Transcript: Nightly Business Report – April 24, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Strong start. The Dow rises 200 points. The NASDAQ hits an all-time high, as investors around the world cheer the results of the French election.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Still, risks to the rally. Could a government shutdown stop the bulls fast in their tracks?

HERERA: Open house. Why this may be the strongest sellers market ever.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, April 24th.

MATHISEN: Good evening, everyone, and welcome.

What a way to start the week. The rally started overseas for stocks. When the opening bell rang here on Wall Street, stocks took off and didn’t look back. The reason: what some investors considered a worst-case scenario in the French election didn’t happen.

True, a far right anti-European Union candidate will move into the contest final round in two weeks. But her competition and the current favorite to win is a pro-business, Euro-friendly centrist and not a far left flame thrower. More on the French election in a movement.

The markets liked that outcome, and investors plowed money, big-time, into riskier assets like equities and pulled it out of safer ones like gold and government bonds.

Here are today’s numbers: the Dow Jones Industrial Average climbed 216 points to 20,763. NASDAQ hit a record up 73 points, and the S&P 500 added 25.

But before you breathe a big sigh of relief, the market still faces some big hurdles.

Here’s Bob Pisani.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Are market risk declining? You’d think so watching the market reaction to the French election. The risk maybe lower, but they’re not going away.

Here’s four major market risks.

First, geopolitical. It’s definitely lower. The markets are telling us that there was some risk associated with the French elections. The risks are lower. But with North Korea looming, as a threat, geopolitical risk is still very much present.

Second, weaker economic data. Still high risk to the markets in my opinion. We’re expecting anemic first quarter growth of 1.1 percent. Other measures of hard economic news have generally been weaker like retail sales.

Now, the bulls are insisting that first-quarter economic data has been weak for several years. And the second quarter will show some improvement. We’ll see.

Third is the high valuation of the stock market, and the risk from disappointing earnings. That risk was high, but it’s lower now. So far, the earnings news has been good. First, banks, now, industrials, generally reporting earnings above expectations, and a half dozen large industrial names not only beat earnings, but raised full year guidance.

Finally, there’s still a risk that fiscal reforms will not be working and will be pushed out. President Trump’s tax comment last week that a massive tax bill is coming this week is falling short obviously. We now know it’s only going to be a statement of principles by Wednesday. Well, we already know the principles, but we need the details.

The bottom line here is there’s still plenty of risk for stocks. The atmosphere is definitely improving.

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

(END VIDEOTAPE)

HERERA: So, let’s take a closer look at some of the risks that Bob just pointed out. We begin with the impetus for today’s rally, the French election.

But what happens next?

Michelle Caruso-Cabrera is in Paris tonight.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Across Paris and around France, voters lined up to cast their ballots for who they believe should be the next president of France.

For many, the decision was made at the last minute.

When did you decide? This morning?

UNIDENTIFIED MALE: Last night.

CARUSO-CABRERA: Last night?

UNIDENTIFIED MALE: Last night, this morning.

CARUSO-CABRERA: In the end, Marine Le Pen and Emmanuel Macron came out on top, moving on to the final vote on May 7th. And although early polls show Macron ahead by a large margin, his camp not getting ahead of itself.

LAURENCE HAIM, MACRON CAMPAIGN SPOKESPERSON: We’re going to be extremely focused on what’s going to happen in the following two weeks, because everything is possible. As you know, you can have a lot of events during the campaign. So, we’re very cautious. We didn’t open the bottle of champagne.

CARUSO-CABRERA: But the markets sure did, rallying around the world on the belief that Macron is a shoo-in to win the second round in two weeks. Polls show right now he will handily beat Le Pen.

FRED KEMPE, ATLANTIC COUNCIL PRESIDENT & CEO: I think what we just had was the first part of one of the most important elections in Europe since World War II.

CARUSO-CABRERA: Important because this vote is about the future of the Euro, and the European Union. Macron embraces both. He also wants to loosen the country’s very strict labor laws which businesses say have long stifled the country’s growth.

Other European leaders fear Marine Le Pen, because she wants France to leave the Euro. And she supports policies favorable to labor.

Several of the other candidates have told their supporters to vote for Macron in the second round, citing Le Pen’s anti-immigration policies.

While the markets cleared, many young people protested. The followers of Jean-Luc Melenchon, a candidate many compared to U.S. Senator Bernie Sanders, filled two of Paris’s most prominent plazas.

This is the Place de La Bastille, there’s a very heavy police presence here tonight because so many young people came out in protest to the vote. They don’t like either of the candidates. They say many of them that they’re not going to vote at all.

Are you going to vote?

UNIDENTIFIED MALE: No, I’m not.

CARUSO-CABRERA: Why not?

UNIDENTIFIED MALE: Because I don’t want to choose between somebody that is bad to something that’s worse.

UNIDENTIFIED FEMALE: It’s really making everyone really tense right now because it’s like choosing between, you know, like plague or like a virus.

CARUSO-CABRERA: Regardless, those are the choices for French voters when they return to the polls in two weeks.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, Paris.

(END VIDEOTAPE)

MATHISEN: Well, other geopolitical risks, of course, include Syria and North Korea. Today, the Treasury Department put banking and other financial sanctions on more than 270 employees of a Syrian government agency. The U.S. says the people, many of them scientists, were involved in developing and producing chemical weapons. The sanctions are in response to the deadly chemical weapon attack the U.S. says the Syrian government unleashed against its own people earlier this month.

HERERA: And in response to the recent Syrian chemical weapons attack, President Trump called out the United Nations for failing to act. He made the comment at a meeting at the White House with members of the United Nations Security Council. The president also discussed the global threat posed by North Korea.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: The status quo in North Korea is also unacceptable, and the council must be prepared to impose additional and stronger sanctions on North Korean nuclear and ballistic missile programs. This is a real threat to the world.

(END VIDEO CLIP)

HERERA: The Trump administration is preparing to brief the Senate this week on North Korea.

MATHISEN: Well, the market is also paying attention to fiscal policy out of Washington. And this week could be a big one with potential movement on tax reform, health care and the government funding deadline looming.

John Harwood is following all the developments from our nation’s capital.

John, the president has promised a big announcement Wednesday on one of his signature issues, tax reform. And there are now fresh rumors about what that corporate tax rate may be.

What do we know?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, we know that President Trump has told his aides he wants to stick with the 15 percent corporate tax rate that he proposed during the campaign. That’s been out there for a long time. It’s even lower than House Republicans want to go. But Donald Trump is telling people that he’s going to stick with that.

Now, we don’t know how much more detailed beyond things like that we’re going to get on Wednesday. He took his aides by surprise by saying it was going to be released next week. And so, we have been cautioned to think that while maybe this will be a general statement of principles, rather than an actual plan, but Trump has shown the capacity to surprise and he may be having his aides work overtime to spell it out.

HERERA: What about health care part two?

HARWOOD: Well, health care part two, Sue, is no closer to the finish line than it’s been before. Remember, it was taking fire from both the left and the right of the Republican Party. Conservatives said it was too much like Obamacare, more moderate Republicans said it would throw too many of their constituents off of health insurance.

Now, the way that they’ve been trying to cobble together a compromise is using states’ rights to let some states do it one way and other states do it another way. But we have no indication yet that Paul Ryan wants to risk a vote this week, because he knew that he fell way short last time. There’s no reason to think he’s about to get over that finish line.

MATHISEN: And, of course, the government funding deadline comes up on Friday night. There are a lot of sticking points, including whether money will be included to do some work on President Trump’s signature item, the border wall. What is the likelihood that a deal gets done and that the government keeps functioning?

HARWOOD: This is one area, Tyler, where I think there will be a deal. It could be just a one-week deal to continue the government funding, and continue negotiations and keep it open. But I think in the end, they’re going to have a Republican/Democrat compromise on spending at the expense of President Trump’s priority for the wall.

He is not saying that he will veto any spending bill that doesn’t have wall money. Democrats are drawing a line there. And they’re the ones with the leverage because if there’s a shutdown, that is going to fall on the shoulders of Republicans who control the White House and the Congress.

MATHISEN: All right. John, thank you very much. John Harwood in Washington.

HERERA: Investors are also focused on earnings. This week is one of the busiest of the season. And with the NASDAQ near 6,000, attention will be on results from the biggest sector of them all, technology.

Josh Lipton tells investors what they can expect from a few of the big names.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tech’s more than double-digit gain this year makes it the market’s best performing sector. Whether that run can continue could depend on the rush of earnings. The big day will be Thursday, that’s when Amazon, Microsoft, Alphabet and Intel all report results.

One big theme this quarter will be the ongoing war in cloud computing, which is an area all these companies are looking to for growth. Amazon is the dominant supplier of cloud technology. Last quarter, that part of its business did not perform as well as some had hoped. One worry is that Amazon is now dealing with greater competition from the likes of Microsoft.

CEO Satya Nadella has now built one of the biggest cloud businesses in the world, capitalizing on its history of working with large companies. Microsoft could also benefit from signs of stabilization in the PC market, which recently returned to growth for the first time in five years.

That could also prove to be a big tailwind for intel. The PC business still represents nearly 60 percent of that chip giant’s revenue, but investors will pay closer attention to its data center operation, or sales of chips for servers, because this is traditionally the weakest quarter for that business.

Finally, there’s alphabet. Investors will focus on core Google operating margins, which last quarter saw a decline. That’s a key measure of profitability. Investors will find out Thursday if that trend has continued.

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

(END VIDEOTAPE)

MATHISEN: Art Hogan joins us now to discuss what all of the cross currents that we’ve just been talking about could mean for the stock market and your investment. He is chief market strategist at Wunderlich Securities and he joins us now.

Hi, Art. Good to have you with us.

The French election, let’s start there with the French election. Did you or your colleagues do anything different today in response to those election results? Did you sell anything, buy anything, change anything in your overall strategy?

ART HOGAN, WUNDERLICH SECURITIES CHIEF MARKET STRATEGIST: Tyler, we did see a lot of clients that weren’t doing anything last week, or buying a little protection, or shifting into things like the 10-year unwind those trades pretty quickly and I think that’s natural, right?

So, we’ve got a large binary event that could have a ripple effect to it, if the election had gone a different way. Understanding that we haven’t been very good at predicting these things. So, I think you saw the safety trades unwind. We saw a lot of action coming into in the early trade this morning.

HERERA: You know, Art, we do have a number of issues supposedly coming up this week. You know, the tax plan, maybe health care, the possibility of a government shutdown. Are any of those events more investable than others, in terms of picking stocks within those particular areas or sectors?

HOGAN: I can tell you this. So, the policy agenda, the timing of the policy agenda certainly has been a stock market-moving event, right? So, Mnuchin last — as early as last week talked about this taking time and really pushing the agenda out to 2018, you saw what happened to the market pretty quickly. He comes back in and says, no, we’re going to have something next week and it looks like we’re getting closer on this, that pulls that policy agenda back into 2017 and the market reacts positively to that.

So, yes, is that investable? You know, that’s hard to know.

What I will tell you is, it’s not — you know, it’s not a lot that we can get something on repeal and replace. Without repeal and replace, you can’t get as much tax reform done. So, I think, you know, having to do with repeal and repeal first, then tax reform pushes that item out and I think the market is working its way into that rationalization.

I think that in terms of the government shutdown, we’ve been here before, right? And to the extent that Harwood put it exactly correctly, they want to get something, sort of deal get cut at the 11th hour because they don’t want to own the government shutdown. Even if it doesn’t have necessarily a massive effect on what markets do, they don’t want to own. And that’s not going to be the legacy they want in the first hundred days.

MATHISEN: You know, it occurs to me that even if there aren’t in home-runs this week, what business will look at is an administration that is much more business-friendly and less inclined to put new regulations in place that might hamstring business. So, that would — with all other things being equal — help equities I suppose. Tell me what your base line portfolio is for an average investor and how often you rebalance it?

HOGAN: That’s a great question, Tyler. I think that’s right. So, you know, with all machinations and the things we talked about, whether it’s the implementation of fiscal policy, deregulation happening, some infrastructure spend, through all of that, I think that your long-term investor should be thinking about a plan and sticking to it and trying to ignore some of this noise.

Whether that means for us, we like 60 percent stocks, 30 percent bonds right now and 10 percent cash cushion for new ideas, I really like to rebalance that on a quarterly basis. You know, that way you stick to your plan. You don’t make panicked decisions like people that sold in front of the U.S. election, the U.S. election, people that sold in front of the French election. You can stick to that plan.

Now, you do have to rebalance because your proportions are going to be out of place here. The stock market is going to go up 10 percent on the NASDAQ and you’re overexposed to stocks and you can — you can cycle that through. But I think the best to do for a long term investor, is to have that plan and stick to it and pay attention.

MATHISEN: All right. Great, Art. Good advice. Thanks. Art Hogan with Wunderlich.

HERERA: Still ahead, make me an offer. That’s what buyers are doing, and what some are calling the hottest spring selling season ever.

(MUSIC)

MATHISEN: The Supreme Court has rejected General Motors’ effort to block lawsuits related to the company’s ignition switches. Those suits could expose the automaker to billions in additional claims. The decision to reject GM’s appeal means that a lower court decision stands. And that decision sent GM’s 2009 bankruptcy did not shield it from liability in some cases.

In a statement, GM downplayed potential legal exposure. It said, quote, “As a practical matter, this doesn’t change the landscape much in terms of the GM litigation.”

HERERA: Medical device maker Becton Dickinson buys its rival and that’s where we begin tonight’s “Market Focus”.

Becton Dickinson will acquire C.R. Bard for $24 billion in a deal that will add new products to Becton’s portfolio and help it create treatments for diseases that currently doesn’t focus on. Becton also said that the merger will help sales overseas, particularly in China. Becton Dickinson shares were off about 4.5 percent to $177.07. C.R. Bard was up 20 percent, or nearly so, to $302.41.

Drug maker Sanofi is suing Mylan, alleging Mylan engaged in illegal business practices to make its life-saving EpiPen more available and affordable for consumers than Sanofi’s rival product. Sanofi said Mylan offered higher rebates to insurers and pharmacy benefit mangers and Medicaid, under the understanding that Sanofi’s treatment wouldn’t be eligible for coverage. Mylan shares rose nearly 2 percent to $37.47 and Sanofi gained 4 percent to $45.90.

Hasbro reported a rise in revenue as the toymaker benefited from strong demand for its digital games, and as well as licensed products like Nerf and Transformers. We’ve got a few of those at my house. The results easily beat estimates, and it was the first time that Hasbro has beaten rival Mattel in quarterly sales since the year 2000. The shares popped nearly 6 percent to $101.70.

Global retail sales at Caterpillar turned positive for the first time in more than four years. The maker of industrial equipment said a surge in buying activity in Asia helped offset weakness in other foreign markets and caused machine sales during its latest three-month period to rise. The company is expected to report earnings tomorrow. Caterpillar shares rose more than 2 percent to $96.81.

MATHISEN: Whole Foods may go private. “The Financial Times” says supermarket operator Albertsons is interested now in taking over the high-end organic grocer. The private equity firm Cerberus Capital owns Albertsons and is said to have approached bankers about making a potential offer for Whole Foods. Albertsons, as you may recall, bought the rival Safeway for $9 billion about two years ago. Shares of Whole Foods up 2 percent on the session to $36.46.

Amazon reportedly getting ready now to make selling furniture on its platform easier, and that hit shares of the furniture retailer Wayfair. According to a trade publication, Amazon won’t mandate the furniture sellers offered nationwide shipping in order to be included on the Amazon website. Instead, sellers will be able to list their products on the site, choose what areas they want to ship to, and also select what delivery services are offered. Wayfair fell more than 5 percent to $43.48, while Amazon gained almost 1 percent to $907.41.

MATHISEN: The pharmacy benefits manager Express Scripts reported earnings that grew and beat expectations. But its revenue was light. The company also upped its profit outlook for the year and said it would likely lose its largest customer Anthem once their contract expires in 2019. But if the two companies do cut ties, Express CEO said the company will still be in good shape.

(BEGIN VIDEO CLIP)

TIM WENTWORTH, EXPRESS SCRIPTS CEO & PRESIDENT: What we feel this does is it actually shows the strength of our core model and the value that we’ve got. You know, as we look forward, we’ve got 2,900 clients, we will service, you know, if Anthem were to ultimately leave as they’ve seemed to have deciding, we’ll be servicing over 65 million Americans. We will have a tremendous amount of scale in the supply chain. And I think as a standalone focused PBM working on behalf of its clients, we have a tremendous future.

(END VIDEO CLIP)

MATHISEN: Express Scripts shares initially fell after the bell, but ended the regular session up 1 percent at $67.25.

HERERA: Spring home buyers were out in force over the weekend, but a lot of them came up short.

Diana Olick reports on why this usually busy season for sales is unlike any other.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s a three-bedroom, two-bath home in Burbank, California. Nice enough for sure, but the first open house drew over 100 potential buyers in barely three hours.

DAVID FOGG, KELLER WILLIAMS REALTY: I’ve been selling real estate for 25 years, and this is the strongest sellers market I have ever seen in my entire real estate career.

OLICK: Real estate agent David Fogg already had three offers on the home before he opened the front door for the Sunday open.

FOGG: Current inventory levels are at all-time lows. There’s fewer houses for sale. There’s more buyers than houses on the market.

OLICK: The number of listings has been rising with the spring temperatures, but the supply of homes for sale at the end of March was still nearly 7 percent lower than a year ago. And demand is higher, especially among young renters.

CHRISTOPHER HENDRICKS, POTENTIAL HOME BUYER: It’s pretty bad right now.

NEELIMA KARANAM, POTENTIAL HOME BUYER: Yes.

HENDRICKS: Not even the height of summer yet. And we have yet to see one that sold for under asking price.

OLICK: Cash is king in this market and prices are hitting new peaks each month.

KARANAM: We’ve actually been over asking price. And yet, it went way over asking price, I’m guessing. We’re weighing contingent is a wonderful thing. So, we could weigh contingencies as much as we like play.

OLICK: Contingencies like the appraisal.

FOGG: In a rapidly increasing real estate market, the sales prices are always ahead of the appraised value. So, therefore, you really look for those cash buyers who can make up for appraisal shortfalls.

OLICK: But not everyone can do that. This Zwicker family of five is trying to upgrade from their two-bedroom, one-bathroom home.

LESLIE ZWICKER, POTENTIAL HOME BUYER: Ideally, we would love to get into a 4/2. And I mean, the idea of a 4/2 in Burbank is pretty much slim to none.

OLICK: They’re now considering putting an addition on their current home.

And that’s the kicker: current homeowners may be able to sell their homes easily, but the price to move up is steep. So, more and more of them are staying put. And as they do, that means there are even fewer entry level listings available.

For NIGHTLY BUSINESS REPORT, Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: And to read more about why this may be the strong spring season ever, head to our website, NBR.com.

MATHISEN: And coming up, high-tech tools to capture the bad guy.

(BEGIN VIDEO CLIP)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: I’m Julia Boorstin at the Los Angeles Sheriff Department, taking a look at all the cool cutting edge technology that’s been used to fight crime, including unmanned aerial vehicles. We’ll have that story coming up on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

HERERA: And, finally tonight, law enforcement has a new partner on the beat: the tech sector. And Julia Boorstin got a firsthand look to how it’s being used to fight crime.

(BEGIN VIDEOTAPE)

BOORSTIN: Forget stun guns and body cams, the next generation of gadgets are designed to prevent police from being in the line of fire, while helping protect the public. Gunshot detection systems can pinpoint the exact source of gunfire. While another system shots GPS enabled darts to attach to and attack fleeing vehicles.

CAPT. JACK EWELL, L.A. SHERIFF’S DEPARTMENT: We’ve had them shot and keep going —

BOORSTIN: Captain Jack Ewell at the Los Angeles Sheriff’s Department said no matter what the cost of the new technology, if it saves lives, it’s worth it — which is why they’re using more high-tech gadgets than ever.

EWELL: The technology improves almost on a daily basis. So we use it more now than we ever have before. The robots are better. You know, they function better. They do more things that they couldn’t do in the past. The costs have actually come down. And they’re indispensable.

BOORSTIN: Here at the Los Angeles Sheriff Department, they’ve been deploying all sorts of robotics, most recently these unmanned aerial vehicles, for everything from bomb threats to search-and-rescue to active shooter situations.

These drones give law enforcement eyes from above, and it’s not just robotic cameras in the air, they’re also sending robots into dangerous situations on the ground, and even robots for underwater search-and-rescue.

EWELL: We used it in a situation, a tactical situation where someone was firing a high-powered rifle from a house into a community. And we were able to use this technology to see exactly where that gunman was.

BOORSTIN: And back at the station, there’s powerful software which helped police file reports and keep and evaluate statistics. Startup Mark 43 said it saved a quarter million hours of work for police in D.C. alone. And the less time spent filing paperwork, the more time those police can spend on public safety.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

MATHISEN: Fascinating stuff.

But I never thought I’d see the day where the French election was really determining what happened on Wall Street, but today, it did. And let’s take a look at that rally on Wall Street. The Dow climbed 216 points, NASDAQ hit a record up 73 points, and the S&P 500 for good measure went along for the ride, rising 25 points.

HERERA: It is so good to be back together.

MATHISEN: Nice to have — nice to be back together. It’s been a couple of weeks.

HERERA: Two and a half weeks.

All right. That’s it for us tonight on NIGHTLY BUSINESS REPORT, thanks for watching.

MATHISEN: And I’m Tyler Mathisen. Have a great evening, everybody. We’ll see you back here tomorrow night. We’ll be together again.

HERERA: Yes.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by ASC Services II Media, 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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