Before the Bell · 2020. 5. 8. · Europe: Most markets across the region are trading in the green at midday, though U.K. markets are closed for a bank holiday. German exports fell

Notations:

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Before the Bell Morning Market Brief

May 8, 2020

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

MORNING MARKET COMMENTARY: Anthony M. Saglimbene, Global Market Strategist

Quick Take: U.S. futures are pointing to a higher open; European markets are trading in the green; Asia ended higher overnight; West Texas Intermediate (WTI) oil trading up to $23.77; 10-year U.S. Treasury yield at 0.64%.

Checking In On Investor Sentiment And U.S./China Frictions: According to Thursday's weekly American Association of Individual Investors' Survey, bearish sentiment rose to 52.7% from 44.0% last week and 50.0% two weeks ago. While the S&P 500 Index has rallied over this short period and at the same time bearish sentiment remains elevated due to extreme economic adversity — the sentiment gauge surpassed 50% for the fifth time in the last nine weeks. Thursday's bearishness level was the highest reading in 2020 and marked the highest level since April 2013. The current level now sits in the 98th percentile of all readings since the survey's initial start in 1987, according to Bespoke Investment Group. That's a long-winded way of saying retail investors really, really don't have a favorable outlook for stocks over the next 6-12 months.

As we mentioned last week, the overarching view among retail investors is one of caution, as bearishness remains well over one standard deviation above its historical average of 30.4%. As the next two FactSet charts below highlight, bearish sentiment is on the rise, while bullish sentiment continues to edge down to its lowest levels since the coronavirus pandemic began. Less than a quarter of survey respondents currently report being bullish or neutral on stocks, respectively.

Before The Bell May 8, 2020 ____________________________________________________________________________________________________________________________

____________________________________________________________________________________________________________________________ © 2020 Ameriprise Financial, Inc. All rights reserved. Page 2 of 12

Importantly, when investors are this pessimistic about the outlook for stocks, equity returns tend to be positive over the intermediate-term. However, there is a crucial difference between history and today — generally, extremes in bearish sentiment coincide with an S&P 500 level near its 52-week lows. Yet at present, the S&P 500 has already rallied +31% off its lows. With that said, in the other two periods where bearishness was above 50%, and bullish and neutral sentiment was below 25%, stocks did post positive returns over the next three, six, and twelve months, per Bespoke.

Thus far, equities have been able to rally despite weak sentiment trends. At least, based on history, the weaker sentiment hasn't shown to be a significant detractor to forward stock returns. Nevertheless, and as we pointed out last week, retail and institutional investors may need to become a more significant incremental buyer of stocks and at a time when corporate share buybacks are on the decline. How these types of investors feel about the market could play a more significant role in shaping returns over time.

In a quick note on the growing tensions between the U.S. and China, we wanted to provide some additional color to yesterday's market comments. As we highlighted on Thursday, the U.S. has accused China of concealing the severity of the coronavirus outbreak as well as the origin of the disease. To some degree, President Trump may have a political incentive to adopt a tougher stance on China. The White House has already tightened controls over U.S. semiconductor exports to China, paved the way for government pension funds to stop investing in Chinese stocks, and limited imports of Chinese electrical equipment. The Trump administration is also urging companies to redirect supply chains and investments away from China.

And while that tact may have unforeseen and potentially negative consequences for economic growth this year, many Americans support getting tougher on China. As the two BCA Research charts below show, nationalism is on the rise, and a more significant portion of younger, college-educated Americans are taking a more negative view on China.



President Trump's surprise 2016 election win, in some ways, was born out of the stark inequality across the country and a sharp rise in political polarization — which has only grown over Trump's presidency. Railing against China was rallying cry for his supporters and has been a central theme of his administration. The number of Americans that now see China's rise in power as a threat to the U.S. has increased from around 50% before Trump's presidency to over 60% today, per BCA Research.

Further, college-educated Americans currently have a more unfavorable view of China than non-college grads, upending the logic that middle-class manufacturing workers, displaced by globalization, are the only large group of Americans to hold a negative bias toward Beijing.

The bottom line: China's communist, authoritarian-style leadership already stands in stark contrast to the principles of freedom and democracy in the U.S. Combine that point with a pandemic that originated in China and is widely believed to have been mishandled by its government, with a U.S. electorate sympathetic toward halting Beijing's leadership — and you have a "huge" 2020 election dynamic. Investors should expect both Republicans and Democrats to show they can be tough on China. Presidential candidates may need to sharply outline and articulate their strategic visions for dealing with China and at a time when each country's relationship with one another is already tenuous.

While it's still too early to say for sure, investors may need to price in an unexpected ramp in U.S./China tension, which could add a new trade and geopolitical wrinkle for markets this year. Considering the global economy is busy trying to recover from the depths of a pandemic and economic shutdown, investors would undoubtedly appreciate if the world's two superpowers could maintain a status quo relationship for now.

Asia-Pacific: Asian equities finished higher on Friday. In a positive signal on the U.S./China tension front, the United States Trade Representative said Chinese Vice Premier Liu He and U.S. Treasury Secretary Steven Mnuchin participated in a conference call on Thursday. Both sides discussed the ongoing process of implementing the phase one trade deal, and that despite a global pandemic, both parties intend to meet their obligations, per FactSet.

Europe: Most markets across the region are trading in the green at midday, though U.K. markets are closed for a bank holiday. German exports fell by 11.8% in March, the steepest drop for the data set since the series began in 1990, according to FactSet. Seasonally adjusted imports fell 5.1%, and the trade surplus narrowed considerably. Most economists expect a slow recovery in Germany, and in some part, contingent on how quickly its European neighbors can rebound from the pandemic.

U.S.: Equity futures are pointing to a higher open. Here's a quick news rundown to start your morning:



April employment report: After seeing 33 million people file for unemployment benefits during the last seven weeks, the market expected a historically weak April jobs report. Nonfarm payrolls declined by a staggering 20.5 million in the previous month, as the unemployment rate skyrocketed to 14.7% from 4.4% in March. Today's unemployment rate broke the post-World War record of 10.8%, seen in November 1982. Coming into today's jobs report, economists expected April payrolls would decline by 21 million. Over the near term, we expect employment trends to remain very weak over the near-to-intermediate-term. But as we continue to highlight, the market has priced some of this negativity into stock prices already. Investors should continue to keep this point in mind as more negative economic data is released over the coming weeks.

Investors pull money from U.S. equity funds for the third straight week. According to EPFR Global, investors yanked $9.3 billion from U.S. equity mutual funds and ETFs in the week ending May 6th. Over the last three weeks, investors have withdrawn nearly $13 billion from U.S. equity funds, and at a time where the S&P 500 recorded its best month of performance in more than 30 years during April. Reuters noted, citing HFR data, investors pulled nearly $33 billion from hedge funds in the first quarter, marking the largest outflow total in more than a decade. In April, global hedge funds posted their best monthly gain in more than a decade. Each point, in our view, speaks to how difficult it is to time the market.

Is a new relief package in the works? Leading Democrats are working on a new coronavirus relief package said to be worth more than $750 billion in state and local government aid. The bill could also include additional direct support for Americans. Meanwhile, per The Wall Street Journal, Senate Republicans are taking a different tact and focusing on liability protections for businesses. And not to be left out of setting the next stimulus agenda, the White House is considering bypassing Congress and providing additional aid through executive order. NBC News reported the executive orders could include extending the tax deadline delay, halting new federal regulations, and tax breaks on some asset sales.

Earnings Update: With approximately 86% of S&P 500 Q1'20 profit reports complete, the blended earnings per share (EPS) growth rate has declined 13.7% y/y on sales growth that has fallen 0.8% y/y.

WORLD CAPITAL MARKETS 5/8/2020 As of: 8:30 AM ET

Americas % chg. % YTD Value Europe (Intra-day) % chg. %YTD Value Asia/Pacific (Last Night) % chg. %YTD ValueS&P 500 1.15% -10.20% 2,881.2 DJSTOXX 50 (Europe) 0.79% -21.54% 2,903.2 Nikkei 225 (Japan) 2.56% -13.87% 20,179.1 Dow Jones 0.89% -15.64% 23,875.9 FTSE 100 (U.K.) Closed -20.22% 5,936.0 Hang Seng (Hong Kong) 1.04% -13.76% 24,230.2 NASDAQ Composite 1.41% 0.49% 8,979.7 DAX Index (Germany) 1.08% -17.92% 10,875.1 Korea Kospi 100 0.89% -11.26% 1,945.8 Russell 2000 1.58% -22.74% 1,282.9 CAC 40 (France) 0.94% -23.24% 4,544.0 Singapore STI 0.01% -19.07% 2,591.9 Brazil Bovespa -1.20% -32.45% 78,119 FTSE MIB (Italy) 0.70% -26.12% 17,366.2 Shanghai Comp. (China) 0.83% -5.07% 2,895.3 S&P/TSX Comp. (Canada) 0.02% -12.04% 14,833.7 IBEX 35 (Spain) 0.41% -28.57% 6,758.4 Bombay Sensex (India) 0.63% -23.06% 31,642.7 Mexico IPC -0.52% -15.14% 36,792.4 MOEX Index (Russia) -0.55% -13.58% 2,619.6 S&P/ASX 200 (Australia) 0.50% -17.93% 5,391.1

Global % chg. % YTD Value Developed International % chg. %YTD Value Emerging International % chg. %YTD ValueMSCI All-Country World Idx 0.79% -14.02% 481.8 MSCI EAFE 0.29% -19.52% 1,617.9 MSCI Emerging Mkts -0.20% -19.05% 896.9 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 Commodities Communication Services 1.56% -4.99% 171.5 Equity Income Indices % chg. % YTD Value Futures & Spot (Intra-day) % chg. % YTD ValueConsumer Discretionary 1.34% -4.65% 936.5 JPM Alerian MLP Index -1.57% -42.88% 124.6 CRB Raw Industrials 0.45% -7.56% 417.6 Consumer Staples -0.41% -9.07% 582.4 FTSE NAREIT Comp. TR 1.37% -19.81% 17,122.0 NYMEX WTI Crude (p/bbl.) 0.38% -61.28% 23.6 Energy 2.47% -37.24% 282.5 DJ US Select Dividend 0.83% -26.30% 1,688.0 ICE Brent Crude (p/bbl.) 0.75% -55.03% 29.7 Financials 2.22% -28.60% 361.7 DJ Global Select Dividend 1.49% -30.95% 160.5 NYMEX Nat Gas (mmBtu) -2.27% -15.44% 1.9 Health Care -0.04% -2.48% 1,151.3 S&P Div. Aristocrats 1.29% -17.20% 2,540.1 Spot Gold (troy oz.) 0.11% 13.22% 1,717.9 Industrials 1.14% -23.91% 520.2 Spot Silver (troy oz.) 1.11% -13.09% 15.5

Materials 2.13% -15.86% 322.6 LME Copper (per ton) 1.47% -14.73% 5,243.3 Real Estate 0.85% -14.75% 203.0 Bond Indices % chg. % YTD Value LME Aluminum (per ton) 0.44% -18.65% 1,449.0 Technology 1.52% 2.39% 1,642.5 Barclays US Agg. Bond 0.39% 4.82% 2,332.2 CBOT Corn (cents p/bushel) 0.47% -20.32% 319.5 Utilities 0.44% -14.07% 279.5 Barclays HY Bond 0.22% -8.33% 2,000.9 CBOT Wheat (cents p/bushe -0.19% -7.45% 521.5

Foreign Exchange (Intra-day % chg. % YTD Value % chg. % YTD Value % chg. % YTD ValueEuro (€/$) 0.10% -3.28% 1.08 Japanese Yen ($/¥) -0.07% 2.13% 106.35 Canadian Dollar ($/C$) 0.23% -6.82% 1.39British Pound (£/$) 0.22% -6.55% 1.24 Australian Dollar (A$/$) 0.54% -6.99% 0.65 Swiss Franc ($/CHF) 0.25% -0.42% 0.97Data/Price Source: Bloomberg. Equity Index data is total return, inclusive of dividends, where applicable.



BY THE NUMBERS: ECONOMIC ACTUALS AND FORECAST:

ECONOMIC NEWS OUT TODAY: Economic Releases for Friday, May 8, 2020. All times Eastern. Consensus estimates via Bloomberg. Time Period Release Consensus Est. Actual Prior Revised to 8:30 AM APR Change in Nonfarm Payrolls -21600k -20500k -701k -870k 8:30 AM Two-Month Payroll Net Revision -214k 8:30 AM APR Change in Private Payrolls -21340k -19520k -713k -842 8:30 AM APR Change in Manufacturing Payrolls -2500k -1330k -18k 8:30 AM APR Unemployment Rate (U3) 16.0% 14.7% 4.4% 8:30 AM APR Underemployment Rate (U6) N/A 22.8% 8.7% 8:30 AM APR Average Hourly Earnings MoM +0.2% +4.7% +0.4% +0.5% 8:30 AM APR Average Hourly Earnings YoY +3.0% +7.9% +3.1% +3.3% 8:30 AM APR Average Weekly Hours All Employees 34.1 34.2 34.4 8:30 AM APR Labor Force Participation Rate 63.4% 60.2% 62.7%

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

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% -5.5% 3.8% 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% 11.0% 11.0%CPI (YoY) 1.3% 2.1% 2.4% 1.8% 0.9% 2.2% 1.8% 2.0% 1.5% 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 Last Updated

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

Quarterly

April 29, 2020



Economic Perspective: Russell T. Price, CFA – Chief Economist A historic 20.5 million people lost their job in April. The job losses were actually incurred from the third week of March

through the third week of April as the measurement period for each report is the week that contains the 12th of the month. As such, many more job losses have yet to be counted and will be reflected in the May report. Job losses at that time should be notably smaller than today’s number but the unemployment rate will surely move higher.

The Unemployment Rate jumped to a record high of 14.7% in the month. The prior record high for this series dating back to its start in 1940 was 10.8% as seen in December 1982. Despite its record high, the reported rate under-reflects the reality due to a technical issue in the way its measured. As we’ve noted in prior commentaries, the Labor Department methodology does not consider people as “unemployed” if they are not looking for work. If they are not working AND not looking, they are not considered to be actively participating in the labor force. This aspect was clearly reflected in the Labor Force Participation Rate (LFPR) as it declined to 60.2% from 62.7% in March and 63.4% in February. The methodology usually works out fine and is a proper framework under normal circumstances. In the current situation, however, very few people are likely looking for work – especially since so many businesses are closed as well.

Of additional note: Average Hourly Earnings surged in the month of April. Unfortunately, this is reflective of the fact that most of the recent job losses have affected those that can least afford it on the bottom end of the wage scale.

It’s NOT just about job losses. A lack of hiring also plays a role. In 2019, the U.S. economy gained a net 2.1 million jobs, according to the Labor Department. Employment levels grew each and every month of the year. So it would likely come as quite a surprise to most people to know that there was an average of 5.6 million job separations each month in 2019 (according to the Labor Department’s Job Openings and Labor Turnover report). Note: The JOLTs report for April will not be released until the second week of June.)

On average, there were approximately 1.8 million people laid off each month in 2019, while another 3.5 million quit their jobs. New hiring activity, however, was stronger than both these factors (averaging 5.8 million), thus resulting in the net monthly gains.

This aspect of the job market could be highlighted in the current period. Expectations for today’s Jobs Report largely look for a loss in total employment that’s generally in-line with the number of jobs cuts reflected in the weekly unemployment claim numbers. However, a loss of hiring will also play a role in boosting the number. The number of people that quit their job has likely declined during this period, but it’s still a substantial enough number as to add further downside to an already historic number of job losses.

FIXED INCOME NEWS & VIEWS:

The COVID-19 Impact on Food Part 2 -The Meats: Jon Kyle Cartwright, Senior Director Fixed Income

Our hearts go out to those families stricken by the virus, those who lost their jobs, and the more than 90% of the domestic workforce working at home. Another victim was food. Not just from empty shelves or price gougers, but how it's affecting agricultural commodities and food processors. It appears to us, barring destructive weather patterns or new tariffs, that most domestic commodity and packaged food prices could fall during the second half of 2020 as panic shopping subsides. From our viewpoint, rising commodity food inventories and stiff foreign competition should push prices down and hold them there well into 2021, or until COVID-19 restrictions are lifted. For more information, please see our April 22, 2020 Before the Bell cover titled "THE COVID-19 IMPACT ON FOOD PART 1 - THE GRAINS." Today there’s more livestock than can be processed domestically, and commodity meat and dairy prices have already plummeted. That’s in sharp contrast to empty meat shelves and higher prices at local stores. The problem started when demand dropped as schools and restaurants shut down, causing butchered inventories to swell and clogging storage facilities. As meatpacking storage filled, meat processors reduced the amount of livestock they were willing to accept. Then the ability to process meat was stunted further when some of the nation’s largest meat processing plants were hit with COVID-19 infections triggering temporary shutdowns while facilities are cleaned and disinfected. Unfortunately, ranchers were ill-prepared to feed or manage larger than expected herds. With meat processors hindered from accepting livestock, the only option has been to euthanize and bury animals. We expect high processed food prices to slowly reflect lower commodity food prices as herds shrink, panic buying ends, and processors institute safer operating standards to reduce the impact from the coronavirus.



Here are some of our insights on how dairy, live cattle, and lean-hog markets might look in a post-COVID-19 world. The annual average number of farm animals could shrink in 2021 compared to 2019. We expect dairy farmers to cull their herds putting additional downward pressure on beef prices later this year, and possibly compel beef ranchers to reduce the size of their herds as well. Retail pork buyers tend to switch to beef when beef prices fall. As a result, lower beef prices can translate into lower pork prices and compel hog farmers to reduce the size of their herds. Since it can take up to three years for a calf to grow into a milk producer or feeder-cattle, we expect the price of milk, dairy cattle, beef, feeder-cattle, live hogs and pork to remain weak in 2020, before rising in 2021 and 2022. DAIRY (DAM0: $13 5/8 on the CME - Chicago Mercantile Exchange) - Just a few weeks ago, the USDA reported that February milk production in the top 24 states was up 5.6% year-over-year, and it looked like dairy farms, and milk processors were headed for a momentous year. Then grocery stores across the country were besieged by coronavirus panic shoppers that bought milk at any price. Some stores had to resort to rationing milk and dairy purchases. Still, that demand increase wasn't strong enough to counter the loss of demand from temporally shuttered schools, industrial food service companies, and restaurants. Demand has been so bad that milk processors ran out of storage space, according to the International Dairy Foods Association, 10% of U.S. milk production no longer has anywhere to go. As a result, dairy farmers are forced to dump millions of gallons of raw milk. Consumers can rejoice because milk is back on the shelves, and prices are falling. Dairy farmers, on the other hand, are having trouble paying their bills. As the virus makes its way through dairy country, dairy farmers and processors could face employee shortages and shutdowns. Even though dairy farmers are getting some support from co-ops and eventually from state or federal sources, we expect dairy-cattle herds to be culled, which could reduce dairy production and raise prices in 2021 and 2022. LIVE CATTLE (LCM0: $86 on the CME - Chicago Mercantile Exchange) - You may not have heard that coronavirus can infect dogs, cats, and even livestock. Fortunately, the National Milk Producers Federation is still reporting that U.S. dairy supplies are safe and there’s no evidence this strain of coronavirus is present in domestic livestock. As you might imagine, the same shortfalls impacting milk hit demand for beef. Even as grocery store prices rose and shelves appeared empty, live cattle prices fell from over $127 per pound in January to under $84 in early April. The loss of demand from schools, industrial food service companies, and restaurants are the chief culprits. Like dairy-cattle, feeder-cattle ranchers may be forced to cull rather than bear the cost of feeding large herds for another season. Lower beef prices this year could equate to higher retail prices in 2021 and 2022 if live cattle herds shrink. LEAN HOGS (LHM0: $64 on the Chicago Mercantile Exchange) - In January, there was bullish news that the U.S. and China signed a phase one trade deal and that the future phase two deal could soon open China to U.S. pork exports, but that was before the coronavirus changed everything. From its February high of $84 1/2, the current lean-hog contract on the CME traded down to a twenty-two-year low of $42.7/8 on April 3, 2020. While exports to China are positive, as long as tariffs are in place, they cannot counterbalance the lost demand from temporarily shut down schools, industrial food service companies, and restaurants. Pork producers also have to be wary of pandemic related unemployment and falling consumer incomes. Like many U.S. agricultural commodities, hog herds were on the rise in 2019 in anticipation of a phase two Sino-American trade pact, that’s now in question. The March 2020 USDA report reflected total domestic inventories for all hogs and pigs of 77.6 million head, up 4% from a year ago, but down 1% from December 1, 2019. To compound the problem, some pork processors have had to idle processing plants for deep cleaning after employees tested positive for COVID-19. Just one of the smaller idled plants accounted for 2% of domestic pork processing on its own. Pork belly prices appear to be the hardest hit member of the pork complex when bacon demand from hotels, restaurants, and institutional food services went into hibernation. With U.S. pork exporters accounting for more than

WHY ARE AGRICULTURAL COMMODITY PRICES IMPORTANT?

Institutional investors and economists use GDP

and inflation numbers x/food & energy to avoid

short‐term anomalies. However, longer‐term

fundamental changes in Food & Energy prices

can have an outsized influence on both GDP and

inflation along with other econometric

indicators. Food and energy prices can

dramatically change disposable income,

impacting every aspect of consumer spending.

Agricultural Commodity prices have a direct

impact not only on farmers but also on

packaged food prices and agricultural

machinery sales. Food & energy imports and

exports also have an outsized influence on the

U.S. balance of trade numbers used as a direct

measure of the domestic economy.



20% of domestic pork demand and Chinese pork tariffs in place, we could still see pork prices begin to rise later this year if COVID-19 work restrictions ease. Unfortunately, we believe that it's still too early for us to conclude which direction lean-hog prices will move in 2021 or 2022. Conclusions: U.S. ranchers still have to manage the size of their 2020/2021 herds by deciding how many heads to keep or cull this season despite the confusion surrounding a global pandemic, favorable animal feed prices (grain), ominous predictions for an active 2020/2021 flood season, and ongoing tariff wars. In aggregate, we expect U.S. meat prices to fall in the second half, before mildly rising in 2021 and 2022 without adding any undue negative pressure on the U.S. economy, inflation, or the domestic bond market.

Animal feed is a significant cost component for meat & dairy production. In aggregate, we expect U.S. commodity grain prices to remain low before rising mildly in 2021 and 2022, which, to some extent, could lower cost for meat & dairy producers and processors this year. The hope for lower feed prices in the second half could delay expected herd culling until the first half of 2021.

Tariffs continue to hurt U.S. meat exports. The 2018/2019 African swine fever killed tens of millions of Chinese pigs and reduced their sow herd by close to 60%. While China aggressively imports breeding pigs to replenish their herds, tariffs have largely impeded the U.S. from that trade. U.S. pork sales to China could increase dramatically if the Trump administration gains unfettered access to Chinese pork and live hog markets in the coming years. The normalization of trade with China could radically improve this year's outlook. Unfortunately, we currently deem it unreasonable to add tariff-free sales to our outlook. However, countries selling breeding pigs to China will eventually have to replace their herds, which could benefit countries, like the United States, who may have excess breeding stock for sale in 2021 and 2022.

Industrial food processing equipment orders should remain weak. If low commodity meat & dairy prices persist, it could be difficult for processors to accept current equipment orders or place new ones before 2023.

High milk inventories could hinder milk and dairy processors until 2021. As milk inventories fall, storage opens up, and dairy herds culled milk producers could see margins rebound in 2021 if the United States eases COVID-19 work restrictions.

Falling meat prices could help meat packers this year as feed cost fall and processing plants reopen in a post-COVID-19 world. Meat demand could quickly rebound in 2021 and return to normal levels by 2023.

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

Jeff Carlson, CLU, ChFC – Manager

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

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

Energy/Utilities William Foley, ASIP – Director

Financial Services/REITs Lori Wilking-Przekop – Sr Director

Health Care Daniel Garofalo – Director

Industrials/Materials Frederick M. Schultz – Director

Technology/Telecommunication Open – Director

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

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

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

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

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

Michael V. Jastrow, CFA – Vice President

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

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

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

Alex Zachman, CFA – Analyst – Core Equity

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

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

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

Blake Hockert – Associate – Reporting & Analytics

FIXED INCOME RESEARCH & STRATEGY

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

Stephen Tufo – Director INVESTMENT DUE DILIGENCE

Justin E. Bell, CFA – Vice President

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

Kay S. Nachampassak – Director

Peter W. LaFontaine – Sr. Analyst

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

David Hauge, CFA – Analyst

Bishnu Dhar – Sr. Research Analyst

Parveen Vedi – Sr. Research Associate

Darakshan Ali – Research Process Trainee

INNOVATION AND DEVELOPMENT

Allen Rodrigues – Vice President

Nidhi Khandelwal – Director

Dan Burns – Sr. Manager

Matt Morgan – Sr. Manager

Natasha Wayland – Sr. Manager



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

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



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

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



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

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Before the Bell · 2020. 5. 8. · Europe: Most markets across the region are trading in the green at midday, though U.K. markets are closed for a bank holiday. German exports fell