Transcript: Nightly Business Report – July 4, 2017

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

welcome to this special edition of NIGHTLY BUSINESS REPORT.  I`m Sue Herera.

Welcome from me as well.

Well, summer is here and the temperatures outside are heating up.  And if
you`re lucky, so are your investment returns.

With the first half of the year now in the books, tonight, we take a look
at what might be in store for the second half, from stocks to the economy,
even drilling down into autos and airlines.

HERERA:  So, we begin tonight with the stock market which was relatively
calm in the first six months of the year.  But in that calm, equities
climbed a lot, pushing the major indexes into record territory numerous
times.  But what happens next?

Dominic Chu tries to answer that question.


it could actually happen, but a slow and steady move higher by the stock
market has us still near record highs.  A lot of traders think the positive
momentum can`t continue into the second half of the year.

TONY DWYER, CANACCORD GENUITY:  History shows that when the first half of
the year is as good as it is, the overwhelming majority of the time, the
second half of the year continues higher.

CHU:  Recent history seems to validate that storyline.  According to market
data and research firm Kensho, since 1980, during the first year of a
presidential term, the S&P 500 is generally positive during the third
quarter.  And it is actually not had a losing fourth quarter during those
time frames either.

There is one sector in particular that many traders are keeping a very
close eye on to set the tone for the rest of the year.

PETER COSTA, EMPIRE EXECUTIONS:  The most important sector and it was last
year as well, is the financials.

KEITH BLISS, CUTTONE & COMPANY:  Financials will be the sector to watch.

ART CASHIN, UBS FINANCIAL SERVICES:  If you can get the financials working
back in, particularly if there`s a hint of deregulation, I think then the
whole market will pull together and we can see new highs.

CHU:  And there`s one item on the Washington agenda that has all of Wall
Street totally captivated.

GORDON CHARLOP, ROSENBLATT SECURITIES:  Tax reform.  If we can get tax
reform, real, legitimate tax reform through, then that`s a real positive.
If we can`t, that`s a real negative.

COSTA:  I think the most important thing in the markets will be how the tax
packages are — go through Congress.

BLISS:  Tax reform, without question.

CHU:  So far this year, there`s been a noticeable absence of any kind of
stock market volatility.  While that could continue, there are those who
believe that bigger swings in the market are coming soon.

ERIK RISTUBEN, RUSSELL INVESTMENTS:  One of the most notable themes of the
first half of 2017 has been the lack of volatility.  The VIX Index, which
many people look at as a measure of volatility, has been extraordinarily
low.  We would expect that the change in the second half of the year as
people begin to realize economic realities are not what they hoped they
would be.

CHU:  Since the election and arguably beyond, the stock market has rewarded
buy and hold investors with higher prices and lower volatility, but Wall
Street experts aren`t letting their guard down and they`re putting
earnings, economic data, and the Fed under the microscope.



MATHISEN:  When it comes to the economy, growth is meandering along, but a
few events in the months ahead could shake things up.

Steve Liesman explains.


of 2017, September will stand out as a month to remember when it comes to
the economy.  That`s when the administration promises to deliver its
sweeping tax plan, when the U.S. might hit its debt limit and when the
Federal Reserve could begin reducing its $4.5 trillion balance sheet.  Most
important, by the end of the summer, we should have a better fixed on three
critical economic gauges.

First, growth.  The U.S. started the year with lackluster GDP of just 1.2
percent.  Now, that accelerated the second quarter to near 3 percent.  By
September, we should know if all that post-election enthusiasm by consumers
and businesses has turned into post-election sales at the mall and
investment from companies.  So far, the results are mixed.

Second, the unemployment rate.  It`s fallen to a 16-year low of 4.3 percent
and many economists say this is full employment.  But it may have proven to
run, especially if growth picks up.

But if the rate goes too low, the Fed could begin worrying about the third
big item on the list.  That`s inflation or the lack of it.  It`s been
moving away from the Fed`s 2 percent target for the past three months,
dragged down by lower oil prices and a decline in telecommunication costs.

Fed officials say they expect inflation to pick up in the months ahead, but
some are starting to get nervous.  If inflation doesn`t pick up, that will
likely put the kibosh on a third interest rate hike this year from the
central bank.

The best guess, growth in the next couple of months will look a lot like it
did in the first half of the year.  Despite ups and downs in GDP, it`s
likely to average right around 2 percent.  Any impact from fiscal policies
out of Washington, that`s a story for next year, not this one.



HERERA:  So, let`s turn now to our two guests for their outlook for the
economy and the financial markets in the second half of the year.  We have
Josh Feinman, global chief economist at Deutsche Asset Management, and Tom
Stringfellow, president and chief investment officer with Frost Investment

Welcome to you all.

Josh, I`m going to start with you.

It looks as though things have steadied out in the economy.  We`re seeing
steady growth.  How does the second half look to you?

think the economy is starting the second half with pretty good momentum.
It looks to be in good shape.  Much of the cyclical repair has been done.
The labor market is largely healed and I think it will get to the line of
not a little bit over by the end of the year in terms of full employment.
I think the fundamentals still look pretty good to continue moderate

The question, of course, or the issue is, structurally, potentially growth
in the economy is diminished.  And that`s not something that lends itself
to quicker easy solution, but from a cyclical perspective, I like the
economy, I think it`s likely going to continue.

MATHISEN:  So, Tom, what are you looking for in the market in the second
half of the year?  It`s been a pretty good first half, not just in the U.S.
but globally.


MATHISEN: Is it likely to continue?  What should I be watching out for?

STRINGFELLOW:  I would agree.  I think it`s going continue.  Everything
that Josh mentioned about the economy does play into the markets.

There are some concerns.  We`ve had concerns of this first half of the
year, last year, a number of sectors that can`t seem to get traction or
maintain traction.  I think that does continue into the second half of the
year and going into probably 2018, there`s a number of sectors that I think
are very positive.  But, you know, this is going to be —

MATHISEN:  Like what?  Give me a couple of names.

STRINGFELLOW:  Well, I would say financials will be a positive in through
next year.


MATHISEN:  — last week.

STRINGFELLOW:  Absolutely.  Technology I think continues to be positive.
Health care, and health care — especially health care technology I think
continues to be positive.

HERERA:  All right.  Josh, you said that there are some pitfalls though to
watch for in the second half of 2017, and maybe the beginning of 2018.
What would they be?

FEINMAN:  Well, I was saying, some of the structural forces, you know, the
trend we`re wee living a slower growth world.  I think that`s still going
to be with us.  The issue was raised earlier on the program about the
policies coming out of Washington, a lot of people are banking on the tax
reform.  I think we`re going to get something, but, of course, there`s a
risk that falters.  I think that`s a potential downside to watch.

And then, the inflation question.  Inflation has surprised on the downside.
I think it is largely reflecting transitory factors.  But we`re going to
need to see inflation move, you know, up a little bit further for the Fed
to continue on this gradual path of raising interest rates.

MATHISEN:  So, Tom, let me — let me hit you with a double question here.
One is domestic-oriented and that is —


MATHISEN:  — how concerned are you about the value of stock prices right


MATHISEN:  Are they a little stretched, a lot stretched or roughly where
they ought to be and number two, is the U.S. a better place to invest now
for the second half of the year?  Or should I look overseas?

STRINGFELLOW:  Good questions and spot on.  I`d say the stock market is a
little stretched these days.  For it to continue, we`ve got to have obvious
earnings growth.  If we can stay in a kind of low inflationary environment,
yes, investors will love that.  Not fixed income investor, but, you know,
equity investors will appreciate that.

I think the dynamics between the global, the U.S. markets are really
interesting.  It`s going to be dependent on the strength of the dollar,
where investors want to move.  Do they want to come back to the U.S., but
if you look at some of the multiples, the foreign markets are a little more
attractive these days.

HERERA:  Josh, you get the final word.  Where would you be putting money to
work right now?

FEINMAN:  I think with the economic cycle still having further to run, you
know, I still think risk assets equities, credit product still looks good,
although I agree, we are getting a little bit stretched in valuations and
some of that is predicated on us getting tax reform done.

HERERA:  All right.  Gentlemen, thank you.  Josh Feinman, Tom Stringfellow,
thank you both for joining us today.


FEINMAN:  Thank you.

MATHISEN:  Well, the best performing sector so far this year has been, you
guessed it, technology.  The S&P tech sector ETF up double digits so far.
Stocks like — you know some of these names — Facebook (NASDAQ:FB), Amazon
(NASDAQ:AMZN), Netflix (NASDAQ:NFLX), Apple (NASDAQ:AAPL) led the charge,
all gaining about 20 percent or more.

A recent CNBC survey showed that half of Wall Street`s strategists surveyed
believe the sector will outperform in the next six months, just as our
guest Tom said, and in just a few minutes, we`ll ask some money managers
for their top tech pick for the second half of the year.

HERERA:  Well, 2017 could be remembered as the year of the retail wreck.
The sector has been a mess.  Sales are mostly weak and stores are closing.
But will the rest of the year be more of the same?

Courtney Reagan has more.


the year is always the most important for retail and this year, the sector
has a lot of ground to make up.  Believe it or not, back to school
inventory is hitting store shelves in the next couple of weeks, that is if
it`s not already out.

Back to school sales follow spending patterns, with every other year
marking a time when everything has to be bought from electronics to
pencils, followed by a year of lower spending on longer lasting back to
school items like computers and backpacks.  Since last year was a big
spending year, look for back to school sales to be below last year`s

There are also a few companies to watch.  If no other bidders emerge for
whole foods, a major retail focal point will be how Amazon`s ownership
influences the organic grocer`s potential online grocery business.  Some
analysts are expecting nearly immediate changes and ripple effects through

But Amazon (NASDAQ:AMZN) isn`t the only behemoth shaking up its purchasing
history.  Walmart`s been on an e-commerce shopping spree, buying four e-
commerce only companies and there could potentially be even more.

Macy`s (NYSE:M) is one retailer that needs a reboot and a re-boost.  Later
this year, CEO Jeff Gennette is going to launch a new loyalty program and
is expanding the number of Macy`s (NYSE:M) outlets within existing stores,
which have been lifting sales measurably, something Macy`s needs.

The holiday season is make-or-break for retail and this year, the stakes
are even higher.  It`s the last chance for underperforming stores and
brands to prove their worth before decisions are made about which stores
will close.  And 2017 is already on a record pace.



MATHISEN:  Still ahead, portfolio managers with a hot hand tell us which
stocks they think will sizzle this summer and beyond.


MATHISEN:  A big theme for the stock market in the first half of the year
was Washington and as John Harwood reports, it will be a big theme for
investors in the second half as well.


2017 has produced plenty of action for the new Trump administration in
courts, at the FBI, on cable television.  What it hasn`t yet produced is
the kind of action that Americans in general and Wall Street in particular
most want to see — concrete action on major priorities like improving
health care, reforming the tax system, upgrading the nation`s
infrastructure, avoiding a debt crisis by passing an increase in the
federal debt limit.

Rallying supporters in Iowa the other day, President Trump had some high
hopes for the second half.

and the health care is coming along.


And we have Gary Cohn, the president of Goldman Sachs (NYSE:GS), who left
Goldman Sachs (NYSE:GS) on a slightly higher salary than he`s getting right
now.  Where`s Gary?  He`s around here some place and Gary is working on
some incredible plans, not only taxes, but we`re going to be rebuilding our
country.  We`re going to be doing things in terms of infrastructure that we

HARWOOD:  But can the president and a Republican Congress actually deliver?
It`s possible.  The House has already passed the health care bill.  Speaker
Paul Ryan is eager to take up tax reform next.  But Trump`s infrastructure
plan relying on tax breaks will have trouble drawing the Democratic support
the president needs, nor will tax reform be easy because of disagreements
within the Republican Party.

Congress can`t even get to tax reform until lawmakers pass a new budget.
Budget is also critical to avoiding a government shutdown and raising that
debt limit.  Hanging over everything is Robert Mueller`s special counsel
investigation.  And if you think that makes the entire second half of the
year a giant question mark, you`re right.

For NIGHTLY BUSINESS REPORT, I`m John Harwood in Washington.


HERERA:  Some of the most powerful executives in corporate America are the
chief financial officers.  They make the most important money decisions
like what to invest in, and when to hire.

So, Jackie DeAngelis conducted a survey recently to see what the C-suite
expects in the months ahead.


CFOs up at night?  Their biggest external risk factors are consumer demand,
cyber attacks and U.S. trade policy in order.

With respect to trade policy, there`s some concern that the president`s
recent rhetoric towards Germany could lead to a trade war or the entire
E.U.  Just under 60 percent of respondents said they`re somewhat concerned
about both.

Regarding the global economy, the Eurozone which CFOs said for the last
three quarters was stable, was actually upgraded to improving.  While the
U.S. held on to the improving title for the fourth straight quarter.

We also asked about the stock market.  Would the Dow see 22,000 before it
pullback below 20K?  Sixty (ph) percent said yes, will go up before we come

Interesting where they think the market`s strength is going to come.
Roughly 40 percent said technology will drive the market.  That was up from
20 percent last quarter.  Financials, which was where they were placing
their bets last quarter, dropped to second place, with 15 percent still
think banks will be a bright spot.

When asked how they think the Fed will act for the remainder of the year, a
little more than half said that we got our two rate hikes and we won`t see
anymore this year.

Finally on President Trump, they`re more pessimistic that he can pass key
legislation in 2017.  Probability of passing dropped in ever crucial

Overall, an optimistic, but cautious tone.



MATHISEN:  With equities on a tear, we`ve got two of our top market
monitors to join us now to talk about tech, financials, health care, the
sectors and names they think will perform well in the second half of the
year and beyond.

Mariann Montagne is a portfolio manager with Gradient Investments, and Gary
Bradshaw is a portfolio manager at Hodges Capital.

Welcome to both of you or I should say, welcome back.

We`re going take a look first at your tech picks, both of you.

I`m going to begin with you, Gary, because you have two choices in that
sector.  Little companies that neither of us have heard of.  One named
Microsoft (NASDAQ:MSFT).  Explain what they do and then this newfangled one
called Facebook (NASDAQ:FB).  Why do you like them both?

Microsoft (NASDAQ:MSFT), they got the wind at their back and it`s because
of cloud computing.  And it`s not just the cloud business that`s
reinvigorated Microsoft (NASDAQ:MSFT), but Windows 10 is doing well.  Bing
is doing good, their search engine.

And because of their businesses, Xbox and all, their earnings are
reaccelerating.  So, we like Microsoft (NASDAQ:MSFT) in here.  It pays a
nice 2-plus percent dividend.  It doesn`t hurt they have over $100 billion
of cash in the bank than allows them to buy in stocks —

MATHISEN:  Little more than I`ve got.

Facebook (NASDAQ:FB), quick thought on Facebook (NASDAQ:FB).  Give us your
thumbnail on it.

BRADSHAW:  Tyler, we think Facebook (NASDAQ:FB) is cheap.  And with 1.9
billion active monthly users, their advertising business continues to
accelerate.  We think they`ll earn $6 next year.  They`re growing revenue
us and earnings 40 plus percent put a 30 multiple on that $6, you come up
with $180 stock.

So, we think it`s cheap in the market that we think will continue to be

HERERA:  All right.  Mariann, let me turn you.  You like new tannics.
Recently, it had a big gain because of a deal that it inked with Google
(NASDAQ:GOOG).  Why do you like the stock?

this is a pure play data analytics, cloud computing enabling software
company and that`s a whole mouthful.  But what it does is it offers
companies the ability to have all of their software talk through each
other, all the other component, and then send it out to the cloud, whether
that`s private or public cloud.  So, this is a company that`s growing the
top line better than 50 percent rate and we think that the valuation on a
price to sales basis is about a 30 percent discount to its peers.

And as you said, with this new partnership with Google (NASDAQ:GOOG), we
think the valuation will probably go toward the peer average.

MATHISEN:  All right.  Let`s transition to a couple of picks you have in
health care.  Gary, you have one.  Mariann, you have two, one of which is a
biotech ETF.

Let`s go to Merck (NYSE:MRK) first, Gary.  Why do you like it?

BRADSHAW:  You know, Tyler, Merck (NYSE:MRK) has a new drug Keytruda, which
is a cancer drug.  And sales are really ramping up.  We think they can do
$10 billion off of Keytruda by 2020.  It`s got a great dividend of 2.88
percent.  Earnings are accelerated, 17 times earnings.  We think Merck
(NYSE:MRK) is a Cadillac health care stock to own.

HERERA:  And, Mariann, you have two as Tyler mentioned.  Alexion
Pharmaceuticals (NASDAQ:ALXN) and then the iShares biotech ETF, which is
IBB.  Let`s start with Alexion.

MONTAGNE:  Yes, Alexion has really primarily one drug and it`s for eye
diseases, rare eye diseases.  But they have nice pipeline and we think it
will play out very nicely over the next year or so.  Someone else believes
they have a great pipeline, too.  And that`s the CFO who`s coming over from
Biogen, which is much larger biotech play.

So, we think this is a real unique sweet situation here.  Also growing
extremely fast and we think there`s a lot of upside to this one, at least
20 percent upside.

In terms of IBB or the iShares biotech ETF, that`s the way to be invested
in about 150 different companies, both biotech and major pharmaceuticals
and reduce your risk, have lower volatility, because a lot of these
companies do depend on those, you know, one-time decisions from the FDA on
safety and the effectiveness.

MATHISEN:  We`re a little short on time.  Gary, I`m going to give you a
pass on making a selection in financials.

But, Mariann, you like JPMorgan (NYSE:JPM) Chase.  The banks last week are
getting nice news out of the Fed.  You really like this one.

MONTAGNE:  Yes, again, with the increased, as you say, from Fed, a
permission to go ahead and both boost their dividend which they did by 12
percent and also buy back shares, another form of return and capital to
shareholders.  That`s going to be about 6 percent fewer shares outstanding.
So, we can see at least 10 percent upside.

MATHISEN:  All right.  Folks, thanks very much.  Mariann Montagne with
Gradient Investments, Gary Bradshaw with Hodges Capital.

HERERA:  Coming up, the Hyperloop, personal flying machines, they may sound
far out, but you`ll likely hear much more about them in the second half.


MATHISEN:  Again to the second half of this year, the world of
transportation will see several big developments from how we move in a car
to planes and perhaps even how we move in a tube.

Phil LeBeau explains.


will be in the spotlight in the second half of this year as the automaker
makes several big moves.  One will include dramatically ramping up
production at the company`s plant in Fremont, California, as Tesla launches
the Model 3.  Starting in the mid-$30,000 range, the Model 3 is aimed
squarely at the mass market.

Tesla is also expected to announce plans to expand in China with a final
assembly plant.  A huge move since China is the world`s largest auto
market.  And the Chinese is aggressively pushing adoption of electric

In the airline industry, the big question is what impact enhanced security
screening will have on approximately 2,000 international flights landing in
the U.S. every day?  Their speculation, tighter security, could hurt the
airlines because some customers might put off long international trips due
to the inconvenience and potential for more restrictions that could be put
in place later this summer.

ARNE SORENSEN, CEO, MARRIOTT:  I think we would find a way to put up with
it, because we`re still, we`re traveling for reasons.

LEBEAU:  Finally, the Hyperloop is expected to take a big step closer to
becoming reality.  After months of working on the technology in the desert
outside Las Vegas, Hyperloop One is planning a full scale test run in tubes
covering roughly a third of a mile.

ROB LLOYD, HYPERLOOP ONE CEO:  We`re at least two-thirds the cost of hi we
need much less land and we can go both aboveground or underground to come
into city centers.

LEBEAU:  The Hyperloop is just one of the budding forms of transportation
you`ll hear more about over the next six months.

Here`s another: personal flying machines.  Imagine something that combines
the technology of helicopters and drones, but is flown by a person at a low
altitude.  The first of these personal flying machines could be sold to a
paying customer by the end of this year.



HERERA:  From Hyperloop to the great space race, investors should expect
some new developments and new innovations in this second half and Morgan
Brennan has more.


year for space advances.  Jeff Bezos unveiled the Blue Origin capsule that
will carry paying tourists past the edge of space and Elon Musk`s SpaceX
successfully launched two different reused rockets.

But the biggest milestones are yet to come.

big milestone I guess is the first launch of their new rocket, the Falcon
Heavy, which is three Falcon Nines kind of glued together.

BRENNAN:  The SpaceX launch will usher in an era of more powerful rockets,
the first step in a broader effort to take humans to the moon and then to
Mars.  The Next Gen rocket is also in the works from Bezos, but the engines
for that one may first reach space with a rival, United Launch Alliance,
which is hoping to use them in its new Vulcan, replacing Russian ones that
irks Congress for years.

Blue Origin will move production to Huntsville Rocket City, Alabama,
breaking ground on a new facility in coming months.  But it`s not rocket
science, brace for massive consolations of satellites.  Startup OneWeb is
building its first factory to mass produce many satellites for broadband
use and SpaceX will soon test its own offering as well.  All this as the
lawmakers now look to reorganize the way the government manages all of this
orbital activity.

you know start the authorization subcommittee in Congress vote to create a
space corps within the Air Force that would kind of operate as an
autonomous part of the Air Force, kind of the way the Marine Corps does in
the Navy.

BRENNAN:  But, first, there needs to be some new hires, especially from the
civil side.

LOGSDON:  One of the things we are all waiting for is President Trump to
name a new head of NASA, to activate the National Space Council with the
vice president at its head, and then set out some sort of his vision for
what the civil space program is going to be.



HERERA:  I`m not sure if I`m ready for personal flying machines.

MATHISEN:  Or that Hyperloop, the tube.  I`m not sure I`m going to get in
one of those tubes.

HERERA:  No.  We`ll let the other people do it first.

Thanks for watching this special edition of NIGHTLY BUSINESS REPORT.  I`m
Sue Herera.

MATHISEN:  And I`m Tyler Mathisen.  Thanks for watching.  Have a great
evening and holiday, everyone.  We`ll see you tomorrow.


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