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Before the Bell Morning Market Brief

May 18, 2020

MONDAY MORNING MARKET STRATEGY: David M. Joy, Chief Market Strategist Several weeks ago, Federal Reserve Chairman Powell warned against letting the current liquidity crisis become an insolvency crisis. For investors, monitoring stress in the financial system can provide some insight into possible Fed response, both in the process of fighting the crisis and identifying when it may be safe for the Fed to return to normal.

In the wake of the financial crisis, the staff at the Kansas City Federal Reserve built a new index designed to measure financial stress, using data as far back as 1990. The index is designed to measure various aspects of financial stress, including uncertainty regarding asset valuations, concerns over safety and liquidity, the behavior of other investors, and asymmetry of information. During the crisis in October 2008 the index measured almost six standard deviations above its historical average, before ultimately receding down to that longer-run average in 2010. The latest reading of this index was published last week. It showed some improvement in April to a level of 1.64 standard deviations above average, down from the recent peak of 2.1 in March. The index is comprised of eleven financial variables, six of which are various spread relationships, including the TED spread, 2-year swap, three measures of corporate bond-treasury spreads, and a consumer ABS-treasury spread. It also includes the VIX index and two measures of the relative performance of bank stocks. Lastly, it includes the correlation between treasuries and stocks. April’s improvement came primarily from a decline in the VIX and some relative improvement in the performance of bank stocks. While the composite index is published monthly, its individual indicators can be accessed in real time, providing timely insight into the degree of stress in the financial system. While these indicators are currently elevated relative to their longer-term historical averages, it is clear that the degree of financial stress currently being experienced is significantly below the level experienced during the financial crisis. That is no doubt due in part to the sizeable and timely policy response from Washington this time, but also the relatively stronger banking sector.

Also last week, the Federal Reserve Bank in Washington released its latest financial stability report. It is designed to examine the vulnerability of the financial system to a potential shock, an objective that is different, albeit related, to what the Kansas City Financial Stress Index is attempting to measure. The stability report focuses on four areas; asset price valuations, the level of borrowing in the private sector, the degree of leverage in the financial system, and funding risk. Not unexpectedly, the Fed pointed out that risk in all four of these areas is currently elevated due to the coronavirus and the efforts to fight its spread. Taken together, these two reports can provide insight into the thinking of the central bank, and where it believes weaknesses and stresses appear in the financial system.

Of course, there are numerous other metrics that can provide insight into financial stress, such as loan delinquency trends, and rating agency actions, but in the current environment, where corporate revenue has in some cases dried up overnight, there is a need for additional measures of stress at the industry and company level to provide investors with timely, virtually real time, insight. Airlines, restaurant chains, retail stores, and hotels are examples of industries where daily tallies of capacity, traffic, and occupancy are essential to identify whether an improving trend as the

Before The Bell May 18, 2020 ____________________________________________________________________________________________________________________________

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economy reopens will be sufficient to prevent a liquidity crisis from becoming a solvency crisis. Comparing these trends against all available sources of cash can provide a measure of a corporate entity’s ability to remain solvent, and for how long. In the absence of revenue, those sources of cash will include retained earnings, untapped lines of credit, potential employee layoffs, the sale and leaseback of hard assets, suspended or cut dividends and buybacks, access to federal loans and so on. But any analysis will necessarily involve a good deal of guesswork. It is uncertain when consumers will feel comfortable enough to return to normal, and whether that will be soon enough to generate revenue sufficient to allow companies to remain solvent, once other sources of cash have been exhausted.

The Fed responded to rising overall liquidity risk in the corporate bond market back on March 23rd by launching, among other programs, the primary and secondary market corporate credit facility, designed to leverage $75B of equity from the Treasury Department for the purchase of both existing and new issue corporate bonds. That program was activated last week with the initial purchase of ETFs totaling $305 million, yet there was very little discernable market reaction as the Fed had, in fact, accomplished its goal of unclogging the corporate bond market simply by announcing the new credit facility back in March, making it unlikely that the Fed will need to be particularly active in utilizing the new facility. In fact, the month of April saw a record amount of new investment grade corporate bonds issued, totaling $300B. Between February 19th and March 23rd, the spread of BBB corporate bonds over treasuries climbed from 131 basis points to 488. Following the Fed’s announcement, the spread immediately began to contract, falling to 282 basis points by the end of April, two weeks before the Fed’s first purchase of corporate bond ETFs.

But improved credit market liquidity will be of little help to companies that can neither access credit facilities or bond markets at a sufficiently attractive price to offset a cash burn that threatens to drive them to insolvency.

MORNING MARKET COMMENTARY: Anthony M. Saglimbene, Global market Strategist Quick Take: U.S. futures are pointing to a higher open on the hope of a vaccine and an economic restart;

European markets are trading mostly in the green; Asia ended mixed overnight; West Texas Intermediate (WTI) oil trading at $31.88; 10-year U.S. Treasury yield 0.66%.

COVID-19 & Retail Sales Trends: On Friday, investors received yet another update on the devastating economic effects from COVID-19. Retail sales plunged for the second straight month, as April data showed sales dropped 16.4% last month — the largest m/m decline since the Commerce Department began tracking the series in 1992. On a year-over-year basis, retail sales last month declined a staggering 21.6%. Of the thirteen major categories tracked in the economic series, ten of the components logged their worst month ever. Clothing sales were down nearly 79% month-over-month in April. Electronic & Appliance sales fell almost 61%, while General Merchandise sales dropped roughly 21%. Only Nonstore (Online) sales were positive during the prior month, rising over +8.0% m/m — or its second-best showing ever. Although retail sales looked historically ugly in April and may take many months for the series to return to prior levels, as we noted in Before the Bell on Friday, last month's retail sales reading should be the worst of the current situation.



As the first FactSet chart above highlights, American behaviors regarding food consumption have dramatically shifted over the last several years. Since the end of the financial crisis in 2009, Americans have increasingly favored "dining out" versus "staying in" and cooking. Late last year, dining out overtook eating in as a percentage of total retail sales for the first time. Nearly twenty years ago, Food and Beverage Stores (which includes Grocery Stores) accounted for over 13% of total retail sales. In contrast, Food Services and Drinking Establishments (includes Bars and Restaurants) accounted for just over 9.0%.

Although each segment had shifted in leadership since last fall, the overall trend in the chart above was undoubtedly clear to even the casual observer. Before the economic shutdown, more Americans had grown comfortable and confident in their present situation, and convenience trumped the commitment and time it took to prepare a meal.

But as the chart above also clearly demonstrates, an economic lockdown in April, where much of the country's Bars and Restaurants were closed during the month, upended this long-entrenched trend. In fact, sales at Bars and Restaurants saw their share of total sales decline to their lowest level on record, while Food and Beverage Stores experienced their highest level since the early 1990s. However, as more of the country begins to reopen, we believe closely monitoring trends in these particular retail sales components could provide useful insight into consumers' behaviors regarding the virus as well as their confidence levels in going out and spending. Eating out is a discretionary and deliberate act. How quickly will consumers feel safe gathering in eating establishments? With record unemployment across the country, how confident will consumers be to spend extra dollars on a meal? Over the coming months watching these particular, smaller dollar, frequent purchases could be very telling.

Lastly, which will come as no surprise to anyone who regularly receives a stream of packages on their front porch, the second FactSet chart below also shows another long-entrenched trend across retail sales, which has only grown stronger over an economic lockdown. Nonstore retailers (i.e., online sales) continue to grow and comprise a larger share of the overall retail space, while sales across department stores have plummeted. While the data can get a little messy (e.g., omnichannel retailers), the story is also apparent — sales led by clicks far outstrip purchases performed at bricks. More broadly, General Merchandise retailers have also seen pressure from online sales over a number of years.

In April, the gap between bricks and clicks stretched to its widest on record, which should be expected since many physical store locations were closed. As such, we expect online sales to give back some of their April spike over time and as more physical stores reopen for business. Nevertheless, consumers who were forced to make more purchases online under stay-at-home orders may find the convenience of packages delivered to their door-step a necessity they would rather not part with. Currently, companies, such as Amazon, are increasing their investment into supply chain management and delivery technologies to meet the surging demand for online



shopping. Importantly, we suspect the gap between bricks and clicks could find a new, "wider" equilibrium over time and as a result of more consumers forced to shop online during the pandemic.

Bottom line: It's critical to monitor trends across retail sales as well as the overall headline numbers and direction each month — especially now. American shopping habits have dramatically shifted over many years, and in several instances, have been temporarily altered by coronavirus impacts. As more of America reopens for business under a post-COVID-19 environment, investors will receive a better look at which existing retail sales trends have staying power, and which may be upended by our new reality.

Asia-Pacific: Asian equities finished mixed on Monday. As we discussed last week, U.S./China tensions are heating up. Last week, the U.S. Commerce Department said it would prevent any chipmaker using American equipment from supplying China's Huawei Technologies without U.S. government approval. In response, Taiwan Semiconductor Manufacturing has stopped accepting new orders from Huawei, per Nikkei. China said it plans to defend Huawei's legal rights. Although the Trump administration is looking for ways to incentivize American companies out of China, there is still no clear path on how to do so yet.

Ahead of this week's National People's Congress, the South China Morning Post reported the ongoing debate across government officials about the size of additional stimulus as well as how to implement it across the country. Citing comments from government advisors and former officials over the weekend, a large economic stimulus to address the damage done by the coronavirus may not be in the cards over the near-term.

Q1 GDP in Japan declined 3.4% q/q, but better than the 4.5% contraction expected. In the final quarter of 2019, Japan's economy shrank 7.3%. The primary headwind to the economy in the prior quarter was a decline in private consumption and export activity. While Q2 GDP is expected to drop 21.5%, many economists surveyed by Bloomberg see the current quarter as the peak in the coronavirus impact on the economy.

Europe: Most markets across the region are trading higher at midday. European Central Bank (ECB) Chief Economist Philip Lane said it is unlikely the Eurozone will return to its pre-crisis level before 2021. He said in an El Paris interview, the strength of the recovery depends on the time it takes to ease economic restrictions, consumer spending strength, and if businesses continue to hold back on investment. Mr. Lane said the ECB could adjust its policy if necessary, including its asset purchase program.

U.S.: Equity futures are pointing to a higher open. Here's a quick news rundown to start your morning: Markets look to open the week on a high note following positive comments from Fed Chair Jerome Powell.

Mr. Powell told CBS's 60 Minutes on Sunday he believes an economic recovery is underway and that he does not believe the current downturn resembles the Great Depression, despite the record high unemployment rate. But Mr. Powell remained guarded in his enthusiasm for a recovery, stating it would take time for the economy to return to normal (possibly in the back half of 2021). The Fed Chair also said a COVID-19 vaccine may be needed for a full economic recovery. Importantly, the economy was healthy heading into our health crisis, and Mr. Powell said, "central banks around the world responded with great force and very quickly — and they are staying at it."

Stock futures add to their gains after Moderna's closely watched coronavirus vaccine sees some early positive results. In early-stage human trials, Moderna's coronavirus vaccine produced COVID-19 antibodies in all 45 participants. Per CNBC, the company said the interim Phase 1 data, while early, demonstrates the vaccination elicits an immune response of the magnitude caused by natural infection starting with a dose as low as 25 micrograms.

As markets are again taking a positive view of America's reopening, further data this week may alter the mood. Following very downbeat reports on employment trends, inflation, and retail sales, investors will be reminded of how bad the month of April proved to be. April housing starts (Tuesday), existing home sales (Thursday), initial jobless claims (Thursday), and the Philly Fed Index (Thursday) line the economic calendar this week. FOMC meeting minutes on Wednesday could also provide some additional clues about the Fed's "all-in" monetary stance. While the ultimate letter type of recovery is anyone's guess, investors continue to look through the April data. As long as virus trends remain static in states that are beginning to reopen, investors may continue to discount the rearview mirror economic trends.

Big Tech comes under the microscope. Per The Wall Street Journal, the Justice Department and some state attorney generals could file antitrust lawsuits against Alphabet's Google. The investigation is focused on the company's online advertising business and potential unfair advantages its dominating search engine has on limiting competition. On Saturday, President Trump accused Facebook, Twitter, and Alphabet, through a tweet, of being controlled by the "Radical Left." He went on to say his administration is working on fixing the "illegal situation." Lastly, Amazon announced it would make the appropriate executives available to Congress to testify about whether it lied regarding the treatment of third-party sellers, according to FactSet.



Earnings Update: With approximately 90% of S&P 500 Q1'20 profit reports complete, the blended earnings per share (EPS) growth rate has declined 14.0% y/y on sales growth of +0.6%. This week, 26 S&P 500 companies report their results, including 2 Dow 30 components.

WORLD CAPITAL MARKETS 5/18/2020 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 0.39% -10.69% 2,863.7 DJSTOXX 50 (Europe) 3.27% -22.53% 2,861.2 Nikkei 225 (Japan) 0.48% -14.05% 20,133.7 Dow Jones 0.25% -16.24% 23,685.4 FTSE 100 (U.K.) 2.91% -19.66% 5,968.4 Hang Seng (Hong Kong) 0.58% -14.73% 23,934.8 NASDAQ Composite 0.79% 0.91% 9,014.6 DAX Index (Germany) 3.73% -18.07% 10,855.5 Korea Kospi 100 0.51% -11.64% 1,937.1 Russell 2000 1.57% -24.26% 1,257.0 CAC 40 (France) 3.38% -25.18% 4,422.1 Singapore STI 0.62% -20.29% 2,539.3 Brazil Bovespa -1.84% -32.94% 77,557 FTSE MIB (Italy) 1.83% -26.99% 17,161.5 Shanghai Comp. (China) 0.24% -5.73% 2,875.4 S&P/TSX Comp. (Canada) 0.89% -13.09% 14,638.9 IBEX 35 (Spain) 2.70% -29.68% 6,649.4 Bombay Sensex (India) -3.44% -26.99% 30,029.0 Mexico IPC -1.12% -17.65% 35,691.4 MOEX Index (Russia) 3.04% -11.74% 2,672.8 S&P/ASX 200 (Australia) 1.03% -16.83% 5,460.5 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 0.38% -14.56% 478.4 MSCI EAFE 0.41% -20.56% 1,594.7 MSCI Emerging Mkts 0.03% -18.63% 901.2

S&P 500 Sectors % chg. % YTD Value Commodities Communication Services 1.26% -4.65% 172.2 Equity Income Indices % chg. % YTD Value Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Discretionary 1.06% -4.06% 942.3 JPM Alerian MLP Index 2.70% -41.07% 128.6 CRB Raw Industrials -0.72% -7.23% 419.1 Consumer Staples 0.76% -8.41% 586.5 FTSE NAREIT Comp. TR -0.42% -24.60% 16,100.5 NYMEX WTI Crude (p/bbl.) 8.66% -47.63% 32.0 Energy -0.28% -39.07% 272.3 DJ US Select Dividend -0.75% -27.93% 1,650.6 ICE Brent Crude (p/bbl.) 6.12% -47.74% 34.5 Financials -0.73% -31.15% 348.6 DJ Global Select Dividend 1.90% -32.60% 155.9 NYMEX Nat Gas (mmBtu) 6.14% -20.19% 1.7 Health Care 0.73% -1.05% 1,167.6 S&P Div. Aristocrats 0.47% -18.29% 2,506.5 Spot Gold (troy oz.) 0.57% 15.57% 1,753.6 Industrials -0.31% -26.51% 501.7 Spot Silver (troy oz.) 4.08% -3.15% 17.3

Materials 0.96% -16.46% 320.1 LME Copper (per ton) -0.34% -16.15% 5,156.0 Real Estate -0.44% -19.41% 191.8 Bond Indices % chg. % YTD Value LME Aluminum (per ton) -0.80% -19.78% 1,428.9 Technology 0.42% 2.35% 1,640.7 Barclays US Agg. Bond 0.00% 4.86% 2,333.2 CBOT Corn (cents p/bushel) 0.63% -19.89% 321.3 Utilities -1.41% -14.46% 277.3 Barclays HY Bond -0.12% -8.78% 1,991.2 CBOT Wheat (cents p/bushe -0.60% -11.76% 497.3

Foreign Exchange (Intra-day % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) 0.14% -3.37% 1.08 Japanese Yen ($/¥) -0.32% 1.13% 107.40 Canadian Dollar ($/C$) 0.56% -7.41% 1.40British Pound (£/$) 0.41% -8.23% 1.22 Australian Dollar (A$/$) 0.95% -7.79% 0.65 Swiss Franc ($/CHF) 0.05% -0.45% 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

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



THE WEEK AHEAD: Russell T. Price, CFA, Chief Economist The Economic Calendar: Housing and jobless claims dominate the economic calendar this week but neither is

likely to be particularly influential to markets. On Tuesday, the Census Department is expected to report a 24% month-over-month decline in April New Housing

Starts (according to Bloomberg consensus estimates). Starts were already down 22% m/m decline in March and the forecast for April would leave the series down about 28% versus their year-ago levels. On Thursday, Existing Home Sales for the month are to be reported by the National Association of Realtors. Existing home sales are expected to be down a more modest 18% for the month of April following a 9% decline in March. The declines in the existing home market should be more modest due to timing issues as to when the transactions are recorded: at the time of closing for an existing home sales versus at the time of contract signing for new home sales.

Finally, on Thursday, forecasters as surveyed by Bloomberg predict another 2.5 million new unemployment claims to have been filed last week. The estimate would take to total number of new unemployment claims filed over since the third week of March to an incomprehensible 39.0 million, equal to about 25% of total U.S. employment in February.

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May 18 19 20 21 22NAHB Housing Index Housing Starts April 29th FOMC Minutes Initial Jobless Claims Retail Sales - U.K.

GDP - Japan Building Permits Inflation - Eurozone Philly Fed Index Retail Sales - Canada

Industrial Production - Japan Trade - Japan Inflation - Canada Markit Prelim. Mfg. Index Retail Sales - Mexico

Machinery Orders - Japan Home Prices - Canada Leading Econ. Indicators

Unemployment - U.K. Existing Home Sales

Employment - 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 Q4 trailing 12-month earnings per share) while others use earnings per share that are updated for Q1 using a combination of actual and estimated earnings per share. The calculation of earnings (operating earnings versus ‘as reported’ or GAAP) also often differs modestly from one data source to another due to the proprietary use of calculation methodologies. The “average” shown in the charts below represent averages for the period shown.

Please note: The consensus earnings estimates shown below should NOT be relied upon. In this VERY dynamic and rapidly changing environment, analysts have very likely not had time to 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

S&P 500 Earnings Estimates 2015 2016 2017 2021

5/18/2020 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 $33.59 $24.17 $32.46 $37.06

change over last week -$0.10 -$0.40 -$0.47 -$0.27

yr/yr 25.4% 25.4% 27.8% 13.7% 0.2% 1.1% -1.6% 1.1% -13.4% -41.9% -23.1% -11.3%

qtr/qtr -1% 6% 4% -4% -6% 7% 1% -1% -20% -28% 34% 14%

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 $159.17 $141.75 $132.00 $127.28 $165.72

yr/yr -0.3% 0.8% 11.6% 22.9% 0.2% -22.6% 30.2%

Implied P/E based on a S&P 500 level of: 2864 17.4 18.0 20.2 21.7 22.5 17.3

2019 20202018



BY THE NUMBERS: ECONOMIC ACTUALS AND FORECAST:

ECONOMIC NEWS OUT TODAY: Economic Releases for Monday, May 18, 2020. All times Eastern. Consensus estimates via Bloomberg. None Scheduled

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

Bond Markets Wind Down for Memorial Holiday Weekend The days seem to blend while shelter in place orders remain in effect. A week from today, U.S. capital markets will

be closed for the Memorial Day holiday. Bond markets will be closed Monday and will close early on Friday based on SIFMA guidance. We anticipate dealers to finish off positioning in the first half of the week, to head into the three-day weekend with little risk given the pace of economic and political change right now, and the propensity to

New corporate issuance likely sticks to the front half of the week, where investors may be more willing to add to investments. Year-to-date investment-grade issuance totaled $921 billion through Friday up from $459 billion year to date in 2019. We believe the Fed’s willingness to support both secondary and new issue corporate funding opened markets up for companies to build cash and to bolster solvency in the face of uncertainty. While this bodes well for high-quality companies, we continue to see defaults rising for highly levered companies with speculative-grade ratings.

Fed buys $305mm of Corporate ETFs There is a big question mark around what that means and how much support the Fed would give high yield

ETFs. While the Fed reports $305 million of Fed ETF purchases on Tuesday alone (published weekly on Wednesday), they have not disclosed what securities were purchased – so we will have to wait to see if high yield ETFs were included in initial purchases until the program holdings are released (monthly).

On an individual security basis, the current mandate encompasses investment-grade issuers and fallen angels since March 22 that only fell into the BB-rated category. When they expanded purchases to corporate ETFs, they included high yield ETFs. That was a notable expansion of the mandate, but one that came with more questions than answers. It still seems like the Fed’s purpose is to support the market functioning, not to 1) pick winners and losers, or 2) to stop companies that should fail from shuttering. We would think that the high yield ETF NAV discount would be a potential target the Fed is looking to narrow in times of distress.

Also, the post-March rebound in credit markets raises questions around how deep the Fed support need to be since markets already met a sizable portion of the current market need. We suggest there will need for the Fed to make significant purchases, so the market knows the Fed is for real, but the scope may not be as bold as required back in March.

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Current Projections:Actual Actual Actual Actual Est. Est. Actual Actual Actual Est. Est.2016 2017 2018 2019 2020 2021 Q3-2019 Q4-2019 Q1-2020 Q2-2020 Q3-2020

Real GDP (YOY) 1.6% 2.4% 2.9% 2.3% -5.2% 3.6% 2.1% 2.1% -4.8% -40.0% 30.0%

Unemployment Rate 4.7% 4.1% 3.9% 3.5% 9.5% 5.0% 3.5% 3.5% 4.4% 12.0% 11.0%

CPI (YoY) 1.3% 2.1% 2.4% 1.8% 0.6% 1.8% 1.8% 2.0% 2.1% 0.2% 0.3%

Core PCE (YoY) 1.7% 1.6% 1.9% 1.6% 1.4% 1.6% 1.7% 1.6% 1.8% 1.3% 1.1%

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.

Please note: Due to the very dynamic nature of current economic conditions, economic forecasts may change measurably and quickly.

Quarterly

May 11, 2020Last Updated:



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

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

Jeff Carlson, CLU, ChFC – Manager

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

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

Energy/Utilities William Foley, ASIP – Director

Financial Services/REITs Lori Wilking-Przekop – Sr Director

Health Care Daniel Garofalo – Director

Industrials/Materials Frederick M. Schultz – Director

Technology/Telecommunication Open – Director

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

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

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

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

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

Michael V. Jastrow, CFA – Vice President

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

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

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

Alex Zachman, CFA – Analyst – Core Equity

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

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

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

Blake Hockert – Associate – Reporting & Analytics

FIXED INCOME RESEARCH & STRATEGY

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

Stephen Tufo – Director INVESTMENT DUE DILIGENCE

Justin E. Bell, CFA – Vice President

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

Kay S. Nachampassak – Director

Peter W. LaFontaine – Sr. Analyst

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

David Hauge, CFA – Analyst

Bishnu Dhar – Sr. Research Analyst

Parveen Vedi – Sr. Research Associate

Darakshan Ali – Research Process Trainee

INNOVATION AND DEVELOPMENT

Allen Rodrigues – Vice President

Nidhi Khandelwal – Director

Dan Burns – Sr. Manager

Matt Morgan – Sr. Manager

Natasha Wayland – Sr. Manager



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

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