Transcript: Nightly Business Report – November 15, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Signs of fatigue? The market
falls as investors find reasons to dial back their enthusiasm.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Not very merry. Target
(NYSE:TGT) says the holiday quarter will not be a jolly one. And shares of
the big box chain stumbled.

HERERA: The fine print. There`s a provision in the Senate tax proposal
that would limit choice for investors, and it could prove very costly.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
November 15th.

Good evening, everyone. I`m Sue Herera.

GRIFFETH: And I`m Bill Griffeth, in tonight for Tyler Mathisen, coming to
you once again here from the New York Stock Exchange, where stocks did fall
yet again.

Uncertainty appears to be creeping back into this market lately, as
attention remains squarely on the potential for tax reform, on lower oil
prices, and on the health of the economy. When all was said and the Dow
Jones Industrial Average dropped another 138 points, closed at 23271. That
is its lowest level in three weeks, by the way. The Nasdaq was off by 31.
And the S&P 500 fell 14, but it does still remain just 1 percent from its
most recent high.

HERERA: And tax reform is indeed a big deal for the markets and investors.
This afternoon Senator Johnson became the first Republican to say that he
will vote against the Senate tax plan because he thinks it unfairly
benefits corporations more than other types of businesses. The Senate can
lose only two votes and still pass the proposal.

But as Ylan Mui reports, there are a lot of changes being made, including
one that could make your tax cut temporary.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Senate adding two
bombshells to its tax plan, getting rid of the individual mandate for
health care, and making the tax cuts for households expire after 2025.
Both of these measures could complicate the political negotiations that
have been under way for weeks.

Today, Senator Ron Johnson of Wisconsin became the first Republican to come
out against the tax plan. Republicans can only lose one more senator and
still get this passed.

The Republicans didn`t have the votes to pass the repeal of Obamacare. But
Senate leadership says this time is different.

SEN. ORRIN HATCH (R), UTAH: So in the end, keeping the individual mandate
tax in place means retaining the status quo, which is not working too well.
Zeroing it out means we have a chance to provide greater tax relief to
middle class families through both reduced penalties and lower overall
rates.

MUI: The proposal in the Senate eliminates the penalty that people have to
pay when they don`t have health insurance. The government estimates that
this will raise $318 billion over a decade. But Democrats say that`s just
because fewer people will sign up for health insurance which means the
government will have to pay fewer subsidies in order to help them afford
it.

Democratic Senator Claire McCaskill says that means the money is really
coming out of the pockets of the poor.

SEN. CLAIRE MCCASKILL (D), MISSOURI: Is there a fairy that`s dropping it
on the Senate? The money you`re spending is coming out of Medicaid and
subsidies to people who make less than $50,000.

MUI: The other controversial change is making all of the individual tax
cuts temporary. The lower rates, the increased exemption for the estate
tax, the doubling of the standard deduction — all of those would go away
in 2025.

Now, lawmakers don`t have a lot of time to digest these details. The
Senate is scheduled to vote on its version of the tax plan this week. The
House will vote on its tax bill tomorrow. Right now, Republican strategy
appears to be, go big and hope that they don`t have to go home.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

(END VIDEOTAPE)

HERERA: And there is another provision in the Senate tax plan that`s
getting investor attention. That provision would have investors sell their
oldest shares first, which typically results in a larger capital gain. A
bit later in our program, we`ll discuss what that could potentially mean
for you.

Bill?

GRIFFETH: And there`s a reason for the recent market caution, Sue. That
would be oil prices. Energy shares dropped for a fourth straight session,
tracking the price of domestic crude. An unexpected increase in stockpiles
and a downbeat outlook from an energy watchdog, both contributed to today`s
decline, which took oil prices down to $55 a barrel.

HERERA: Treasury yields also slipped following the release of two key
economic reports. Retail sales rose 0.2 percent last month. Most
economists weren`t looking for any increase at all. The increase was
because consumers bought more cars, furniture, and clothes. Separately,
the consumer price index was up ever so lightly, but it was enough to cause
the market to price in further interest rate hikes from the Federal Reserve
next year.

GRIFFETH: And here is why that`s important. Expectations that the Fed
will tighten interest rates could push yields on the two-year treasury
higher and at the same time inflation, though trending upwards, remains
subdued, limiting a rise in yields of the benchmark ten-year note on the
longer end of the curve.

The difference between the ten-year and the two-year now is currently at
its lowest in about a decade. In other words the yield curve is
flattening.

HERERA: And some say that flattening yield curve means investors are
worried about the broader outlook for the economy and stocks. So, is the
world`s biggest bond market sending a signal that stock investors can`t or
shouldn`t ignore?

Bob Michele is the global head of fixed income at J.P. Morgan Asset
Management and he joins us now to talk more about that.

Welcome. Nice to have you here, Bob.

ROBERT MICHELE, GLOBAL HEAD OF FIXED INCOME, J.P. MORGAN ASSET MANAGEMENT:
Good evening. Nice to be on.

HERERA: So, what is the bond market telling you as it pertains to the
economy and stocks?

MICHELE: Well, it`s telling us a couple of things. I think, first of all,
it`s raising some red flags. If we look at the high yield market in
particular, yields have been rising there for the last few weeks or there`s
been a bit of a selloff. And when we look at where yields got to at 5.4
percent a few weeks ago, that seemed to be too low and overly optimistic on
corporate earnings and growth. We`ve now backed up to 6 percent. I think
that`s more realistic.

GRIFFETH: But we`re also in a situation, Bob, where yields overseas are
much lower than they are here in the United States. So, international
investors find themselves coming to the U.S. and buying our bonds because
they get a much better yield, and a much higher yield here. That`s another
reason why we`re seeing this flattening of the curve, isn`t it?

MICHELE: Yes, that`s true, I think you`re right to be somewhat concerned
about the yield curve flattening, because after all, the Fed is taking the
punch bowl away. They are leaning into growth and inflation before they
become too much of a problem. And stocks in particular don`t like the Feds
leaning into anything.

That said, you still have overly accommodative monetary policy overseas.
You have negative yields. You have the printing of money. And investors
there are exporting that capital to the U.S. market and buying our bond
market. So, that`s helping to stabilize things quite a bit.

HERERA: Do you view, as some do, what`s happening in the bond market right
now as a sign that the stock market may be either peaking or heading into a
correction mode?

MICHELE: We don`t just yet. What we`re seeing in the high yield market
and with the yield curve I think are pretty normal for this part of the
cycle. Some profit taking, some response to Fed tightening.

But other things look pretty good, right? The jobs market looks pretty
healthy. There`s talk of tax reform and tax cuts. And central banks, even
though the Fed has begun the normalization process, they`re still overly
accommodative and providing a lot of liquidity into the system.

GRIFFETH: Quickly before we let you go, would you buy treasuries right
now?

MICHELE: I wouldn`t. I think credit is the better buy in here. I like
the backup in high yield to 6 percent. I think it stabilizes in here and
rallies going forward.

HERERA: On that note, Bob, thanks for joining us. Bob Michele with J.P.
Morgan Asset Management.

Bill?

MICHELE: Thanks, guys.

GRIFFETH: All right. Well, it hasn`t happened in a while, but General
Electric (NYSE:GE) was the best performing stock in the Dow today, up 2
percent. This after that sharp and steep decline following the company`s
announced plan to restructure which we`ve been telling you about here.

But how secure is GE`s membership in the blue chip index Dow Industrials?

Bob Pisani takes a look at that for us.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: GE`s sacred spot as the
longest running member of the Dow Jones Industrial Average could be in
jeopardy. I`d say could be in jeopardy.

So, the workings of the index committee which determines which stocks stay
in and which ones drop out of the Dow are a bit mysterious frankly. But
it`s clear there is no price threshold where you could get thrown out
because you drop below a certain price.

However, there are other things. GE is trading at $18 right now. But AT&T
(NYSE:T) was $33 when it was removed 2015.

Alcoa (NYSE:AA) was $8. Bank of America (NYSE:BAC) was $14. Both were
removed in September 2013.

Citigroup (NYSE:C) dropped to $3 when it was removed in June 2009. GM was
27 cents when it was dropped at the same time.

So, there`s clearly no cutoff price that would get a company kicked out of
the Dow. But the price relationship with other stocks may be very
important because the Dow is a price-weighted index.

David Blitzer, he`s the chairman of the index committee at S&P Dow Jones
indices has said that the prepares the ratio of the highest price stocks to
the lowest price stocks to be less than 10-1.

Now, GE is $18. The highest price stock in the Dow, Boeing (NYSE:BA), is
$261. That`s nearly 15 times the price of General Electric (NYSE:GE). So,
by that standard, GE is definitely a candidate to be removed from the Dow
Jones Industrial Average.

Another way to look at this is not the price but by the state of the
company. So, the committee dropped Alcoa (NYSE:AA) in 2013 partly because
raw material companies just weren`t as important as they used to be. But a
better parallel may be Hewlett-Packard (NYSE:HPQ). The PC maker was
dropped in the Dow in 2013 not just because of low price, but appeared to
be, because it was a former tech giant that had fallen on hard times.

The company`s board of directors was struggling. The company seemed unsure
of what it should be doing next. Does that sound familiar at all?

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

(END VIDEOTAPE)

HERERA: Coming up, why the new tax plan could be a problem for investors
who are part of the buy and hold crowd?

(MUSIC)

GRIFFETH: Airbus has inked the biggest airplane order ever. The European
airplane maker has signed a deal to sell 430 jetliners valued at almost $50
billion to a private equity firm that has stakes in low cost airlines
around the world. That deal was made at the Dubai Air Show.

HERERA: It was a rough day for Target (NYSE:TGT) shareholders. That stock
fell nearly 10 percent, despite reporting solid third quarter results and
lifting its full year guidance. But it was what the company said about the
critical holiday period that sent chills through investors.

Courtney Reagan explains.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Target (NYSE:TGT) hit a bullseye with its third quarter results. But
investors are disappointed with the holiday forecast.

And CEO Brian Cornell says he`s surprised at the reaction to the retailer`s
cautious fourth quarter profit expectations. And in exclusive interview,
Cornell says he`s confident going into the holiday quarter.

BRIAN CORNELL, TARGET CEO: We feel really good about our performance, the
progress we`ve made. And I feel really confident that we`ve got all of the
elements working well, as we go into the fourth quarter.

REAGAN (on camera): So, it doesn`t sound like you`re worried about what
you`ve seen, you feel pretty good.

CORNELL: I feel great about the start of the year.

REAGAN (voice-over): The big box retailer is undergoing a multiyear plan
to spend $7 billion, improving its digital business, remodel stores, pay
store employees more, and lower prices. While it may be the right strategy
to compete, it pressures profit.

PAUL TRUSSELL, DEUTSCHE BANK RETAIL ANALYST: As we look forward and think
about 2018, we struggle really to see how earnings can really grow in the
outer years.

REAGAN (on camera): While Target`s comparable sales came in double what
analysts expected, almost all of the growth came from online sales. Store
sales at Target`s more than 1800 stores are flat.

That`s concerning, when Target`s online sales are less than 5 percent of
total sales, but responsible for nearly all of the sales growth.

CORNELL: I feel good about our store performance, whether it`s someone
ordering online and picking up in a store, now in Minneapolis, someone
ordering and driving up to a store. We ship from store, obviously and now
1400 locations. So, our stores really enable our digital growth, whether
it`s in urban centers or on college campuses. Stores still matter.

REAGAN: Target (NYSE:TGT) launched four new original brands this fall,
including Hearth & Hand, co-designed by HGTV stars Chip and Joanna Gaines.
Cornell says sharp reaction to that brand has been amazing and has been a
traffic driver. But sales in traditional traffic driving categories like
essentials are lower and grocery needs improvement.

Target (NYSE:TGT) has lower prices on thousands of items, hoping to drive
traffic into stores for household staples. And for checking off shoppers`
holiday wish lists.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Minneapolis, Minnesota.

(END VIDEOTAPE)

GRIFFETH: Meanwhile, Cisco`s security business helped that company report
better than expected earnings and revenue in its most recent quarter. The
world`s largest network gear maker has been diversifying its business away
from just switching and routing, and now it may be paying off. Shares of
the company rose in initial trading, and after hours tonight.

Josh Lipton has the one key takeaway in tonight`s Cisco (NASDAQ:CSCO)
report.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Cisco (NASDAQ:CSCO)
has been moving its core business to a recurring revenue motto. Meaning,
instead of a one-time sale, Cisco (NASDAQ:CSCO) is counting on revenue from
subscription-based services. That`s critical for Cisco (NASDAQ:CSCO)
because the market for its hardware, meaning switches and routers, doesn`t
have much growth left. So, Cisco (NASDAQ:CSCO) is now focused on
distributing more of the software and services that companies are buying.

Cisco (NASDAQ:CSCO) now says recurring revenue makes up 32 percent of total
revenue. Bryan White of Drexel Hamilton says that`s important for two
reasons. It means investors have greater visibility into the future of
this business and investors generally sign higher multiples to those
countries with stronger recurring revenue.

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

(END VIDEOTAPE)

HERERA: Nelson Peltz reportedly wins a board seat at Procter & gamble.
That`s where we begin tonight`s “Market Focus”.

According to CNBC, the activist hedge fund manager has been elected to
P&G`s board of directors after a recount showed he won by more than 40,000
votes. P&G says that`s subject to review. Peltz, whose Trian Fund
Management has a more than $3 billion stake in P&G, has criticized that
company for lagging and innovation. Last month, P&G said Peltz lost his
bid to win a seat by more than 6 million votes. P&G shares initially rose
in the extended session but they finished the regular day down a fraction
to $88.23.

Acorda Therapeutics (NASDAQ:ACOR) said five patients died from sepsis while
being treated with the company`s experimental Parkinson`s disease
medication. The drug maker said it has stopped enrolling new patients in
the study and plans to speak with the FDA about the treatment. Acorda
shares plunged nearly 40 percent to $17 even.

And scientists at Sangamo Therapeutics have tried to permanently change a
gene inside a patient`s body, in an effort to wipe out an incurable disease
called Hunter Syndrome. The experiment was the first of its kind. And
while the results won`t be known for months, this new and precise form of
gene editing could offer new hope for people battling deadly diseases.
Shares of Sangamo Therapeutics jumped more than 13 percent to $14.65.

GRIFFETH: Defense contractor Raytheon (NYSE:RTN) says it is adding $2
billion to its existing share buyback program. Shares initially rose in
after-hours following that announcement, but ended the regular session down
a fraction to $182.85.

And after the bell tonight, home furnishing retailer RH raised earnings and
sales guidance for the current quarter. The company said that the improved
outlook is due to stronger business performance and a $2 million tax
benefit. Shares initial took off in after-hours trading but ended the
regular session down 6 percent to $83.30.

And we recently told you that Hasbro (NYSE:HAS) had approached Mattel
(NASDAQ:MAT) with a takeover offer. But “Reuters” says tonight that Mattel
(NASDAQ:MAT) is not interested. Mattel (NASDAQ:MAT) reportedly voiced
antitrust concerns, and said the proposal undervalues the company. Mattel
(NASDAQ:MAT) shares finished down 1 percent to $18.32. But it was higher
in after-hours market. Hasbro (NYSE:HAS) shares were off about 1 percent
at $94.75.

HERERA: The head of the Consumer Financial Protection Bureau is stepping
down. Richard Cordray was appointed by President Obama to lead the
consumer watchdog agency that has been at the center of a number of
political controversies. The agency was set up in response to the
financial crisis, to police things like mortgages and credit cards.
Republicans have long argued though that that agency has too much power.

GRIFFETH: OK. Now to that new provision in the Senate`s tax plan that we
told you about earlier that could take away your ability to pick and choose
which stocks you want to sell out of your portfolio and the number of
shares. Under the new rule, if it were to pass, investors would be forced
to sell their oldest shares first, FIFO, which typically has a larger
capital gain. If the change does happen, investors would pay an estimated
$2.7 billion more in taxes over the next decade as a result.

Robert Gordon is the president of the Twenty First Securities and he joins
us now to talk about this.

How big a deal is this? I mean, you have a choice right now, but if you
had to sell those older shares first, how big a tax bite are we talking
about here?

ROBERT GORDON, TWENTY FIRST SECURITIES PRESIDENT: Well, it really depends
on each client`s situation. If the prices they paid for the share are
pretty much the same, even though it went over many years, it wouldn`t
matter. But the markets move, people don`t buy all in one big lump, and
most of the time people do have specific lots that have cost basis that are
quite different than each other.

There are four different tax efficient strategies that use specific lot
identification in order to get the most juice out of them. And those four
strategies will be severely impacted.

HERERA: Bob, would it also affect people who are in mutual funds, in ETFs,
and the like? Or is it just individual stockholders with individual stock?

GORDON: Well, the first three issues that I would discuss are as they
relate to individuals. But the fourth and the bigger structural issue is
that exchange traded funds or ETFs are traditionally more tax efficient
than open end funds, because they do something called a redemption in kind
under Section 852.

And when they do that, they deliver out the shares that have the lowest
cost basis, and when they deliver them out of the portfolio, the capital
gain literally evaporates. And just as an example, Vanguard`s ETF and
Vanguard`s Open End Fund are the same fund, and I believe that when people
cash out of the Vanguard ETF, the market makers may very well given shares
that the Vanguard Open End Fund bought at low prices many years ago.

GRIFFETH: Right.

GORDON: So, it`s going to really hurt how tax efficient the ETFs can be.
And it`s going to take away a lot of the benefit of the ETFs` edge. That`s
why you see the Investment Company Institute trying to beat this proposal
back.

GRIFFETH: OK. We should just remind everybody, this is only a proposal.
It hasn`t been passed. But if it were to pass, especially before the end
of the year, because this would take effect January 1st of 2018, what would
you think people would want to do before the end of the year?

GORDON: Well, I think that there are two strategies where this is very
important. One is if you owned a thousand shares and you have 10 different
lots bought at different times, and you knew you were going to sell over
the next year or two, if you sell after January 1st, you`re going to be
forced to use your FIFO price. And if you see that, that would create a
giant capital gain then maybe what you should be doing is accelerating that
selling now and identifying the shares with the highest cost basis,
triggering the least amount of gain.

GRIFFETH: Right.

GORDON: The second issue is people that give stocks to charity. If you
bought a stock for a dollar and it goes up to $60 and you give it to
charity, you not only get a $60 deduction, but you`re also forgiven your
capital gains tax. Someone who wants to give shares to charity may want to
do it sooner and identify their lowest basis shares.

GRIFFETH: All right. I`m sure some accountants and financial planners are
getting some phone calls in the next few days here. That`s for sure.

Robert Gordon with Twenty First Securities, thanks for joining us tonight.

GORDON: Thank you.

GRIFFETH: And coming up, time, of course, is money. So are data. That`s
why hackers want it and why companies are spending a lot to protect it.

(MUSIC)

HERERA: Nearly half of cybersecurity professionals believe their company
could face a major disruptive attack in the next year. That`s according to
a survey released this week. After major breaches, companies big and small
are working hard to defend against hackers.

Andrea Day takes a look at what`s at stake and what can be done to keep
businesses safe.

(BEGIN VIDEOTAPE)

BRIAN VECCI, VARONIS TECHNICAL EVANGELIST: It`s easier right now to list
all of the Fortune 500 companies that haven`t been breached than it is to
list the ones that have.

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Massive
security breaches that have some companies scrambling to recover.

VECCI: Data is becoming more expensive than it`s ever been.

DAY: Brian Vecci is in the business of securing data, at the cyber
security firm Varonis, working with brands, he says, that invest millions
to keep data safe.

VECCI: Data security can take down the entire organization.

DAY: And he says far too many have data just sitting wide open. Veronas
did risk assessment on more than 1,000 companies and found 47 percent had
more than 1,000 sensitive files open to all employees, data, he says, that
should be treated like cash in a vault.

VECCI: There`s no more big fence that you can put up to keep people out.

DAY: So, he says the key is knowing how data is being used.

VECCI: We don`t live in a world anymore where all of the data or all of
the information is in a single building or a single data center. Our
employees and our users access data from anywhere.

DAY: Tapping into work from home, using networks that can be connected to
their smart devices, like door locks and TVs. If those devices are
unprotected, he says they`re all potential vectors for attack.

VECCI: They all have default security settings. And one of the biggest
issues for consumer security these days is that many times, people don`t
change the default settings.

DAY: And according to Vecci, using the web can leave critical data
exposed.

VECCI: Any Website that you go to, any application that you use inside of
a web browser, is a potential for something to go wrong.

DAY: The most important thing to watch, files and e-mails used by the
company on a regular basis. Make sure only the right workers have access,
and that it`s all being carefully monitored.

VECCI: You can`t catch what you can`t see. It`s not a mission impossible,
somebody breaking in and using the most advanced technology to get in.
It`s people just looking for a little bit of an open door. These systems
are so complex that all it takes is one little chink in the armor and
suddenly you`ve lost.

DAY (on camera): The good news is companies are starting to wake up.
According to Veronas, 80 percent of I.T. professionals worldwide say
they`ve changed or plan to change security policies based on recent
attacks.

For NIGHTLY BUSINESS REPORT, I`m Andrea Day.

(END VIDEOTAPE)

GRIFFETH: By the way, before we go, we want to tell you about a special
program that we`re putting together on retirement that will air on
Thanksgiving. And we want to hear how you are saving for your later years
and some of the challenges that you`re facing in doing that. Log on to our
Website at NBR.com, click on “contact us,” and tell us your story. You can
also, by the way, post a comment on our Facebook (NASDAQ:FB) page or you
can tweet us.

If you have a question, our retirement expert may be able to answer that.
E-mail us a short video of that question to NBRmail@cnbc.com.

HERERA: Can`t wait to hear your questions. That`s NIGHTLY BUSINESS REPORT
for tonight. I`m Sue Herera. Thanks for joining us.

GRIFFETH: And a happy birthday to you, my dear friend.

HERERA: Oh, thank you so much, Bill. I appreciate it.

GRIFFETH: I`m Bill Griffeth. Have a great evening, everybody. Celebrate
with Sue. See you tomorrow.

HERERA: Woo-hoo!

END

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