Before the Bell€¦ · 15/10/2018 · the stock market crash of 1987 may be drawing comparisons...

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 14

Before the Bell Morning Market Brief

October 15, 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 The selloff in equities accelerated last week, taking stocks to their third straight weekly decline for the first time since June 2016. The S&P 500 shed 4.1 percent, but it could have been worse, if not for a 1.4 percent rebound on Friday that allowed the index to close above its 200-day moving average, although just barely. As it is, the index has fallen 5.4 percent in the past three weeks. Friday’s rebound was welcome, indeed, as it broke a string of six straight down days and was led by the very stocks that had fallen the most in the selloff, including technology, consumer discretionary, and communication services. Contributing to relative late week stability was a decline in bond yields, whose surge higher two weeks ago was perhaps the primary catalyst for the weakness in equities. The yield on the ten-year U.S. treasury note ended the week at 3.16 percent, seven basis points lower than the previous Friday. And contributing to that decline was a benign reading of consumer prices for September. The market spasm of the past three weeks appears to have been mostly a sudden adjustment to the realization that the Federal Reserve has every intention of continuing to raise rates. If so, we are now back to where we were before the selloff, with the same fundamental concerns, albeit at lower price levels. The ability of stocks to push higher in the near term will depend heavily on the tenor of third quarter earnings. Earnings themselves will, of course, be important. But, perhaps just as important will be what managements have to say about the operating environment, and trade in particular. If it becomes apparent that trade is starting to become a meaningful headwind to earnings, planning, and confidence, stocks may struggle. With a few exceptions, earnings reports this week are dominated by the financial sector, and to the extent that financial stocks have a more domestic focus and are relatively, although not completely, insulated from trade tensions, we will likely need to wait until the following week and beyond to get a better reading from industrial and technology companies, and others on the front lines. Eurozone equities traced a path similar to the U.S., as the EuroStoxx 50 index fell 4.5 percent for its third straight week of losses. The Nikkei fell by a similar amount for its second weekly decline in a row. The MSCI EM index fell for the third straight week. But the comparatively better -2.1 percent return was buoyed by strength in Latin America, notably in Brazil which is in the preliminary stage of electing a president. In China the Shanghai Composite plunged 7.6 percent, as domestic shares caught up with weakness elsewhere after being markets were closed the previous week, leaving that index down 21 percent year-to-date. Beyond equities, there was some evidence of rising risk aversion in other asset categories as well. High yield credit spreads widened for the second straight week, and the move this time was more pronounced, although hardly evidence of panic selling. The spread between the B of A Merrill Lynch High Yield index and the ten-year treasury note widened by 22 basis points, on top of an eight basis point week move in the prior week. However, at 352 basis points, the current spread remains tight and is right at its average of the past twelve months. The VIX index lurched to its

Before The Bell October 15, 2018 ____________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________ © 2018 Ameriprise Financial, Inc. All rights reserved. of 14

highest weekly close since April, ending the week at 21, compared to 15 the prior week. And gold closed higher by $26 to $1217 an ounce. Conversely, the dollar eased slightly in concert with bond yields, while EM currencies rose modestly. And oil fell $3 a barrel on worries over rising U.S. inventories and increased output by OPEC. Oil prices bear watching in light of rising tensions between Saudi Arabia and the U.S. in connection with the disappearance of journalist Jamal Khashoggi. This week Italy prepares to deliver its fiscal budget to the European Commission. The budget is expected to exceed the spending limits prescribed by European authorities, setting up a confrontation that already has markets on edge. The yield on the ten-year Italian government bond climbed 15 basis points last week to 3.57 percent. Three weeks ago that yield was 2.82 percent. During those three weeks, the yield spread over the German 10 year has widened by 70 basis points. This is an important week for economic data from China. Third quarter GDP is forecast to grow at year-over-year pace of 6.6 percent, down a tenth from the second quarter, according to Bloomberg. China also releases reports on consumer inflation, foreign direct investment, retail sales, and industrial production. The U.S. economic calendar is full, with reports on retail sales, industrial production, housing starts and existing home sales, and the minutes from the September Fed meeting.

MORNING MARKET COMMENTARY: Anthony M. Saglimbene, Global Market Strategist • Quick Take: U.S. futures pointing to a slightly lower open; Europe trading slightly positive; Asia finished mostly

lower overnight; West Texas Intermediate (WTI) oil at $71.85; 10-year U.S. Treasury yield at 3.15%.

• Keep Last Week’s Market Events in Perspective: By the end of trading last Thursday, 73.0% of companies in the S&P 500 Index were oversold. The last time so many stocks were trading below their 50-day moving averages was in January 2016, according to Bespoke Investment Group. As a result, stock volatility more than doubled from its low three weeks earlier. For the week, the Dow Jones Industrial Average declined 4.2%, while the S&P 500 closed off 4.1%. Late buying on Friday helped the NASDAQ recover, but the index still lost 3.7% on the week.

• According to the American Association of Individual Investors (AAII) Survey, bullish sentiment had its largest one week drop since mid-November 2017, falling 15 percentage points to 30.6%. Conversely, bearish sentiment rose to 35.5% for its largest one week gain since June. Because the poll was released on Thursday, the readings may have not fully picked up last week’s sell-off, so we expect the survey may see further weakness this week. To be honest, though, investors in this survey are often ready to hit the ‘sell button’ at the slightest hint of market trouble, so we aren’t surprised to see bearish sentiment rise after a difficult week.

• All told, the S&P 500 Index is down 5.0% through the first ten trading days of October. This marks the seventh worst October start dating back to 1928, according to Bespoke. Based on the Bespoke data, when stocks are down this much in October, they tend to finish the month even lower and have only ended the month in the green about half the time. Considering the difficult start to October, we suspect some that are old enough to remember the stock market crash of 1987 may be drawing comparisons between then and now. This Friday will mark another anniversary of the 1987 crash, and we’re sure news outlets will offer all types of commentary and comparisons between then and now. As investors face another week of trading and likely more volatility ahead, we share a few charts and thoughts to keep the big picture in perspective.

• On a price basis, the S&P 500 Index is higher by +3.5% year-to-date. Although that’s still positive for the year, it’s substantially lower than 9.0% YTD price gain the Index had coming into October. Over the last one year, the Index is still up +8.4%. As the embedded FactSet chart below shows, U.S. stocks have advanced roughly 34% since the November 2016 election. Compared to historical returns of high single digits, stocks have come a long way in a relatively brief period. Further, outside of a few spikes, volatility has been low since the 2016 election. Investors should expect a few bouts of difficulty now and again.



• Evidenced by the second embedded FactSet chart below, last week’s sell-off in equities did little to help close the divergence between the U.S. and international performance this year. Both the S&P 500 and MSCI All World ex USA Indices were lower by roughly 4.0% on the week. The MSCI Emerging Markets Index was down roughly half its developed market peers during the week. Although we believe investors should favor a home team bias through the rest of this year, valuations across most of the rest of the world are now more favorable compared to the U.S. Most of the good news is priced into U.S. equities today, while most of the bad news is priced into international markets. The truth likely lies somewhere in the middle.



• As the third embedded FactSet chart shows, the yield curve is still positive by roughly 30 basis points through last Friday. For all the talk of an inverted yield curve, investors should keep in mind that the yield curve is still positive today. Even after inversion, the recessionary signal does not necessarily mean stock prices will collapse, or a recession is on the immediate horizon. Although an inversion in the yield curve is a signal that something is not quite right in the bond market, it should not be used to make sudden shifts in a portfolio, in our view.

• We believe the fourth embedded FactSet chart below speaks for itself, but we’ll add our two cents. The Federal Reserve is raising interest rates and will likely continue to do so through at least next year. We believe this will give investors and stock prices more indigestion during the quarters ahead. However, rates are rising from a very low base historically. Though the rate environment could become more restrictive over time, financial conditions remain accommodative compared to the last two rate hiking cycles.



• The most important point to keep in mind, particularly if markets continue to gyrate back-and-forth over the coming weeks is this: Stocks prices rise over the long-term. If you have time on your side, nothing about this week or the weeks ahead should be too concerning. If you have less time or are drawing money from your portfolio, we believe you should keep your investments closely aligned with your strategic starting point. We believe now is the time to have an in-depth conversation with your financial advisor about the level of risk you are comfortable shouldering in your portfolio. Times are still good, and investment portfolios are well north of financial crisis levels. It is always better to adjust portfolios in a position of strength as opposed to doing so during periods of market stress.

• Asia-Pacific: Equities finished mostly lower on Monday. This week, the calendar is loaded with important economic releases from China. On Tuesday, September CPI is expected to rise to +2.4% y/y from +2.3%, while September PPI is expected to slow to +3.5% y/y from +4.1%. However, Friday’s Q3 GDP figure will get most of the attention. Growth in China is expected to decelerate modestly to +6.5% y/y in Q3 from +6.7% in Q2. Investors could draw some early conclusions from this week’s China data dump, and the economic impact from trade tensions with the U.S. On Sunday, President Trump told CBS 60 Minutes his administration is willing to impose another round of tariffs on China. Trump also said China’s meddling in U.S. politics is a “bigger problem” than Russian involvement in the 2016 election. Recent developments that include tougher U.S. investment restrictions against Beijing heightened controls on nuclear exports to China, and tariffs demonstrate the White House is implementing a more conformational strategy with China.

• Europe: Markets are trading with modest gains at mid-day. Brexit negotiations are expected to come to a head at this week’s European Union (EU) summit which starts on Wednesday. On Sunday, UK Prime Minister Theresa May warned that a draft treaty to take Britain out of the EU was a “nonstarter” and risked tearing her government apart, according to the Financial Times. The UK and EU still appear at an impasse, despite recent news that both sides have tried to work through their issues. Agreement on a customs union, access to the EU’s single market, and the Irish border remain unresolved items to-date. Lastly, the Italian cabinet is set approve its 2019 budget with a higher than originally planned deficit target. The Italian government could send its budget to Brussels as soon as today.

• U.S.: Equity futures are pointing to a slightly lower open. More than 50 S&P 500 companies are expected to report third quarter earnings results this week, opening a torrent of company reporting over the next three weeks. Although we expect solid Q3’18 results, what companies ‘say’ about their business outlooks could play a more influential role in directing stock prices from here. Two large industrial companies came out and warned last week about the latest round of tariffs eating into their margins. If this is a larger theme that develops throughout earnings season, then markets could be in for more selling pressure. However, if companies are more sanguine about the tariff impacts to profits, we believe earnings season could help buoy stock prices.



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 1.42% 5.07% 2,767.1 DJSTOXX 50 (Europe) 0.39% -5.57% 3,206.8 Nikkei 225 (Japan) -1.87% -0.57% 22,271.3 Dow Jones 1.15% 4.29% 25,340.0 FTSE 100 (U.K.) 0.30% -5.51% 7,016.9 HK Hang Seng ( H. Kong) -1.38% -12.06% 25,445.1 NASDAQ 2.29% 9.50% 7,496.9 DAX Index (Germany) 0.53% -10.32% 11,584.7 Korea Kospi 100 -0.77% -12.71% 2,145.1 Russell 2000 0.08% 1.69% 1,546.7 CAC 40 (France) 0.06% -1.31% 5,098.9 Singapore STI -0.76% -7.44% 3,046.0 Brazil Bovespa -0.91% 8.53% 82,921.1 FTSE MIB (Italy) 0.38% -11.55% 19,328.4 Shanghai Comp. (China) -1.49% -20.47% 2,568.1 S&P/TSX Comp. (Canada) 0.63% -2.68% 15,414.3 IBEX 35 (Spain) 0.11% -8.61% 8,911.4 Bombay Sensex (India) 0.38% 3.40% 34,865.1 Mexico IPC -0.24% -2.37% 47,444.1 Russia TI -0.20% 9.96% 4,271.4 S&P/ASX 200 (Australia) -0.99% 0.73% 5,837.1

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

MSCI All-Country World Idx 1.09% -1.55% 494.8 MSCI EAFE -0.02% -7.10% 1,850.8 MSCI Emerging Mkts 2.66% -13.43% 980.1 Note: International market returns shown on a local currency basis. Equity index data is total return, inclusive of dividends.

S&P 500 Sectors % chg. % YTD Value Equity Income Indices % chg. % YTD Value Commodities Consumer Discretionary 2.15% 11.29% 865.6 JPM Alerian MLP Index 0.00% -1.53% 27.1 Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Staples 0.53% -6.04% 539.2 FTSE NAREIT Comp. -0.26% -4.11% 16,584.1 CRB Raw Industrials 0.07% -5.96% 483.8 Energy 0.30% 3.58% 540.5 DJ US Select Dividend 0.32% 0.62% 1,990.2 NYMEX WTI Crude (p/bbl.) 0.86% 19.08% 72.0 Financials 0.10% -3.97% 439.2 DJ Global Select Dividend 0.26% -9.51% 224.9 ICE Brent Crude (p/bbl.) 0.98% 21.46% 81.2 Real Estate -0.07% -3.93% 190.6 S&P Div. Aristocrats 0.68% 0.66% 2,480.6 NYMEX Nat Gas (mmBtu) 3.20% 10.46% 3.3 Health Care 1.48% 11.71% 1,054.1 Spot Gold (troy oz.) 1.15% -5.51% 1,231.0 Industrials 0.55% -1.12% 621.5 Spot Silver (troy oz.) 1.21% -12.88% 14.8 Materials 0.42% -9.60% 337.5 Bond Indices % chg. % YTD Value LME Copper (per ton) 0.97% -12.32% 6,319.0 Technology 3.15% 13.46% 1,243.1 Barclays US Agg. Bond -0.05% -2.10% 2,003.4 LME Aluminum (per ton) 1.03% -9.85% 2,033.8 Communication Services 2.08% -4.26% 152.1 Barclays HY Bond 0.15% 1.65% 1,982.2 CBOT Corn (cents p/bushel) -0.13% -2.80% 373.3 Utilities 0.06% 3.30% 268.8 CBOT Wheat (cents p/bushel) 0.43% 7.78% 519.5

Foreign Exchange (Intra-day) % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) 0.3% -3.4% 1.16 Japanese Yen ($/¥) 0.30% 0.72% 111.88 Canadian Dollar ($/C$) 0.0% -3.4% 1.30 British Pound (£/$) 0.1% -2.6% 1.32 Australian Dollar (A$/$) 0.32% -8.61% 0.71 Swiss Franc ($/CHF) 0.7% -1.2% 0.99 Data/Price Source: Bloomberg

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 Q3 reporting season. The third quarter earnings release ramps up this week with 55 S&P 500 companies on

the schedule. • Through last Friday, 32 S&P 500 companies (or 6.3%) had reported their results for the third quarter with little

impact on overall expectations. According to FactSet, companies of the S&P 500 are expected to post year-over-year (yr/yr) earnings per share growth (EPS) of 19.0% for the period (versus +25% in Q2) on sales growth of 7.2% (versus 10.1% in Q2).

• At the start of the period (June 30th) estimates for Q3 were for EPS growth of 20.4%, according to FactSet, but a decline for the current period is normal during any given reporting season. Over the past 5 years the average current quarter adjustment is -3.2%, so the -1.6% seen for Q3 is smaller than the than the recent average. The adjustments, however, may be a little more difficult to follow given the recent re-alignment of the S&P 500 sector classifications.

• As we said last week (but we believe bears repeating): Earnings in Q1 and Q2 of this year benefitted from a near-perfect storm of tailwinds. In Q3, however, some of those factors (as listed below) turned into headwinds that could reduce Q3 outperformance and lead to lower forward guidance.

• Taxes: Corporate tax cuts will continue to benefit yr/yr financial comparisons until they anniversary in Q1-2019. However, in the first half of the year analysts were unsure as to how much boost the tax cuts were likely to provide, and they underestimated. With two quarters of reports now out, the tax cut benefit is now understood more accurately, thus leaving less room for potential outperformance.

• The dollar: What was a material tailwind for corporate profits earlier in the year has become a headwind. U.S. multinationals reported some of the best sales and earnings gains in this year’s first half as a weaker dollar meant foreign generated sales and earnings translated into more U.S. dollars for financial reporting purposes. The dollar started to rally in the second quarter and was about 5% higher year-to-date throughout the third quarter. Absent hedging, the stronger dollar should be expected to act as a solid headwind for earnings.

• International growth: While U.S. economic momentum has improved somewhat this year, growth outside the U.S. has slowed (as evidenced by the IMF’s recent global growth downgrade). Companies with sales or sources of supply in China will also be asked about the impact of tariffs and /or indirect business impediments implemented by the Chinese government during these tense times.

• Higher costs: Labor, interest rates, and energy costs are all rising in the current environment. As such, cost pressures are likely to be a much more common refrain in the current earnings release season.

• We believe a strong U.S. economy should still enable S&P 500 EPS results to at least match the 19% yr/yr EPS growth forecast via the FactSet consensus. Q4 estimates, however (currently at +17%), are likely to come down. This would be a sharp reversal from the steady current quarter trends seen in the last two reporting seasons. Negative revisions for the current quarter are the norm for any given reporting season but investors were spoiled by a near-absence of such over this the last two quarters.

• The economic calendar also picks up this week. Retail sales for the month of September are released on Monday with forecasters looking for strong results. Sales are forecast to be about 0.6% higher month-over-month which would result in a year-over-year sales rate of about 5.5%. Auto sales rebounded in the month from a hurricane Florence influenced slowdown in August, while independent surveys of same store sales at common retailers held up well in the period as well. Overall, we believe consumer finances are in very good shape, especially considering how deep we are into the current expansion.

• On Tuesday, the Federal Reserve’s Industrial Production (IP) report for the month of September is expected to see a fractional gain. Forecasters as surveyed by Bloomberg expect the Index to show an increase of about +0.1% for the month which would equate to a gain of about 5% versus year-ago levels.

• New home building activity for the month of September is reported by the Commerce Department on Wednesday. Starts are expected to have been down about 5 or 6% after a 9% jump in August. On a year-over-year basis, new starts have been about 7% higher on average so far this year but the monthly results have been very bumpy – as is often the case with this report. About a third of new starts are multi-family units, thus, the start of a few large apartment projects can have a significant impact on monthly figures. Overall, demand for housing remains strong, but supply and demand have become mis-matched across the price spectrum. The market is very under-supplied at lower price points, but labor shortages and high material costs haven’t left builders with much room to profitably focus on the segment.

• Finally, on Friday, existing home sales are expected to have been flat to slightly lower in the month of September. Sales are also expected to be about 0.5% below year-ago levels. This would be relatively better than the 2% yr/yr decline sales have averaged over the preceding 6 months but September results have an easy year-ago comparison against Hurricane Harvey’s influence.



Where Markets 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.

October 15 16 17 18 19Retail Sales Industrial Production Housing Starts Initial Jobless Claims Existing Home Sales Empire Mfg. Index Capacity Utilization Building Permits Philly Fed Index Retail Sales - CanadaBusiness Inventories Job Openings Report Sep. 25/26 FOMC Minutes Leading Econ. Indicators Inflation - CanadaInflation - China Foreign Investment Flows Inflation - Euro Zone GDP - China

NAHB Housing Mkt. Index Manufacturing Activity - Canada Retail Sales - China

Trade - Euro Zone Trade - Japan Industrial Production - ChinaFixed Investment - ChinaRetail Sales - U.K.



Consensus Earnings Estimates: Source: FactSet

ECONOMIC NEWS OUT TODAY: Economic Releases for Monday, October 15, 2018. All times Eastern. Consensus estimates via Bloomberg. Time Period Release Consensus Est. Actual Prior Revised to 8:30 AM SEP Retail Sales (MoM) +0.6% +0.1% +0.1% 8:30 AM SEP Retail Sales–ex autos (MoM) +0.4% -0.1% +0.3% +0.2% 8:30 AM SEP Retail Sales–ex autos and gas (MoM) +0.3% +0.0% +0.2% +0.1% 8:30 AM SEP Retail Sales–control group (MoM) +0.4% +0.5% +0.1% +0.0% 8:30 AM OCT Empire Manufacturing Index 18 21.1 19.0 10:00 AM AUG Business Inventories +0.5% +0.6% Economic Perspective: Russell T. Price, CFA – Senior Economist • Retail sales for the month of September posted a much smaller than expected increase. Motor vehicle sales were

particularly surprising considering the strong results presorted by automakers, suggesting that used vehicle sales may have dropped, the mix of sales may have been unfavorable, or there could be an eventual revision.

• On a year--over-year basis, sales slowed to +4.7% while sales excluding the volatile autos sector were +5.7% higher, according to the Commerce Department. These are still sound rates, but they are a significant deceleration from the +5.9% average yr/yr pace seen over the preceding 6 months. We do note however, that the September year-ago comparisons were up a very difficult compare to September 2107 when sales bounced-back strongly (+1.8% for the month) in the wake of retail pressure seen in August after Hurricane Harvey.

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

• Despite the weakness portrayed in retail sales the last two months, we do not see consumer activity to be at risk of a sustained material slow-down anytime soon. Consumer incomes are rising at an accelerating pace, employment markets are very strong. confidence levels are near-record highs, and debts are at very manageable levels (and even falling when measured as a percentage of income). Despite the acceleration of consumer spending, debt exposures are growing at a slow rate which should enable the current period of economic expansion to continue for a longer period of time.

S&P 500 Earnings Estimates 2013 2014 2015 201910/15/2018 Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Est. Est. Est.

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

Quarterly $$ amount $27.10 $29.63 $31.42 $31.32 $30.87 $32.80 $33.54 $36.29 $38.71 $41.03 $40.49 $42.57 change over last week -$0.01 $0.05 yr/yr -5.2% -1.3% 3.8% 7.1% 13.9% 10.7% 6.7% 15.9% 25.4% 25.1% 20.7% 17.3% qtr/qtr -8% 9% 6% 0% -1% 6% 2% 8% 7% 6% -1% 5%

Trailing 4 quarters $$ $111.41 $119.02 $118.67 $116.57 $116.24 $117.49 $119.64 $123.25 $126.42 $128.53 $133.50 $141.34 $149.57 $156.52 $162.80 $178.24 yr/yr 5.8% 6.8% -0.3% 0.5% 11.6% 21.9% 9.5%Implied P/E based on a S&P 500 level of: 2767 19.6 18.5 17.7 17.0 15.5

20182016 2017



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

Treasury Yields Remain Elevated; Credit Spreads Rise in Sympathy to Rocky Equity Markets • Treasuries last week: A bid from investors looking for safety reverse the initial rout in 10-year Treasury yields last

week with closes below the 3.23% October 5 close all week. The incessant bid for high quality bonds as equity indices slid lower eroded 10-year Treasury sell enthusiasm. Weaker than expected Consumer Price Index inflation in September, 2.3% compared to 2.7% year over year in August, prompted TIPs break-evens to dip (see chart bottom right) and Treasury yields to settle back toward support at 3.11%, closing at 3.16% Friday. Treasury yields are little changed this morning from closing levels on Friday as U.S. equity market futures point to a slightly lower open this morning.

• We believe credit spread widening over the past two week has been largely sympathy to the equity market sell-off and not a leading indication of tightening credit conditions at this point (see chart below left). Should wider spreads persist into November, we believe the move could begin a feedback loop of tightening lending standards into the near-term. A more likely scenario would be the eventual rebound in equity markets and tightening credit spreads in our view.

• The week ahead: We face a week devoid of key central bank policy announcements and limited to T-bill supply. The Fed is scheduled to release minutes of the September 25-26 Federal Open Market Committee (FOMC) policy meeting on Wednesday potentially rounding out the picture on how the Fed with several new members may be framing up its response to continued tightening in labor markets and strong economic growth supported by fiscal stimulus this year and next.

Source: Bloomberg

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-5

0

2yr 3yr 5yr 7yr 10yr 30yr

U.S. Treasury Yield Change (As of Yesterday's Close, in basis points)

1-Day 1-Week0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

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

U.S. Treasury YieldsYield in Percent

10/12/2018

10/5/2018

12/29/2017

300

400

75

100

125

Bloomberg Barclay's Index Credit SpreadsOption adjusted spread (OAS), in basis points

IG Corp (LHS) HY Corp (RHS)

1.50

1.75

2.00

2.25

Treasury Inflation Protected Securities (TIPS) Breakeven rate vs. Inflation (%)

5-yr TIPs Breakeven 10-yr TIPs Breakeven



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 Open 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 – Sr. Research Analyst

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

Health Care Justin H. Burgin – 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 SENIOR 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

Open, CFA – Sr. Research Analyst – International/Global Equity, Infrastructure & REIT

Benjamin L. Becker, CFA – Sr. 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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Before the Bell€¦ · 15/10/2018 · the stock market crash of 1987 may be drawing comparisons...

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