before the bell · 12/17/2018 · climbed 1.2 percent. in contrast, ford fell 3.4 percent,...

Notations:

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

recommendation of any securities mentioned. Charts depicted are from FactSet unless otherwise noted. ____________________________________________________________________________________________________________________________ © 2018 Ameriprise Financial, Inc. All rights reserved. of 13

Before the Bell Morning Market Brief

December 17, 2018

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

MONDAY MORNING MARKET STRATEGY: David M. Joy, Chief Market Strategist Although perhaps not a foregone conclusion, the odds of another rate hike by the Fed this week are overwhelmingly high at roughly 75 percent. A modest uptick in core inflation and a strong retail sales report in November give the Fed the data cover it needs, especially after another solid, if less than robust employment report. The irony is, however, that stock markets are behaving as though global growth is inexorably slowing, and the last thing markets need is another rate hike. Last week, the European Central Bank reiterated its plan to cease its quantitative easing program, although it promised to continue reinvesting the proceeds of the bonds already on its balance sheet for an extend period of time, while leaving its benchmark rate unchanged. In providing his own touch of irony, ECB president Draghi warned that the “balance of risks is moving to the downside”, just as he is beginning to take away the punchbowl. And while this was happening, the clock continued to run on Brexit, which seems as muddled as ever with now just three months to go. And China reported another series of softer economic reports, this time retail sales and industrial production. It is no wonder, then, that stocks struggled to find solid footing. The S&P 500 slid 1.3 percent, its second straight weekly decline, leaving it lower in the fourth quarter by 10.8 percent. The MSCI EAFE index dropped 0.9 percent in dollar terms, while the EM index fell 1.0 percent. The DXY dollar index closed at its highest level since June. Not even some apparent concessions from China in the ongoing trade war were enough to push stocks higher. A reduction of the tariff on U.S. auto imports did more for German manufacturers, which send cars made in America to China, than it did for American car makers. BMW rose 3.6 percent on the week, measured in euros, while Daimler climbed 1.2 percent. In contrast, Ford fell 3.4 percent, although GM did rise 1.2 percent. And a promised increase in U.S. soybean purchases pushed prices higher on Friday, but they remained lower on the week. If the Fed does raise another quarter point this week it will bring the overnight rate to between 2.25-2.50 percent. At its September meeting of the FOMC, the central tendency forecast for fed funds, which excludes the three highest and three lowest forecasts, at year-end 2019 was between 2.9-3.4 percent, implying another two to four rate hikes next year. But markets say otherwise. The CME FedWatch tool currently ascribes just a 36 percent chance to just one rate hike next year, the same odds as no additional rate hikes, and just a 15 percent chance of two rate hikes. So, while the Fed is widely expected to hike once again this week, what it has to say about next year will reveal whether the gap between its September outlook and current market expectations has closed. Unlike stocks, bond yields seemed to respond more favorably to last week’s firmer economic data. The ten-year note yield climbed four basis points to 2.89 percent, while the two-year note rebounded three basis points from last week’s low yield of the quarter to close at 2.74 percent. And high yield credit spreads narrowed fractionally for the first week in the past five.

Before The Bell December 17, 2018 ____________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________ © 2018 Ameriprise Financial, Inc. All rights reserved. of 13

It is worth noting that earnings growth expectations for next year continue to decline. According to FactSet, growth of 8.3 percent is now expected, down from 8.6 percent in just the past week, and down from double digit growth expected a few months ago. Several companies report results this week and will provide insight into important sectors of the economy, including Oracle, FedEx, and Nike. And this week’s economic calendar is loaded. In addition to the Fed rate decision on Wednesday, scheduled reports include housing starts and permits, existing home sales, leading indicators, durable goods orders, personal income and spending, PCE deflator, and consumer sentiment. MORNING MARKET COMMENTARY: Anthony M. Saglimbene, Global Market Strategist

• Quick Take: U.S. futures are pointing to a weaker open; Europe is trading lower; Asia finished mostly higher overnight; West Texas Intermediate (WTI) oil trading at $51.53; 10-year U.S. Treasury yield at 2.88%.

• 2019 Outlook - Reduce Risk by Increasing Investment Quality: The Global Asset Allocation Committee has set its 2019 year-end S&P 500 price target at 2950. The year-end target for domestic equities implies a price gain of roughly +11.0% from last Wednesday’s close, driven by 2.4% growth in the U.S. economy. Furthermore, the Committee sees the 10-year U.S. Treasury yield target ending 2019 at 3.50%, up 59 basis points from last Wednesday’s close.

• Trade uncertainty, rising interest rates, and slowing growth trends call for a more cautious approach heading into 2019. There is a range of possible scenarios that could challenge markets in the year ahead. Considering these risks, the macro environment is likely to influence asset prices in a variety of ways next year, and investors should be flexible to changes in circumstances.

• Despite our expectations for a modest downshift in global growth next year, primarily due to tariffs, U.S. fundamental conditions should remain positive. Although we expect S&P 500 earnings growth to decelerate meaningfully in 2019, earnings could still grow by as much as 5% to 8%. However, we believe stock prices have adjusted lower over recent months to account for slower earnings growth trends. For longer-term investors, stock prices now offer a better entry point compared to earlier in the year as valuations have improved. Importantly, after nearly two years of a narrow subset of Growth & Momentum companies garnering the bulk of investor attention (and dollars), we believe the pendulum is swinging in favor of Value companies. By combining Value with ‘Quality’ (i.e., a focus on profitability, cash flow, and return on equity), investors could yield attractive risk/reward opportunities in a volatile equity market next year.

• On the fixed income side of the equation, we see the recent rise in investment grade bond yields and widening spread premiums as an opportunity to begin 2019 with a more favorable view on high-quality credit. In our view, investment-grade corporate bonds can serve as a foundation of long-term income portfolios. As the year progresses, credit markets are likely to be more selective, potentially leading to a modest rise in defaults among the riskiest credits.

Ameriprise Global Asset Allocation Committee2019 Targets

2018 2019 Implied Key Measure Actual Target ChangeU.S. Real GDP 3.0%* 2.4% -0.6 ppS&P 500 Index** 2,651 2,950 +11.3%10-Year Treasury Yield** 2.91% 3.50% +0.59%Fed Funds Target Range*** 2.25%-2.50% 2.75%-3.00% +0.50%Source: American Enterprise Investment Services Inc.; Bloomberg

pp = percentage points

* Estimated; 2018 Actual based on year-end values

** as of December 12, 2018

***Assumes a quarter-point hike in Dec 2018.



• In addition to the Committee’s high-level macro views for 2019, the IRG’s equity team provides an outlook for each sector in the new year, while the IRG’s credit team highlights sector drivers from a credit perspective. Please see the attached 2019 Investment Themes, 2019 Equity Market Outlook, and 2019 Outlook for Corporate Bonds reports for more detail on how the IRG believes market trends could develop over the coming year.

• Asia-Pacific: Asian equities closed mostly higher on Monday. According to Reuters, the U.S. has been pleased with recent trade concessions from China, but Beijing will need to do more on the structural front to reach a comprehensive trade deal. Thus far, China has resumed soybean purchases, temporarily reduced auto tariffs, and committed to adjusting its industrial policies outlined in its ‘Made in China 2025’ plan. Separately, the Bank of Japan (BOJ) will meet on Wednesday and Thursday. The BOJ is expected to remain on hold amid slower economic growth and inflation levels that are about half the central bank’s 2.0% target.

• Europe: Markets in the region are trading in the red at midday. Political tensions continue to weigh on the entire region, as Brexit, continued French protests, and Italy’s budget uncertainties sap regional confidence. With the weight of these items still resting on Europe, we believe the European Central Bank (ECB) could have a difficult start to withdrawing extraordinary policy measures next year. Last week, the ECB confirmed it would end its ‘net’ new asset purchase program, and only reinvest maturing debt on its balance sheet. Nevertheless, the open-ended nature of the ECB’s reinvestment program as well as its commitment to keep interest rates low as long as the European economy needs them to be, signals that monetary policy is likely to remain accommodative through much of 2019. On a related note, Italy’s coalition leaders have reached a truce on the budget, including an agreement to reduce the 2019 deficit to 2.04% from 2.4%, according to FactSet. The European Union (EU) was looking for €3.5 billion in budget savings compared to the original plan, while adjustments made by Italy’s government are proposing €3.0 billion in savings. The narrowed gap could delay or prevent the EU from proceeding with disciplinary actions against Italy, which are scheduled to begin on December 19th.

• U.S.: Equity futures are pointing to a weaker open this morning. As discussed last week, several markets around the world have been in correction territory or worse for much of the year. With last week’s losses in the U.S., the three major averages (the Dow Jones Industrial Average, S&P 500 Index, and NASDAQ) are now all down 10.0% or more from their 52-week highs. With the S&P 500 finishing on top of the bottom end of its recent trading range on Friday, bulls will need to step in and support the 2600 level this week. If they cannot, we believe markets could quickly move to February lows. One item that may help determine where markets head over the near-term is this week’s FOMC meeting. Investors are looking for a ‘dovish rate hike’ on Wednesday, and the Federal Reserve will have to tread cautiously in its statement to avoid tipping an already fragile market over the edge. The Fed is widely seen raising its fed funds rate by another 25 basis points this week, which would make it four quarter-point hikes for the year. However, speculation has grown that the Fed could only raise rates two times in 2019, instead of the projected three times based on the September dot plot. We believe Wednesday’s policy statement could hedge or eliminate the “further gradual increases” language, with Federal Reserve Chair Jerome Powell reiterating that the economy is in good shape and monetary policy is biased towards tightening. In our view, the market wants to see the Fed confident enough to raise interest rates this week, but make it clear it is backing-off from the aggressive pace it set in 2018. On a related note, The New York Times highlighted that the withdrawal of extraordinary monetary stimulus across the world’s central banks has contributed to every major type of investment performing poorly this year. Along with trade tensions, diversification properties have been less effective, as stocks, bonds, and commodities have all headed lower in 2018. As the article noted, a negative feedback loop could develop through the underlying economy with lower asset prices sapping consumer and business confidence. Smartly, however, the article did highlight that low unemployment and steady economic growth mitigate the chances of such a scenario developing for now. In our view, the benefits of diversification properties are reaped over time, and measuring its performance over short windows of time does not capture its value to long-term investors. Lastly, a federal judge in Texas ruled that the Affordable Care Act is unconstitutional now that Congress has eliminated a penalty for people who do not have coverage, according to The Washington Post. In the broad ruling, which incoming House Speaker Nancy Pelosi vowed to challenge, everything in the Act, including pre-existing conditions and the expansion of Medicaid, was struck down in the Texas ruling. Several reports indicated that both sides of the aisle believe the reasoning behind the ruling has major flaws.



WORLD CAPITAL MARKETS (all data as of approximately 8:00 AM ET)

Americas % chg. % YTD Value Europe (Intra-day) % chg. %YTD Value Asia/Pacific (Last Night) % chg. %YTD Value

S&P 500 -1.91% -0.91% 2,600.0 DJSTOXX 50 (Europe) -0.65% -9.35% 3,072.6 Nikkei 225 (Japan) 0.62% -3.84% 21,506.9 Dow Jones -2.02% -0.28% 24,100.5 FTSE 100 (U.K.) -0.55% -7.80% 6,807.6 HK Hang Seng ( H. Kong) -0.03% -9.71% 26,088.0 NASDAQ -2.26% 1.18% 6,910.7 DAX Index (Germany) -0.70% -16.48% 10,789.4 Korea Kospi 100 0.08% -15.58% 2,071.1 Russell 2000 -1.53% -7.01% 1,410.8 CAC 40 (France) -0.74% -6.59% 4,817.8 Singapore STI 1.21% -5.26% 3,114.3 Brazil Bovespa -0.08% 14.36% 87,375.8 FTSE MIB (Italy) -0.43% -13.84% 18,829.6 Shanghai Comp. (China) 0.16% -19.52% 2,598.0 S&P/TSX Comp. (Canada) -1.05% -7.35% 14,595.1 IBEX 35 (Spain) -0.15% -8.53% 8,873.2 Bombay Sensex (India) 0.85% 7.80% 36,270.1 Mexico IPC -0.48% -14.53% 41,312.2 Russia TI 0.50% 9.58% 4,256.6 S&P/ASX 200 (Australia) 1.00% -1.48% 5,658.3

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

MSCI All-Country World Idx -1.59% -6.46% 468.5 MSCI EAFE -1.17% -11.76% 1,752.7 MSCI Emerging Mkts -1.38% -14.01% 971.9 Note: International market returns shown on a local currency basis. Equity index data is total return, inclusive of dividends.

S&P 500 Sectors % chg. % YTD Value Equity Income Indices % chg. % YTD Value Commodities Consumer Discretionary -1.97% 4.18% 807.7 JPM Alerian MLP Index 0.00% -11.54% 24.3 Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Staples -1.91% -2.71% 555.6 FTSE NAREIT Comp. -0.17% 2.59% 17,743.0 CRB Raw Industrials -0.36% -5.45% 486.4 Energy -2.38% -11.94% 455.9 DJ US Select Dividend -0.95% -1.16% 1,955.0 NYMEX WTI Crude (p/bbl.) 0.55% -14.80% 51.5 Financials -1.02% -12.04% 400.7 DJ Global Select Dividend -0.08% -14.76% 211.9 ICE Brent Crude (p/bbl.) 0.73% -9.20% 60.7 Real Estate -0.21% 4.16% 205.6 S&P Div. Aristocrats -1.50% 0.29% 2,471.4 NYMEX Nat Gas (mmBtu) -3.92% 24.52% 3.7 Health Care -3.37% 9.14% 1,026.7 Spot Gold (troy oz.) 0.11% -4.79% 1,240.4 Industrials -1.44% -10.34% 561.1 Spot Silver (troy oz.) 0.17% -13.77% 14.6 Materials -0.82% -13.99% 319.9 Bond Indices % chg. % YTD Value LME Copper (per ton) -0.50% -14.98% 6,127.8 Technology -2.48% 3.44% 1,129.4 Barclays US Agg. Bond 0.12% -0.90% 2,028.1 LME Aluminum (per ton) -0.29% -15.41% 1,908.3 Communication Services -1.02% -9.02% 144.4 Barclays HY Bond -0.15% 0.03% 1,950.6 CBOT Corn (cents p/bushel) 0.19% -1.97% 385.5 Utilities -0.26% 10.83% 286.3 CBOT Wheat (cents p/bushel) 1.08% 8.62% 535.8

Foreign Exchange (Intra-day) % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) 0.3% -5.5% 1.13 Japanese Yen ($/¥) 0.19% -0.43% 113.18 Canadian Dollar ($/C$) -0.1% -6.2% 1.34 British Pound (£/$) 0.3% -6.6% 1.26 Australian Dollar (A$/$) 0.11% -8.05% 0.72 Swiss Franc ($/CHF) 0.6% -1.8% 0.99 Data/Price Source: Bloomberg; Equity Index data is total return, inclusive of dividends where applicable.

Ameriprise Global Asset Allocation Committee Global Equity Region - Tactical View

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

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

1) United States 55.1% Overweight +5.0% 60.1% 5) Latin America 1.2% Equalweight - 1.2%

2) Canada 3.0% Underweight - 1.0% 2.0% 6) Asia-Pacific ex Japan 11.8% Equalweight - 11.8%

3) United Kingdom 5.5% Underweight - 1.0% 4.5% 7) Japan 7.6% Underweight - 1.0% 6.6%

4) Europe ex U.K. 14.8% Underweight - 1.0% 13.8% 8) Middle East / Africa 1.0% Underweight - 1.0% -

Index weighting represents relative weightings based on the regional market capitalization balance of the MSCI All-Country World Index; may not add due to rounding. The GAAC Tactical Overlay, as well as Recommended Tactical Weights, is derived from the Ameriprise Global Asset Allocation Committee (GAAC).Views are expressed relative to the Index and are provided to represent investment conviction in each region. Tactical Allocations are designed to augment Index returns over a 6-12 month time horizon. Index weights as of 9/26/18. Numbers may not add due to rounding.

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

S&P 500 GAAC GAAC S&P 500 GAAC GAACIndex GAAC Tactical Recommended Index GAAC Tactical Recommended

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

1) Communication Services 10.0% Equalweight - 10.0% 6) Health Care 15.0% Equalweight - 15.0%

2) Consumer Discretionary 10.3% Overweight +2.0% 12.3% 7) Industrials 9.7% Overweight +2.0% 11.7%

3) Consumer Staples 6.7% Underweight - 3.2% 3.5% 8) Information Technology 20.9% Equalweight - 20.9%

4) Energy 6.0% Overweight +2.0% 8.0% 9) Materials 2.5% Equalweight - 2.5%

5) Financials 13.5% Equalweight - 13.5% 10) Real Estate 2.6% Equalweight - 2.6%

11) Utilities 2.8% Underweight - 2.8% 0.0%

Index weighting represents relative weightings based on the regional market capitalization balance of the MSCI All-Country World Index; may not add due to rounding. The GAAC Tactical Overlay, as well as Recommended Tactical Weights, is derived from the Ameriprise Global Asset Allocation Committee (GAAC).Views are expressed relative to the Index and are provided to represent investment conviction in each region. Tactical Allocations are designed to augment Index returns over a 6-12 month time horizon. Index weights as of 9/26/18. Numbers may not add due to rounding.



THE WEEK AHEAD: Russell T. Price, CFA • The Fed announcement, a possible partial government shutdown (as we head into the weekend), the ongoing U.S.

/China trade dispute and ongoing Brexit turmoil, all offer markets with a potentially volatile mix to consider this week.

• The economic schedule is steady this week with particular focus on housing and manufacturing activity. On Monday, investors see a little of both as the New York Federal Reserve’s Empire Manufacturing Index provides a first look at manufacturing conditions for the month of December, and Home builder sentiment is released at 10 AM ET.

• The New York Fed report is expected to be fairly steady here in the month of December with a reading of 20 estimated via the Bloomberg consensus. Such would be down slightly from the 23 reported in November, which is also the 6-month average for the report. This report can be more volatile than some other Fed reports but a level near 20 is still a strong result for this report which sees “0” as the demarcation line between expansion and contraction.

• The NAHB’s Housing Market Sentiment Index for December, meanwhile, is also expected to see a fairly flat month-over-month comparison. Today’s report comes after a sharp decline in the index last month when builder optimism dropped to 60 (more than a two-year low) from the 68 that it had maintained for several months. A reading of 60, however, still reflects well on builder sentiment as the Index uses a level of 50 is the neutral rate for the Index. Broader weakness in housing data over the last several months however, likely elevates the report in the minds of investors as the market looks for added information to the potential longevity of the weakness or how much may have been related to recent hurricane activity.

• On Tuesday, we continue with housing data as the Commerce Department releases its November New Housing Starts report. Forecasters as polled by Bloomberg expect new starts to see a slight improvement versus October levels, but with total starts (single-family and multi-family) still down about 5% versus year-ago levels. Wide month-to-month swings in the multi-family space due to the influence of periodic starts to large projects make this report very volatile, but the report could also see a rebound in activity from the hurricane constraints seen in Q3. See top chart at right as sourced from FactSet.

• On Wednesday, we get data from the other side of the housing market with the release of existing home sales for the month of November. Sales are expected to be down slightly for the month and down about 8% versus year-ago levels (see lower chart at right as sourced from FactSet). In October, existing home sales enjoyed their first month-over-month gain after six straight months of decline. The gain was seen as a modest rebound from the trough in activity resulting from August and September hurricane disruptions. Year-to-date through October, existing home sales are running 2.6% below year-ago levels as the market continues to struggle with very tight availability. In October, the months’ supply of existing homes available for sale was just 4.3 months, versus the 6.0 months that has historically reflected a balanced market. Making matters worse, availability is leanest at the affordable price points where most of the market demand lies. Unfortunately, this is a dynamic that is likely to continue well into 2019 at least. Median existing home prices meanwhile have been growing at a fairly steady +5% to +6%. However, some previously “hot” markets are seeing prices ease as potential buyers worry about rising mortgage rates and where the housing market is in its cycle. Most other markets are still seeing solid upside via strong demand.

• On Friday, the Commerce Department will release its third and final “short-cycle” revision to its figures on Q3 real



GDP. No material change in the data is foreseen as Commence is expected to leave its estimate of growth at +3.5% on an annualized basis, which equates to a year-over-year pace of +3.0%. We currently forecast the annualized pace to slow here in the fourth quarter (our estimate is currently +2.3%) due largely to a surge of pre-tariff import activity, but the yr./yr. rate should still remain at about 3.0% in Q4.

• The main focus on Friday, however, is likely to be the business investment message contained in the November New Orders for Durable Goods report, as well as the look at consumer attitudes to be offered by the University of Michigan’s final reading on Consumer Sentiment for December.

• As seen in the chart at right (as sourced from FactSet), business investment spending related new orders have been decelerating sharply in recent months – although they remain at a solid level of yr/yr growth (at least through October). In our view, the continuing, and in most cases growing, trade dispute between the U.S. and China is a substantial source of uncertainty for business decision makers, while slower international growth and a stronger U.S. dollar have also been weighing on export demand as well.

December 17 18 19 20 21Empire Mfg Index Housing Starts Existing Home Sales Initial Jobless Claims Q3 Real GDP - 3rd estimate

NAHB Housing Index Building Permits FOMC Rate Decision Leading Economic Indicators Personal Income & Spend

Inflation - Euro Zone Manufacturing Activity - Canada Inflation - U.K. Philly Fed Mgf. Index Durable Goods Orders

Trade - Euro Zone Trade - Japan Inflation - Canada Retail Sales - U.K. U of M Cons. Sentiment

Trade - India Employment - Australia Employment - Canada Kansas City Fed Mfg. Index

Retail Sales - Mexico Monetary Policy - Japan

Inflation - Japan GDP - France

GDP - U.K.

Retail Sales - Canada

Manufacturing Activity - Canada

December 24 25 26 27 28U.S. Markets Close Early Christmas Day Richmond Fed Mfg Index Initial Jobless Claims Wholesale Inventories

Markets Closed Consumer Sentiment - S. Korea New Home Sales Pending Home SalesEmployment - Mexico Retail Sales - Spain Chicago Purch Mgr Index

Jobseekers - France GDP - Spain

Industrial Production - Japan Unemployment - Italy

Retail Sales - S. Korea Employment - Brazil



Where Market Fundamentals Stand Heading into The Week:

S&P 500 Trailing and Forward P/E valuations: Source: FactSet Please note: Although we try to maintain consistency as much as possible, Price to Earnings (P/E) ratios may differ modestly from once source to another. Most notably, P/E numbers can often show their most notable differences during an earnings release season as some sources may still use the last full ‘actual’ earnings number (for instance, currently Q2 trailing 12-month earnings per share) while others use earnings per share that are updated for Q3 using a combination of actual and estimated earnings per share. The calculation of earnings (operating earnings versus ‘as reported’ or GAAP) also often differs modestly from one data source to another due to the proprietary use of calculation methodologies. The “average” shown in the charts below represent averages for the period shown.

Consensus Earnings Estimates: Source: FactSet

S&P 500 Earnings Estimates 2014 2015 2016 202012/17/2018 Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Est. Est. Est. Est. Est. Est.

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

Quarterly $$ amount $30.87 $32.80 $33.54 $36.29 $38.71 $41.03 $42.85 $41.16 $40.61 $43.40 $45.10 $45.97 change over last week yr/yr 13.9% 10.7% 6.7% 15.9% 25.4% 25.1% 27.8% 13.4% 4.9% 5.8% 5.3% 11.7% qtr/qtr #DIV/0! 6% 2% 8% 7% 6% 4% -4% -1% 7% 4% 2%

Trailing 4 quarters $$ $119.02 $118.67 $119.64 $123.25 $126.42 $128.53 $133.50 $141.34 $149.57 $158.88 $163.75 $165.65 $168.02 $170.27 $175.08 $194.27 yr/yr 6.8% -0.3% 0.8% 11.6% 22.7% 6.9% 11.0%Implied P/E based on a S&P 500 level of: 2600 15.9 15.7 15.5 15.3 14.9 13.4

2017 2018 2019



ECONOMIC NEWS OUT TODAY: Economic Releases for Monday, December 17, 2018. All times Eastern. Consensus estimates via Bloomberg. Time Period Release Consensus Est. Actual Prior Revised to 8:00 AM DEC Empire Mfg. Index 20.0 10.9 23.3 10:00 AM DEC NAHB Housing Market Index 61 60 Economic Perspective: Russell T. Price, CFA – Senior Economist • The New York Federal Reserve’s Empire Manufacturing Index slowed more than anticipated as reported this

morning. The underlying details of the report, however, were much more positive, in our option. Although the report’s “new orders” component slowed to a reading of +14.5 versus the +20.4 posted in November, respondents indicated strong new hiring, solid expansion of the average work week, and a much slower pace of price pressures for their inputs. As a reminder, “0” marks the line between expansion and contraction for this Index and its underlying components.

• Additionally, the report showed strong plans for capital expenditures over the next 6-months with this component rising to its highest level since February at a strong 31.2 (versus 24.8 in November).

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

Bond Market Recap • Treasury yields held lower levels found over the past two weeks as global uncertainties around trade, Brexit, crude

oil prices and the pace of global growth collectively taint investor desire for risk. Through it all, we see a solid pace of U.S. economic growth as providing a floor for the degree uncertainty can fester.

• The prior inversion of 5-year / 3-year Treasury yields (5s/3s) grew to include an inversion between 3s/2s as well. Given concerns priced into markets today, Treasury yields suggest yields may be higher over the next two years based on growth and fiscal stimulus, they are may be in three or five years. While we find the inversion interesting as a reference point for how rates can shift through the late cycle. We believe markets likely find firmer footing in the new year. Should this unfold, we believe the inversion may dissipate as the curve resumes an upward sloping pace.

• Credit markets: Credit spreads remain elevated. New issue markets remain fickle; high yield issuance negligible since mid-November. We anticipate investment grade issuance to slow even further through the week. We look to new issuance a measure of investor demand for risk; both in investment grade and high yield markets. With only $7.9 billion issued in investment grade markets month to date this may be the slowest December since 2014 based on Bloomberg data. Investors certainly are cautious on risk heading into year-end.

• The Fed is schedule to meet Tuesday and Wednesday this week, wrapping up the policy meeting with a statement that we believe will include a fourth quarter-point hike in the fed funds target range to 2.25% - 2.50%. Fed Chair Jerome Powell is scheduled to hold a press conference and may highlight risks on both sides of the economic picture focusing on strong labor markets as a potential catalyst for further increases in 2019. In addition, a revised summary of economic projections (a.k.a. Fed dot charts) will be releases. One key element of the forecast is the median longer-run forecast for the federal funds rate, which was adjusted higher in September to 3.0%, up from 2.9% in the June forecast. Overall, federal reserve member forecasts suggest a longer-run ranger from 2.5% to 3.5% as recently cited by Fed Chairman Powell in noting that policy was currently close to neutral or aligned with a long-run rate. Recall, the neutral rate can only be estimate and simply serves as a rough guide-point rather than a specific figure.



Source: Bloomberg, Bloomberg Barclays Indices

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

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

Kirk D. Dedenbach – Senior Manager

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

Consumer Goods and Services Patrick S. Diedrickson, CFA – Sr. Research Analyst

Energy/Utilities Justin H. Burgin – Vice President

Financial Services/REITs Lori A. Wilking-Przekop – Senior Director

Health Care Daniel Garofalo – Sr. Research Analyst

Industrials/Materials Frederick M. Schultz – Sr. Research Analyst

Technology/Telecommunication Curtis R. Trimble – Sr. Research Analyst Quantitative Strategies/International Andrew R. Heaney, CFA

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

Thomas Crandall, CFA, CAIA – Sr. Quantitative Analyst, Asset Allocation

Open – Research Analyst - Quantitative, Asset Allocation

Gaurav Sawhney – Research Analyst

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

Michael V. Jastrow, CFA – Vice President

Jeffrey R. Lindell, CFA – Sr. Research Analyst – ETFs & CEFs

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

Benjamin L. Becker, CFA – Sr. Research Analyst – International/Global Equity

Open – Research Analyst – Core Equity

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

Steven T. Pope, CFA, CFP® – Sr. Research Analyst – Non-Core Fixed Income

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

Blake Hockert – Research 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 – Senior Director

Stephen Tufo – Sr. Credit Analyst INVESTMENT DUE DILIGENCE

Justin E. Bell, CFA – Vice President

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

Kay S. Nachampassak – Director

Peter W. LaFontaine – Sr. Due Diligence Manager

James P. Johnson, CFA, CFP® – Due Diligence Manager

David Hauge, CFA – Due Diligence Manager

Bishnu Dhar – Sr. Research Analyst



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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

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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

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before the bell · 12/17/2018 · climbed 1.2 percent. in contrast, ford fell 3.4 percent,...

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