Transcript: Nightly Business Report – April 25, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Profit power. Strong
earnings from iconic American companies fueled big gains on Wall Street,
sending the NASDAQ past 6,000.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Trade tensions. The Trump
administration slaps tariffs on Canadian lumber. But will the housing
market pay the price?

MATHISEN: And losing patience? Find out what happens when one of our
reporters tries to get near a steel mill in China.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
April 25th.

HERERA: Good evening, everyone. Welcome.

The NASDAQ powers past 6,000 for the first time ever. The Dow reclaims
21,000. The small cap Russell Index hit a record. Wall Street once again
seeing super sized gains for the second day in a row as some of the biggest
companies in America crushed earnings expectations.

And all of this came on the same day that the U.S. threatened tariffs on
Canadian lumber imports. That is a form of protectionism, something the
market historically does not like. But today, it didn`t seem to matter.

The Dow Jones Industrial Average advanced 232 points to 20,996. The NASDAQ
climbed 41 to a record. And the S&P 500 added 14.

The NASDAQ`s march to 6,000 comes more than 17 years after it first hit
5,000. Bertha Coombs takes a look at what powered the index which is home
to many of the world`s biggest tech companies.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The NASDAQ`s
historic milestone above 6,000 marks a 20 percent move in just eight
months, when the composite regained the 5,000 level for good. The NASDAQ
is a market cap weighted index. And more than half of the gains have been
driven by the four tech giants that are now at record highs, the highest
evaluations in the stock market — Apple (NASDAQ:AAPL), Amazon
(NASDAQ:AMZN), Facebook (NASDAQ:FB), and Microsoft (NASDAQ:MSFT).

Apple (NASDAQ:AAPL) riding record sales of iPhones, has gained nearly 50
percent over the last eight months, far outperforming old guard tech peers
that first led the NASDAQ to 5,000 years ago, like Intel (NASDAQ:INTC),
Cisco (NASDAQ:CSCO), Microsoft (NASDAQ:MSFT) and Yahoo (NASDAQ:YHOO).

Ironically, tech stocks were hit hard following the election. But
fundamentals have helped drive gains in recent months. The chip sector has
worked off high inventories and demand for new chip memory technology is
driving growth and share gains. AMD and Micron have doubled over the last
eight months. Apple (NASDAQ:AAPL) suppliers Nvidia and Skyworks have
soared. And chip equipment maker Lab Research is at all-time highs.

With tech giant Amazon (NASDAQ:AMZN) on deck to report earnings this week,
the NASDAQ may see more momentum on its record run.

Bertha Coombs, NIGHTLY BUSINESS REPORT, at the NASDAQ.

(END VIDEOTAPE)

MATHISEN: So, what`s next for the NASDAQ now that it has crossed that
6,000 mark?

David Lebovitz is global market strategist at J.P. Morgan Asset Management,
joins us with his thoughts.

One of your — welcome, David. One of your thoughts is the market, you
think, will continue to sort of move higher, but in fits and starts. So,
I`m going to — I`m going to pose a question to you sort of flippantly.
What`s next, or what`s more likely, NASDAQ 7,000 or NASDAQ 5,000?

DAVID LEBOVITZ, J.P. MORGAN ASSET MANAGEMENT: So, I would say that broadly
speaking, NASDAQ 7,000 is probably more likely. You know, you`re seeing
these very large tech companies post very strong earnings. And I think
it`s important to remember that the broader economic environment is really
unchanged from where we`ve been over the past few years. And investors
have been willing to reward these higher growth companies, these companies
with the ability to grow earnings, despite the economic backdrop. So, I
think the path of least resistance is probably up rather than down.

HERERA: David, though, Bertha pointed out in her package that just ran,
her report, that, you know, the big cap tech is what has been powering this
market. Are you worried that maybe this advance is too narrow?

LEBOVITZ: You know, it`s a tough thing to say, because these are market
cap weighted indices. So, when the companies outperform, the index does
very well.

But what I would say is that my view is that this should broaden out over
the course of the year. You know, when I said this market which is going
to move in fits and starts, it`s going to entail some of these bigger
companies outperforming for periods of time and then some of these smaller
companies outperforming for periods of time. So, it may be a little bit of
both. But I do think this market can continue to rise, primarily on the
back of stronger fundamentals. You know, we`re seeing earnings growth for
the third consecutive quarter, which should give support for stock prices
to move higher.

MATHISEN: And if you say earnings growth, that would suggest that you
would tilt more towards growth names rather than value names right now?

LEBOVITZ: That`s absolutely correct. You know, I think that barring a
significant change in U.S. government policy, barring a significant
acceleration in the U.S. economy, there`s still more potential in these
growth names. But if we see things like broad based tax reform or, more
importantly, we see the global economy, places like Europe and emerging
markets continue to accelerate, I think the value names will catch a bit
and could power higher, the way we saw them move into t end of last year.

HERERA: We`ve talked to a lot of people, David, who say that given the run
we`ve had in the stock market, they find more value and more growth for
that matter overseas. They point to Europe. They point to Japan and the
like.

Do you find those areas attractive, or not?

LEBOVITZ: You know, the U.S. has had quite a run here, up over 250 percent
from the market low in 2009. We still think, as I mentioned earlier,
there`s further upside in U.S. equities on the back of return in earnings
growth.

But at the same time, we can`t ignore that both the economic and the
corporate fundamentals are improving in places like Europe and emerging
markets. You know, I would add on top of that that the U.S. dollar which
has been a headwind for U.S.-based investors who are investing abroad, we
believe is going to start cooling off.

That could actually be more of a tailwind. So, we like Europe. We like
E.M. We think Japan is a play on the currency. So, we`re sticking towards
Europe and the E.M. rather than titling towards the Japanese equity market.

MATHISEN: David, thank you so much. Always great to see you. We
appreciate your time.

LEBOVITZ: Thanks for having me.

MATHISEN: David Lebovitz is with J.P. Morgan Asset Management.

HERERA: And the markets were driven in large part by upbeat earnings
reports from five Dow components. But much of the gains were driven by two
stocks in particular. Caterpillar (NYSE:CAT) crushed earnings estimates
and raised its forecast for the year. McDonald`s (NYSE:MCD) also reported
better than expected results, making these two names the top performers on
the blue chip index.

Dominic Chu has more.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Make it two days in a
row. Big gains for the Dow repeated themselves on Tuesday, thanks in large
part to a slate of positive earnings reports. The bulk of the upside move
in large cap blue chip index came from just two stocks.

First, it was the biggest construction equipment maker of them all, think
bulldozer, backhoes and dump trucks. Caterpillar (NYSE:CAT) stocks surged
in trading after it reported better than expected sales and profits, and
also boosted its full year profit forecast as well, thanks in part to
improving markets in areas like energy and transportation.

So, who is in the mood for a Big Mac and some fries? Mickey D`s, the
Golden Arches, whatever you want to call it, McDonald`s (NYSE:MCD) stock
was also at the top of the list of upside Dow performers, that`s after the
fast food giant topped profit and sales expectations as well, and reported
better sales at established restaurants, thanks to things like lower costs,
all day breakfasts and Big Macs that come in different sizes. McDonald`s
stock, by the way, hit a new record high.

And we`ll round things up with a check on shares of the company formerly
known as Minnesota Mining and Manufacturing or 3M (NYSE:MMM) as it`s known
today. The maker of everything from Post-It notes to automotive filters
also posted better than expected sales and profits, thanks to strength in
areas like industrial, health care and the energy businesses. 3M
(NYSE:MMM) shares also hit a record high today.

Thanks to today`s gains, the Dow is just about a percent away from setting
its own record high.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: Fellow Dow component DuPont also reported better than expected
results helped by sales from its agricultural unit which accounts for half
the company`s revenue. DuPont is merging, of course, with Dow Chemical
(NYSE:DOW) and said it expects the deal to close in August. The stock
gained about 3.5 percent in trading today.

HERERA: But Dow component Coke missed earnings estimates and reported a
double digit percentage drop in quarterly profit. The company, which is
battling a slump in soda sales plans to eliminate 1,200 jobs.

But Coke`s incoming CEO sees a path back to growth.

(BEGIN VIDEO CLIP)

JAMES QUINCEY, COCA-COLA CEO: Second quarter will reflect the completion
of our Chinese bottling transaction on the 1st of April as well. So, that
will change the numbers. `17 will continue messy. It will get cleaner
into `18 and `19, and you`ll start to see robust growth coming through from
the new, future smaller company.

(END VIDEO CLIP)

HERERA: Shares of Coke fell even as the broader market rallied today.

MATHISEN: Trade tensions are rising, and the country we`re quarrelling
with now is brought to you by the letter C. But it`s not the C country you
might it is. It`s Canada, America`s second largest trading partner after
that other “C” country, China.

The Trump administration plans to impose a tariff on softwood lumber
imported from our northern neighbor. The dispute is not new, and the U.S.
timber industry has long complained that Canada subsidizes its lumber
industry. Canada objected to the decision, which comes as the two
countries get ready to renegotiate the North America Free Trade Agreement,
which, of course, the president has criticized.

HERERA: Much of the lumber that`s imported into the U.S. is used to build
homes. Concerns that the tariff will raise costs for homebuilders sent
shares of those stocks lower in trading today, including Pulte Group, which
recorded weak quarterly results.

Diana Olick takes a look at the potential ripple through the housing
market.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It takes a lot of
lumber to build a home. And the price of that lumber is going up. The
Trump administration`s new duty on Canadian lumber has already increased
lumber costs for builders and that will be passed on to buyers.

CHRYSTIA FREELAND, CANADIAN MINISTER OF FOREIGN AFFAIRS: Above all, the
losers in the softwood lumber dispute are middle class Americans who want
to buy an affordable home.

OLICK: Fully one-third of lumber used in the U.S. last year was imported,
the vast majority from Canada. Lumber makes up 10 to 15 percent of the
construction cost of the average home. That goes to framing, molding,
flooring. Commerce Secretary Wilbur Ross said he does not expect costs for
lumber to rise much.

WILBUR ROSS, SECRETARY OF COMMERCE: We don`t think that the price of
lumber will go up anything like the 20 percent. But there may be some
small increase in the price of lumber for the house.

OLICK: Lumber prices were already up 22 percent so far this year, just
from the uncertainty surrounding a possible tariff. Estimates are that
increased lumber costs will add about $1,200 to the sale price of a newly
built home. This at a time when builders are already struggling with a
labor shortage.

You`re tight on land, you`re tight on labor. Your material costs are going
up. Do you expect things to get better or worse under the Trump
administration?

GENE MYERS, THRIVE HOME BUILDERS: Well, I don`t see how things are going
to get better, to be honest with you.

OLICK: We spoke to Gene Myers, a Denver homebuilder, earlier this month.
He said he could be building far more homes if his costs were lower.

MYERS: Most of the materials we use are global commodities. And so,
anything that affects the free flow of those commodities across borders I
think will have a price effect.

OLICK: The U.S. housing market is already seeing a severe shortage of new
and existing homes for sale. That alone is pushing prices higher far
faster than income. Builders are bracing for even more cost increases if
the Trump administration institutes a border adjustment tax.

Other building products like cement and drywall are also imported to the
U.S. if they fall under any new border tax, it will increase construction
costs even further, which will limit the supply of homes for sale even
more.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

MATHISEN: A separate report from the Commerce Department today shows that
new home sales climbed to an eight-month high in March, making it the third
straight month of gains. Three months into the year, sales are running 10
percent higher than in 2016. Inventories are low, demands are high, and
the sales gains come despite rising prices.

HERERA: Still ahead, watch what happens when one of our reporters tries to
go inside a Chinese steel mill.

(MUSIC)

MATHISEN: New details tonight on what the president may outline on taxes
tomorrow. “The Wall Street Journal” reports the proposal will include
cutting the top tax rate on owner operated business to 15 percent. He`s
also called for a 15 percent top corporate tax rate. The blueprint will
reportedly include a tax break for childcare expenses, a priority of the
president`s daughter Ivanka.

HERERA: President Trump has repeatedly criticized China for dumping cheap
steel into U.S. markets. He`s vowed to put an end to it in order to
protect American companies. Beijing says it will cut production but so far
that hasn`t happened.

Eunice Yoon reports tonight from Langfang, China.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China`s excess steel
is raising tensions overseas. It`s also raising sensitivities back home.
We came to the town of Langfang, two hours from Beijing, in a northern
province which makes more steel than the entire United States.

Washington has accused China of flooding global markets with cheap steel.
Beijing has repeatedly issued plans to reduce production but those efforts
haven`t gone far enough. Analysts estimate that operating capacity in
China actually increased last year, as local officials, investors, and
banks keep mills open so workers can stay employed.

Behind me is the local steel mill. The townspeople say that the
authorities here have repeatedly over years instructed the steel mill to
scale back capacity. But last year, officials found that it expanded
capacity. And that`s a problem here in China.

It quickly became a problem for us, too.

We`ve only been to the steel mill for a couple of minutes but the police
have already stopped us from filming. They`ve blocked us and aren`t
letting us leave. And I think it just really goes to show how sensitive
the issue of steel and excess capacity has become in China.

Factories producing steel or steel-related products here are struggling to
find new places to sell, both in China and abroad.

“We put greater effort in our sales to match the production,” this
businessman says. “The government has closed some factories but production
levels haven`t dropped off.”

Washington is losing patience. U.S. President Donald Trump has vowed to
take tougher action against cheap imported steel, which means China`s.

Businessmen here, though, doubt Trump can force Beijing`s hand.

“Reducing capacity is a gradual process,” he says. “The government has its
own proper and reasonable agenda to cut capacity at its own pace”. But it
doesn`t want the cameras to show just how slow that pace is.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Langfang, China.

(END VIDEOTAPE)

MATHISEN: Eli Lily cuts its outlook and that is where we begin tonight`s
“Market Focus”. The drug maker lowered its adjusted profit forecast for
the year, saying severance cost would hurt its results. But for the latest
quarter, the company reported earnings and revenue ahead of expectations.

The company CEO says Lilly`s strategy is working.

(BEGIN VIDEO CLIP)

DAVID RICKS, ELI LILLY CEO: We grew the total business 7 percent in Q1, 9
percent for the pharma business, and 10 points of the nine. So, more than
all of it was attributed to our new products.

The strategy is playing out. We`re executing well and it was a good, solid
operating quarter for the company.

(END VIDEO CLIP)

MATHISEN: Despite that, Eli Lily shares fell more than 2 percent to
$81.20.

IBM raised its quarterly dividend 10 cents to $1.50 a share. The company
also signed a collaboration agreement with the Swiss engineering company
ABB (NYSE:ABB) to create and develop new industrial products. IBM shares
fell 36 cents to $160.39.

Rite Aid (NYSE:RAD) said the ongoing merger process with Walgreen`s
negatively impacted its quarterlies. Still, the drug store chain managed
to top earnings and revenue estimates and said it`s working with the
Federal Trade Commission to wrap up its merger with Walgreen`s by mid-
summer. Shares of Rite Aid (NYSE:RAD) popped 6 percent to $3.97.

HERERA: Lockheed Martin (NYSE:LMT) posted a rise in sales but missed
estimates due to charges that the company booked related to its foreign
contracts. But it did raise its revenue forecast for the year. As for
profit, the company beat expectations but said it was lowering its outlook
for 2017. The shares were off 2 percent to $270.02.

The mining company Freeport McMoRan turned a profit and recorded higher
sales, but results fell short of estimates. The company also said it will
resume operations at its Indonesia mine for at least six months while it
works with that country`s government to negotiate a new agreement.
Freeport shares surged 7 percent to $13.10.

AT&T (NYSE:T) posted lower than expected revenues, citing weak equipment
sales. Earnings met estimates, and the telecom giant noted that postpaid
phone churn is the lowest it`s ever been during a first quarter. Shares
initially rose in after-hours but finished the regular session down
marginally to $39.94.

And Chipotle reported profit and revenue topping expectations, as the
burrito chain benefitted from an increase in customer traffic and spending.
Same store sales also scratched out a gain that beat the street targets.
Shares of Chipotle initially rose in extended hours trading and also ended
the regular day up just a fraction to $471.76.

MATHISEN: What if you could steer a self-driving car with sound waves? It
may not be that farfetched. A team from the University of Michigan found
that sensors in things like self-driving cars could be vulnerable to
hacking by sound waves.

Andrea Day reports.

(BEGIN VIDEOTAPE)

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Keep your eye on the
toy car.

That sound just made it change directions. Watch again.

UNIDENTIFIED MALE: Instead of the user controlling the car, I was
controlling the car with the sound waves.

DAY: It`s the first time this team from the University of Michigan has
publicly demoed their latest research, sponsored by the National Science
Foundation. Here`s how it works: there`s a tiny chip inside your
smartphone called an accelerometer. That sensor keeps the image on your
screen displayed upright. Certain apps use it to work, like the app that
team is using right here to drive the remote controlled car.

KEVIN FU, UNIVERSITY OF MICHIGAN ASSOCIATE PROFESSOR: Because we can
control sound waves to control what the phone thinks its orientation is, we
can then control that vehicle.

DAY: They started researching after some colleagues in Korea found a way
to make drones fall out of the sky using sound waves. Accelerometers are
used in drones to keep the flight stable.

FU: The propellers would spend in a weird fashion and just drop. And we
thought, that`s kind of cool, but what if you could take it and fly away?
The difference between causing havoc and taking over the control of the
system.

DAY: And that led to controlling the toy car. There are billions of
accelerometers in use right now, controlling everything, from medical
devices to the airbags in your car, and the role is growing.

FU: My fear would be that some day, five, ten years from now, if the
manufacturers aren`t taken the risks into account, there are going to be
systems that might suddenly all fail across the entire globe
simultaneously.

DAY: His big concern, self-driving cars.

FU: They`re inevitable. And they`re going to be driving based on sensors,
flying just on instruments. This is where those sensor readings are going
to be so much more important, because we need them to be trustworthy.

DAY: And that`s why they were quick to share their findings with homeland
security.

FU: Because this is not just one company. These are thousands of
companies. I would not be surprised if the underworld has already
discovered this. We think the best way to solve these problems are doing
it out in the open.

DAY: The team has already figured out a way to control sensors in
smartphones and fitness trackers. They`re now checking out more critical
systems like pacemakers and aviation.

For NIGHTLY BUSINESS REPORT, I`m Andrea Day.

(END VIDEOTAPE)

MATHISEN: Next, follow the golden brick road. We take you to a street
with more of America`s priciest houses than any other.

(MUSIC)

HERERA: Labor tensions are rising in Hollywood, where writers could be
headed for the first writers strike in a decade. Julia Boorstin takes a
look at where the negotiations stand.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Talks resumed today
between the Writers Guild of America and the alliance of Hollywood Studios.
Last night, the Writers Guild voting to authorize a strike by a
surprisingly large margin, 96 percent. The strike would start May 1st, if
the two sides can`t reach a compromise.

JONATHAN HANDEL, ENTERTAINMENT ATTORNEY: About two weeks ago, the parties
were $350 million apart. The writers wanted a $535 million package. The
studios were looking something more like $180 million. The parties have
moved since then. And what`s interesting is that when you do it sort of
point by point, what are the issues, look at where they are, they have come
on a number of issues significantly closer.

BOORSTIN: But it`s unclear if the two sides will be able to make a deal in
the next week. Writers arguing that despite a surge in the number of TV
shows, salaries have decreased an average of 23 percent over the last two
years. That`s due to the trend of shorter TV seasons, the fact that basic
cable shows pay less than broadcast TV, and while shows on Netflix
(NASDAQ:NFLX) may pay as much up front as broadcast shows, they play lower
residuals or royalties over time than traditional TV shows do.

HANDEL: One effect of a strike if there is one is that viewers would be
driven off of broadcast platforms and further in the direction of Netflix
(NASDAQ:NFLX). I mean, the sell is very obvious from Netflix`s
perspective. It`s — did you miss “Breaking Bad”? Now is the time to
discovery it. Did you drop “Breaking Bad” after two seasons, now is your
time to pick it up again.

They have a depth of library content that`s available on demand, obviously,
at one streaming price per month, that no one else has.

BOORSTIN: It`s not just the Hollywood Studios watching but the whole Los
Angeles economy. According to the Milken Institute, the last strike a
decade ago, which lasted 100 days, cost the California economy $2.1 billion
in lost output, and nearly 38,000 jobs.

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

(END VIDEOTAPE)

MATHISEN: And finally tonight, we talk a lot about rising home prices
across the country. But you`ll never believe what some houses are selling
for on a single street in California. Robert Frank takes us there.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it`s a gold
rush in the platinum triangle. Prices and sales of mega homes in L.A.`s
richest neighborhoods, Beverly Hills, Holmby Hills, and Bel Air, are
soaring.

Demand from young tech tycoons, Middle East royals, and rich Europeans led
to hundreds of sales, over $10 million over the last two years, a record.
The epicenter of the boom is a section of Hillcrest Road and Beverly Hills
called Billionaires Row, now believed to be the most expensive street in
America. And the views are considered among the best in all of Los
Angeles.

A mansion sold for $70 million to the founder of “Minecraft.” Teardowns
are going for at least $50 million. And a tiny plot of land, less than a
quarter of an acre, sold for $32 million.

Now, the biggest sale of them all has come onto the market. A newly-built
mansion listed for $100 million. It`s called Opus. It`s over 20,000
square feet. It comes with two pools, an infinity pool overlooking all of
Los Angeles, with the other downstairs with a glass waterfall. It`s got a
champagne vault with 170 bottle of crystal. They all come with the house,
along with a gold Lamborghini and gold Roll Royce.

Builder Nile Niami said the $100 million price tag is actually reasonable
given recent sales on Hillcrest.

NILE NIAMI, REAL ESTATE DEVELOPER: If you take the cost of everything
that`s sold, even the house next door that sold for $70 million two years
ago, I think that this house is priced well at a hundred.

FRANK: Now, Niami is also building an even bigger house in nearby Bel Air
priced at $500 million, which means that Hillcrest may not hold its richest
title for very long.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

HERERA: Here`s another look at the rally on Wall Street. The Dow advanced
232 points. The NASDAQ climbed past 6,000. And the S&P 500 added 14.

That will do it for NIGHTLY BUSINESS REPORT. I`m Sue Herera. Thanks for
joining us.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. See you right
back here tomorrow night.

END

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