Transcript: Nightly Business Report – January 30, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stock slump. It’s the worst day of the year for the market as focus shifts to tighter immigration policies and away from pro-growth reforms.

What’s at stake? The one state that may have the most on the line when it comes to President Trump’s executive orders.

And modern medicine. A tiny patch that could have a big impact on monitoring your heart.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, January 30th.

Good evening, everyone. Welcome. I’m Sue Herera. Tyler Mathisen is off tonight.

Clouds formed by Washington, hung over Wall Street. Stocks stumbled following President Trump’s order Friday to tighten immigration from seven Middle Eastern countries with Muslim majority populations. The move caused confusion, legal challenges, criticism and according to some analysts, it increased uncertainty in the markets.

Today, the Dow Jones Industrial Average fell 122 points to 19,971. The NASDAQ was off 47. And the S&P 500 dropped 13.

The lousy start to the week follows Dow’s historic topping of 20,000 just a few days ago. The rally since the election was sparked by the expectations that pro-growth policies like tax cuts would be enacted fairly quickly.

But as Bob Pisani reports, there is growing concern among investors that Washington’s focus is shifting.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: From Trump bump to Trump slump?

The markets may have blown past its records last week, but stocks took big hit today as investors digest the key headlines and policy plans coming out of the new Trump administration. The problem today is investors are seeing President Trump straying from themes that initially lifted stocks to new highs.

What moves the market forward? Well, that’s simple. It’s the reflation theme. It’s tax cuts and infrastructure spending. What stalls the market out is any lack of news on these stimulus measures, and when the administration focuses on more complicated issue like immigration policy and trade tensions and even Obamacare.

When there’s talk about changing the H1B visa program, a visa that’s very near and dear to the tech community, as we’re hearing this week, you can see an immediate snapback. Big tech and software names were all down because this may directly threaten their ability to bring in talent no matter where it is.

There’s also a growing worry that the tax cut issue is more complicated than it seems. The market wants a very clean, across-the-board reduction in taxes, period. But it’s being muddled by things like border adjustability taxes and caps on deductions. Beyond foreign policy fears, traders are more focused on the Fed meeting on Wednesday and the jobs report on Friday.

The Fed has a very delicate task at hand. They have to strike the perfect tone of economic bullishness without sending overly hawkish signals that could hint that they’re raising rates more rapidly than the market anticipates later this year. After all, Fed chair Janet Yellen still needs more clarity on Mr. Trump’s policies as well.

The bottom line, it’s going to be a very messy first 100 days. Earnings are slowly improving. But with so much policy uncertainty, CEOs have been reluctant to boost about 2017 earnings boost from the Trump agenda, at least so far.

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

(END VIDEOTAPE)

HERERA: And as Bob just reported, technology stocks fell today over concerns that the president’s immigration order will threaten the tech industry’s ability to bring in talent. That is a big deal for Silicon Valley which appears unified in its opposition to this executive order.

Josh Lipton has more.

(BEGIN VIDEOTAPE)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: This is a truly amazing group of people.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was just last month that then-President-elect Donald Trump met with tech leaders at Trump Tower in New York City. Often at odds on the campaign trail, the two sides tried to find common ground.

So much for that truce. Now, tech has come out swinging against Trump’s executive order on immigration. CEOs and executives for most of the major tech companies voiced their concerns over the weekend, including those from Facebook, Alphabet, Apple and Netflix.

There is no issue more critical or personal in Silicon Valley than immigration. By one estimate, immigrants started more than half of the U.S. start-ups valued at $1 billion or more. And immigrants like Sundar Pichai run some of the most iconic tech companies like Google.

In response to that executive order, Pichai said, “It’s painful to see the personal costs of this executive order on our colleagues. We’ve always made our views on immigration issues known publicly and will continue to do so.”

But it is not just talk. Tech executives are also now taking action. Google co-founder Sergey Brin who emigrated to the U.S. from the Soviet Union, joined protesters at San Francisco International Airport.

Start-ups are also responding. Lyft cofounders John Zimmer and Logan Green saying they will donate $1 million to the ACLU over the next four years to defend the Constitution, they said. And Uber CEO Travis Kalanick is also being vocal on the issue, creating a $3 million defense fund for drivers who may be impacted by the ban.

But it is important that these tech leaders still maintain a relationship with the White House, given the range of issues in front of them, from tax reform and encryption, to anti-trust issues and trade.

It’s not yet clear what the impact of this action will be on these tech businesses because the issue is not being litigated. What is clear is that the show creates uncertainty for the sector, which sold off in today’s trading.

For NIGHTLY BUSINESS REPORT, I’m Josh Lipton, San Francisco.

(END VIDEOTAPE)

HERERA: Other companies like Walmart, Coke and Procter and Gamble have also made statements on the immigration order. J.P. Morgan issued a memo to its employees, while Goldman Sachs CEO told his workers that his company does not support the president’s policy.

So, what will President Donald Trump’s tighter immigration policies mean for some of his other business friendly proposals?

Ed Mills joins us. He’s senior financial policy analyst at FBR Capital Markets to discuss all of this.

Welcome back, Ed. Nice to see you.

ED MILLS, FBR CAPITAL MARKETS SR. FINANCIAL POLICY ANALYST: Great to be here.

HERERA: Do you get the sense that some of the initiative that are important to the stock market like tax reform are being pushed to the side? Or is it simply that the more emotional issues are being tackled first?

MILLS: Well, what I think the markets saw when Donald Trump was elected was a kind of three-pronged, kind of reason why people were optimists. Less regulation, lower taxes, some level of fiscal stimulus. Two of those three need Congress to pass.

And what they see is that over the weekend, the administration gets off to a pretty rough start. Seeing members of his own party coming out opposed to it. And the majority in the House are pretty big, but in the Senate, you’re only with a two-person majority, so you lose two or three senators and you can’t get those tax cuts done. You can’t get that infrastructure spending done. You cannot enact the Trump agenda which is really behind a lot of the run-off in the market since the election.

HERERA: Do you anticipate that things might calm down a little bit as the president works his way through some of these initiatives?

MILLS: I do, I do.

(CROSSTALK)

HERERA: Go ahead.

MILLS: Now, I do. I think what we’re seeing here was part of the reason why some of the other leaders in Congress have been pretty muted in response to things they had otherwise been opposed to during election, is that they see probably a once in a lifetime opportunity to get some of these things done. Paul Ryan has spent his adult life trying to do tax reform. We haven’t had a major tax reform bill in a generation.

So, once things settle down, the Republican are really going to try to drive through their agenda. And most of it can be done without the filibuster in the Senate. That’s what we see first with the Affordable Care Act. That’s what we’ll see next with tax cuts.

And more importantly, most of the regulatory things are all done through executive agencies.

HERERA: Right.

MILLS: Or folks that President Trump will ultimately get to put in the key personnel there, and they will run their course with or without Congress.

HERERA: But as you point out, the currency of Washington is the ability to get reelected. And there’s not as much time to do some of these complicated things like tax reform as perhaps some of the members of Congress would like.

MILLS: Yes, I mean, it’s kind of — what I said at the election, everything is in play. Not everything is going to get done. And when you want to talk about timing, assume it takes longer. D.C. is set-up to go very slowly.

These members of Congress look at the next election. It might be an eon away from the next voter but it’s right around the corner. And they face voters and they don’t want to be on the wrong side of these policies.

So, Trump needs steady the course or pretty soon some members of his own party will abandon him and decide that they can’t go along with these policies. That’s where the policy agenda really gets threatened at that point.

HERERA: Which means we’ll be talking to you a lot, Ed. Thank you so much.

MILLS: It’s going to be interesting.

HERERA: It is.

Ed Mills with FBR Capital Markets.

So, as an investor in this politically charged environment, where should you be focused in the market?

Let’s turn to Mark Luschini. He is the chief investment strategist at Janney Montgomery Scott. He has some answers for us I bet.

Good to see you again, Mark. Welcome back.

MARK LUSCHINI, JANNEY MONTGOMERY SCOTT: Thank you.

HERERA: First of all, let’s talk about what happened specifically today. Is it political jitters or is it simply a mix of that and earnings? What did you make of it?

LUSCHINI: I took it as more the former than the latter, Sue. I mean, I think it was a little of the aftermath of what we saw, across the television over the weekend. And, obviously, it stirred some geopolitical tensions as well, as leaders around the world sort of weighing in and what it means to them and how to interact with the new Trump administration, given the executive orders in, the general flurry of activity in its first week in office.

At the moment, though, I think markets are going to sort of begin to refocus on earnings as we get deeper into earnings season, a more bigger, more market important companies begin to report. And that should drive the attention back to the fundamentals, which on balance at least early on this reporting season seemed to be pretty good.

HERERA: Is it possible for an investor at this point in the administration to separate out the politics from the fundamentals of the market? Or are they going to be intertwined for some time?

LUSCHINI: I think they’re going to be intertwined for some time. As the previous guest was speaking, as it related to some of these market friendly reforms that the market has already bought. I mean, that was attributed to the rally that we’ve seen since November 9, namely, of course, corporate tax reform and deregulation, to the extent things get in the way of action on those two fronts, particularly, I think it will serve as a source of distress for equity investors who again can focus on the underlying economic fundamentals.

But when prices are trading at 17 times even a little over, forward earnings estimates and a lot of expectations, in fact, almost unbridled enthusiasm for these policies to become reality get delayed, that will weigh on equity prices.

HERERA: Yes, I would assume you would agree with those a say this is the time you need to look at your financial plan. Take a look at your investment plan. Try on filter out some of the noise if you can. And stick with that.

LUSCHINI: Most definitely. I think we’re going to be dealing with this bouts of volatility, these bouts of market distress, if you will, until one, we get a full cabinet in place around Donald Trump. But as well, we start to see actual legislation be put down on paper relative to converting some of these campaign policies into more than promises. And I think at that point, which is probably more deeper into the year second, third quarter phenomenon, will market stabilize, and I begin to rally around the expectations that these will fulfill the obligation of being very market-friendly and boost corporate earnings and therefore, prices commensurate.

HERERA: All right. On that note, Mark, thank you.

LUSCHINI: Thank you, Sue.

HERERA: Mark Luschini with Janney Montgomery Scott.

President Trump signed an executive order aimed at cutting regulations on business. And he said that agencies should eliminate two regulations for every new one. The White House later added that any new regulation should be offset by eliminating regulations with the same costs to business. It excludes regulations related to the military. He signed the order surrounded by small business owners who have often complained about their regulatory burden.

The president also said that Lockheed Martin will cut $600 million off the cost of the F-35 fighter jet program. The president said that applies to the next 90 planes. The total cost of the program is roughly $400 billion. President Trump has repeatedly criticized for costs overruns and delays.

Still ahead, across America.

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: I’m Scott Cohn. Arguably, one state has the most on the line when it comes to Donald Trump’s executive orders. We will take you there, coming up, on NIGHTLY BUSINESS REPORT.

(MUSIC)

HERERA: Volkswagen is once again the world’s largest automaker, selling more than 10 million cars last year. Toyota is number two.

V.W. can attribute the increase in sales to demand from China. The title comes as the automaker tries to distance itself from its global diesel emissions scandal. Volkswagen recently agreed to pay about $22 billion in settlements and plead guilty to criminal charges in the U.S.

General Motors and Honda have agreed to invest $85 million to join a joint venture that will produce hydrogen fuel cells system. The project will create 100 jobs. Production is expected to begin in 2020, at an existing GM plant that makes battery packs for hybrids.

The auto industry is the part of the heart and soul of the Michigan and no state has more at stake in President Trump’s executive orders, whether on immigration or trade. The Wolverine State voted for Donald Trump narrowly last fall. And as Scott Cohn reports from Detroit, that choice is coming into sharp focus.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Good afternoon. Welcome.

COHN: Donald Trump won Michigan by just 11,000 votes. His first ten days in office are putting that slim support to the test.

UNIDENTIFIED MALE: Could this have been rolled out better without entrapping people with green cards? Those with H1B visas who work with GM and other companies?

UNIDENTIFIED MALE: Obviously, obviously, it could have been done better. But it is what it is.

UNIDENTIFIED MALE: There are too many people coming to this country that we know nothing about.

COHN: More than just a blue collar state, Michigan is a state of immigrants. Only California took in more Syrian refugees last year. So, in Detroit, the new immigration restrictions hit home.

WALA ZEIN, SYRIAN AMERICAN: I came here seven years ago. I got married and I moved here, and is my mother, she moved here one year after the war, I applied for her. She has a green card and my father also has green card. He is actually outside of the U.S. right now.

COHN: Protests and vigils sprang up statewide over the weekend while business leaders in Michigan’s increasingly high-tech economy weighed the impact.

Michigan was already in the crosshairs of the Trump agenda on the issue of trade. No state has more on the line when it comes to the North American Free Trade agreement than this one.

Detroit is the busiest truck crossing between the U.S. and Canada, but Mexico is also a key link in the auto industry supply chain. By the numbers, Michigan’s economy depends on NAFTA in a way no other state does and economists here worry about upsetting a delicate balance.

DONALD GRIMES, UNIVERSITY OF MICHIGAN ECONOMIST: Be a bit of chaos at the beginning as they’re renegotiating because they might be confused over where the parts are going to come from for cars, or cars themselves.

COHN: The president claims he is already bringing jobs back.

TRUMP: They’re coming back by big numbers. Bigger number than people have seen. We saw Ford is announcing and has announced big plans coming back into Michigan and Ohio and different places.

COHN: Michigan bet on Trump to do just that. Now, it will learn if that bet pays off.

For NIGHTLY BUSINESS REPORT, I’m Scott Cohn in Detroit.

(END VIDEOTAPE)

HERERA: Some shareholders of Tempur Sealy might lose some sleep tonight and that’s where we begin tonight’s “Market Focus”.

Shares of the mattress maker were hammered after it cut ties with its largest customer, Mattress Firm, after the two companies failed to reach a contract agreement. Last year, Mattress Firm made up about 21 percent of Tempur Sealy’s worldwide sales. Tempur Sealy’s shares plunged 28 percent on the news to $45.49.

In an effort to obtain U.S. anti-trust approval, the drugstore chain Walgreens said it would reduce its acquisition offer for rival Rite Aid by at least $2 billion and divest even more stores. The companies also said they will push back the deadline for the deal to July. Following the news, Rite Aid shares fell more than 17 percent to $5.72. While shares of Walgreens were off 2 cents to $81.48.

Fitbit warned it wouldn’t meet its sales guidance for the latest quarter, due to weaker than expected demand during the holiday period. The fitness device maker also said it would slash about 6 percent of its global workforce, as that company works to reorganize its business. The cuts are expect to impact 110 jobs. Fitbit shares dropped about 16 percent to $6.06.

Software and equipment maker Keysight Technology said that it would take over data technology company Ixia for more than $1.5 billion. The merger is expected to expand Keysight’s global reach and add to its software portfolio. Keysight was off 2 cents to $36.99. But Ixia rose nearly 7 percent to $19.45.

And biotech company FibroGen and its China-based subsidiary said their experimental anemia drug performed well during two clinical trials. FibroGen said it plans to use the data from the testing when it files for a new drug application in China this year. Still, shares fell more than 6 percent to $21.80.

And a warning from Sony, the company plans to take a nearly $1 billion charge on its struggling music business. Sony said that decision was made after evaluating the future profitability of that unit which has lagged its competitors. And two weeks ago, the head of Sony Pictures Entertainment stepped down from his job after 13 years.

Apple reports its first quarter earnings tomorrow and investors will be paying close attention to the company guidance on iPhone sales, which continues to be that company’s biggest profit driver.

Brian White is the global head of technology at Drexel Hamilton and joins us now to discuss what he is expecting from Apple’s earning.

Good to see you. Welcome, Brian.

BRIAN WHITE, DREXEL HAMILTON GLOBAL HEAD OF TECHNOLOGY: Hey. Thanks, Sue.

HERERA: What you’re looking for, you think, is for Tim Cook to boost growth, specifically with sales, correct?

WHITE: Yes, we’ve had three consecutive quarters of iPhone declining year over year, and total sales declining. So, I think this is the quarter Apple will finally return to growth.

HERERA: And why will it be this quarter? What dynamic, if anything, has changed?

WHITE: Well, a couple of things. Number one, the negative comps start to go away. So, if you remember, when the iPhone 6 came out, it drove units up 37 percent in fiscal ‘15. That really hurt their fiscal ‘16.

So, now, we start on anniversary that. And the iPhone 7 got off to a strong start. So, if you combine both of those, I think you’re going to see 2 percent sales growth and I think you’ll see 2 percent unit growth in iPhones.

HERERA: OK. What are the expectations for the up coming iPhone X?

WHITE: You know, so, I think — you know, this will be a September launch of 2017 is what we’re anticipating. You’re going to have a larger screen but the actual form factor won’t be bigger. And the way they’re going to do that is decrease the bezel on the screen.

So, it will be more glass, less metal. You have a lot of glass in the back. And I think because it is the tenth anniversary and it is going to be a form factor change, I think that will drive a nice upgrade.

So, you’re going start to see iPhone actually accelerate in fiscal ‘18 versus ‘17. But you’ll have growth in ‘17.

HERERA: You’ll have growth. What about the Macs sales? What are your expectations there and how key are they to this quarter’s results?

WHITE: So, you’re going on see a year over year decline in Macs for sure. But I do think you’re going to see better numbers than we’re projecting in the quarter. The simple reason being the Mac Book Pro I think did very well in the holidays.

HERERA: Yes, you have a buy rating on the stock. Is the target still $185?

WHITE: Yes, $185. And that’s based on ‘17 times — our 2017 numbers plus the net cash per share. So —

HERERA: All right. Go ahead, Brian. Finish.

WHITE: Yes. So, it is our top pick and I think it is one of the most underappreciated stocks in the world right now.

HERERA: On that note — Brian, thank you very much.

WHITE: Thanks.

HERERA: Brian White with Drexel Hamilton.

Coming up, modern medicine. A tiny patch that powers big data and it’s changing the way we monitor our hearts.

(MUSIC)

HERERA: More Americans signed contracts to buy homes last month. Pending home sales rose more than 1.5 percent, increasing the most in the western and southern parts of the country. The move higher may reflect an urgency among potential buyers to lock in a mortgage rate and they’ve been rising lately. Pending sales are considered a barometer of future purchases. A sale is usually completed after few months after a contract is signed.

Citigroup says it plans to exit the mortgage servicing business and turn its attention to making new loans. The bank will sell its servicing rights on Fannie Mae and Freddie Mac-backed loans, with $97 billion of outstanding balances to new Residential Investment Corp. Citi says that move will help cut expenses and improve shareholder returns. The deal is subject to regulatory approval.

And now to your health — irregular heart rhythms are more common than some may think and affected as many as 6 million Americans. In serious cases, it can lead to stroke or heart failure. But our methods of monitoring heart rhythms are pretty antiquated, and that’s where small companies are trying to make some big changes.

Meg Tirrell has our latest “Modern Medicine” report.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Gabriel Sarah’s heart is a mystery.

GABRIEL SARAH, UCSF PEDIATRIC ANESTHESIOLOGIST: It can cause sinkable episodes which are at times when I lose consciousness. I can’t see, I can’t hear. The room goes black and I can collapse.

TIRELL: Since 2012, he’s had ventricular tachycardia, causing the lower chamber of his heart to beat too fast.

His doctors don’t know why.

SARAH: I’ve had a bunch of studies, genetic studies, imaging studies, including an MRI of my heart and echo cardiograms, and everything has been negative, which is good and bad.

TIRRELL: Sarah a pediatric anetheslogist at the University of California-San Francisco is one of millions with cardiac arrhythmia or abnormal heartbeat. He says his condition, though, mysterious is well-managed. And with advancements in miniaturization and data storage, doctors say the way they monitor heart rhythms is changing, from cumbersome to convenient.

UNIDENTIFIED MALE: What I first saw it, my first reaction was, why didn’t I think of this?

TIRRELL: Sarah’s cardiologist fit him with his Zio patch from young San Francisco company iRhythm Technologies.

SARAH: I was worried that the picture that we were trying to paint with the monitor was not going to be complete, because the monitor was so small. But I found that in reality, the information we gathered from the Zio patch was just as comprehensive as any other monitor that I’ve ever won.

TIRRELL: Worn continuously for 14 days, the patch generates 30,000 pages of data on millions of heartbeats.

MIKE WEINSTEIN, JPM MANAGING DIRECTOR: They have more information about a normal heartbeat than any database in the world.

TIRRELL: A collection of information that becomes more useful as it grows.

UNIDENTIFIED MALE: That massive amount of data that gets curated by these algorithms is really under the control of a machine learned capabil9ty. And it gets smarter as we put more and more date into the database.

TIRRELL: J.P. Morgan analyst Mike Weinstein says that should lead to better diagnosis and big business — a market opportunity of more than 10 million tests for abnormal heartbeat in the U.S. every year, worth more than a billion dollars. The Zio costs more than older ones, about $360 for Medicare, versus $100 to $150 for older monitors. And it’s suitable for every situtaiton.

UNIDENTIFIED MALE: It’s not transmitting in real-time. If someone has a worry of passing out, you want to know right away if that happens.

TIRRELL: With the hardware getting smaller, as the power of big data grows, doctors hope for increasing insights into the mysteries of the heartbeats.

For NIGHTLY BUSIENSS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

HERERA: And to read more about the new ways to monitor heart beats, head to our website, NBR.com.

On that note, that will do it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us. Have a great evening. And we’ll see you here tomorrow.

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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