminate their forward earnings guidance altogether. Clearly, earnings forecasts for the quarters ahead are moving targets.

This week features a number of high-profile earnings reports, including Alphabet, Ford, Merck, Starbucks, Caterpillar, UPS, Boeing, Royal Caribbean, Norfolk Southern, Microsoft, Facebook, Mastercard, Qualcomm, Tesla, Amazon, Apple, United Airlines, McDonald’s, Gilead, Visa, Exxon Mobil, and Chevron. The economic calendar this week is also loaded. The advance estimate of first quarter GDP on Wednesday tops the list. The Bloomberg consensus expects annualized decline of 3.9 percent, but it might be worse. Also scheduled are personal income and spending, PCE deflator, ISM manufacturing, vehicle sales, weekly jobless claims, construction spending and consumer confidence. The Fed meets this week as well.

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

higher overnight; West Texas Intermediate (WTI) oil trading at $13.34, with the June futures contract sharply lower; 10-year U.S. Treasury yield at 0.63%.

Bears Outnumber Bulls 2 to 1 – Why Does It Matter? Last week, some oil futures contracts fell to nonsensical negative values, as a glut of crude supply and cratering demand pressured oil prices across the curve. Earnings season also kicked into high gear last week, and along with broadly weak first quarter results, an increasing number of S&P 500 companies are pulling their official profit guidance. According to Barron’s, citing Dow Jones Newswires, 106 S&P 500 companies have already suspended their 2020 profit guidance. The coronavirus and economic shutdown have made it nearly impossible for companies to provide any concrete outlook on their business environments. At the same time, 20 S&P 500 companies have provided 2020 earnings guidance so far, per FactSet. Of these 20 companies, 10 lowered their outlook for this year, 6 maintained their previous guidance, and 4 raised their profit outlook. Bottom line: More than 150 S&P 500 companies will report first quarter results this week. We expect results to weigh down the overall S&P 500 earnings per share (EPS) figure for the first quarter. Also, we anticipate many more companies could suspend their profit guidance during their updates, which could cause a broader dispersion in analyst estimates for 2020 moving forward. In our view, this point likely leads to further S&P 500 earnings estimate downgrades for the second quarter and beyond.

Turning to investor sentiment with that backdrop set, Bearish sentiment spiked higher last week, and as the FactSet chart below shows. While stock prices weathered the shock to oil prices rather well last week, investor sentiment, however, was less fortunate. A barrage of downbeat earnings reports last week, falling oil prices, and an economy in shutdown mode looks like it has started to reverse some of the recent decline in pessimism among retail investors.



According to last Thursday’s weekly American Association of Individual Investors’ Survey, bearish sentiment rose to 50.0% from 42.8% during the prior week. Unfortunately, last week’s rise in bearish sentiment hit levels last seen at the end of March, sending the bull/bear spread to its widest level since last August. The last time bears outnumbered bulls 2 to 1 was in April 2013, according to Bespoke Investment Group.

At present, the overarching view among retail investors is one of caution, as bearishness remains well over one standard deviation above its historical average of 30.4%. As the second FactSet chart below shows, bullish sentiment edged down to its lowest level since the coronavirus pandemic began.



Why is investor sentiment so important today? Because in our view, institutional and retail investors are the incremental buyer needed to help sustain market gains and push prices up from here. As Barron’s noted over the weekend, S&P 500 companies spent $700 billion on stock buybacks last year. Over the previous eight years, the largest U.S. companies have decreased their outstanding share counts by roughly 1% each year— which has helped boost EPS. But in an uncertain environment, and one where companies need to preserve cash, at the same time revenue is falling, more companies are suspending buyback programs or materially drawing in the reigns. We expect this trend to grow throughout 2020 as more companies look to manage debt levels and shore-up balance sheets. U.S. companies have been the largest purchasers of stocks for several years. Their retreat in the market could reduce demand for shares overall and reduce the forward EPS growth potential.

Thus, other types of investors could become more relevant in the market over time, as measuring demand from a wider swath of investors proves more critical. From a retail fund perspective, markets face an uphill battle today. Through the end of March, investors pulled over $25 billion combined from broad-based mutual funds and ETFs as well as sector funds this year, according to Morningstar data. Further, investors poured nearly $694 billion into money market funds through the end of last month.

We routinely discuss retail investors’ confidence levels in these pages, which at present, is mostly sour. Obviously, sentiment will need to improve materially before interest in stock buying becomes more prevalent among this group of investors. But considering the environment, today, keeping tabs on their confidence levels could grow in importance. Especially during a period where more S&P 500 companies are actively withdrawing stock purchases from the market, retail and institutional investors may be required to do more heavy lifting to help support stock prices.

Asia-Pacific: Asian equities finished higher on Monday. Several mixed reports over the weekend continue to cloud the state of North Korean leader Kim Jong Un’s health. While some reports indicate Kim is in a vegetative state following cardiovascular surgery, South Korean officials say he is “alive and well.” Satellite images suggest Kim has been in the Wonsan area since April 13th, while Reuters noted over the weekend, Beijing sent a team of medical experts to North Korea last Thursday.

The Bank of Japan (BOJ) announced it would increase the purchases of commercial paper and corporate bonds to ¥20 trillion a month (combined) until September, versus the roughly ¥7.5 trillion it currently buys today. The BOJ also removed its ¥80 trillion annual government bond-buying quota to unlimited purchases. As a result of major downward revisions to its economic outlook this year and COVID-19 impacts, the BOJ eased monetary policy and said it could do more if needed.

Europe: Markets across the region are trading in the green at mid-day. In his first day officially back on the job after battling the coronavirus, UK Prime Minister Boris Johnson said Britain is on the brink of bending its health curve lower. Mr. Johnson warned lifting social distancing policies prematurely would be a mistake and lead to an additional lockdown later that would instill further economic damage. With that said, the Telegraph reported Mr. Johnson could spend his first week back on the job planning measures for how the UK will reopen its economy. Mr. Johnson said he would provide more details in the coming days.

Italy and Spain announced additional steps it would take to reopen their economics over the weekend. Italy will allow manufactures to resume activity starting on May 4th, while Spain will allow family walks and individual physical activity beginning on May 2nd. In Italy, schools will remain closed through September, and shops/public places could start to see a reopening on May 18th.

U.S.: Equity futures are pointing to a higher open. Here's a quick news rundown to start your morning: New York could begin its economic restart after May 15th. New York Governor Andrew Cuomo outlined

yesterday a phased plan to reopen one of the most economically significant states in the country. Each phase will be assessed every two weeks and subject to metrics such as hospitalizations, antibody testing results, and overall COVID-19 infection rates. In phase one, the construction and manufacturing sectors can reopen in some areas of the state. In the second phase, some essential businesses could be allowed to open. However, Mr. Cuomo warned specific industries in retail, hospitality, and tourism may be challenging to restart without strong protection policies in place. An all-clear from the state on large gatherings is also not expected to receive a green light any time soon.

The market’s attention is shifting from a “shutdown” focus to a “restart” focus. As a result, we believe investors are looking through some of the very sour data on the economy and profits, for now, instead, centering their attention on the path forward for growth. Although we believe there is merit in that view, the speed and strength of how the U.S. economy will reopen is a significant question mark for investors today. We expect an uneven restart across the country and one where activity is gradually brought up to speed over the course of this year. While a quick surge in business could be seen as more of the country restarts,



we are unconvinced overall growth this year will return anywhere close to pre-coronavirus levels. As a result, stocks could see additional bouts of volatility over the next few months as investors attempt to anticipate the growth curve for the economy and profits.

It’s a busy week on the economic front. Investors will get their first look at Q1 GDP on Wednesday. In our view, investors are likely to pay only minor attention to the release, as it could be viewed as a “fly-by” to a much worse Q2 report. Note: the Q1 GDP report will include less than a month of economic lockdowns. April consumer confidence (Tuesday) is expected to dip significantly, but again, the market already understands this dynamic. Initial jobless claims (Thursday) and April ISM reports (Friday) should provide additional details on COVID-19 impacts.

The Federal Reserve meets this week. On Tuesday and Wednesday, the FOMC will hold its policy meeting and following two emergency meetings in March that took the Fed Funds rate to virtually zero. The market expects a quiet meeting and one where Fed Chair Jerome Powell repeats his message to do whatever it takes to support the economy. Mr. Powell could also provide updates on the nine emergency programs now in place, and possibly review some of the successes the Fed has seen in helping stabilize the economy.

Earnings Update: With approximately 25% of S&P 500 Q1’20 profit reports complete, the blended earnings per share (EPS) growth rate has declined 16.2% y/y on sales growth of just +0.1%. Over 150 S&P 500 companies will report their profit results this week.

WORLD CAPITAL MARKETS 4/27/2020 As of: 8:30 AM ET

Americas % chg. % YTD Value Europe (Intra-day) % chg. %YTD Value Asia/Pacific (Last Night) % chg. %YTD ValueS&P 500 1.39% -11.66% 2,836.7 DJSTOXX 50 (Europe) 2.37% -22.78% 2,875.7 Nikkei 225 (Japan) 2.71% -15.59% 19,783.2 Dow Jones 1.11% -16.08% 23,775.3 FTSE 100 (U.K.) 1.70% -21.48% 5,850.3 Hang Seng (Hong Kong) 1.88% -13.69% 24,280.1 NASDAQ Composite 1.65% -3.43% 8,634.5 DAX Index (Germany) 2.80% -19.80% 10,626.0 Korea Kospi 100 1.79% -12.47% 1,922.8 Russell 2000 1.56% -25.77% 1,233.1 CAC 40 (France) 2.10% -24.61% 4,485.4 Singapore STI 1.24% -20.45% 2,549.4 Brazil Bovespa -5.45% -34.86% 75,331 FTSE MIB (Italy) 2.66% -26.37% 17,307.6 Shanghai Comp. (China) 0.25% -7.69% 2,815.5 S&P/TSX Comp. (Canada) 1.19% -14.54% 14,420.4 IBEX 35 (Spain) 1.93% -28.75% 6,741.5 Bombay Sensex (India) 1.33% -22.82% 31,743.1 Mexico IPC 1.01% -20.31% 34,586.8 MOEX Index (Russia) 0.31% -15.36% 2,570.0 S&P/ASX 200 (Australia) 1.50% -19.06% 5,321.4

Global % chg. % YTD Value Developed International % chg. %YTD Value Emerging International % chg. %YTD ValueMSCI All-Country World Idx 0.43% -15.75% 472.6 MSCI EAFE -0.87% -21.12% 1,588.7 MSCI Emerging Mkts -1.39% -20.70% 879.4 Note: International market returns shown on a local currency basis. Equity index data is total return, inclusive of dividends.

S&P 500 Sectors % chg. % YTD Value Commodities Communication Services 1.06% -8.81% 164.6 Equity Income Indices % chg. % YTD Value Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Discretionary 1.43% -6.15% 922.0 JPM Alerian MLP Index -0.23% -43.58% 123.1 CRB Raw Industrials -0.42% -9.48% 408.9 Consumer Staples 1.12% -6.04% 602.3 FTSE NAREIT Comp. TR 0.38% -20.34% 17,008.9 NYMEX WTI Crude (p/bbl.) -21.13% -78.12% 13.4 Energy 0.21% -41.28% 264.5 DJ US Select Dividend 1.17% -25.24% 1,712.2 ICE Brent Crude (p/bbl.) -4.71% -69.05% 20.4 Financials 1.41% -28.88% 361.0 DJ Global Select Dividend 1.96% -32.88% 156.3 NYMEX Nat Gas (mmBtu) -6.47% -25.40% 1.6 Health Care 1.44% -1.08% 1,168.4 S&P Div. Aristocrats 1.50% -17.32% 2,536.1 Spot Gold (troy oz.) -0.62% 13.29% 1,719.0 Industrials 0.77% -23.93% 520.2 Spot Silver (troy oz.) -0.12% -14.66% 15.2

Materials 1.56% -18.23% 313.5 LME Copper (per ton) -0.33% -16.75% 5,118.7 Real Estate 0.29% -13.89% 205.1 Bond Indices % chg. % YTD Value LME Aluminum (per ton) 0.20% -17.00% 1,478.5 Technology 2.11% -2.90% 1,558.5 Barclays US Agg. Bond 0.04% 4.99% 2,336.0 CBOT Corn (cents p/bushel) -1.55% -20.70% 318.0 Utilities 0.63% -9.05% 296.3 Barclays HY Bond -0.38% -9.52% 1,975.0 CBOT Wheat (cents p/bushel) -1.13% -6.92% 524.5

Foreign Exchange (Intra-day) % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) 0.25% -3.24% 1.09 Japanese Yen ($/¥) 0.38% 1.41% 107.10 Canadian Dollar ($/C$) 0.31% -7.60% 1.41British Pound (£/$) 0.49% -6.26% 1.24 Australian Dollar (A$/$) 1.32% -8.06% 0.65 Swiss Franc ($/CHF) -0.01% -0.67% 0.97Data/Price Source: Bloomberg. Equity Index data is total return, inclusive of dividends, where applicable.

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

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

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

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

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

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

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

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

11) Utilities 3.5% Underweight - 1.0% 2.5%

As of: March 31, 2020



THE WEEK AHEAD: Russell T. Price, CFA, Chief Economist S&P 500 2020 EPS estimates down nearly $42 since February. Despite being down a whopping $42 since

early February, S&P 500 2020 earnings per share (EPS) estimates still likely have considerable downside ahead. Over the last week, full-year 2020 EPS estimates for the Index declined another $6.30. The outlook, however, remains highly uncertain as many companies have suspended guidance amid the ongoing coronavirus outbreak.

This week will be the heaviest of the release season with 172 S&P 500 companies (34%) on the schedule, including 12 of the 30 members of the Dow Jones Industrial Average. Although last week’s decline in full-year earnings estimates was smaller than the preceding week (down $6.30 versus down $8.44 the week before) the large number of companies reporting this week could result in the largest cut to forecasts yet. All numbers mentioned in this commentary, as well as those depicted in the chart at right, are sourced from FactSet.

Through last Friday, 122, or about 24% of S&P 500 companies had reported their Q1 results. The blended EPS estimate (actuals plus estimates for those yet to report) for the period currently stands at $32.75, representing a year-over-year decline of 15.8%. This is down from last week’s blended yr/yr rate of -14.8%. Five sectors account for all of the downside pressure at this time. The Energy, Consumer Discretionary, Financials, Industrials and Materials, are each showing negative yr/yr earnings comparisons, while the Communication Services, Health Care, Technology, Real Estate, Consumer Staples, and Utilities sectors currently offer positive blended growth rates for Q1. Please see page 8 of this report for added detail on earnings estimates.

The Economic Calendar: The economic calendar also ramps up considerably this week. On Wednesday, the Commerce Department will release its first estimate of Q1 real Gross Domestic Product (GDP) thus revealing the initial hit from the coronavirus lockdown period. The consensus estimate for the period has drifted down to our forecast of -4.0%, but there is a very large range of projections. According to Bloomberg, estimates for the period range from -1.0% to as dire as -10%.

Also on Wednesday, the Federal Reserve will announce any monetary policy changes as the conclusion of its two-day FOMC meeting. There is little left that Fed officials have not already done to support financial markets and the economy in the face of the ongoing viral outbreak, but investors will certainly be eager to hear an updated assessment of conditions from Chair Powell at the news conference that follows.

Thursday’s report on new unemployment claims, meanwhile, is expected to show a second straight week of moderation with 3.5 million new claims forecast according to Bloomberg. If achieved, it would be the lowest level in four weeks, but it would bring the running four-week total to about 25.5 million. Personal Income and Spending for the month of March will also be reported on Thursday. Here too, estimates vary widely given the unusual

Ameriprise Global Asset Allocation Committee Global Equity Region - Tactical View

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

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

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

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

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

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

As of: March 31, 2020



circumstances. Income is likely to be down sharply as many of the considerable support programs recently passed at the federal level had yet to be put in place before the month ended. Spending, of course, will also be down sharply as indicated by the 8.7% decline reported in retail sales for the month. While we believe income metrics should improve in April as more people will have started to receive unemployment benefits and other income supports, consumer spending is likely to see its nadir.

Where Market Fundamentals Stand Heading into The Week:

S&P 500 Trailing and Forward P/E valuations: Source: FactSet Please note: Although we try to maintain consistency as much as possible, Price to Earnings (P/E) ratios may differ modestly from once source to another. Most notably, P/E numbers can often show their most notable differences during an earnings release season as some sources may still use the last full ‘actual’ earnings number (for instance, currently Q4 trailing 12-month earnings per share) while others use earnings per share that are updated for Q1 using a combination of actual and estimated earnings per share. The calculation of earnings (operating earnings versus ‘as reported’ or GAAP) also often differs modestly from one data source to another due to the proprietary use of calculation methodologies. The “average” shown in the charts below represent averages for the period shown.

April 27 28 29 30 May 1Dallas Fed Mfg. Index Advance Trade - Goods Q1 GDP - First Estimate Initial Jobless Claims Construction Spending

Employment - Japan S&P / CaseShiller Home $$$ Personal Consumption Chicago Purch. Mgrs Index ISM Manufacturing Index

Jobseekers - France Consumer Confidence Pending Home Sales Pers. Income & Spending U.S. Auto Sales

Employment - Mexico Richmond Fed Index FOMC Rate Decision Monetary Policy - Eurozone

Consumer Sentiment - S. Korea Wholesale Inventories Economic Sentiment - Eurozone GDP - Eurozone

Retail Sales - S. Korea Manufacturing PMI - China Unemployment - Eurozone

Unemployment - Spain Industrial Production - Japan Inflation - Eurozone

Trade - Mexico Retail Sales - Japan Consumer Confidence - Japan

Manufacturing Activity - Canada



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

Consensus Earnings Estimates: Source: FactSet

ECONOMIC NEWS OUT TODAY: Economic Releases for Monday, April 27, 2020. All times Eastern. Consensus estimates via Bloomberg. None Scheduled

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

Fed, BOJ and ECB Scheduled for Policy Meetings This Week It’s a busy week for central bankers in the U.S., Japan and Eurozone. Rate policies are essentially at the stops for

fully employed. Tools still in play: purchasing more debt, supporting short-term funding markets to ensure borrowing is broadly available and promising low rates into the future. We anticipate commitments to be front and center. Bottom-line: In the near-term central bank policy focuses on how to intelligently broaden the scope of asset purchases and to signal commitments to support economic activity and markets through the pullback.

The Bank of Japan (BOJ) led off this morning removing a limit of 80 trillion yen ($750 billion) per year increasing its ability to buy government debt and tripled the cap on corporate bond purchases to 20 trillion yen ($185 billion). The increases come at a time when Japan contemplate potential spending programs and the jump in government bond issuance.

The European Central Bank (ECB) continues to bear the burden for as political leaders look for a solution palatable to all 27 member nations. Like bobbling the hand off in a relay race, the friction filled process of coalescing a union hampers the EU’s ability to quickly and reliably respond. The ECB may be forced to play the role of a steady hand, with limited tools to exert that impression. We continue to watch how the EU and ECB navigate fiscal spending programs and how fixed income markets respond. While we believe the Fed played the leading role well in the U.S., the Eurozone struggles to fill that role.

The U.S. Federal Reserve (Fed) raced out ahead to lead fixed income markets in March and likely affirms its commitment to do more if needed to anchor markets. After dropping policy rates to zero, the Fed rolled out unlimited government bond purchased and targeted purchase programs across bond market segments to support liquidity and facilitate efforts to increase cash and reposition portfolios.

S&P 500 Earnings Estimates 2015 2016 2017 20214/27/2020 Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Est. Est. Est. Est. Est.

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

Quarterly $$ amount $38.72 $41.13 $42.88 $41.32 $38.80 $41.59 $42.21 $41.78 $32.75 $27.90 $35.25 $38.90

change over last week -$0.85 -$2.47 -$1.72 -$1.26

yr/yr 25.4% 25.4% 27.8% 13.7% 0.2% 1.1% -1.6% 1.1% -15.6% -32.9% -16.5% -6.9%

qtr/qtr -1% 6% 4% -4% -6% 7% 1% -1% -22% -15% 26% 10%

Trailing 4 quarters $$ $118.67 $119.64 $133.50 $141.41 $149.74 $159.07 $164.05 $164.13 $164.59 $163.92 $164.38 $158.33 $144.64 $137.68 $134.80 $171.10 yr/yr -0.3% 0.8% 11.6% 22.9% 0.2% -18.0% 26.9%

Implied P/E based on a S&P 500 level of: 2837 17.3 17.9 19.6 20.6 21.0 16.6

2019 20202018



Our view: In the U.S. we are not convinced that markets have correctly dialed in on how the Fed will support risk

across bond markets. We believe credit spreads especially for high yield credit are ahead of where the Fed support likely shakes out. We believe the Fed lacks the capacity and desire to recue highly levered companies all the way down through high yield. If you are still hanging onto an investment that kept you awake over the past 6 weeks, now is an ideal time to hit a stronger than should be expected bid.

The level of uncertainty remains materially elevated yet spreads within the high yield space simply reflect compensation levels lower than when the 2016 energy downturn was at a peak. Then, the decline in the price of crude from more than $100 to around $30 and severely disrupted how and where investors were willing to commit to lending both within the energy sector and across segments that benefitted from the rapid expansion of energy infrastructure. Today, we face a combination of even deeper bottoming for crude oil prices and a sharp supply and demand disruption from shelter in place directives. We believe corporate defaults could triple over the next year and leverage and cash flow disruptions; a dynamic not reflected by current credit spread levels. We recommend moving up in quality within portfolios given the potential strength of market bid levels and the lack of spread compensation when stepping lower in yields. Follow the Fed in the high-quality segments they fully support continues to be our recommendation.



The Fed’s Money Machine The Fed boldly expanded its balance sheet by $2.4 trillion since the end

of February to $6.5 trillion through ongoing bond purchases and liquidity support. As a result of the 60% year over year expansion Fed balance sheet expansion, excess bank reserves rocketed 80% higher and the broad money supply expanded by 15%. The Fed is all-in on printing money. See charts at right (Source: Bank Credit Analyst.)

Later this year or early next year as a recovery matures, an expansion of broad money measures could return inflation to the list of risks fixed income markets face. In the meantime, we recommend a slightly longer duration in core fixed income to counterbalance downside tail risks. We believe the Fed’s aim is to expand the money supply to support asset prices and ultimately to lift inflation back above its 2% target.

We anticipate U.S. dollar strength may persist in the near-term as global economies shutter from sheltering in place. We also see the risk that foreign goods may not be as available in the second half of 2020 given the less developed health care systems in emerging economies face the potential spread of the corona virus. However, we could also envision a shift from a more U.S. centric fixed income allocation toward foreign bonds over the next year due to the Fed’s money printing activities. In the near-term we recommend focusing on how the U.S. and global economies rebound this summer.

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

Jeff Carlson, CLU, ChFC – Manager

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

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

Energy/Utilities William Foley, ASIP – Director

Financial Services/REITs Lori Wilking-Przekop – Sr Director

Health Care Daniel Garofalo – Director

Industrials/Materials Frederick M. Schultz – Director

Technology/Telecommunication Open – Director

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

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

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

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

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

Michael V. Jastrow, CFA – Vice President

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

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

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

Alex Zachman, CFA – Analyst – Core Equity

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

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

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

Blake Hockert – Associate – Reporting & Analytics

FIXED INCOME RESEARCH & STRATEGY

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

Stephen Tufo – Director INVESTMENT DUE DILIGENCE

Justin E. Bell, CFA – Vice President

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

Kay S. Nachampassak – Director

Peter W. LaFontaine – Sr. Analyst

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

David Hauge, CFA – Analyst

Bishnu Dhar – Sr. Research Analyst

Parveen Vedi – Sr. Research Associate

Darakshan Ali – Research Process Trainee

INNOVATION AND DEVELOPMENT

Allen Rodrigues – Vice President

Nidhi Khandelwal – Director

Dan Burns – Sr. Manager

Matt Morgan – Sr. Manager

Natasha Wayland – Sr. Manager



The content in this report is authored by American Enterprise Investment Services Inc. (“AEIS”) and distributed by Ameriprise Financial Services, Inc. (“AFSI”) to financial advisors and clients of AFSI. AEIS and AFSI are affiliates and subsidiaries of Ameriprise Financial, Inc. Both AEIS and AFSI are member firms registered with FINRA and are subject to the objectivity safeguards and disclosure requirements relating to research analysts and the publication and distribution of research reports. The “Important Disclosures” below relate to the AEIS research analyst(s) that prepared this publication. The “Disclosures of Possible Conflicts of Interest” section, where applicable, relates to the conflicts of interest of each of AEIS and AFSI, their affiliates and their research analysts, as applicable, with respect to the subject companies mentioned in the report. Each of AEIS and AFSI have implemented policies and procedures reasonably designed to ensure that its employees involved in the preparation, content and distribution of research reports, including dually registered employees, do not influence the objectivity or timing of the publication of research report content. All research policies, coverage decisions, compensation, hiring and other personnel decisions with respect to research analysts are made by AEIS, which is operationally independent of AFSI. IMPORTANT DISCLOSURES As of March 31, 2020 The views expressed regarding the company(ies) and sector(s) featured in this publication reflect the personal views of the research analyst(s) authoring the publication. Further, no part of research analyst compensation is directly or indirectly related to the specific recommendations or views contained in this publication. A part of a research analyst’s compensation may be based upon overall firm revenue and profitability, of which investment banking, sales and trading, and principal trading are components. No part of a research analyst’s compensation is based on a specific investment banking transaction, nor is it based on sales, trading, or principal trading. A research analyst may have visited the material operations of one or more of the subject companies mentioned in this research report. No payment was received for the related travel costs. Additional information and current research disclosures on individual companies mentioned in this research report are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor. You may also submit a written request to Ameriprise Financial, Inc., 1441 West Long Lake Road, Troy MI, 48098. Independent third-party research on individual companies is available to clients at ameriprise.com/research-market-insights. SEC filings may be viewed at sec.gov. Tactical asset class recommendations mentioned in this report reflect The Ameriprise Global Asset Allocation Committee’s general view of the financial markets, as of the date of the report, based on then current conditions. Our tactical recommendations may differ materially from what is presented in a customized long-term financial plan or portfolio strategy. You should view our recommendations in conjunction with a broader long-term portfolio strategy. Not all products, services, or asset classes mentioned in this report may be available for sale at Ameriprise Financial Services, Inc. Please consult with your financial advisor. Diversification and Asset Allocation do not assure a profit or protect against loss. RISK FACTORS Dividend and interest payments are not guaranteed. The amount of dividend payment, if any, can vary over time and issuers may reduce or eliminate dividends paid on securities

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



third-party research which provides additional investment highlights. SEC filings may be viewed at sec.gov All fixed income securities are subject to a series of risks which may include, but are not limited to: interest rate risk, call risk, refunding risk, default risk, inflations risk, liquidity risk and event risk. Please review these risks with your financial advisor to better understand how these risks may affect your investment choices. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. This means you may lose money if you sell a bond prior to maturity as a result of interest rate or other market movement. Any information relating to the income or capital gains tax treatment of financial instruments or strategies discussed herein is not intended to provide specific tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional. A real estate investment trust or REIT is a company that owns and operates income-producing real estate. In addition, some REITs participate in the financing of real estate. To qualify as a REIT, a company must: I) invest at least 75% of its total assets in real estate assets, II) generate at least 75% of its gross income from real property or interest, and III) pay at least 90% of its taxable income to shareholders in the form of distributions. A company that qualifies as a REIT is permitted to deduct the distributions paid to shareholders from its corporate taxes. Consequently, many REITs target to payout at least 100% of taxable income, resulting in virtually no corporate taxes. An investment in a REIT is subject to many of the same risks as a direct investment in real estate including, but not limited to: Illiquidity and valuation complexities, redemption restrictions, distribution and diversification limits, tax consequences, fees, defaults by borrowers or tenants, market saturation, balloon payments, refinancing, bankruptcy, decreases in market rates for rents and other economic, political, or regulatory occurrences affecting the real estate industry. Ratings are provided by Moody’s Investors Services and Standard & Poor’s. Non-Investment grade securities, commonly known as "high-yield" or "junk" bonds, are historically subject to greater risk of default, including the loss of principal and interest, than higher-rated bonds, which may result in greater price volatility than experienced with a higher-rated issue. Securities offered through AFSI may not be suitable for all investors. Consult with your financial advisor for more information regarding the suitability of a particular investment. For further information on fixed income securities please refer to FINRA’s Smart Bond Investing at FINRA.org, MSRB’s Electronic Municipal Market Access at emma.msrb.org, or Investing in Bonds at investinginbonds.com. DEFINITIONS OF TERMS Agency – Agency bonds are issued by Government Sponsored

Enterprises (GSE), but are NOT direct obligations of the U.S. government. Common GSE’s are the Federal Home Loan Mortgage Corp. (Freddie Mac) Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Bank (FHLB). Beta: A measure of the risk arising from exposure to general market movements as opposed to company-specific factors. Betas in this report, unless otherwise noted, use the S&P 500 as the market benchmark and result from calculations over historic periods. A beta below 1.0, for example, can suggest the equity has tended to move with lower volatility than the broader market or, due to company-specific factors, has had higher volatility but generally low correlations with the overall market. Corporate Bonds – Are debt instruments issued by a private corporation. Non-Investment grade securities, commonly known as “high-yield” or “junk” bonds, are historically subject to greater risk of default, including the loss of principal and interest, than higher-rated bonds, which may result in greater price volatility than experienced with a higher-rated issue. Mortgage Backed Securities – Bonds are subject to prepayment risk. Yield and average lives shown consider prepayment assumptions that may not be met. Changes in payments may significantly affect yield and average life. Please contact your financial advisor for information on CMOs and how they react to different market conditions. Municipal Bonds – Interest income may be subject to state and/or local income taxes and/or the alternative minimum tax (AMT). Municipal securities subject to AMT assume a “nontaxable” status for yield calculations. Certain municipal bond income may be subject to federal income tax and are identified as “taxable”. Gains on sales/redemptions of municipal bonds may be taxed as capital gains. If the bonds are insured, the insurance pertains to the timely payment of principal (at maturity) and interest by the insurer of the underlying securities and not to the price of the bond, which will fluctuate prior to maturity. The guarantees are backed by the claims-paying ability of the listed insurance company. Treasury Securities – There is no guarantee as to the market value of these securities if they are sold prior to maturity or redemption. Price/Book: A financial ratio used to compare a company’s market share price, as of a certain date, to its book value per share. Book value relates to the accounting value of assets and liabilities in a company’s balance sheet. It is generally not a direct reflection of future earnings prospects or hard to value intangibles, such as brand, that could help generate those earnings. Price/Earnings: An equity valuation multiple calculated by dividing the market share price, as of a certain date, by earnings per share. Trailing P/E uses the share price divided by the past four-quarters’ earnings per share. Forward P/E uses the share price as of a certain date divided by the consensus estimate of the future four-quarters’ EPS. Price/Sales: An equity valuation multiple calculated by dividing the market share price, as of a certain date, by the



company’s sales per share over the most recent year. INDEX DEFINITIONS An index is a statistical composite that is not managed. It is not possible to invest directly in an index. Definitions of individual indices mentioned in this report are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor. DISCLAIMER SECTION Except for the historical information contained herein, certain matters in this report are forward-looking statements or projections that are dependent upon certain risks and uncertainties, including but not limited to, such factors and considerations as general market volatility, global economic and geopolitical impacts, fiscal and monetary policy, liquidity, the level of interest rates, historical sector performance relationships as they relate to the business and economic cycle, consumer preferences, foreign currency exchange rates, litigation risk, competitive positioning, the ability to successfully integrate acquisitions, the ability to develop and commercialize new products and services, legislative risks, the pricing environment for products and services, and compliance with various local, state, and federal health care laws. See latest third-party research reports and updates for risks pertaining to a particular security. This summary is based upon financial information and statistical data obtained from sources deemed reliable, but in no way is warranted by Ameriprise Financial, Inc. as to accuracy or completeness. This is not a solicitation by Ameriprise Financial Services, Inc. of any order to buy or sell securities. This summary is based exclusively on an analysis of general current market conditions, rather than the suitability of a specific proposed securities transaction. We will not advise you as to any change in figures or our views. Past performance is not a guarantee of future results. Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. AFSI and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Ameriprise Financial Services, Inc. Member FINRA and SIPC.

before the bell · 4/27/2020 · goodyear, ford, delta airlines, boeing, marriott, occidental...

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