Transcript: Nightly Business Report – February 7, 2018

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Topsy-turvy. The market
may still be volatile, but is the heavy selling over?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Budget deal. Congressional
leaders reach a two-year agreement but their work may be far from over.

MATHISEN: Wynn resigns. The man who built the casino empire bearing his
name is out as CEO and investors are asking what happens next.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
February 7th.

HERERA: Good evening, everyone. And welcome.

It was another bumpy day, not as dramatic as the ones we`ve seen earlier
this week, but bumpy still. Stocks rose, fell, rose again but then in the
last hour of trading, the Dow gave up a triple digit gain. The blue chip
index`s biggest intraday reversal since August of 2015. For the S&P 500,
it was the biggest flip since 2016.

And if any one thing pressured stocks today, it was the bond market. A
weak treasury auction and a budget deal in Washington sent the yield on the
10-year towards a four-year high. And that rise in yields triggered
concerns that the Federal Reserve might pick up the pace of tightening and
down went stocks. After all was said and done, the Dow dropped 19 points
to 24,893, the Nasdaq fell 63, and the S&P 500was off 13.

So, with volatility back, some are calling this a new phase in the market.
But is there more selling ahead?

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was another wild and
wacky day of trading. The Dow swung in a 500-point range, and at one point
went from negative to up 200 points in about 30 seconds, but it closed
lower.

We know a large part of the bloodbath this week was perhaps due to some
obscure trading products tied to volatility. Now, for the past year,
remember the big trade. Traders have been short volatility, betting the
volatility would drop, and they`ve been long the stock market. This all
blew up on Monday. Traders had to cover their short positions on
volatility and had to lighten up on stocks.

So, the question now is, had the traders finished flushing out all these
bets, is the selling over yet?

Billionaire investor Leon Cooperman was on our air today and he thinks we
may be getting close. He says earnings in the economy are strong and there
are no signs pointing to any broader sell-off or the start of any bear
market. The fundamentals, in other words, are still intact.

And remember the three major risk to the market are inflation, valuation
and politics. In the last several days, we`ve had movement in two of them,
valuation and politics. Both are different.

So, the markets getting a little cheaper certainly that`s a lot cheaper
than it was a week ago. That`s a good sign. But elsewhere, politics are
playing a role here. Washington Senate leaders reach a two-year budget
deal that would add three hundred billion in defense spending to an already
looming U.S. deficit.

This means the government is going to be borrowing a lot more money soon.
That cause bond yields to spike up a little bit and stocks to come off of
their highs. Remember, higher rates are a potential headwind for the stock
market. We`re going to have to keep an eye on that.

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

(END VIDEOTAPE)

MATHISEN: So what is the outlook now for interest rates?

Steve Liesman drills down on that critical part of the story.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: One of the reasons
for heightened volatility in stocks is more uncertainty about the outlook
for interest rates. There`s a lot for equity investors to figure out about
just where interest rates and the Federal Reserve will go from here.

On the supply side, the Fed is reducing the balance sheet, ramping up to
$600 billion a year and increasing the supply of treasuries on the market.
Government borrowing is set to rise, back up to a trillion dollars a year
to finance the deficits among other things from the tax cuts. And the
right rate will rise to reflect better growth numbers in the economy at
some point, Ohio treasury yield will begin to compete with the return for
stocks.

The long rate in turn feeds back on the Fed. They hope to set a short-term
rate at the rate to continue economic growth, but if growth is better, they
could view that rate, the short rate that is being higher than it is now.

So far, New York Fed president Bill Dudley says the market turmoil hasn`t
hurt the economy or changed the rate outlook at least not yet.

WILLIAM DUDLEY, NEW YORK FED PRESIDENT: Having a bump like this, this
really has virtually no consequence in my view of the economic outlook.
You know, my outlook hasn`t changed it`s because the stock markets a little
bit lower than it was a few days ago. I mean, it`s still up sharply from
where it was a year ago.

That said, if the stock market were to go down precipitously and stay down
and that would actually have fed into the economic outlook and then that
would affect my view in terms of what`s the implications for monetary
policy.

LIESMAN: Dallas Fed president Robert Kaplan added that market corrections
can be healthy and there`ll be more Fed speak tomorrow, leading up to
testimony in Congress on February 28th from the new Fed Chairman Jerome
Powell. It`s the first time we`ll take questions at the helm of the Fed.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: And now that another choppy day on Wall Street is in the books,
let`s talk about whether this volatility is the new normal for stocks.
Here to give us his take on that is David Lebovitz. He`s the global market
strategist at JPMorgan (NYSE:JPM) Asset Management.

Good to see you, David, as always.

DAVID LEBOVITZ, J.P. MORGAN ASSET MANAGEMENT GLOBAL MARKET STRATEGIST:
Nice to see you guys.

HERERA: You know you say that this is not necessarily a new normal but a
return to normal. Do you anticipate the type of volatility that we have
seen in the past couple of days to continue for a little bit longer, or
have we washed out some of the — some of the players in the market?

LEBOVITZ: You know, I think that we`ve washed out some of the players. I
think that the large moves are most likely behind us from a volatility
standpoint. But the thing that we`ve been reminding our clients more than
anything is that 2017 in the beginning of 2018 were actually abnormal years
from a volatility standpoint. Usually, the market goes down by about 14
percent during the course of the year. The maximum drawdown last year was
a mere three.

So, I think that volatility is coming back what it should temper itself
from what we`ve seen over the past few days.

MATHISEN: You know, I was looking at a note from some of your colleagues I
believe it was on the 29th of January and you guys nailed it. And we were
talking on at that point about the jobs report that had come out and your
concerns about inflation and so forth. There`s been a lot of talk this
week and we just heard Bill, it is a healthy pullback.

How do you distinguish between a healthy pullback and one that`s not
healthy?

LEBOVITZ: I think it really depends on whether the underlying fundamental
facts have changed. When we look at the economy today, similar to what
President Dudley was saying from the New York fed you know economic growth
looks solid. Profits are still rising. Rates are expected to go up only
gradually. So, we still see a number of positive signals that suggest the
path of least resistance for stocks is higher and that to us makes this
more of a buying opportunity as opposed to a reason to batten down the
hatches and prepare for the worst.

HERERA: One of the worries is that the fed might move more quickly or more
often because of not only the move in the bond yield but also the move in
the market with inflation creeping back in. Do you agree with that? And
how does that affect your prospects for equities?

So, we`ve been in the camp of the Feds going to hike three, possibly even
four times this year. To us, that shouldn`t be terribly disruptive to the
equity market. We think that three and a half percent on the ten-year is
the real pain point for equities. So, still some room to run before we get
to that juncture.

MATHISEN: I was talking with a guest earlier today, David, who said
basically, you have to embrace the volatility. For a lot of investors, I
think they embrace my you-know-what, I mean, that is an easy thing to do.
Talk me through how to think about this at heightened volatility and how to
embrace it.

LEBOVITZ: You know, volatility is normal and this is why asset allocation
is so important. It`s times like these that we think it`s important to let
diversification work for you to maintain that balance portfolio and
importantly to maintain that long-term time horizon. So, we think the best
thing investors can do is embrace the volatility, stay the course and not
make any emotional decisions of the current juncture.

HERERA: David, always great to have you with us. Thanks so much.

LEBOVITZ: Yes, thanks for having me.

HERERA: David Lebovitz with J.P. Morgan Asset Management.

MATHISEN: Well, the upheaval in global markets prompted investors to pull
a record billion dollars from the world`s largest exchange-traded fund.
The Spyder ETF, that tracks the S&P 500, was hit by its biggest four-day
outflow ever, yesterday alone saw $8 billion yanked out. That`s the third
largest daily withdrawal since the financial crisis.

HERERA: Meantime, in Washington, after months of a legislative logjam,
lawmakers made a breakthrough on the budget. As Bob Pisani mentioned,
Senate leadership agreed to fund the government for six more weeks and
reached a deal to raise spending levels over the next two years.

But as Kayla Tauscher reports, there are still some differences that need
to be hammered out.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: On the Senate floor
Wednesday, a rare showing of bipartisanship with top Republican Mitch
McConnell and top Democrat Chuck Schumer unveiling a deal six months in the
making.

SEN. MITCH MCCONNELL (R-KY), MAJORITY LEADER: The compromise we`ve reached
will ensure that for the first time in years, our armed forces will have
more of the resources they need to keep America safe.

SEN. CHUCK SCHUMER (D-NY), MINORITY LEADER: The budget will also benefit
many Americans here at home.

TAUSCHE: The two-year deal adds nearly $300 billion to both military and
domestic spending, cancelling previous budget restraints.

It also raises the debt ceiling until after midterm elections and includes
more funding for hurricane relief, community health centers and children`s
health insurance. While the Senate leaders have agreement, they will need
time to turn it into legislation.

MCCONNELL: This bill does not conclude the serious work that remains
before Congress.

TAUSCHE: Lawmakers need to pass a short-term spending bill before Thursday
night to avoid a government shutdown.

The House of Representatives will prove challenging.

Democrats are being pressed by their base on immigration. Protesters
showing up at the capitol today. A DACA solution noticeably absent from
this deal. House Democratic Leader Nancy Pelosi taking to the floor for
more than six hours in a marathon effort to try to force an immigration
vote.

REP. NANCY PELOSI (D-CA (NASDAQ:CA)), MINORITY LEADER: This package does
not have my support nor does it have the support of a large number of
members of our caucus.

TAUSCHE: And conservatives balk at the higher debt and non-defense
spending.

REP. MO BROOKS (R), ALABAMA: I`m not only a no, I`m a hell no.

TAUSCHE: But to avert a shutdown, those party differences must be worked
out before the clock strikes midnight tomorrow.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, Washington.

(END VIDEOTAPE)

MATHISEN: Time to take a look at some of today`s upgrades and downgrades.

A number of analysts upgraded Snap and were broadly upbeat about its recent
earnings report. The firm`s highlighted Snap`s redesigned app and
forecasted improved user trends. Some analysts were also positive on
Snap`s auction-based ad platform. The stock surged 47 percent to $20.75.

But one analyst remains cautious on Snap. Susquehanna downgraded its
rating on the stock to negative. The firm cites an increase in
competition, as well as a limited presence outside the U.S. The company
lowering its stock price target to 7 bucks a share.

HERERA; Charles Schwab was downgraded to sell from neutral at Citi,
becoming Wall Street`s only sell side bear on the stock. The firm cites
Schwab`s elevated expenses. The price target was cut to $49 from $60.
Shares fell one and a half percent to $52.03.

Spirit Airlines was upgraded to outperform from neutral at Macquarie. That
firm cites an improving pricing environment and upside following the recent
pilots union agreement. The price target was lifted to $57 from $48.
Nonetheless though, shares fell fractionally to $40.30.

MATHISEN: Coming up, passing along the savings, utilities companies get a
tax break and now you may get a break on your power bill.

(MUSIC)

HERERA: Casino tycoon Steve Wynn has become the first CEO of a publicly-
traded company to resign in response to sexual misconduct allegations.
Those allegations against him which he denies spanned decades. The current
president of the company will step into the CEO`s role. And investors
approved sending the stock higher by 8 percent.

But what happens next to the company whose founder is synonymous with the
brand?

Contessa Brewer reports from Las Vegas.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Up and down the
Las Vegas Strip, iconic casinos stand as monuments to Steve Wynn`s vision
and design inspiration. But the man whose partly responsible for modern-
day gaming has had a reversal of fortune. Wynn`s resigning but says he`s
been dealt a bad hand.

Quote: In the last couple of weeks, I have found myself the focus of an
avalanche of negative publicity. As I have reflected upon the environment
this has created, one in which a rush to judgment takes precedence over
everything else, including the facts, I have reached the conclusion I
cannot continue to be effective in my current roles.

Since January 26th when the “Wall Street Journal” outlined dozens of
allegations of sexual misconduct against Steve Wynn, the stock plummeted.
His own board of directors launched an investigation. Shareholders sued
Wynn Resorts (NASDAQ:WYNN) for breach of fiduciary responsibilities and the
Culinary Workers Union texted its 57,000 members urging them to report
misconduct.

And gaming licenses are at stake.

SEN. BECKY HARRIS, NEVADA GAMING CONTROL BOARD CHAIRWOMAN: The Nevada
Gaming Control Board is continuing its investigation.

BREWER: A new chairwoman, Becky Harris (NYSE:HRS), is leading Nevada`s
inquiry. In Macau where Wynn Resorts (NASDAQ:WYNN) makes the majority of
its revenue, gaming regulators have demanded more details.

STEPHEN CROSBY, MASSACHUSETTS GAMING COMMISSION CHAIR: We will not
tolerate behavior by our qualifier companies or individuals that we believe
puts confidence in the casino operations of our state at risk.

BREWER: And in Massachusetts where the company`s building a $2.4 billion
resort and casino, the Gaming Commission is looking not only at the CEO`s
actions but the boards as well.

The lead investigator zeroed in on the board`s failure to disclose Steve
Wynn seven-and-a-half million dollar private settlement in 2005 with a
manicurist who worked for the company.

And so, Wynn Resorts` board of directors says it reluctantly accepts the
resignation with a, quote, collective heavy heart. In a succession plan
endorsed by Steve Wynn, President Matt Maddox steps into the role of CEO,
and among the many challenges he now faces is how to operate this company
without its founder. In a recent security filing, the company wrote:

If we lose the services of Mr. Wynn or if he is unable to devote sufficient
attention to our operations for any other reason, our business may be
significantly impaired.

Now, the new CEO needs to demonstrate the company can function independent
of its founder and repair brand damage. In its statement, the board
insists: Wynn Resorts (NASDAQ:WYNN) remains as committed as ever to
upholding the highest standards and being an inclusive and supportive
employer.

Steve Wynn has called the allegations preposterous. In resigning, he may
just be following the gambler`s advice: know when to hold them and know
when to fold them.

In Las Vegas, Contessa Brewer, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN: Tronc inks a newspaper deal with one of its largest shareholders
and that is where we begin tonight`s “Market Focus”.

The publisher said it was selling “The Los Angeles Times” and other assets
to a billionaire investor who`s also the CEO of NantHealth. Tronc said the
deal will allow it to finally and fully pay down debts, improve its cash
position and expand its digital offerings. Separately, the company cleared
“The Times” former publisher and CEO Ross Levinson of wrongdoing following
an investigation into his conduct involving sexual harassment allegations
against him. Levinson will become the head of Tronc`s newly created
digital division. Tronc shares up 19 percent to $21.55.

Well, despite cutting back on promotions, Michael Kors said sales picked up
momentum during the holidays and the company`s latest results show just
that. Earnings were well-ahead of estimates and the handbag and shoemaker
now expecting full-year profits to exceed expectations. Shares rose 1
percent to $66.11.

And Humana (NYSE:HUM) reported profits that rose more than expected, as
higher premiums in the health insurers Medicare business helped results.
The company also hiked its quarterly dividend to 50 cents a share and gave
guidance for the year that was ahead of estimates. Shares though off one
and a half percent to $64.90.

And Hasbro (NYSE:HAS) said weaker sales on toys — for toys based on the
movies “Frozen” and “Star Wars” hurt results. Profits at the toy maker did
beat estimates but sales couldn`t keep up. Hasbro (NYSE:HAS) also said the
Toys “R” Us bankruptcy hurt and will be a headwind that tapers off by mid-
year. Toys “R” Us is one of Hasbro`s biggest customers. Hasbro (NYSE:HAS)
shares jumped more than eight percent to $102.22.

HERERA: Weightwatchers wants to grow its membership base and its sales.
The weight loss company is looking to rebrand itself, saying it wants to
focus on creating healthy habits, and also appeal to a younger demographic,
namely teenagers. And to do that, the company is offering free
memberships. It hopes to hit its revenue target of more than $2 billion by
2020. Shares of Weightwatchers rose 17 percent to $73.97.

An activist investor is reportedly urging Supervalu to explore options
including a breakup or a potential sale. “The Wall Street Journal” says
investment firm Blackwell Capital has asked the grocer for three board
seats. But Supervalu said no, and now, Blackwell is gearing up for a proxy
fight. Supervalu shares were up 5 percent to $15.42.

After the bell, Tesla reported a narrower than expected loss and revenue
that topped estimates. The automaker said it`s still on track to produce
5,000 Model 3 vehicles a week by the end of the second quarter.
Manufacturing issues in the past have caused Tesla to miss its delivery
goals for the model 3. Shares were volatile in after hours, but they
finished the regular day up 3 percent to $345.

Also out after the bell, 21st Century Fox said higher ad revenue and
strength in its video on-demand business helped earnings top estimates. As
we`ve told you, the media giant is interested in selling many of those
assets. Stocks initially spiked in the extended session but then settled
down. During the regular day, the shares fell 2 percent to $36.06.

MATHISEN: Well, as companies assess the impact of the corporate tax cuts
they`re now law, there`s one industry that`s working to pass its savings
along to consumers.

Ylan Mui explains why you may see a lower electric bill.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: There`s a surprising new
bright side to all the changes in America`s tax code. Your electric bill
could be going down. That`s because this law cuts the corporate rate from
35 to 21 percent, generating a windfall for power companies that they`re
required to pass on to you, their customers.

Pepco announced that it`s cutting rates by $31 million for households in
Maryland, and that translates into $3 off the average monthly bill.
Similar moves are planned for D.C., Delaware and New Jersey.

Pepco CEO David Velazquez told us this is all a direct result of the tax
cuts.

DAVID VELAZQUEZ, PEPCO CEO: The rates that we charge our customers always
mirror the costs that we have. So, as our costs of decreased because of
lower tax rates, we need to pass those lower tax rates, those lower costs
on to customers.

MUI: Local regulators have to approve any changes in your utility rates,
so that`s why you`re only now starting to see these reductions ripple
across the country.

VELAZQUEZ: This is probably the largest tax — corporate tax decrease
we`ve seen in the utility industry, and as long as I can remember. And
it`s important again that we thought very important that we move
proactively with our commissions to reach out to our commissions, to see
how we could in conjunction with them come up with a plan to be able to
return those benefits.

MUI: The reduction started in Illinois with Commonwealth Edison, one of
Pepco`s sister companies, bringing down their average bill by $2 or $3 a
month. In Florida, power companies there are using their savings to pay
for repairs from last year`s devastating hurricanes and that`s going to
reduce average bills between 3 and 5 bucks a month.

The savings are just a few dollars a month, but considering that 220
million Americans get their electricity from a private power company, the
numbers will eventually add up.

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

(END VIDEOTAPE)

HERERA: Coming up, why the “for sale” signs are already being planted and
it`s not spring yet.

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow. As we reported
earlier, tomorrow marks the deadline for the government to pass a funding
deal to prevent a possible government shutdown. The latest weekly jobless
claims are due out and the Philadelphia Fed president Patrick Harker will
deliver remarks on the current investment environment to college and
business officials. And that is what to watch for tomorrow.

MATHISEN: A warning from “Consumer Reports” about your smart TV. It could
be hacked. The magazine`s analysis shows that security in some cases is so
poor that it`s testing team were able to take over complete control of the
TVs, launch apps, change the channel, raise over the volume, even possible
to track your households personal viewing habits much more closely than you
may realize.

HERERA: Harley-Davidson (NYSE:HOG) is recalling 175,000 motorcycles. The
concern is that the brakes may fail on some 2008 through 2011 models.
Regulators have been investigating that issue since July of 2016, following
43 reported complaints that included three crashes.

MATHISEN: The solar industry in the U.S. lost nearly 10,000 jobs last
year. That`s almost 4 percent of the industry`s total workforce. A report
from the Solar Foundation found that activity slowed last year due to
policy challenges in some states. The group did say however that the
overall outlook is still positive, given the rapid and steady growth the
industry has seen over the past six years.

HERERA: Well, spring has come early this year, at least in the housing
market. Rising interest rates and falling supply have the buyers out
early, hoping to get a head start on what could be one of the most
competitive real estate markets in history.

Diana Olick has our story.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This half-million-
dollar Denver home was listed for sale last Thursday.

UNIDENTIFIED FEMALE: Yes, I like this one a lot. And this is 587?

UNIDENTIFIED FEMALE: Five-eighty-seven, just came out in this first.

OLICK: And it already had 37 showings before the Saturday open house.

MARTIN MATA, REDFIN AGENT: There`s just simply not enough homes to go
around for people looking to buy them.

OLICK: The supply of homes for sale right now is at a record low not just
in Denver but nationwide. Demand is surging and that has shoppers out
early, hoping to get a jump on the spring market.

BRITTANY STOROZ, PROSPECTIVE BUYER: It`s kind of the offseason right now,
but I`m definitely still experiencing a decent amount of competition. I
thought I was kind of at a higher price point where it would be a little
bit easier for me to get a place without a lot of competition, but I`ve put
down two offers so far and both times been beaten out by cash offers.

OLICK: It`s stories like that that have Eric Daniels (ph) and Alexa Karras
(ph) out looking early as well.

UNIDENTIFIED FEMALE: We haven`t put in any offers or anything, but we
understand it`s a really tough market.

UNIDENTIFIED MALE: So, we`re sort of doing everything we can to be
prepared, to make a good offer in a competitive market without
contingencies and that sort of thing.

OLICK: Not only are potential buyers facing low supply but also high
prices and rising mortgage rates — a not so perfect storm that has the
usually busy spring market starting in winter.

MATA: In the short term, I strongly believe that`s going to cause a lot
more by side demand. You know, as people try to get into a home before
interest rates get to a point where they can no longer afford a home that
they would like.

OLICK: Higher rates could throw some cold water on overheating home
prices.

UNIDENTIFIED FEMALE: And they have a whole basement for the kids.

UNIDENTIFIED MALE: That`s true.

OLICK: But demand is so strong right now that even higher rates are
unlikely to cool the competition.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

MATHISEN: And before we go, let`s take another look at today`s closing
numbers. They do not capture the intraday volatility. The Dow dropped 19
points to 24,893. But if you thought that`s all that happened today, you –

HERERA: No.

MATHISEN: — you`re in for a surprise.

Nasdaq fell 63 on heavy selling in big cap tech names and the S&P 500 was
off 13.

HERERA: Stay tuned for tomorrow. That does it for us tonight. I`m Sue
Herera. Thanks for joining us.

MATHISEN: And I`m Tyler Mathisen. Thanks for me as well. Have a great
evening, everybody. We hope to see you back here. Come on.

END

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