Transcript: Nightly Business Report – January 16, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Wall Street whiplash. The Dow
blows past 26,000. But the rally fell apart. And by the closing bell, the
market suffered its biggest turnaround in two years.

Breaking up is hard to do. But the CEO of one of America`s biggest
conglomerate says there`s a chance it could happen.

The road ahead. Americans are driving off with new cars, but there are
questions about how long the good times will last.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
January 16th.

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

It was a day that start like no other, but then a reversal of fortune.
Stocks surged out of the gate at the opening bell, piercing through 26,000.
It seemed like the rally was entering a new phase. But then a turn, and
then a collapse. The rally was no more. The indexes turned negative.

And when the closing bell rang, the Dow swung nearly 400 points in total,
its biggest reversal in yearly two years. At the close, the Dow Jones
industrial fell ten points to 25,792. The Nasdaq was off 37, and the S&P
500 dropped nine. The wild day was a head scratcher.

So, Bob Pisani watched the action from the New York Stock Exchange and
explains what happened.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a rollercoaster
ride for the markets with the Dow opening at a new record of 26,000. But
shortly after that milestone, with the Dow up 283 points in the middle of
the morning, investors just seemed to lose interest and the markets drifted
lower into the afternoon with the Dow ending fractionally negative.

What happened? Well, some brought up years of government shutdown later
on. But for most traders, the markets reached such lofty levels it was
logical to take profits. You can`t blame them for thinking this way. Much
of the early rally was fueled by earnings optimism, that was real: And tax
cuts, and that was very real.

But it`s already led to a handful of companies raising their full year
estimates. There is also a little bit this FOMO going on, fear of missing
out on the rally. So we saw exchange traded funds with very strong inflows
in the last week, I mean into everything, into the U.S. stock market, into
the European stock market, into emerging market stock, into everything.

And remember that old trader saw, when everyone wants in, traders get a
little bit nervous.

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

(END VIDEOTAPE)

HERERA: So, let`s talk more about why the market reversed earlier and what
that could mean for this long running bull.

Joining us is Hugh Johnson, chairman and chief investment adviser at Hugh
Johnson Advisors.

Good to see you again, Hugh. Welcome back.

HUGH JOHNSON, CHAIRMAN NAD CHIEF INVETHUGH JOHNSON ADVISORS: Nice to be
with you, Sue. Thanks very much. Nice to be with you.

HERERA: I guess we shouldn`t be surprised given the velocity of the last
couple of weeks with this market. I mean, we went — it was a record run
in terms of time from 25,000 to 26,000 on the Dow.

JOHNSON: Yes. You know, it`s probably time for a breather. I think
anybody that`s a professional investor that`s been at this for a long time,
as I have, you just ordinarily expect some sort of a breather, or some sort
of a pullback. It`s common sense to expect that. And quite frankly, the
decline today might be — it might be setting the stage for a little bit
deeper of a correction, a correction phase in this market.

We came a long way, very far, very fast, not only in the first two weeks of
this year but obviously in the last two years. So, let`s just say time for
a breather with some time-out.

HERERA: But it — would it derail the overall bull run in the market?
Would it be that healthy correction that we have been looking for for so
long?

JOHNSON: Yes, I think it would be a healthy correction. I don`t think it
derails the bull market. When I ask myself, is this stock market economic
interest rate cycle still alive and I look at the performance of the market
over a longer period of time and if I look at the performance of important
economic variables, they say pretty clearly that we have further to go in
the current cycle.

In addition to that, Sue, I would simply say that I think earnings will be
strong enough. I will answer the question which I think is the big
question. I think earnings will be strong enough in 2018 to justify or
support stocks at current levels and even higher.

HERERA: What about interest rates? Because if indeed we start to get a
little more wage pressure or inflation, you know, we have been watching the
oil market for the last couple of weeks move higher. And some say that
that`s the inflation the Fed has been looking for or waiting for, and
therefore, they might raise interest rates a little bit more aggressively.
Can this market withstand that?

JOHNSON: For a while, we can. For a while I think the rise in interest
rates that I suspect is coming will not be enough to derail the bull market
or offset the good news from very strong earnings, earnings that are helped
along so much by the reduction in corporate taxes or the tax reform.

But, eventually, we`re going to get to this point — and you have seen
this before, and I have seen this before — where interest rates are simply
going to be too high. And the interest rates or the rise in rates, the
level of interest rates will more than offset the good news on earnings,
and then we`ll start the end of the cycle, or the end of the bull market
and the start of something that might not be very — pretty to watch from
the point of view of the economy and of recession.

HERERA: Very quickly, before we have to go, Hugh, where are you still
finding value in a market that pierced through the 26,000 mark intraday?

JOHNSON: It`s hard to find value you but I do find value in the stuff that
really works, which are the economically sensitive sectors in the market.
Materials, consumer discretionary, industrials, and still, if you look
hard, some technology stocks which I think still have room on upside.

So, I think stay with the bull market. Maybe later in the year, we might
have to stick to defense, utilities and telecommunications, but not yet.
It`s too early for that.

HERERA: Hugh Johnson with Hugh Johnson Advisors. Well, Merck (NYSE:MRK)
was the best performing Dow component today. A late stage drug trial
showed that Merck`s blockbuster drug Keytruda when used with two
chemotherapy drugs was successful as a first line treatment for lung
cancer. The earlier results indicated that the drug cocktail could help
cancer patients live longer and stop the disease from advancing. The stock
of Merck (NYSE:MRK) rose nearly 6 percent in trading today.

And the second best performing stock today was UnitedHealthcare. That
company topped earnings expectations and raised its profit outlook for the
year by more than 16 percent due to the corporate tax cut. The insurer
also said that it plans to speed up investments in technology that it hopes
will cut customer costs. UnitedHealth is the largest U.S. health insurer
and the first to report fourth quarter profits. The stock rose more than
1.5 percent on the trading session.

Then, there was General Electric (NYSE:GE). It was the worst performing
stock on the blue chip index today, falling nearly 3 percent. This after
the company announced a $6 billion setback, and the CEO said something that
was once thought unthinkable. He is thinking about a breakup.

Morgan Brennan has our story.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It can mark the end
of an era, the potential breakup of General Electric (NYSE:GE). On a call
with analysts today, CEO and Chairman John Flannery said he is seriously
considering it.

JOHN FLANNERY, CEO AND CHAIRMAN, GENERAL ELECTRIC: As I look at the
company continuing to evolve along this continuum, I believe there could be
different structures that can achieve all of those objectives and that we
need to examine those. I would categorize it as an examination of options
and it`s the kind of thing that could result in many, many different
permutations, including separately traded assets really in any one of your
units if that`s what made sense.

BRENNAN: Since taking the helm last summer, Flannery has repeatedly stated
everything is on the table as he tries to turn the struggling blue chip
company around. But today marks the first time the new CEO has explicitly
said that a total breakup is possible. With GE`s core industrial
businesses, power, aviation, and health care potentially on tap to be spun
out.

The comments coming on the heels of, quote, deeply disappointing news that
GE Capital will incur a $6 billion charge for its legacy insurance
portfolio in the fourth quarter and must set aside another $15 billion over
the next seven years. Quarterly results will be reported next Wednesday,
but sources say more details on a prospective breakup could come this
spring.

And while it has not been fully decided whether such a move will actually
occur, the possibility mark as huge shift for the Dow`s oldest member, and
for a corporation that has been for more than a sentry America`s most
famous industrial conglomerate.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: And as Morgan just told us, GE as we know it may soon see some
major changes. So, what could a potential split-up mean for ailing blue
chip and its stock?

Here to discuss that is John Inch, senior analyst covering the multi-
industry and electrical equipment sectors at Deutsche Bank.

John, thank so much for joining us.

JOHN INCH, DEUTSCHE BANK SENIOR ANALYST: Thanks for having me, Sue.

HERERA: What is your reaction to the possibility of a breakup at GE?

INCH: Well, first, I think GE is facing an incredible squeeze in terms of
its cash flow, its business operations, it had to cut its dividend in half.
And, quite frankly, this company is very complicated. I`m extremely
skeptical that a breakup, certainly cleanly, would not be possible.

I think there would be things that they could do to perhaps try and unlock
some value. The problem is GE, even though the stock has come off so much,
it`s really not inexpensive. And so, one of the reasons you would
theoretically break a company like this up is to unlock value.

We just don`t think there is a lot of value to unlock. In fact, the stock
seems to be you know, the piece seems to be priced fairly efficiently. In
the meantime, you know, what people seem to forget is you can`t just
separate, you know, the aviation or the health care businesses. These are
the important cash generators of the company, at a time when GE very much
needs cash flow.

HERERA: Right.

INCH: It`s back stopping all of GE Capital`s bonds, over $100 billion of
bonds. There would be tremendous tax leakage from separating the company.
And there could be a whole host of other issues as well.

HERERA: So, what are the options that you think Mr. Flannery could put in
place to remedy the situation at GE. And we should note, I believe you
have a sell rating on the stock. Is that correct?

INCH: I do, correct. So, this is not a straightforward fix. The issues
that GE is facing today have been up to decades in the making, one before
John Flannery. John Flannery inherited this mess and you know, I think —
I think they`re sort of on the right track in terms of trying to streamline
the portfolio and simplify it. But an outright bust up I think it`s going
to take a long time, Sue. I don`t thin there is any quick fix for GE or
what ales it. And they`re just going to have to work through their
challenges, whether they`d be in power or, you know, other issues as well.
It`s just going to take a long time.

HERERA: Some investors held it for the dividend. As you mentioned, they
have slashed the dividend. Do they need to eliminate the dividend
completely?

INCH: Well, if you look at the cash flows and you referenced earlier in
your piece, the $15 billion of insurance. This is just one segment of GE
Capital that they are on the hook for. It`s not clear that they do not
have to continue to cut the dividend.

GE is heavily owned by retail investors, many of them watching the program
tonight. And I would just tell them, you know, I don`t believe that
dividend is safe and secure. I think based on all the issues that GE is
facing, including, you know, the debt obligation, future cash obligations
and so forth, I do not think this dividend is secure, no.

HERERA: OK. Very quickly because I`m really out of time.

INCH: OK.

HERERA: If you own the stock, do you own it or do you just sell the stock
and put what money you have left from GE into something else?

INCH: I think you move on, quite frankly. I think this is going to be
many years of work through and work out. I just think there a better
places.

GE now today provides sort of a market dividend. I mean, it`s really not
remarkable versus lots of other options. No, we would take profit — I`m
sorry. We w just sell the stock. Probably no profits, and move on.

HERERA: On that note, John, thank you so much.

INCH: You`re welcome.

HERERA: John Inch with Deutsche Bank.

The head of the world`s larges asset management firm has a warning for
CEOs. Blackrock`s Larry Fink is telling the chief executives of publicly
traded companies that they have a social responsibility to their
communities, not just a financial one to shareholders. In his annual
letter, Fink wrote the companies need to demonstrate a long term strategy
for value creation with an understanding of the company`s effect on the
world. Blackrock manages more than $6 trillion in assets.

Still ahead, the immigration fight deepens as the threat of a government
shutdown looms.

(MUSIC)

HERERA: Cost of BP`s Deepwater Horizon spill is increasing. The company
is taking a nearly $2 billion charge bringing total costs from the 2010
Gulf of Mexico disaster to about $63 billion. The well blowout caused the
worst move shore oil spill in American history. BP will take the charge in
the fourth quarter, which will also see a separate $1.5 billion accounting
charge related to the U.S. tax bill.

Senate Democrats say they are close to getting the votes they need to
reverse the FCC`s controversial decision to roll back rules governing the
Internet. But even if the resolution were to pass the Senate, it would
still need a majority vote in the House and the president`s signature.
Last month, the FCC struck down rules that prohibit Internet service
providers from slowing traffic to certain website.

Also in Washington, there are reports that the former White House chief
strategist has been subpoenaed. According to the “New York Times
(NYSE:NYT)”, Steve Bannon was subpoenaed last week by special counsel
Robert Mueller to testify before a grand jury as part of the Russia
investigation. It is believed to be the first time Mueller has used a
grand jury to seek information from a member of the president`s inner
circle. He was reportedly subpoenaed during his closed door meeting with
the House Intelligence Committee.

Well, this next sentence probably sounds pretty familiar. We are just days
away from a government shutdown. The deadline to reach a deal is Friday.
And right now, the focus is on two issues, spending caps, and immigration.

John Harwood joins us tonight from Boston this evening.

So, John, why is an immigration deal connected to the government funding
deadline?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, you recall,
Sue, that President Trump ordered the ending of the so-called DACA program,
protecting those Dreamers who came as young people to the United States,
have not committed crimes — there are about 800,000 of them. He has
directed that to expire at the — during the month of March.

And what the Democrats are saying is that because President Trump has said
he wants to protect those Dreamers in a different way than President Obama
did, and because it`s very popular, they`re attaching it, linking it to
this spending bill because they have to reauthorize funding for the
government by Friday. And so, they are establishing that as a condition of
their cooperation.

HERERA: So, do you think that they can still reach an agreement? And if
they don`t, what are the possibilities of a government shutdown?

HARWOOD: They can still reach an agreement. We`ve seen from President
Trump that he often reverses field and takes one position one day, another
the next day. There is the basis of a bipartisan deal on immigration,
although some conservatives in the Republican Party don`t like it.

But it has gotten harder because of the way the president spoke in the Oval
Office meeting we`ve all been talking about for several days. Now, if they
don`t reach an agreement, there is a chance we will have a government
shutdown. There also a chance they will find a way out with a very short-
term extension of government funding the give them more time to work on it.

HERERA: We will wait and see.

Thank you, John. Appreciate it.

HARWOOD: You bet.

HERERA: John Harwood in Boston tonight.

Well, it`s been yearly a year since Donald Trump was sworn in as president.
He told the country that he would help grow the economy. So, how is he
doing so far?

Steve Liesman takes a look.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump
looks to have gotten his 3 percent growth number during his first three
quarters. The question is, how much he is responsible for it and whether
the growth can continue.

GDP averaged exactly 3 percent since the second quarter of 2017. That`s
assumes the fourth quarter comes in at the projected 3 percent. That`s an
extra 1 percent of growth compared to the prior four quarters.

And most of that extra growth has come from investment, including less
growth in structures and housing but more growth in business equipment.

One force that could be behind it is increased business confidence from the
president`s policies, including expected tax cuts and actual deregulation.
Higher stock prices could also be generating a wealth effect.

SAM ZELL, EQUITY GROUP INVESTMENTS CHAIRMAN: You have gone from an
administration that said you didn`t build it to an administration that
says, how can I help you build it?

LIESMAN: But the economy under President Trump has also benefited from
higher oil prices and part of the equipment spending increase looks to be
tied to energy. The growth has also been helped by more federal spending
largely from the Feds. There is also a big boost in inventories and in
trade, in part because of the weaker dollar, along with better growth
overseas.

Job growth has been strong under President Trump, up 1.9 million jobs since
February, but a bit less than the comparable 11 months of the Obama
administration. Unemployment has plunged to 4.1 percent from 4.8 percent.

Retail jobs have been depressed in the president`s first year, but that
continues a trend seen before. Manufacturing jobs, though, have been
strong.

MARK ZANDI, MOODY`S ANALYTICS CHIEF ECONOMIST: The revival of the
manufacturing goes to the global economy. The entire global economy is on
the same page for the first time since the recession back ten years ago.
It`s pretty tough to connect those dots between economic growth and the
president.

I mean, there was no major change in economic policy except at the very end
of 2017. And that`s the deficit financed tax cuts.

LIESMAN: So, the jury is split. Some see the first year of the Trump
economy benefiting from positive reaction in the real economy to his
expected and actual policies. Others say these are trends beyond the
president`s control and influence.

Most agree, the true test will come if this kind of growth can continue now
that his policies are actually coming into place.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: The Energizer bunny buys its rival, Rayovac, and that`s where we
begin tonight`s “Market Focus”.

Energizer has agreed to buy the battery and portable lighting business from
Spectrum Brand for $2 billion, adding the Rayovac brand to its portfolio.
Energizer shares getting going and going and going, finishing up 14-1/2
percent to $59.11. While Spectrum added just about 4 percent to $125.23.

Citigroup (NYSE:C) posted its biggest quarterly loss ever as a $22 billion
charge related to the new tax law erased the bank`s profit. The loss was
largely due to accounting changes the bank had to make in order to be
compliant under the new legislation. If you take out the charge, Citi beat
expectations. So, shares were up a fraction to $77.11.

AutoNation (NYSE:AN) said it would use the savings from the new tax plan to
bolster its retirement and health benefits for employees. The nation`s
largest auto retailer said it would also see a one-time benefit of 45 cents
a share for the current quarter and an 80 cent benefit for full year
earnings. AutoNation (NYSE:AN) shares were off more than 1 percent to
$57.24.

After the bell, CSX (NYSE:CSX) reported stronger than expected earnings but
said a drop in shipments caused revenue to disappoint. The result come
just one month after CSX (NYSE:CSX) chief executive died while in the midst
of a company turnaround. CSX (NYSE:CSX) initially fell after-hours, adding
to nearly 2 percent losses in the regular session where shares closed at
about $58.13.

Also after the bell, Boeing (NYSE:BA) said it was launching a company with
automotive seats maker Adient to create airplane seats. Boeing (NYSE:BA)
said it would have a minority stake in the newly formed joint venture
called Adient Aerospace. Boeing (NYSE:BA) shares initially fell
fractionally in the afterhours. They ended the regular day down just
slightly to $335.16. Adient shares initially plunge in the extended
session, and ended the day down marginally to $82.18.

Nestle is selling its U.S. confectionary business to Italy`s Ferrero for
nearly $3 billion. The U.S. unit which makes things like Butterfinger and
Crunch Bars has been underperforming its rivals for years as consumers
gravitate to more healthy food choices. For Ferrero, the purchase is the
chance to scale up quickly in the U.S. market, which is a top priority for
that company.

Coming up, the future of driving.

(BEGIN VIDEO CLIP)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here`s something you
don`t see every day. The whole side of the car opens up. Innovation
brought to us by a Chinese auto company. And they want to sell cars in the
United States.

I`m Phil LeBeau. That story coming up on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow. Goldman Sachs
(NYSE:GS) and Bank of America (NYSE:BAC) are scheduled to report earnings
and give guidance on how their financials will be impacted by tax changes.
The Senate will hold its second and final vote for Fed chair nominee Jerome
Powell. And the Fed will release its beige book, which is an anecdotal
look at economic conditions across t country. That`s what to watch for on
Wednesday.

The price of bitcoin fell below $12,000 for the first time in more than
month. That drop came after South Korea`s finance minister said the
shutdown of virtual currency exchange is still an option. South Korea is
one of the largest markets for digital currency trading. There are also
separate reports of an escalated crackdown on the cryptocurrency market in
China.

Global carmakers are pouring money into electric vehicles. Together,
investments total $90 billion. And according to analysis by “Reuters”,
that number is expected to grow. The world`s top automakers are expected
to introduce new types of battery-powered vehicles as well as hybrid cars
over the next few years, many of them in China.

General Motors (NYSE:GM), meanwhile, expects profit growth to stall this
year following five years of increased earnings. The automaker said
results in 2018 will be in-line with last year`s. GM says pricing pressure
in the U.S. and China will impact its results, but the company is
forecasting higher profits in 2019 with a revamped lineup of pickups
hitting the U.S. market. And late today, its rival, Ford, issued
disappointing profit guidance. That automaker said higher commodity costs
are offsetting gains from continued demand for its pickup trucks.

This year`s Detroit auto show is highlighting an industry at a crossroads.
Sales are strong but growing questions about NAFTA and America`s appetite
for trucks and SUVs have some questioning how long the good times will
last.

Phil LeBeau is in the Motor City.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Riding a wave of
demand for bigger vehicles, automakers are rolling out a slew of redesigned
SUVs, like the Jeep Cherokee (NASDAQ:CHKE), and pickups including the Ram
1500, and Chevy Silverado.

MICHELLE KREBS, AUTOTRADER SENIOR ANALYST: It`s been a huge couple of
truck years. And we anticipate another big truck year. And you`ve got to
keep up-to-date.

LEBEAU: Ford, which underestimated the appeal of midsized pickup is now
trying to catch up to competitors with the new Ranger pickup.

JIM HACKETT, FORD PRESIDENT & CEO: The F150 is doing really well. That
franchise is great and this proves to us, with this midsize category that
we need to be there. And so, a lot of what we`ve learned has come back
with the Ranger. We`ve got a good franchise around the world. But having
it here in the U.S. is really important.

LEBEAU: Hovering over automakers is the question of what happens to NAFTA,
and the vehicles they import from plants in Mexico and Canada.

President Trump is threatening to rip up the agreement and tax vehicles and
auto parts coming from north and south of the border, a move that could
have huge consequences.

SERGIO MARCHIONNE, FIAT CHRSYLER CEO: The consumer in the absence of a
realignment of production facilities will pay a price. It`s not
insignificant.

JIM LENTZ, TOYOTA MOTOR NORTH AMERICA: As cost goes up, demand typically
goes down. It`s simple economics. That`s risk to employment here in the
U.S.

LEBEAU: Despite the NAFTA questions, the U.S. market is expected to remain
strong and lucrative. So lucrative, China based GAC Motor is planning to
sell cars here starting next year.

If GAC can deliver on its promise it will become the first Chinese auto
brand sold here in the United States.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Detroit.

(END VIDEOTAPE)

HERERA: Before we go, here`s another look at Wall Street`s big reversal.
After the Dow surged past 26,000, the rally lost steam. And by the close,
the Dow lost ten points. The Nasdaq WWAS off 37 and the S&P 500 dropped
nine.

On that note, that will do it for us tonight. I`m Sue Herera. Thanks for
joining us. We`ll see you right back here tomorrow.

END

END

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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

 

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