Transcript: Nightly Business Report – January 20, 2017

NBR-ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue
Herera.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: From this day forward, it is
going to be only America first. America first.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: A new era, Donald Trump is
sworn in as the nation`s 45th president, promising to make big changes.
And that could make the next few months a bit tricky for investors.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Trump bump? Which stocks
should you consider buying during the administration`s first 100 days? Our
market monitor has some picks.

HERERA: Main Street matters. Why small business owners are looking to the
businessman-turned-president to help them expand and hire.

Those stories and much more for tonight on NIGHTLY BUSINESS REPORT for
Friday, January 20th.

MATHISEN: Good evening, everyone, and welcome.

Donald Trump became the 45th president of the United States at noon today.
He spoke 35 words that are specified in the Constitution. An oath used by
every president since George Washington.

And so, the Trump era begins. Exactly what it portends for Americans, for
the world, is uncertain. But it is always so when power transfers from one
president and administration to another.

“The time for empty talk is over,” said Mr. Trump, in an exhortative,
occasionally bracing but brief 16-minute inaugural address. Now, he said,
arrives the hour for action.

Eamon Javers covered it all for us today, from the pageantry to the
protests.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: After a long and
bruising political season, the familiar rituals of an American inaugural
frames the one thing everyone agreed on today — the peaceful transfer of
power in the United States of America.

TRUMP: So help me God.

JOHN ROBERTS, SUPREME COURT CHIEF JUSTICE: Congratulations, Mr. President.

JAVERS: President Trump spoke to an audience of billions in the United
States and around the world, and told them that America`s approach to that
world has changed.

TRUMP: From this day forward, it`s going to be only America first.

JAVERS: He had a kind word for the outgoing chief executive, saying that
Barack and Michelle Obama have been magnificent during the transition, but
he described America under President Obama as a country of economic and
social decline.

TRUMP: The crime and the gangs and the drugs that have stolen too many
lives and robbed our country of so much unrealized potential. This
American carnage stops right here and stops right now.

JAVERS: Ultimately, Trump is a president who campaigned on job creation
and that was the core message of his address today.

TRUMP: We will bring back our jobs. We will bring back our borders. We
will bring back our wealth. And we will bring back our dreams.

JAVERS: And that peaceful transition of power did take place today.
Former President Obama`s helicopter, no longer known as Marine One, flew
past the Capitol dome shortly before the new president began the parade.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Washington.

(END VIDEOTAPE)

HERERA: And late today, the Senate confirmed the first member of the Trump
cabinet. Retired Marine General James Mattis will assume the title of
secretary of defense. The vote was overwhelmingly in his favor.

Almost immediately after Donald Trump was sworn in as president, the
Department of Housing and Urban Development suspended its plan to cut
mortgage insurance premiums for borrowers. The cut was announced just days
ago by the Obama White House and was meant to help more borrowers gain
access to the mortgage market. The previous administration sat the FHAs`
reserves were healthy enough to withstand the lower revenue. But today,
the new administration gave no explanation for the rollback which had been
scheduled to go into effect on January 27th.

MATHISEN: The new administration has also committed to rolling back former
President Obama`s climate action plan. The updated website says that
President Trump will eliminate these harmful and unnecessary policies,
adding that lifting the restrictions in the plan will help American workers
and increase wages. Obama`s action plan proposed to cut carbon dioxide
emissions.

HERERA: While the new president attended his inaugural lunch, mask-wearing
protesters clashed with police in the nation`s capital while chanting anti-
Trump slogans. They`ve blocked traffic, damaged cars and destroyed store
windows. Protesters in San Francisco blocked Uber headquarters while
others linked articles across the Golden Gate Bridge.

But the stock market wasn`t fazed and the blue chip Dow Index snapped its
losing streak. The Dow Jones Industrial Average rose 94 points to 19,827,
the NASDAQ added 15, and the S&P 500 was up 7.

But investors who had been watching the inaugural address closely were
looking for more than a thematic populist speech. As Bob Pisani reports,
they wanted to hear about tax cuts, spending ask other American purchases
could help earnings increase growth.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Donald Trump
delivered one of the shortest inaugural addresses in modern times and the
markets drifted lower. The problem? The speech was long on protectionist
talk but very short on specifics and what his exactly his priorities would
be. The president said we must protect ourselves from countries that are
stealing our companies and destroying our jobs and that protection will
lead to greater prosperity and strength.

But the stocks have been sideways for over a month because traders have
awaited more specifics on the issues that would matter most to earnings.
Tax cuts and infrastructure spending, for example, and they heard precious
little on those issues from President Trump.

As a result, several sectors that have done well since the election,
aerospace and defense, for example, and building and construction stocks,
all moved sideways lower in the afternoon because of that continuing lack
of detail.

Now, does this mean that the Trump rally is over? Not at all. But it is
certainly pausing. If the early priorities are both around repealing
Obamacare and a fight over trade policy, it could be a very long winter for
stock goals.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: So what can we expect from stocks and bonds during the new
administration`s first 100 days in office?

Mark Spellman, portfolio manager at Alpine Funds, and Brian Rehling, he`s
co-head of global fixed income strategy at Wells Fargo (NYSE:WFC)
Investment Institute join us now.

Gentlemen, welcome. Good to have you with us.

Mark, let me begin with you. Are these first 100 days a time to try on
make money or just to sort of wait and see what unfolds?

MARK SPELLMAN, ALPINE FUNDS PORTFOLIO MANAGER: Yes. I think we have a lot
priced in. We`re pretty optimistic. So, I think it`s wait and see. See
what unfolds, the devil is really going to be in the details.

We conceptually know what Mr. Trump is up to. But, you know, when it comes
to tax policy, tax policy is very difficult, very complicated. So, I think
we are going to take pause for these 100 days. But I do think the market
is going to give them the benefit of the doubt.

HERERA: Brian, do you agree with that? And, you know, there is some worry
in the market, apparently, that Congress may get bogged down on reforming
the Affordable Care Act and not make as much progress on corporate tax
cuts.

BRIAN REHLING, WELLS FARGO INVESTMENT INSTITUTE: Yes. I completely agree.
The bond market is a wait and see mode. Consolidation, we saw the big
move. We saw in it in November and December.

And now, we need details, both from an investor`s point of view and even if
you look at the Fed — the Fed speakers, looking for more details in terms
of setting monetary policy.

MATHISEN: Is — Brian, let me follow up with that. The bond market has
been sort of topsy-turvy here in the past few days. Do you expect that to
continue?

REHLING: Yes. I mean, I think we`re going to trade. If you think of the
ten-year treasury yield, the trade between 230 and 260. So moving up 5,
10, even 15 basis points from day to day, week to week. I think that`s
within normal expectations here, as the market tries to feel out what some
of those details might be.

HERERA: Mark, if you had to commit new money to this market in the first
100 days, where would you put it to work?

SPELLMAN: Companies that generate lots of free cash flow. The one thing
we do know is rates are up, as Brian just mentioned. Short rates are going
higher. That has to change the way an investor approaches their portfolio.

The old consumer staples and utilities, I think the trade is off. I think
you have to look for rising dividends that will inflation protect you going
forward. And I think the company with the biggest cash flow are going to
win out in the end and they`ll be able to raise the dividends and will make
a nice return this year.

MATHISEN: You know, Mark, let me follow up with a thought for the “Wall
Street Journal” today and others reporting, the Obama years were very, very
kind to stock investors, second only to annualized return to the Clinton
years among modern presidents. Part of that was because Mr. Obama came in
when stock prices were low — an accident of timing, so to speak.

What do you think is a reasonable rate of return over the next few years
for equities, with equities as high as you pointed them out to be?

SPELLMAN: I think a reasonable rate of return. It depends on the devil in
the details. If corporate tax rates are going from 36 to 20 percent,
that`s a big tailwind for companies. They`ll be able to buy back stock,
dividends, earnings will be up. I do think you can get mid to single digit
returns. And again, income is going to continue to be an important part of
that equation.

HERERA: Brian, do you want to comment on it? And also, you know, what is
your expectation for economic growth? How much of the stock market
performance will be pegged to the 3 percent growth rate that the new
president says he intends to achieve?

REHLING: Well, if he can achieve 3 percent growth rate, I suspect stocks
will go up and bonds will go down. There`s a lot of question marks between
here and there, obviously, and looking for those details.

At this point, I`m not sure the bond market, I don`t think, believes that a
3 percent growth rate is imminent by any means.

MATHISEN: Brian, is the Fed going to be as central to our economic
thinking and to our markets going forward as it was over the past eight
years?

REHLING: Yes. I think the Fed is always important. As we move into this
year, one of the big uncertainties are exactly which direction President
Trump will take the Fed. He`s got a couple of opener governor seats he can
appoint in the near term. And then of course, Chair Yellen`s term expires
early next year, and we will see him appoint, or nominate her replacement
sometime this summer.

So, a lot of big developments coming on the Fed front to watch. And again,
some of that uncertainty that we need become more uncertain for the bond
direction — for the bond market to get some direction here.

MATHISEN: Gentlemen, thank you very much for helping us tonight. Mark
Spellman with Alpine Funds and Brian Rehling with Wells Fargo (NYSE:WFC)
Investment Institute.

HERERA: And still ahead, amid the inauguration, General Electric (NYSE:GE)
reported earnings and there`s one persistent problem it just can`t seem to
shake.

(MUSIC)

HERERA: Day two of the Federal Reserve characterized the Labor Department
as operating at full strength. At an event last night at Stanford
University, Janet Yellen said workers are starting to see meaningful raises
for the first time since the recession.

(BEGIN VIDEO CLIP)

JANET YELLEN, FEDERAL RESERVE CHAIR: In the coming months, I expect some
further strengthening in labor market conditions as the economy continues
to expand at a moderate pace — a view that is shared by most of the
colleagues on the Federal Open Market Committee.

(END VIDEO CLIP)

HERERA: Chair Yellen also said she saw few signs of the economy
overheating.

MATHISEN: Procter and Gamble raised its sales forecast following a strong
earnings report. The Dow component posted better than expected revenue
driven in part by sales and its beauty and health care business. The
experts say the upbeat outlook is the result of its turn-around strategy
that included the sale of numerous brands. P&G, which, of course, sells
Gillette razors, Tide detergent, Pampers diapers, saw its shares rise more
than 3 percent.

HERERA: It was different story for General Electric (NYSE:GE) which
matched expectations. The conglomerate which is working to transform
itself into cutting edge digital industrial company is still dealing with a
long running problem, its oil business. As a result, shares slumped 2
percent making it the worst performing Dow stock on the index today.

Morgan Brennan has more.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: General Electric
(NYSE:GE) is in the midst of a multibillion dollar reinvention, and
investors would like to see more of a payoff. Weakness in oil and gas
operations dragged revenue lower as the company anticipates improvement
later this year. As that market stabilizes and the business is merged with
Baker Hughes (NYSE:BHI).

And on a call of analysts, CEO and they reiterated guidance and called 2016
a, quote, “solid year”, all things considering.

(BEGIN VIDEO CLIP)

JEFFREY IMMELT, GENERAL ELECTRIC CEO: GE executed well in a slow-growth
and volatile environment. We see optimism in the United States, and here
orders up by 23 percent. In addition, Europe is strengthening and we see
positive momentum. Meanwhile the resource sector and related markets
continue to have headwind.

(END VIDEO CLIP)

BRENNAN: There are also bright spots. Sales were strong and renewable
energy and power generation. And while orders for equipment fell, orders
for services jumps 20 percent — a good indicator for future earnings as
G.E. transforms back into more of a traditional industrial company.
Analysts say today`s results are a bellwether for the broader sector and
that such could be signaling the final innings of the industrial recession.

STEVEN WINOKER, BERNSTEIN RESEARCH: We are still in a slow growth world.
We are still in a slow growth state in the United States. And there needs
to be some catalysts to driving new growth, other than just comparing it
against easier numbers every year. And that`s going to come from, I think
the great hope is, a combination of changes in tax rate, tax policy, and in
infrastructure investment and elsewhere. Customers are generally feeling
better but there`s still uncertainty.

BRENNAN: Uncertainty around the tax code which could potentially include
fees on imported goods and uncertainty around health care as president
Trump seeks to repeal and replace the Affordable Care Act. Just two of the
policy changes that could impact G.E. and its peers.

But on this inauguration day, much still remains to be seen. In the
meantime, the drop in sales also meant a drop in the stock.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: Walgreens proposed to takeover of Rite Aid (NYSE:RAD) could be
in trouble and that is where we begin tonight`s “Market Focus”.

Reports say the Federal Trade Commission has raised antitrust concerns over
the nearly $9.5 billion merger. Walgreens has previously said it would
divest more than 800 stores to the retail chain Fred`s as part of the deal,
but it may not be enough to push the deal through. Walgreens fell 2
percent to $81.72. Rite Aid (NYSE:RAD) though cratered, down 13 percent,
at $7.46.

Without citing specifics, Bristol-Myers Squibb (NYSE:BMY) said it will not
seek accelerated approval from the Food and Drug Administration, for the
company`s lung cancer treatment. The news comes as Bristol-Myers rival
Merck (NYSE:MRK) received FDA acceptance for a review of its own lung
cancer medication. Shares of Bristol-Myers down 11 percent at $49.23.
Merck (NYSE:MRK) added more than 3.5 percent on the session, at $62.53, the
close.

The railroad operator Kansas City Southern (NYSE:SO) (NYSE:KSU) posted
lower profit and unchanged revenue in the latest quarter. The company said
results were impacted by weakness in its energy division. But K.C.
Southern (NYSE:SO), which gets nearly a third of its revenue from business
with Mexico tried to reassure investors that the company was positioned
well despite concerns over President Trump`s rhetoric to amend or repeal
NAFTA. As a result, KC Southern (NYSE:SO) shares were up 4 percent on the
day to $87.91.

And AT&T (NYSE:T) is seeing strong growth in its new live TV streaming
service. In a regulatory filing, the telecom giant said it saw more than
200,000 paying customers sign up for DirecTV now in just its first month.
Shares of AT&T (NYSE:T) were up 1 percent to $41.45.

HERERA: Oil field services company Schlumberger (NYSE:SLB) saw its loss
narrow in its latest quarter, with the results matching street estimates.
The company said weakness in foreign markets dragged down revenue, but that
was still good enough to beat expectations. Schlumberger (NYSE:SLB) was
off just a fraction to 86.49.

Herbalife (NYSE:HLF) said the Securities and Exchange Commission has
requested information regarding the company`s compliance with anti-
corruption laws in China. The supplement company also said a strong dollar
would cause earnings for the quarter and the year to come in lower than
previously expected. Herbalife (NYSE:HLF) was down 13 cents to $53.01.

The known short seller Citron Research said airplane parts maker TransDigm
might be the, quote, “Valeant of the aerospace industry”, end quote.
Adding it has a massive debt load and accused it of engaging in price
gouging. Citron also noted TransDigm`s largest customer is the Defense
Department, potentially making it a target for the new president who has
vowed to cut government spending. TransDigm fell 10 percent to finish out
the session at $226.90.

And Apple (NASDAQ:AAPL) is suing Qualcomm (NASDAQ:QCOM) for $1 billion,
alleging the chip maker overcharged Apple (NASDAQ:AAPL) for products and
withheld rebates. Earlier this week, the Federal Trade Commission filed a
lawsuit against Qualcomm (NASDAQ:QCOM) for anti-competitive patent
licensing activities. Qualcomm (NASDAQ:QCOM) fell nearly 2.5 percent to
$62.88. Apple (NASDAQ:AAPL) was up a fraction to $120 even.

HERERA: Now to our market monitor who has a list of stocks he says you
might want to consider buying in this first 100 days of Mr. Trump`s
presidency.

This is his first time joining us on the program. He`s Bob Phillips,
managing principal of the wealth management firm Spectrum Management Group.

So, first time for you. First day for the new president. How do you think
it`s going to go the first 100 days or so in the markets?

ROBERT PHILLIPS, SPECTRUM MANAGEMENT GROUP: Well, I think it`s going to be
positive. If nothing else, Trump is certainly pro-business and that`s
going to be a big change in the last eight years. So, it should be good
things ahead.

MATHISEN: Let`s move on to a couple of your stock picks. And some of them
are in areas that a lot of people think are already beginning to benefit
from the new administration. Let`s begin with Valero Energy (NYSE:VLO),
the big refiner.

PHILLIPS: Sure. Tyler, you know, you think about it, and the three
expected big changes are regulatory relief, infrastructure spend and tax
relief — infrastructure spend and tax relief take time but regulatory can
happen quickly. You got all the refiners in the country are required to
buy renewable energy credits, and the price of those have doubled in the
last year. So, if you get some relief there, a company like Valero could
actually have a major increase in earnings. And it`s already trading at a
pretty low multiple and face a 3.8 percent dividend roughly, I think it`s
got great potential in the first 100 days.

HERERA: All right. Next on the list is U.S. Bancorp (NYSE:USB). An
interest play?

PHILLIPS: Exactly, plus regulatory relief. So, the banks rallied very
strong obviously after the election. And they`ve been pulling back since
the first of the year. But I don`t think the interest move is finish yet.
We don`t expect rates to jump tremendously, but they will be rising
incrementally. And any kind of incremental move upward is great for the
banks.

And U.S. Bank is very well run. It came out a couple days ago with
earnings release that was positive. So, we think they`ve got great
potential there as well.

MATHISEN: And your third and final choice is United Continental, the
airline company.

PHILLIPS: Exactly. And, you know, United Continental has got some, a few
headwinds but they`ve changed management that`s focusing on getting their
cost structure in line with major competitors like Delta. And there`s a
lot that can be done there. But predominantly, the airlines have great
leverage in terms of what falls to the bottom line.

And capacity is being constrained, so we think United has good potential to
increase pricing incrementally. And if we have regulatory relief in the
energy field, we`re also going to benefit from oil prices staying lower,
possibly going lower.

MATHISEN: And they certainly have no sort of dearth of ways to charge fees
in the airline business these days.

PHILLIPS: Exactly, that`s right.

MATHISEN: Which is really part of their operating leverage.

Bob Phillips, thanks very much. Good luck to you. Spectrum Management
Group.

PHILLIPS: Thank you.

MATHISEN: Coming up, from Washington to Main Street. What small business
owners want from their new president?

(MUSIC)

HERERA: And here`s a look at what to watch for next week. A fifth of the
S&P 500 and about 40 percent of the Dow Industrials report their earnings
next week, including companies like McDonald`s (NYSE:MCD), 3M (NYSE:MMM),
Johnson and Johnson and Caterpillar (NYSE:CAT). The housing market will be
in focus with the release of both existing and new home sales. HHS nominee
Tom Price faces the Senate Finance Committee following this week`s hearing
which turned contentious. And that`s what to watch for next week.

MATHISEN: You know, small business optimism has surged since Donald Trump
was elected president and many are upbeat that the new administration will
follow through on promises to roll back regulations. Others, though, are a
bit nervous as Kate Rogers (NYSE:ROG) found out when she traveled to
Detroit.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Joe Spencer has seen
economic booms and busts in his hometown of Detroit, owning his restaurant
Louisiana Creole Gumbo since 1983. In the last year, things have picked up
in a big way.

JOE SPENCER, LOUISIANA CREOLE GUMBO, CO-OWNER: Last year, we had our best
year for a single-unit restaurant. We had $1.2 million sales.

ROGERS: He expanded to a second location and plans to open two food
trucks. But one thing is on his mind these days — how Donald Trump stands
to impact the economy.

SPENCER: He is supposed to be business-friendly, so we just got to wait
and see what that is. I feel as long as the auto business is doing well,
we will do well and Detroit will do well. And that`s my chief concerns.

ROGERS: Business owners have varying opinions across Motor City, which has
seen a resurgence in small business growth post-recession. In recent
years, over $3 billion has been invested in Detroit`s downtown where more
than 100 small businesses have been launched.

Tom Acosta opened his restaurant Angelina Italian Bistro in 2008 as the
recession took hold. While Trump`s talk of deregulation has some on Main
Street feeling optimistic, Acosta is concerned, pointing to the housing
collapse as proof that less regulation isn`t always a good thing.

TOM ACOSTA, ANGELINA ITALIAN BISTRO, CO-OWNER: Small businesses are the
ones that bear the brunt of things that happen in Washington. People talk
deregulation, I get worried. It doesn`t help the common person. It
doesn`t help the common people. I mean, it helps a select few people, but
it never trickles down.

ROGERS: But Detroit native Nailah Ellis-Brown is staying optimistic,
relying on the city`s grit. The college drop-out launched Ellis Island tea
in 2008 after perfecting her family`s recipes. Today, she retails in some
300 stores across the Midwest, including Whole Foods.

NAILAH ELLIS-BROWN, ELLIS ISLAND TEA OWNER: There is a spirit that the
city here carries, and that is a spirit of resilience. All entrepreneurs
know that it is an extremely tough journey. There are times where we want
to give up.

And so, we need a motivation to keep pushing. I`m not in business just for
myself. It`s to give back to the community as well. The way that I give
back is by providing jobs. And the more my company grows, the more jobs I
can provide.

ROGERS: As Trump packed his cabinet with billionaires, she has just one
ask.

ELLIS-BROWN: If I had one ask from the Trump administration, it would be
to strengthen the economy.

ROGERS: For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG) in
Detroit.

(END VIDEOTAPE)

MATHISEN: That sounds like a pretty good wish for anybody, small business
or not.

To read more about how the Trump administration may affect small
businesses, head to our website, NBR.com.

HERERA: And before we go, here`s another look at the markets on
inauguration day. The Dow Jones Industrial Average rose 94 points. It
finished up the session at 19,827. The NASDAQ added 15 points. And the
S&P 500 was up 7.

MATHISEN: It was a pretty stable day in the markets.

HERERA: It was, a little volatile early in the morning but then it kind of
straightened out.

MATHISEN: Straightened out —

HERERA: We`ll see. Wait until Monday. You never know what`s going to
happen in the market.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for
joining us.

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great
weekend, everybody. And we will see you back here on Monday.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by CQRC
Transcriptions, LLC. Updates may be posted at a later date. The views of
our guests and commentators are their own and do not necessarily represent
the views of Nightly Business Report, or CNBC, Inc. Information presented
on Nightly Business Report is not and should not be considered as
investment advice. (c) 2017 CNBC, Inc.

 

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