Transcript: Nightly Business Report – May 19, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Big finish. A late week rally
wipes out a mid-week tumble in what may turn out to be a week to remember
on Wall Street.

Global shift. The president heads overseas with an ambitious agenda. And
there are a few reasons why investors will be watching what happens.

All wet. Why Californians are using less water but paying higher bills.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday, May
19th.

Good evening, everyone, and welcome. I`m Sue Herera. Tyler Mathisen is
off tonight.

What a week on Wall Street. At least that`s what it felt like. A rally
capped what seemed like an intense few days. By mid-week, the drama in
Washington spilled over onto Wall Street. But the major indexes climbed
their way back.

Today, the Dow Jones Industrials advanced to 20,804. NASDAQ was up 28.
S&P 500 gained 16. For all of the week`s dramatic ups and downs, the Dow,
NASDAQ, and S&P 500 were off just fractionally.

Dominic Chu has more on the week that was on Wall Street and why it wasn`t
that bad.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The week didn`t start
off with any real fireworks. But by the time Wednesday morning came
around, there was a feel like we might actually see that long-awaited
pullback for stocks that`s been absent for so long.

Wall Street had been shaking off the headlines from Washington for weeks
and even months. But the possibility of interference by the White House in
an active FBI investigation was enough to rattle things a little bit, that
was enough to push stocks down on Wednesday by the most in around eight
months, certainly the most in 2017. And it put a real end to that run of
calm and steady markets over the last few months.

In the end, though, it was just another small blip on the market`s radar.
Gains posted by stocks on Thursday and Friday returned major indices to
just fractional losses on the week overall.

On a sector basis, the relative winners for the week were the S&P 500 real
estate sector, also consumer staples and utilities. Each of those
considered perhaps more defensive in nature, less economically sensitive
than others. The relative losers in the S&P 500 included high profile
stocks in the technology and financial sectors. Oil a big focus for
traders this week as West Texas Intermediate Crude prices tops 50 bucks a
barrel for the first time in three weeks. Now, that helped fuel a rise in
energy-related stocks.

Now, next week we get another slate of big earnings reports, including
retailers like Lowe`s, tiffany and Williams Sonoma. And on the economic
report calendar, we`re going to get data including new and existing home
sales and durable goods as well.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu from the New York Stock
Exchange.

(END VIDEOTAPE)

HERERA: Stocks pulled back just slightly late today on two new reports out
of Washington. According to “The Washington Post (NYSE:WPO),” a White
House adviser close to the president is a person of interest in the Russia
probe. And “The New York Times (NYSE:NYT)” reports that President Trump
told Russian officials in the oval office that the firing of former FBI
Director James Comey relieved, quote, pressure on him. The president also
reportedly called Mr. Comey, quote, a nut job.

In response to “The Washington Post (NYSE:WPO)” story, the White House says
a thorough investigation will confirm that there was no collusion between
the campaign and any foreign entity. And on the “New York Times
(NYSE:NYT)” story, the administration says that by grandstanding and
politicizing the investigation into Russia`s actions, James Comey created
unnecessary pressure on our ability to engage and negotiate with Russia.

The other big stories for investors are taking place overseas. President
Trump departed on his first foreign trip since becoming president. His
eight-day visit starts in Saudi Arabia and continues in Israel. The
president will then visit the Vatican and later attend the NATO summit in
Brussels and the G7 summit in Italy. But the focus now is on the first
stop in Saudi Arabia, a long time U.S. ally.

Hadley Gamble reports tonight from Riyadh.

(BEGIN VIDEOTAPE)

HADLEY GAMBLE, NIGHTLY BUSINESS REPORT CORRESPONDENT: U.S. President
Donald Trump may be feeling the heat back at home. But here in Saudi
Arabia, they are rolling out the red carpet. Ministers from the GCC
countries as well as leaders from other Muslim states will be filing into
Saudi Arabia to hear from the U.S. president, not just about multibillion
dollar trade deals, but also a speech to the Muslim world.

President Trump is expected to address radical Islam and ways to combat it
in his speech over the weekend. And many here in the Muslim world are very
excited to hear just what the U.S. president has to offer.

So, what do the Saudis want? Well, they want a stronger U.S. hand in
tackling Iran, not just in Syria and Iraq, but also in Bahrain, and Yemen.
And, of course, they also want U.S. help when it comes to diversifying
their economy away from oil.

The swing factor, of course, remains oil when it comes to talk about
security for Saudi Arabia. They`ll tell you that Iran is the greatest
threat to regional stability. But it`s also all about oil prices, lower
oil prices, do have an impact on Saudi Arabia`s ability to fund economic
relief in places like Egypt, as well as military intervention in Yemen.

For NIGHTLY BUSINESS REPORT, I`m Hadley Gamble in Riyadh, Saudi Arabia.

(END VIDEOTAPE)

HERERA: It`s also expected a massive arms deal will be announced during
the president`s trip.

Morgan Brennan reports now on the likely size of that agreement, and the
American defense companies that could benefit.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The U.S. is poised
to unveil one of the biggest arms deals ever. A flurry of agreements with
Saudi Arabia expected to be announced tomorrow, while President Trump is
visiting on his first trip abroad as commander in chief. The deal will
likely be worth upwards of $100 billion, with a potential to grow to as
much as $350 billion over the coming decades. It`s a sum floated by senior
White House officials this week, but one that, with oil at $50 a barrel,
has been met with some skepticism.

JAMES JEFFREY, FORMER AMBASSADOR TO IRAQ: A little bit of this is hype.
But from the standpoint of the relationship, it`s good hype. Obama sold
them the weapons but he appeared somewhat conflicted over it. Trump is
embracing this with a big grin on his face, that`s what people want to see
in the region right now.

BRENNAN: Saudi Arabia is the biggest purchaser of U.S. arms. During his
eight-year tenure, President Obama approved $115 billion in potential sales
to the kingdom. But many of those were put on hold after Saudi Arabia
invaded Yemen.

Some of those may be resuscitated now, including deals for combat ships
from Lockheed Martin (NYSE:LMT) and more tanks made by general dynamics.

Also expected, a commitment to buy an advanced missile defense system like
the one currently being installed in South Korea. That`s made by Lockheed,
with the help of Raytheon (NYSE:RTN), which is run by CEO Tom Kennedy.

UNIDENTIFIED MALE: Missile defense is important to any country`s strategy
today.

HOWARD RUBEL, JEFFERIES DEFENSE ANALYST: We`ve been recommending Raytheon
(NYSE:RTN) and we like it because, frankly, Mr. Kennedy has done a nice job
of expanding the capability of his offerings in Saudi among other places.
And also, they have the premier air defense offering and probably the
singular best radar capability in the world today.

BRENNAN: Other agreements could involve more patriot missiles and
munitions. And according to one industry official familiar with the
discussions, more combat vehicles from a British contractor, BAE Systems,
manufactured stateside.

Analysts say it speaks to the fact that global defense spending is
increasing, the reason many contractors are reporting strong sales growth
internationally. On the Saudi deal, the companies have all declined to
comment, but ahead of the president`s trip, the stocks did soar in trading
today.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: In Iran, voters are casting their ballots in the country`s first
presidential election since its nuclear deal with world powers. The
election is seen as a referendum on more moderate policies.

And as Seema Mody reports, the outcome could ripple through and potentially
disrupt the energy and oil markets.

(BEGIN VIDEOTAPE)

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: As the Iranians head to
the polls, the president and his nuclear deal may be in trouble. Hassan
Rouhani, seeking a second term, championed the 2015 nuclear deal with world
leaders. The landmark pact removed key economic sanctions on Iran in
exchange for limiting the country`s uranium enrichment program. As a
result, Iran`s oil output is up by a million barrels a day, and
international oil producers like BP, Total and Shell are looking to build
out the country`s infrastructure.

But this could all change if opposition candidate Ebrahim Raisi wins.
Raisi, a conservative Muslim cleric, is a critic of the nuclear deal,
saying it has not helped Iran`s economy. While Iran has returned to
growth, the country still suffers from stubbornly high unemployment.

Further complicating matters is President Trump`s visit to Saudi Arabia and
Israel, two countries which view Iran as an enemy. Hard rhetoric exchange
between the leaders could intensify pressure on the current nuclear deal,
potentially threatening Iran`s role in the oil market.

STEVE GRASSO, STUART FRANKEL: If the reformist candidate wins in Iran, the
existing president right now, President Rouhani, you should look for status
quo basically in the price of oil. But if the conservative candidate wins,
then that could be bullish for the price of oil. You could see the
tightening of the supply literally hit the oil market in a very dramatic
way.

MODY: That`s why traders are watching this election so closely.

For NIGHTLY BUSINESS REPORT, Seema Mody.

(END VIDEOTAPE)

HERERA: Paul Christopher joins us now to discuss what the upcoming events
on the president`s overseas travel agenda could mean for the market next
week. He is head of global market strategists at Wells Fargo (NYSE:WFC)
Investment Institute.

Welcome back, Paul. Nice to have you here.

PAUL CHRISTOPHER, WELLS FARGO INVESTMENT INSTITUTE, HEAD GLOBAL MARKET
STRATEGIST: Thank you, Sue.

HERERA: You know, I know — we want to talk about Saudi Arabia and NATO
and the G7 conference. But these late stories that broke today from “The
New York Times (NYSE:NYT)” and “The Washington Post (NYSE:WPO),” do they
have the ability to further diminish the president`s ability to push his
agenda through?

CHRISTOPHER: Possibly. But the markets don`t seem too concerned about
that right now. We would have to see some further evidence uncovered by an
independent investigator. And most importantly of all, we would need to
see Mr. Comey go before Congress and testify under oath that the White
House interfered with his ongoing investigation. I think that could be a
game changer as far as what investors think this administration and
Congress might be able to achieve for stimulus in the coming term.

HERERA: You also think that Saudi Arabia maybe one of the most important
stops that the president makes.

CHRISTOPHER: Yes, I do. You know, think of the Middle East as a place
where there`s not just been great instability, but a lot of jockeying for
power. The Turks want to be the preeminent regional power. So do the
Saudis. So do the Iranians, at times even the Egyptians.

And what they`re looking for in the new president is someone who will take
sides, especially someone who will take sides between the Arabs and the
Iranians. The — there`s a longstanding dispute, religious dispute between
them. There`s cultural differences as well. They go back hundreds of
years.

President Obama seemed at one point to want to maybe disengage the U.S. and
create more of a balance in the region. That`s not what the leaders there
are looking for from Mr. Trump.

HERERA: What about NATO and the G7 summit in Sicily? Which of those two do
you think has the potential to move the market, either positively or
negatively?

CHRISTOPHER: They both have potential to move the markets, but probably
the G7 meeting in Sicily is more important of the two in the near term. I
think NATO is very important in the longer term, even the medium term for
how NATO decides to structure itself in terms of who pays for and
especially how NATO decides to deal with Russia in the longer term.

But in this G7 summit, these governments, these leaders are mostly
establishment leaders and they need to figure out how they`re going to
counter the populist tendencies among their electorates. These populist
tendencies have to do with slow growth, growth that`s not very inclusive
within the population, and growth that feels like globalization, only
benefits a few and not everyone.

So, they`re going to have to figure that out. If they can come up with
some stimulative policies, or some commitment to stimulative policies, that
could have some near term positive market impact. If they fail to do so,
that`s not necessarily a negative, but if they come out of that meeting
very acrimoniously, not being able to decide who is going to pay for what,
and not being able to decide what kinds of policies are important, that
could be negative.

HERERA: All right. We will take note. Thank you very much.

CHRISTOPHER: Thank you, Sue.

HERERA: Paul Christopher with Wells Fargo (NYSE:WFC) Investment Institute.

Still ahead, looking for returns? Well, our market monitor has a list of
stocks he says could rise double-digits over the next year or so.

(MUSIC)

HERERA: The controversies swirling in Washington have not yet had an
impact on the economy. That is according to the president of the St. Louis
Fed. James Bullard today said that the markets should be ready for
continued political volatility. He also said that gridlock on big policy
issues is the norm in Washington. So if current events delay or stall
major decisions, it won`t change the current outlook.

The speaker of the House will send the health care overhaul bill to the
Senate in just a couple of weeks. Paul Ryan said the delay was out of an
abundance of caution until the Congressional Budget Office releases its
analysis of the measure, including the legislation`s cost and its impact on
health insurance coverage. That analysis, or score, is expected late
Wednesday.

And when asked if the score could force another vote in the House, Speaker
Ryan said no.

President Trump`s 2018 budget proposal will aim to balance the budget in
ten years. To do so, it will rely on the assumption that annual economic
growth will reach 3 percent by 2021 and it calls for a total of $54 billion
in domestic spending cuts. The budget, which was being printed today,
outlines cuts to Medicare through Social Security and Medicare benefits
will not be touched. The full budget proposal will be released on Tuesday.

As the rest of the country waits for the Trump administration to come out
with its much-anticipated infrastructure plan, California has already
passed a $52 billion transportation bill. And some districts have major
infrastructure projects already in the works. But there may be a catch for
the state`s residents.

Aditi Roy reports from Lafayette, California.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is a five-year, $40
million program to improve 40 miles of pipeline carrying drinking water to
residents of the East Bay near San Francisco. Officials say the renewed
pipe network will be state of the art.

ANDREA POOK, EAST BAY MUNICIPAL UTILITY DISTRICT: Our job right now is to
increase the rate of renewing that pipeline.

ROY: But for homeowners in the neighborhood like R.J. Murray, there`s a
rub. The water district is raising rates to pay for more infrastructure
projects like this. And that`s not all. Part of the reason the East Bay
municipal utility district is hiking fees is that during the California
drought, urban area residents cut back on water use by more than 20
percent. That meant a decline in revenues for water districts throughout
the state, and dozens of them have hiked rates to help pay for
infrastructure.

Murray, who even stopped watering his backyard during the drought, is
skeptical of the more than 9 percent increase next year.

R.J. MURRAY, HOMEOWNER: I don`t think inflation is going up to that
extent. I think it would be more fair and equitable if it stayed at pace
with that.

ROY: But East Bay officials say their hands are tied. Like many water
districts, their fixed costs are about 90 percent of their total costs, and
revenues mostly come from water bills. With some infrastructure projects
that were put on hold during the economic downturn nearly a decade ago, and
rising water main breaks during the drought, they say the cost of waiting
is just too high.

POOK: It is a pressing need. Our infrastructure is aging. It doesn`t
mean it hasn`t been maintained, but it does mean the investments, the
original investments in this infrastructure were made generations ago. And
now, it`s time for us to reinvest in that infrastructure.

ROY: Murray says he`ll continue to save water, because it`s the right
thing to do, even as he gets ready to pay more for it.

MURRAY: I`m uncomfortable with perhaps the amount that they`re proposing.
And I think they should probably put a sharper pencil to all that.

ROY: As workers continue to upgrade the information, the Association of
Civil Engineers says in its latest report card, that California will have
$44 billion worth of infrastructure needs for its drinking water over the
next 20 years.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Lafayette, California.

(END VIDEOTAPE)

HERERA: Shares of Foot Locker get trampled. That`s where we begin
tonight`s “Market Focus”.

The athletic footwear company said a delay in income tax refunds caused
customers to spend less in the latest quarter, resulting in earnings and
revenue that disappointed. Same store sales edged up slightly but they too
fell short of expectations. The company said it`s now focused on cutting
costs so that it can improve its full year performance. Shares got
crushed, they fell more than 16 percent to $58.72.

But sales turned positive for the first time in more than three years at
the farm equipment giant Deere. The company said improving demand for its
products also helped it post stronger than expected earnings. Deer also
raised profit outlook for the year. So, shares popped 7 percent to
$120.90.

Campbell`s Soup recorded lower than expected sales and also cut its full
year revenue forecast. The company said higher promotions and weak demand
for its refrigerated drinks hurt its results. Profit was also amiss, but
Campbell`s raised earnings forecasts for 2017. Shares fell 2 percent to
$55.78.

Vistra Energy is reportedly in talks to buy rival Dynegy (NYSE:DYN).
That`s according to “The Wall Street Journal.” The discussions are said to
be in the early stages but a potential deal would create one of the
nation`s largest independent power producers. Dynegy (NYSE:DYN) shares
soared 25 percent to $9.12. While Vistra Energy shares rose 1 percent to
$15.04.

And design software maker AutoDesk reported a smaller than expected loss
and revenue that beat estimates. The company, which is transitioning its
business model from perpetual licensing to subscriptions, said the move was
a good one.

(BEGIN VIDEO CLIP)

ANDREW ANAGNOST, AUTODESK CO-CEO: The subscription model is essentially
changing the game. The whole move to the Cloud is changing how we deliver
our software to our customers and how we engage with our customers. People
who used to be users but not necessarily customers are now customers,
because it`s just easier to access the software and the model makes it
easier to become an actual paying user.

(END VIDEO CLIP)

HERERA: AutoDesk responded by moving up nearly 15 percent to $109.91.

Our market monitor tonight likes all weather stocks he said could rise 10
to 15 percent over the next year and a half. The last time he was on in
July, he recommended Disney (NYSE:DIS), Microsoft (NASDAQ:MSFT), and
Starbucks (NASDAQ:SBUX), all of which have risen.

Joining us is John Traynor. He`s the chief investment officer at People`s
United Bank`s Wealth Management.

Nice to see you, John. Welcome back.

JOHN TRAYNOR, PEOPLE`S UNITED BANK`S WEALTH MANAGEMENT CIO: Good to see
you.

HERERA: And congratulations on those picks, they`re doing well.

TRAYNOR: We`re very pleased with them. We own them all, and we`re very
pleased.

HERERA: Excellent.

Let`s get to your picks this time around. You say that you have some muted
expectations for the market. So, you`re looking for a 10 to 15 percent
return on your picks. That`s a pretty good return, for muted expectations.

TRAYNOR: It is a — for those three stocks, those are the expectations.
For the overall market, we`re probably in the high single digits. You`ve
got, you know, sort of the Trump effect, as you`ve been discussing this
evening, which we think will keep investors a little cautious, probably
have a little extra cash in their portfolios. We don`t see the market
becoming extremely ebullient this year.

So, the overall market probably eight to ten, and hopefully, those stocks
will outperform.

HERERA: Well, let`s get to them, TJX. Retail has had a really tough week.
Why do you like this particular stock?

TRAYNOR: We like this stock and this is T.J. Maxx. We like this stock in
particular because it has a business model that can compete against the
Amazon (NASDAQ:AMZN) Effect. A lot of your viewers have seen Amazon
(NASDAQ:AMZN) devastate retailers across the board, the big department
store retailers. T.J.Maxx has a unique sales proposition. Consumers need
to go into that store, plus as the department stores struggle, that creates
opportunities.

HERERA: All right. Let`s move to Disney (NYSE:DIS).

TRAYNOR: Yes.

HERERA: Disney (NYSE:DIS) suffered a little bit in its latest earnings
report. They`re suffering from the cord cutting situation. But you think
that that provides opportunity.

TRAYNOR: Absolutely. In fact, we think this little pullback in Disney
(NYSE:DIS) presents a little buying opportunity for investors. But Disney
(NYSE:DIS) has the content that consumers want. What Disney`s got to do,
and we think Robert Iger will do a great job figuring out how to deliver
that content to consumers. Consumers still want their content. They`re
just not happy with those high cable bills. So, Disney (NYSE:DIS) has just
got to figure out a different distribution channel.

HERERA: And you say Oracle (NASDAQ:ORCL) basically has managed to conquer
the cloud computing model that it put forward several years ago.

TRAYNOR: Absolutely. We`ve watched Oracle (NASDAQ:ORCL) for several
years. I mean, the stock really has been flat for about three years now.
They finally figured out their cloud strategy.

And as you heard with the report that you just gave earlier, companies are
moving to the cloud. And you`ve got to have a cloud strategy. Oracle
(NASDAQ:ORCL) has a phenomenal strategy. And we really think they`re
poised for really good performance going forward.

HERERA: On that note, John, thank you so much for joining us again. We
appreciate it.

TRAYNOR: Great, thank you.

HERERA: John Traynor with People`s United Bank`s Wealth Management.

And coming up, sold. The man who won a bidding war and paid the highest
price ever for a piece of work by an American artist.

(MUSIC)

HERERA: And here`s a look at what to watch for next week. On Tuesday, as
we mentioned, the White House will release its full budget for the 2018
fiscal year. On Wednesday, the Federal Reserve releases its minutes from
the May meeting when the committee decided to keep interest rates
unchanged. On Thursday, members of the OPEC oil cartel will meet to decide
whether to extend a production cut deal. That`s what to watch for next
week.

A record number of Americans have auto loans. According to data released
this week by the New York Federal Reserve, 107 million Americans are
financing their cars with loans. That`s more than 40 percent of the adult
population. And it`s up from 80 million back in 2012. Car sales in 2016
hit an all-time high. And today, the number of auto loans outpaces home
loans.

Which means demand for gasoline. But it`s been weaker than expected this
year. But that is expected to change. The energy industry is expecting
record demand this summer as the economy grows and gasoline prices remain
relatively cheap. The U.S. gasoline market accounts for roughly 10 percent
of the global oil consumption.

Earlier this week, we told you about the art auctions happening in New
York. We also told you that the sales were seen as a test of the health of
the market. Tonight, we can tell you that sales exceed expectations and
that the art market is alive and well.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: A painting by 1980`s
artist Jean-Michel Basquiat sold for nearly $111 last night at Sotheby`s.
That was nearly double the estimate, making translate most expensive
painting sold by an American artist. And the sixth most expensive sold at
auction. The buyer was Yusaku Maezawa, the 41-year-old Japanese e-commerce
billionaire, who posed with his new trophy on Instagram, saying, quote:
When I first encountered this painting I was struck with excitement and
gratitude for my love of art.

And the piece was sold in 1984 to a long island real estate developer for
$19,000. The buying and bidding were strong throughout the week with sales
topping about $1.5 billion from just over $1 billion last year.

Cy Twombly`s “Leda and the Swan” went for nearly $53 million at Christie`s.
It`s the sister painting to the famous piece at the Museum of Modern Art.
This Francis Bacon triptych went for almost $52 million.

But Basquiat is the new darling of the global art market. Christie`s sold
this one called “La Hara” previously owned by hedge funder Steve Cohen for
$35 million. A total of 16 Basquiats were sold this week, totaling more
than $200 million. Maezawa said the previous record for a Basquiat when he
bought a piece for $57 million. He plans to open a museum in Japan.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

HERERA: Well, the up and down finished the week with a rally. The Dow
advanced 141 points to 20,804. NASDAQ was up 28. And the S&P 500 gained
16.

And that will do it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue
Herera. Thanks for joining us. Have a great weekend, everybody. We`ll
see you here Monday.

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.

 

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply