Transcript: Nightly Business Report – September 29, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Rally rolls on. The Wall
Street bull was alive and well in the third quarter. But will it be a
different story in the fourth?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Red hot REITs. Some of
them have been flying high. And our market monitor says it could go even
higher.

HERERA: Mission to Mars. Elon Musk wants to make it a reality in just
five years.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
September 29th.

MATHISEN: Good evening, everyone. Welcome. And it`s nice to be back.

What a run it`s been for stocks. The quiet grind higher pushed the S&P
500, the NASDAQ and small cap Russell 2000 to record highs today. And on
this Friday, which is also the last day of the week, the month, the
quarter, the Dow posted its first eight-quarter win streak in, yes, 20
years. The S&P 500 recorded its sixth straight month of gains. And that`s
saying something, because historically between May and October tends to be
the worst period for stocks.

So, let`s get right to the numbers, shall we? Today, the Dow Jones
Industrial Average added 23, to 22405. Nasdaq was up 42, it`s 50th record
close this year. And the S&P 500 rose nine.

For the quarter, all of the major indexes had solid gains, as you see right
there, about 4 percent or better.

So, what drove the gains? And what may happen in these final three months
of the year?

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: U.S. stocks hit record
highs this quarter. Stock markets from Japan and China had 52-week highs.
Hang Seng and Hong Kong, two-year highs.

What`s driving this turnaround? Here`s what`s important: Bulls are betting
that slow but persistent global growth coupled with tax cuts in the U.S.
will keep the market at or near record highs in the fourth quarter.

Now, the global economy is continuing to expand. Growth sectors like
banks, energy, materials, and industrials, all outperformed in September.
The trend is expected to spill over into the fourth quarter.

We`re expecting double digit growth in industrials and material earnings.
And energy is also expected to keep rallying, not as much as it was in the
prior quarters. Major hurricanes had a modest impact on earnings for
airlines, and retail and insurers in the third quarter. But recovery will
like boost sectors like materials and autos in the fourth quarter.

Tax cuts and technology will also be factored in. Tech has been the market
leader all year long, up about 25 percent. But the biggest bet is on
semiconductor earnings, which are set to jump 25 percent in the fourth
quarter. Major growth from a number of companies including micron.

One big wild card, Apple (NASDAQ:AAPL), whose earnings are expected to grow
12 percent in the fourth quarter. But the stock swayed 6 percent in
September as doubts grew about how many would be buying the new Apple
(NASDAQ:AAPL) 8 and Apple (NASDAQ:AAPL) X.

Speaking of wild cards, North Korea and the Federal Reserve are the two
other big risks out there for the fourth quarter.

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

(END VIDEOTAPE)

HERERA: So, let`s turn to Brad McMillan for more on the market and what he
sees ahead for stocks in the fourth quarter. He`s the chief investment
officer at Commonwealth Financial Network.

Welcome, Brad. Nice to have you with us.

BRAD MCMILLAN, CIO, COMMONWEALTH FINANCIAL NETWORK: Thank you, Sue. Great
to be here.

HERERA: You think that the market is pretty much firing on all cylinders,
correct?

MCMILLAN: I do. When you look at the fundamentals, when you look at the
economy, when you look at all the bad news, it just keeps going up. And I
think you have to respect that.

MATHISEN: So, where do you think it heads from here? I mean, we`ve had
50, 50, records in NASDAQ so far this year. My colleague Scott Wapner said
earlier today that 79 percent of the traders he talks to, people like you,
think the stock market is going to go higher. But zero percent of them
think stocks are cheap.

MCMILLAN: I think that`s a very fair statement. But the question I`m
asking myself is not will the stock market go higher, but why wouldn`t it
go higher. What would bring it down? I mean, when you think about all the
bad news we`ve had, the storms, the missiles over Japan, the talk of a
nuclear war, for goodness sake.

And nonetheless, there`s a force pushing it up. And that`s the strength of
the economy, the strength of corporate earnings, and it just makes sense
for prices to keep rising.

HERERA: Now, October, which we`re heading into, traditionally I mean, it
gets a bad reputation, certainly, and for good reason, perhaps. But
September also does not have a stellar reputation, and the market defied
those odds. Will it continue to do so in October?

MCMILLAN: Well, what`s interesting is, October has obviously some bad days
in there. But September historically is the worst month for the market.
What happens is the market actually rises, and rises strongly in September,
that`s a usually a really good sign for the rest of the year. So, I take
September`s results as a pretty good indicator that the rest of the year
might be pretty good as well.

MATHISEN: So, what areas of the market seem most opportunistic for you and
others that seem a little bit dear?

MCMILLAN: Well, when you look at opportunity, I think energy is at the
front of the list. There`s been a lot of disruption. There`s been a lot
of worry. Energy is actually really cheap right now and you`re starting to
see it respond. So, I think that`s the biggest opportunity.

In terms of areas to be concerned about, I think some of the tech areas,
some of the high fliers in particular, may have gotten ahead of themselves.
And we may see a pullback there. I think people are looking more for
bargains. They see the growth but they`re worried about paying too much.

HERERA: We also see from your notes that you like Europe perhaps a little
bit more than the United States. What part of Europe? Developed Europe
or?

MCMILLAN: Right now, developed Europe is a good bet. The European Central
Bank keeps putting money into the system. Companies are doing better.
People are feeling better.

When people are feeling better, they`re getting hired, they can spend more
money, which is good for profits. And you can buy European companies
cheaper right now than you can American companies.

HERERA: On that note, have a great weekend, Brad. Thanks for joining us.

MCMILLAN: Thank you, you too.

HERERA: Brad McMillan with Commonwealth Financial Network.

MATHISEN: Well, the president pushed his tax cut plan today in a speech to
a manufacturers group. The president said it will reinvigorate industry,
small business, and the middle class.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: This will be the lowest top
marginal income tax rate for small and medium-sized businesses in more than
80 years, the lowest in 80 years.

(APPLAUSE)

And it will be rocket fuel for our economy.

(END VIDEO CLIP)

MATHISEN: The president also said the newly-released tax framework would
result in the, quote, rebirth of American industry.

HERERA: A new analysis by a nonpartisan think tank concludes that the GOP
tax blueprint would spread tax cuts across all income groups with the
richest seeing the biggest windfall. Preliminary estimates by the Tax
Policy Center show that the richest 1 percent of Americans would get more
than half of the benefits. And because of changes to tax benchmarks, that
plan would increase the tax burden on about 28 percent of middle class
workers.

But as we`ve been reporting, many of the details are yet to be finalized,
including the income cutoffs for the three new tax brackets.

MATHISEN: Now, the search for a Fed chief is ramping up. Today, President
Trump met with former Federal Reserve Governor Kevin Warsh at the White
House. One person described the meeting as, quote, very positive and that
Warsh seems eager to bring reforms to the Federal Reserve.

There are other reports this afternoon that Fed Governor Jay Powell also
met with the president. Powell is a former top Treasury official under
President Bush.

Current Chair Janet Yellen`s term ends in February.

HERERA: The secretary of Health and Human Services is out. Tom Price, the
highest ranking health official, has resigned his cabinet position amid a
growing scandal over the use of private jets at taxpayer expense. There
are reports that the bill totaled about $1 million. Price offered to pay
back about $50,000.

Don Wright will serve as acting secretary. He is currently the
department`s deputy assistant secretary.

MATHISEN: Income and spending growth cooled off. The Commerce Department
said consumer spending which for more than 2/3 of economic activity in this
country edged up 0.1 percent in August. That was in line with
expectations, follows a higher rise in July. Personal income up 0.2
percent in August after a bigger increase the prior month.

The government said the data reflects the effects of Hurricane Harvey but
could not separately quantify the total impact of Harvey on that data.

HERERA: Today, President Trump said the U.S. will not rest until Puerto
Ricans are safe. But he also emphasized the vast challenges involved in
the Hurricane Maria recovery effort. On the ground in Puerto Rico, a
three-star general is taking the reins.

And Contessa Brewer is there.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Heidi
Orndoff came to the convention center with her 5-year-old son, desperate to
tell someone in charge how dire the situation is in Fajardo, normally, an
hour`s drive from San Juan. How panicked her neighborhood are with no
running water, gasoline, or cash.

HEIDI ORNDOFF, PUERTO RICO RESIDENT: Do you know what eight like, seven
days with 38 cents? I was prepared before. We had enough water and enough
food. We still do. But other people don`t. And I helped a lot of people
in the street and I can`t help them.

BREWER: Post-Maria, cash is king. People wait in long lines at the ATM
for rationed withdrawals, usually less than a couple of hundred bucks. But
they need gas in their cars to drive to one of the 90 open banks or ATMs.

In this gas line, customers must have cash and patience. They waited 15
hours before the fuel delivery truck arrived. Then, first responders and
those involved in recovery got first dibs. A funeral director waited next
to his hearse.

(on camera): So, you need the gas —

ANGEL DANIEL RODRIGUEZ, FUNERAL DIRECTOR: I need the gas.

BREWER: — because you have four bodies to take care of tomorrow.

RODRIGUEZ: Yes, I have four bodies tomorrow to cremation. I needed the
gas, I don`t have — I`m empty. I`m empty.

BREWER (voice-over): The government says there`s a backlog of bodies at
the morgue for lack of resources. Generators and fuel are going to water
pumping stations. But only half the island has running water.

LT. GEN. JEFFEREY BUCHANAN, U.S. ARMY: It`s not enough.

BREWER: The three-star general now leading the military response on the
ground says repairing the supply chain and clearing that logistical logjam
will take time.

(on camera): Can you give me a sense, personally, now, what you`re seeing
in Puerto Rico and putting that in perspective with your broader
experience?

BUCHANAN: So for me, Harvey was monumental in Texas, just because of the
amount of flood damage. But impact here is completely different. It`s
like an atomic bomb went off. With all of the wind, and the wind impact
knocking down all trees, knocking down electrical lines, it`s just a very
different disaster.

BREWER (voice-over): The Army Corps of Engineers is tackling electricity
infrastructure. The airport and two major hospitals are now connected to
the grid. The governor says companies that can`t pick up their containers
of essential goods at the port will be required to sell them to the
government which will then distribute them.

He`s also reducing the nightly curfew by two hours and lifting the alcohol
prohibition. That is cold comfort for Heidi, a bartender at mega resort El
Conquistador.

ORNDOFF: It`s overwhelming to not have water, just one bottle of water to
drink.

BREWER: And patience is in short supply, just like water in the taps, fuel
in the tanks, and food in the belly.

For NIGHTLY BUSINESS REPORT, Contessa Brewer, San Juan, Puerto Rico.

(END VIDEOTAPE)

MATHISEN: And still ahead, did Amazon (NASDAQ:AMZN) score with its first
live stream of a pro football game last night?

(MUSIC)

MATHISEN: The board of Equifax (NYSE:EFX) reportedly considering taking
back compensation for top executives in the wake of the massive data breach
that affected 143 million Americans. As first reported by “The Wall Street
Journal,” the board could claw back pay for the former CEO Richard Smith
and the former chief security officer. The report says the two might not
get paid this year and could give up past pay that hasn`t yet vested.

HERERA: Apple (NASDAQ:AAPL) has received a record number of government
national security requests for data in the first half of the year. While
not disclosing a specific number, the company said it received more than
13,000 requests, more than double the number last year. It`s unclear
what`s behind that increase. Apple (NASDAQ:AAPL) has had an uneasy
relationship with law enforcement. Last year, the FBI ordered Apple
(NASDAQ:AAPL) to unlock the iPhone of the alleged San Bernardino shooters.
Apple (NASDAQ:AAPL) refused.

MATHISEN: Well, Walmart`s Jet.com will launch its own grocery brand to
take on Amazon (NASDAQ:AMZN), a store brand. The move is designed to
compete with Whole Foods` 365 house brand which Amazon (NASDAQ:AMZN)
recently acquired. Jet.com`s brand will be called Uniquely J and will
cater to the needs of young urban adults, a demographic that Walmart
doesn`t reach as well as Jet.com does.

Store brands have the potential to offer retailers higher margins and more
control over marketing and distribution.

HERERA: Is Amazon (NASDAQ:AMZN) ready for some football? The NFL`s latest
experiment with streaming occurred last night when Amazon (NASDAQ:AMZN)
streamed its first pro-game. It`s part of a reported $50 million deal
struck back in April. The question is, was it a touchdown?

Julia Boorstin joins us from Los Angeles.

Good to see you, Julia. So, this was a big —

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to see you,
Sue.

HERERA: It was a big deal for Amazon (NASDAQ:AMZN). Give us a sense for
how well the game did.

BOORSTIN: Well, we don`t actually know yet how many people streamed the
game on Amazon (NASDAQ:AMZN). We were expecting those numbers already from
the NFL and Amazon (NASDAQ:AMZN). But we haven`t gotten them just yet.

I do have to say, Sue, the game got off to a little bit of a rocky start.
People were complaining about buffering issues. At one point the feed that
we were watching actually shut down and had to start up again.

So, there were some complaints on Twitter. There was also the issue of a
weather delay, a 47-minute weather delay which may have really hurt the
viewership numbers.

MATHISEN: So, how big of a commitment is this from Amazon (NASDAQ:AMZN)?
What does it mean to the company?

BOORSTIN: Well, a source tells me that Amazon (NASDAQ:AMZN) is paying
about $50 million for a total of 11 Thursday night games. And it`s just
for the streaming rights. It`s not that you won`t be able to watch these
games elsewhere, but that if you want to log into your Amazon (NASDAQ:AMZN)
Prime subscription, you will also be able to watch them live on Amazon
(NASDAQ:AMZN).

This is a very important test for Amazon (NASDAQ:AMZN), because they have
very deep pockets and they`re trying to figure out if it`s worth investing
in these sports rights which are very expensive, especially the NFL, in
order to get people to really be committed to their Amazon (NASDAQ:AMZN)
Prime service, and then maybe make more purchases related to the game.

HERERA: You know, Twitter streamed some NFL games last year. How does
this compare to when Twitter did it?

BOORSTIN: Well, it will be interesting to s. Twitter had 10 games, Amazon
(NASDAQ:AMZN) has 11 games. You know, Amazon (NASDAQ:AMZN) did a preshow,
a pregame show to try to get people excited. And Twitter did not do that.

So, there are some differences in the way they`re handling it. Amazon
(NASDAQ:AMZN) obviously has some other capabilities in terms of retail.
They can sell things connected to games, jerseys, et cetera.

But the main difference here is that Twitter did not require people to log
in to access the game. So, you didn`t need to have a Twitter account to
sign up for this. You do have to be an Amazon (NASDAQ:AMZN) Prime
subscriber. But the numbers that Twitter reported seem relatively small
compared to television ratings. So for instance, last year, Twitter
averaged 266,000 viewers at any given minute during the games, a total of
2.7 million people watched for at least three seconds.

So, the numbers are pretty small. We`ll have to see how Amazon`s numbers
compare.

HERERA: Well, I know you`ll get them to us when you can. Thanks, Julia.
Appreciate it.

Julia Boorstin in Los Angeles.

MATHISEN: Valeant completes the nearly $1 billion sale of its iNova unit,
and that`s where we begin tonight`s “Market Focus”.

The drugmaker said the previously announced deal to sell iNova
Pharmaceuticals has closed. The company plans to use the proceeds from the
transaction to reduce its big debt load. Investors cheered and sent shares
up 4 percent on the session to $14.33.

Shares of several drug makers took a hit today, though, after the Food and
Drug Administration posted a database on its Website allowing the public to
search for documented reports of drug side effects. Several reports showed
a number of deaths associated with medications. But some analysts pointed
out, the information was without context and does not necessarily prove
that a particular drug has safety issues.

Shares of Sarepta, Ionis, and Acadia were lower in today`s trading. Biogen
shares recovered from earlier losses to end a percent higher.

Small cap biotech Zogenix (NASDAQ:ZGNX) reported upbeat results from a
study of its experimental epilepsy drug. The company said the treatment
significantly reduce seizure activity in children with a rare form of the
condition when compared with a placebo. Zogenix (NASDAQ:ZGNX) said it
plans to apply for regulatory approval in the U.S. and Europe next year.
Zogenix (NASDAQ:ZGNX) shares today, look at the numbers, not wrong, not a
misprint, 172 percent higher, to $35.05.

HERERA: Defense contractor Honeywell said it is raising its annual
dividend 12 percent to $2.98 a share. Separately, the company has faced
pressure from an activist investor to spin off its aerospace business. But
according to reports, Honeywell said it`s keeping the division. Honeywell
shares were fractionally higher to $141.74.

Tyson Foods (NYSE:TSN) says it plans to cut 450 jobs across the country as
part of its plan to operate more efficiently. The company also said it was
lifting its guidance for the fiscal year due to strong performance in its
beef segment. Shares rose more than 7.5 percent to $70.45.

And regulators may remove insurer AIG from stringent government oversight
that was ordered for the company following the 2008 financial crisis.
According to “Bloomberg”, regulators have been discussing a move that would
released AIG from the designation of too big to fail. AIG`s shares were
slightly higher to $61.39.

MATHISEN: And now to our weekly market monitor who is finding
opportunities in real estate investment trusts or REITs. He`s got some
names he says are beneficiaries of e-commerce. This is his first time on
the program. He`s Jeung Hyun with Adelante Capital Management.

Jeung, I hope I pronounce Adelante correctly.

Let`s get to your thesis. Why are you so hot on REITs?

JEUNG HYUN, PORTFOLIO MANAGER, ADELANTE CAPITAL MANAGEMENT: Well, I think
REITs in general, people are concerned about REIs because of rising rates.
But I think if the rates are rising because the economy is going to get
better, then the landlords are going to benefit in the long run.

MATHISEN: Let`s go to your first —

HYUN: For the most —

MATHISEN: Go ahead. Finish your thought. I`m sorry.

HYUN: And for the most part, in the United States, the supply/demand
picture for commercial real estate is in balance.

MATHISEN: Your first pick is Terreno?

HYUN: Terreno, yes.

MATHISEN: Tell me about it.

HYUN: It owns and operates about 12.7 million square feet of industrial
buildings in six of the coastal — major coastal markets. As you know, e-
commerce has really boosted a demand for warehouse space. But I think as
consumers` expectations of next day or even same delivery starts to get
heightened, the focus has shifted from the large fulfillment centers to
more last amount of delivery. Terreno owns smaller buildings into
location. So, they should be the beneficiaries of that trend.

HERERA: Next on the list is Regency Centers (NYSE:REG) Corporation, REG is
the symbol. You say, and I find this interesting, first of all, it has a
really nice dividend yield of 3.4 percent. You say it is the perceived
loser in part of this space. Why so, and why do you like if?

HYUN: So, I think people think that Amazon (NASDAQ:AMZN) is going to
basically drive every brick and mortar retailer out of the business. We
have at Adelante, we have a contrarian view of — for example, Amazon`s
acquisition of Whole Foods. We think it`s an admission by Amazon
(NASDAQ:AMZN) that it needs physical buildings to deliver groceries to
consumers and to a certain extent, it`s a validation of the high quality
real estate that Regency owns.

The business is sound. It`s been growing dividends 3 percent per year for
the last five years. Yet, it trades at a 10 percent discount to breakup
value.

MATHISEN: Yes. And you look at how the stock performance, it`s been down.
Sometimes we have folks who tell me to buy something that`s up 200 percent,
I`m always skeptical of that.

Let`s go to your next pick, which is Starwood Waypoint with 2.5 percent
dividend yield.

HYUN: Yes, Starwood Waypoint just announced a merger with another company
to form the largest REIT that owns and operates single family homes for
rent. As the economy gets better, obviously, that business is going to
benefit. But also, I think Starwood Waypoint and the business in general
of renting single family homes is going to get a boost from millennials
getting older but having a tendency to rent rather than own. Probably
student loans gets in the way of home ownership as well.

SFR has a really good geographic footprint in the high growth market in the
Sun Belt and in the West Coast where home ownership is difficult. And as,
you know, there`s been not a lot of starter homes that have been built over
the — since the financial crisis. So, SFR sits in a nice spot in terms of
the supply-demand perspective.

MATHISEN: All right. Jeung Hyun with Adelante Capital Management, thanks
very much.

HYUN: Great. Thanks for having me.

HERERA: Coming up, out of this world. Elon Musk`s big plans to conquer
the Red Planet.

MATHISEN: Nevada dispensaries pulled in more than $27 million during the
first month of recreational marijuana sales in the state. That has nearly
double what Colorado and Oregon sold during their first months. According
to the Nevada Department of Taxation, those sales generated more than $3.5
million in taxes.

HERERA: Volkswagen is warning investors that its third quarter profit will
be hit by unexpectedly high costs for repairing diesel cars here in the
U.S. Those cars were equipped with emissions cheating software. The
automaker is setting aside an additional $3 billion to comply with its
legal settlement which calls for VW to fix about 600,000 cars that used
that illegal software.

Volkswagen has already agreed to pay nearly $23 billion to settle a class
action lawsuit by car owners, as well as other proceedings.

MATHISEN: So, what`s your five-year plan? Maybe you want to buy a home,
start a family, maybe retire. For SpaceX founder Elon Musk, his five-year
plan, five-year plan includes landing on Mars. And he`s now outlining how
he`s going to get there.

Morgan Brennan goes to infinity and beyond.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Mars may be closer
than you think. SpaceX founder Elon Musk took to the stage at a major
space conference in Australia to outline his plan to colonize the Red
Planet.

ELON MUSK, FOUNDER, SPACEX: Becoming a multi-planet species beats the hell
out of being a single-planet species.

BRENNAN: Musk is targeting 2022 for the first cargo mission and 2024 to
transport the first humans. It`s wildly ambitious, or as he puts it,
quote, aspirational, attempting to bring people to our neighboring planet a
full decade earlier than NASA.

Some experts say it`s unrealistic since the rocket that will accomplish
this has yet to even be built. That construction will start next year,
funded by the company`s satellite launches and government cargo missions.
No estimate on price, though Musk did say, last year, development could
total $10 billion. To that extent, he debuted a new design meant to cut
costs and make the new rocket of the future the go-to for all SpaceX`s many
missions, including a new one.

MUSK: If you built a ship that`s capable of going to Mars, what if you
take that same ship and go from one place to another on Earth?

Most of what people consider to be long distance trips will be completed in
less than half an hour.

BRENNAN: Musk, who also runs electric car company Tesla, hopes to make
those trips as affordable as an economy class airline ticket. Though
details on timing remain scant.

But SpaceX isn`t the only company with astronomical ambitions. Rival
Lockheed Martin (NYSE:LMT) introduced its own Mars Concept this week as
well, a base camp comprised of an orbiting space station and a reusable
lander that will carry humans to Mars` surface and back. That camp will
operate with Orion, a capsule Lockheed is already building for NASA, which
has its own ambitions to send Americans to Mars by mid-2030.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: Before we say good night, I`m so happy you`re back.

MATHISEN: I`m so glad to be back. I had a little jury duty and another
assignment.

HERERA: You were on assignment.

MATHISEN: On assignment earlier this week. Good to be home.

HERERA: Good to see you back. We missed you.

That does it for us. I`m Sue Herera. Thanks for joining us.

MATHISEN: Great to be back. I`m Tyler Mathisen. Have a great weekend,
everybody.

END

Nightly Business Report transcripts and video are available on-line post
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Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

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