Transcript: Nightly Business Report – December 29, 2017

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

Investors will be sorry to see 2017 end, as stocks post their best gains
since 2013.

Portfolio picks. Our market monitor has three stocks for the New Year he
says will have strong earnings growth and come with a good price tag.

And food for thought. How one entrepreneur made millions from his love of
flowers, fruit, and chocolate.

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, December

Good evening, everyone, and welcome. Sue Herera has the rest of the year

On Wall Street, it is game, set, and match. And what a match it was. The
books are closed for 2017. And for stock investors all around the globe,
virtually no matter the market you were in, you made money this past year –
– sometimes lots of it.

Here in the U.S., the major indexes set records seemingly every week. The
Dow and Nasdaq had 71 and 72 record all-time high closes respectively. No
other year comes close. The S&P 500 had 62. And those records led to
numbers like these for 2017.

The Dow up 25 percent. The Nasdaq, 28. And the S&P 500, 19 percent.

But we dug a little deeper and we found some surprises in those numbers.
If you`re worried these outsized results might indicate an overheated
market, you`re entitled to feel that way. But consider this, going back to
the Reagan administration that began in 1981, none, none of these gaudy
percentage gains even rank in the top five year by year.

This year`s Dow comes the closest. Sixth best year since `81. In fact,
this wasn`t even the Dow`s best decade, 2013 was, up 26.5 percent. It was
also, believe it or not, an eerily calm. To put it to perspective, 2015
and `16 combined saw the S&P 500 move 1 percent in either direction almost
120 times. Guess how many this year? Eight.

But the many happy returns weren`t confined to just stocks. Oil closed
above $60 a barrel for the first time in 2 1/2 years and rose more than 12
percent for the year. And the metals gold and copper also had their best
years since 2010.

Now, as for today, stocks kind of ran out of gas at the end. It shouldn`t
come as a surprise. It is, after all, the fourth straight year the
averages ended the final trading day lower. The Dow dropped 118 points,
finishing shy of 25,000. Nasdaq fell 46. The S&P 500 was off just about

Bob Pisani has more on the big year that was.


a very unusual year, the big issue is, will all the good news continue into
2018. There was a lot of it in 2017. The S&P rose 20 percent, its best
return since 2013. The U.S. economy grew modestly.

But stocks were also helped by a global economic expansion, record earnings
for companies, low volatility, low interest rates, and the expectation of
tax cuts as income at the end of the year. The big winners were
semiconductors. They rode the wave of buying in smartphones, smart
appliances, and electric vehicles, as well as homebuilders that rode the
wave of low interest rates, limited supply, and more young people going out
on their own.

Commodity stocks like copper manufacturers were also strong because the
global economy improved. One notable laggard was oil stocks. Even though
oil moved towards $60 at the end of year to two-year highs, investors who
had been burned by the big drop in oil in 2015 and 2016, they mostly stayed

This was also a big year for the global stock market as economies around
the world improved in both developed and emerging markets. So, Vietnam,
India, Brazil, Hong Kong, saw double digit gains with mid-single digit
gains in much of Europe.

The issue for 2018 is, will global growth continue? And what about
earnings? They will get a boost next year thanks to tax cuts, but what
happens after that?

The final issue is inflation. It`s been relatively contained because wage
growth has been modest. But with the economy heating up, that may change.
Now, if inflation picks up, the Federal Reserve may raise rates more
aggressively and that could stall out the rally.

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


MATHISEN: Well, this past year, the Nasdaq composite outperformed its more
senior index brethren with a nearly 30 percent gain, topping 7,000 for the
first time this year.

And as Bertha Coombs tells, big name tech led the way.


it, history doesn`t repeat but it often rhymes. That`s certainly true with
the Nasdaq 100. It`s the only major index up 9 straight years, since the
Great Recession, making for the longest annual win streak since the big
tech breakouts of the 1990s.

And just as then, it`s the big mega cap tech stocks that are responsible
for the gains. Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Microsoft
(NASDAQ:MSFT) and Facebook (NASDAQ:FB) have provided the biggest lift to
the overall market and the S&P 500. And when you add in Alphabet, they
accounted for two-thirds of the Nasdaq 100`s 1,500-point gain in 2017.

Here is the rhyme part. Microsoft (NASDAQ:MSFT), which was a tech
heavyweight back in the `90s, benefiting from its shift to cloud technology
here over the last few years, up for six straight years, seeing its best
annual win streak since the launch of Windows back in 1995. Consumer names
were the biggest laggards of 2017. Many like Dish took a hit in the third
quarter due to hurricanes. Now, auto parts retailer O`Reilly Automotive
(NASDAQ:ORLY), which had ridden the Nasdaq rally to historic highs, down
for the first time in eight years.

And Ulta Beauty, which had seen consistently all-time highs for the last
three years, snapping a three-year bull run. But like a lot of retailers,
both O`Reilly and Ulta pay a tax rate that is above 37 percent. That`s
what they`re expecting for the fourth quarter. In 2018, under the new tax
code, those retailers could see a 16-point drop in their tax rate, which
could result in a big boost to earnings per share, and perhaps could get
their stock back in line with the big tech leaders.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs at the Nasdaq.


MATHISEN: Time now for our final market monitor for this week, in fact for
this year. He`s got three domestic picks he says will see a double digit
rise in earnings per share next year, thanks in part to tax reform. Last
time he was on in June, he picked the S&P Small Cap 600 Index ETF, which is
up 9 percent, iShares Core MSCI (NYSE:MSCI) Emerging Markets ETF up 14
percent. And DuPont, which merged with Dow Chemicals, to be DowDuPont, it
is up 11 percent.

He is Hank Smith, chief investment officer and director with Haverford

Hank, welcome and happy New Year to you.

Be honest now, did you really, really, really think 2017 would be this good
for equities?

anyone did. And it belied the headlines. The headlines were where all the
volatility was. There was no volatility in the actual market, as you
pointed out earlier. You could never have predicted a year like this. And
if you did, you would have been laughed out of the room.

MATTHEWS: Yes, let`s look at your picks for next year, then we`ll get some
thoughts more broadly if we have time for next year. Let`s start — a lot
of them are sort of expose to the consumer and one is a financial. Let`s
begin with of my wife`s favorite companies of all because she loves home
goods, T.J.Maxx.

SMITH: Absolutely. Best in breed management. Everyone talks about Amazon
(NASDAQ:AMZN) being a disrupter in the retail industry, bricks and mortar.
The fact is T.J.Maxx has been a disrupter for more years than Amazon
(NASDAQ:AMZN), and some of the problems that the other stores because of

Look, consumers love a bargain and they love the treasure hunt. And it
doesn`t what part of the economic cycle we`re in. T.J.Maxx is good for all

MATTHEWS: And many people are pointing out, as you do, that tax reform
could help these retailers because they typically have high marginal tax

U.S. Bancorp (NYSE:USB) is your financial pick, why?

SMITH: Again, best in breed management, terrific metrics. And they have
four tailwinds going into 2018. One, the tax reform, which will add to
their earnings. Two, a pickup in GDP growth is good for them. Three,
deregulation at the margin will be good for them.

And finally, again, slightly higher interest rates. We`re not forecasting
dramatically higher interest rates, but slightly higher interest rates will
be good for their net interest margins.

Four, wonderful tailwinds, with great management, reasonable valuation.
That should be a good stock for 2018.

MATHISEN: And your final choice, I should point out, is the parent company
of CNBC, which produces NIGHTLY BUSINESS REPORT, it is Comcast
(NASDAQ:CMCSA) (NYSE:CCS). Why do you like it?

SMITH: Right. Well, look, but — all three, TJX, U.S. Bancorp (NYSE:USB)
and Comcast (NASDAQ:CMCSA) (NYSE:CCS) have been relative laggards this
year. So, I`m not recommending stocks that have already had great moves.
Great management, yes, there is the issue of cable cutting.

But they`re getting — that`s been more than made up for in their Internet
services where they`re getting a lot of traction there.

This is a giant. It`s a beast, double digit earnings growth, reasonable
valuation. It is a good entry point in our opinion. And we think —

MATHISEN: And one would think with the ability to expense capital
equipment fully next year, that will be a beneficiary of a company like

SMITH: Absolutely.

MATHISEN: Hank Smith, we have to leave it there. Happy New Year. Thank
you for being with us.

SMITH: Happy New Year.

MATHISEN: You bet.

As peak shipping season wraps up, President Trump taking shots at the
Postal Service, tweeting today: Why is the United States Post Office, which
is losing many billions of dollars a year while charging Amazon
(NASDAQ:AMZN) and others to little to deliver their packages, making Amazon
(NASDAQ:AMZN) richer, the Post Office dumber and poorer? Should be
charging much more.

Now, the president has never been a big fan of Amazon (NASDAQ:AMZN) CEO
Jeff Bezos. But does he have a point?

Morgan Brennan delves into the finances of delivering packages.


Service does make money on package deliveries, but margins are razor-thin
compared to its most profitable business, first class mail.

the Post Office is subsidized its parcel delivery through its first class
mail for years, for decades really. That`s why it`s running at a 20 to 30
percent discount to the rates you`re going to see via UPS and FedEx
(NYSE:FDX), and the beneficiary of that, of course, is Amazon (NASDAQ:AMZN)
or anybody else who uses them for that last mile.

BRENNAN: The Postal Service probably should be charging more. Starting
next year, rates in fact will be going up. Regulators dictate those
prices. Critics argue they`re still artificially low, something FedEx
(NYSE:FDX) and UPS, for example, have voiced concern about on the Hill.

For its part, Amazon (NASDAQ:AMZN) relies heavily on the Postal Service for
the last mile to home. Two-thirds of its packages are sorted by the
company in its warehouses and handed off to the quasi governmental agency
for final delivery. It makes sense since the USPS already goes to every
address. It`s less expensive option for Amazon (NASDAQ:AMZN), as well as,
at times, FedEx (NYSE:FDX) and UPS, which also use the agency for some

TOM FORTE, D.A. DAVIDSON & CO.: There`s clearly a need for a participant
beyond FedEx (NYSE:FDX) and ups which arguably operate a duopoly. I think
what we`re talking about here is getting Amazon (NASDAQ:AMZN) to pay a fair
rate for the service from the Postal Service and then generally speaking,
getting the volume of sales in the Postal Service to be enough for them to
offset their cost.

BRENNAN: Yes, critics say those e-commerce deliveries by the USPS, which
isn`t funded by taxpayer money, are being subsidized by the universal
service obligation, which makes the USPS maintain requirements under
congressional edict to ensure all users receive a certain level of service
at a reasonable price.

But unless Congress passes new legislation, little will likely change,
especially since package delivery is how the Postal Service is reinventing
itself as mail volumes plunge and with them profitability.



MATHISEN: Up next, more confusion around that new tax code. This time, it
could involve your paycheck. We`ll explain.


MATHISEN: Well, as many homeowners grapple with whether to prepay their
property taxes before the new tax law kicks in next week, there is also not
a little bit of corporate confusion. How much to who would from employee

Ylan Mui reports.


they`re ringing in the New Year with a new tax code.

REP. PAUL RYAN (R-WI), SPEAKER OF THE HOUSE: Your tax relief is on its

MUI: But it will be at least a couple of w before you see any changes in
your paychecks.

Businesses are waiting on the IRS to give them some guidance on how much
money they should be withholding from your wages under the new tax code.
The American Payroll Association called this transition a, quote, herculean
task and said its 17,000 employers that it represents are starting to
panic. The IRS tried to calm everyone down this week, saying it does plans
to provide companies details on how much to withhold sometime in January.

But the big question is whether workers will have to update their W-4`s or
even fill out new ones. W-4 is a form that you submit to your employer
lifting the exemptions I plan to take. But those exemptions are all going
away under the new tax code. So does that form even apply anymore?

The IRS says workers don`t need to make any changes right now. But it is
possible that millions of employees will need to fill out new W-4`s before
the end of 2018.

H&R Block (NYSE:HRB) tells us it`s getting flooded with questions given the
confusion over all of these changes.

absolutely crunch time for us. It`s normally crunch time anyway, getting
ready for the filing season. With a tax change this big, it`s really
adding on a whole other level of questions, interest, curiosity. People
really care about getting it right.

MUI: The danger is that workers could wind up underpaying during the year
and face a huge tax bill come 2019. In the past, the IRS has waived
penalties associated with underpayment to give households and businesses a
little bit of breathing room during the transition. No word yet on if the
IRS will do that once more.

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


MATHISEN: The financial services firm Comerica (NYSE:CMA) is the latest
company to cite the new tax reform law as a way to reward its employees.
Comerica (NYSE:CMA) will raise its minimum wage to $15 an hour, and give
thousand dollar bonuses to about 4,500 workers. And they won`t be alone,
because the minimum wage is rising in several states beginning Monday.

Kate Rogers (NYSE:ROG) tells us where.


country will be ringing in the New Year with higher pay thanks to laws or
ballot initiative. Now, these 18 states are raising their minimum wages
either on December 31st or January 1st. The highest dollar amount that
will be in Washington state at $11.50 an hour while in Maine workers are at
the highest percentage increase to $10 an hour, that`s according to
Employment Policies Institute.

There are also 20 localities that are hiking pay. In Mountain View and
Sunnyvale, California, workers will be paid $15 an hour. That is over a 15
percent increase from today`s rate, while in Seattle, pay will hit $15.40
cents an hour for minimum wage workers. The federal minimum wage, that is
still stagnant at $7.25 an hour. That hasn`t moved since 2009. And with
President Trump in office and Republican-controlled Congress, there is
little chance of changing that anytime soon, which is why we`re seeing more
states and localities taking matters into their own hands.

Currently, these 29 states and Washington, D.C. They all have wages above
the federal level. We`ve seen corporate America take matters into its own
hands to raise wages for workers. As well, a flurry of companies at the
end of this year announcing increases to their minimum wage in the wake of
the tax bill, including Wells Fargo (NYSE:WFC), BB&T (NASDAQ:MSDXP)
(NYSE:BBT), Comerica (NYSE:CMA) and many more.

Back over to you.


MATHISEN: Kate Rogers (NYSE:ROG) reporting there.

And Goldman Sachs (NYSE:GS) expects to take a $5 billion profit hit and
that is where we begin this final “Market Focus” of the year.

The bank said the new tax plan will reduce earnings by $5 billion,
resulting in the company`s first quarterly loss in six years. Now, that is
expected to be a short term largely technical blip for the bank, however,
as it is expected to largely benefit from the lower corporate tax rate over
the next few years. Shares were off a fraction today at $254.76.

Several private equity firms are reportedly interested in buying digital
entertainment company TiVo (NASDAQ:TIVO). According to the online news
site The Street, a potential deal would value TiVo (NASDAQ:TIVO) at $2.5
billion. TiVo (NASDAQ:TIVO) shares popped 11 percent to $15.60.

IBM says it has reached agreement to resolve a patent lawsuit with
Priceline Group that goes back to 2015. IBM sued the travel booking
company, alleging that it infringed four key IBM patents and was unwilling
to engage in meaningful discussions about it. The new agreement lets each
company cross license each other`s patent portfolio. IBM`s shares fell a
fraction to $153.42. Priceline down more than 1 percent at $1,737 and

Well, the last part of this year is all about predictions for the next.
And being a market prognosticator is a tough business. For more than five
decades, though, maybe even six on Wall Street, the well-known trader and
director of floor operations for UBS, Art Cashin, has a pretty good track
record over the years.

And Bob Pisani is back with a look at how some of Cashin`s predictions have
panned out since 2014.


PISANI: It`s a tough business being a market prognosticator. But Art
Cashin has had a respectable track record over the years, with usually more
hits than misses. As we enter 2014, the five-year-old stock mark rally was
continuing, but Cashin was already thinking that profit earnings and
margins were starting to top out.

their way down to record profit margins, followed by record profit margins,
followed by record profit margins. Now, that can`t continue. My 50-year
history tells me that profit margins revert to the mean.

PISANI: He was a little early. But the profits recession did indeed come,
but not until later that year and into 2015. Going into 2015, Cashin`s
biggest worry was China.

CASHIN: The People`s Bank of China is very concerned. And they are
looking at doing something to stimulate almost a way to — I don`t want to
use the word force lending, but really promote lending as well as they can.
And they have problems in shadow banking and they have problems with real
estate. And they`ll have to work their way through that.

PISANI: Right again. China was the biggest story in 2015. It rocked the
investing world in the late summer with a surprise devaluation of the yuan,
that caused a nearly 10 percent drop in the S&P 500.

Going into 2016, the big story was oil. Many were predicting an imminent
bottom after it dropped more than 60 percent. But Cashin was still not

CASHIN: My gut tells me it will stay low through the first quarter of next
year, maybe a little further.

PISANI: He was right. Oil continued to drop and bottomed right in the
middle of the first quarter of 2016, then began a slow crawl back. But you
don`t hit it right all the time. At the end of last year, Cashin was
concerned about the wave of populism that might sweep through Europe after
Donald Trump`s election.

CASHIN: It wouldn`t take much to get the Italian government fully
destabilized. We could be back with the Club Med problems with the banks.
Greece is not far from returning to crisis again. So, the only thing you
can say, I`ve seen this movie before, and dies, but it`s a slightly movie
this time.

PISANI: It didn`t quite turn out that way. While populist parties did
gain in European parliaments, populists were turned back in the top
leadership positions throughout Europe.

Still as far as predictions, three out of four isn`t bad.



MATHISEN: And coming up, how an immigrant turned entrepreneur turned his
small business into a half billion dollar international food sensation.


MATHISEN: Finally tonight, some of you may have sent an edible arrangement
over the holidays as a gift or maybe even received one. I sat down
recently with the founder of the company to hear how his strong work ethic
at an early age led him to create a half billion dollar business selling
fruit, but not just any fruit.


TARIQ FARID, CEO, EDIBLE ARRANGEMENTS: You`re putting a little bit of a
finish on it.

MATHISEN: Oh, look at that.

Entrepreneur Tariq Farid certainly has reason to celebrate.


T. FARID: Cheers.

MATHISEN: His company, Edible Arrangements, has mushroomed into an
international sensation.

How much total revenue?

T. FARID: A little over $600 million.

MATHISEN: It`s a success that stems from humble beginnings. At 12 years
old, Tariq and his family came to the United States from Pakistan, settling
in 1981 in West Haven, Connecticut. Since money was tight, he and his
siblings had to get busy, fast.

T. FARID: My mother would sit there and, you know, kick us out of bed
every day and say, go work hard.

MATHISEN: Tell me about your earliest days as an entrepreneur.

T. FARID: A lady living down the street from me, I would cut her grass and
help her with the lawn. She goes, honey, if you keep working this hard,
you`ll be a millionaire by the time you`re 35. And I liked the ring of

MATHISEN: Within a year, Tariq took a job with a local florist, where he
learned the importance of customer service and creative design. And when
the opportunity arose to buy a defunct floral shop in nearby East Haven,
Connecticut, Tariq moved fast. With $6,000 borrowed from his father`s
boss, Tariq became the owner of Farid`s flowers.

Who gave you the lease on the shop? Who`s going to sign a lease with a 17-

T. FARID: I don`t think he knew the 17-year-old was going to be actually
running it.

MATHISEN: But he did run it, dividing his time between the shop and
school. The business grew into three local locations. More than a decade
later, in 1999, the seed that really took root was his idea, one he had
been toying with for a couple of years: sell fruit arrangements that looked
like flowers.

T. FARID: I used to call it a wow, when a person receives it, when it
arrives at the house, the first thing out of their mouth should be, wow!
That reaction has to be there.

thing about Edible is we`re an experienced company.

MATHISEN: Somia Farid, Tariq`s daughter, is the special projects manager
at Edible Arrangements headquarters in Wallingford, Connecticut.

S. FARID: I`ve been in the story ever since I was a kid. I used toed to
hang out at the store after school. I started taking orders when I was 12
years old.

MATHISEN: Still, it wasn`t easy for Tariq to transition from flowers to

T. FARID: I would go to a supplier and say, hey, can you make me a food-
safe floral container, and they were like, get out of here. You know, what
are you taking about? Why would we do that? We put flowers in it.

MATHISEN: He had to create the company`s entire supply chain from scratch.
Everything from child safe skewers to securing what he says is the world`s
freshest fruit.

By 2000, the business was building real traction, and Tariq began getting
requests to franchise the business.

T. FARID: Somebody saw one and called from Atlanta and said, hey, I just
saw this, and opened one in Atlanta. Somebody in Atlanta called someone in
New Jersey, and then somebody from New Jersey called and said, hey, I just
saw this, can I buy one for New Jersey. Next thing I know, I was in North
Ridge, California, opening the eighth store.

MATHISEN: How many stores today?

T. FARID: Thirteen hundred.

MATHISEN: Today, Edible Arrangements is available in nine countries, about
60 percent of orders come in online. But they`re fulfilled by local shops.

For the Farids, it`s been a fruitful journey, and one that continues to

T. FARID: There`s a lot that goes into it that we`ve spent the last 18
years perfecting.

MATHISEN: Tariq Farid, from immigrant to American dream, getting rich the
old fashioned way, slowly.


MATHISEN: And man, that fruit dipped in chocolate was good.

Edible Arrangements fruit bouquets range in price from about $40 to upwards
of $1,000 for some more extravagant custom displays. The company focusing
its efforts now on expanding its product line up, to include fruit parfaits
and smoothies and a push to drive brick and mortar sales.

Well, that is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler Mathisen. On
behalf of Sue Herera, all of us at NBR, thanks for watching all year. We
look forward to having you with us on 2018. Have a happy and safe New
Year, everybody.



Nightly Business Report transcripts and video are available on-line post
broadcast at 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.


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