Transcript: Nightly Business Report – March 26, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue and Bill Griffeth.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Snap back. Stocks surge.
The Dow has its third biggest point gain on record as trade tensions ease
and investors pour money into the market.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Where to invest. It is a
question a lot of investors are asking lately as they try to navigate the
volatility.

GRIFFETH: Disappearing deductions. A handful of tax breaks are vanishing,
but there are a few credits you may be able to grab on to.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for a
Monday, March the 26th.

HERERA: Good evening, everybody. And welcome.

Stocks start the week with a jolt. The Dow has its biggest point gain in a
decade, leaving last week`s rout in the rear-view mirror. Investors were
encouraged by the cooling of trade tensions and reports the talks were
under way to avert a global trade war.

So, let`s get you right to the closing numbers. The Dow Jones Industrial
Average soared, 669 points to 24,202, the Nasdaq climbed 227 and the S&P
500 rose 70. For the Dow and the S&P, it was their best one-day percentage
gain since mid-2015.

Bob Pisani leads us off tonight from the New York Stock Exchange.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks surged following
reports that the U.S. and China are holding quiet talks to ease the trade
rift between them recouping almost half of last week`s losses. Now, there
was a modest blip midday right before the European markets closed brought
on by news of rising tensions with Russia over Europe. But once Europe
closed, it was smooth sailing to session highs. The Dow rose more than 600
points, the S&P spiked more than 2 percent.

So, why exactly did we get this rally? Well, trade tensions have eased
with China and South Korea and thanks to last week`s selloff, the market is
much cheaper than it was at the start of the year.

The S&P 500 is trading about 16 times forward earnings. That`s about the
historical average. It`s a lot cheaper than in January when we were
trading at more than 18 times forward earnings. In other words, the
correction helped reset an overheated market.

The key leadership is back. That`s important. Tech and financials led the
charge.

Remember, they`re more than 40 percent of the S&P 500 together. It`s hard
to keep the markets down when you have those two sectors this strong. In
fact, Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Microsoft
(NASDAQ:MSFT), they`re the three largest stocks in the S&P, they were up 3
to 7 percent today. That`s huge. Together these three stocks are 10
percent of the whole weight in the S&P 500.

All 11 sectors ended higher on the day.

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

(END VIDEOTAPE)

GRIFFETH: And White House trade adviser Peter Navarro today confirmed
those reports of trade talks between the U.S. and China. He said he`s
hopeful the two countries can work together.

(BEGIN VIDEO CLIP)

PETER NAVARRO, NATIONAL TRADE COUNCIL DIRECTOR: Ambassador Lighthizer and
Secretary Mnuchin, at the president`s direction and personal direction, is
talking — they are talking with the Chinese, as we`ve been doing since day
one. And we will continue to do that. And I think we`re hopeful that
China will work with us to basically address some of these practices. So,
I see nothing but bullish times ahead.

(END VIDEO CLIP)

GRIFFETH: Last week as you know, the White House announced plans to impose
tariffs on up to $60 billion of Chinese products.

HERERA: In Beijing this weekend were some very well known and influential
American CEOs, including Apple`s Tim Cook and Blackstone`s Steve
Schwarzman. And they were attending the China Development Forum. As you
can imagine, the hot topic was trade.

Eunice Yoon has our story.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fears of a trade war
dominated the forum. As co-chair of the event, Apple`s Tim Cook called for
calmer heads and for President Trump to support policies that promote free
trade.

TIM COOK, APPLE CEO: What I`ve seen over my lifetime is that countries
that embrace openness, that embrace trade, that embrace diversity are the
countries that do exceptional. And the countries that don`t, don`t.

YOON: Other CEOs shared cook`s concerns including Blackstone`s Steve
Schwarzman.

STEPHEN SCHWARZMAN, THE BLACKSTONE GROUP CHAIRMAN & CEO: There needs to be
negotiated arrangement between the two countries, and I think it`s
important to note that most of the types of things that are being discussed
from the U.S. side can be delayed in terms of their implementation and
hopefully will be.

YOON: Despite the aggressive rhetoric from both sides, there are reports
the two or negotiating behind the scenes. The Trump administration has
reportedly handed the Chinese a to-do list that includes a reduction of
Chinese tariffs on U.S. autos, more Chinese purchases of American
semiconductors and greater access to the financial sector.

I spoke to a source familiar with the discussions who said China`s
officials seem willing to cooperate on these issues. They`re offering to
buy more U.S. semiconductors and accelerate the timeline for greater
foreign ownership in security. Chinese officials also said that President
Xi Jinping would highlight more financial reforms at a business forum in
mid-April.

Today, the foreign ministry reiterated again that Beijing is willing to
hold talks to resolve differences with the United States. Tomorrow, a
small group of American CEOs is going to be meeting with the vice
president, Wang Qishan, a very close ally of President Xi Jinping.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

GRIFFETH: The other big story in the market, it`s still Facebook
(NASDAQ:FB). A number of developments there. The social media company is
now the target of an FTC probe. The agency is looking into Facebook`s data
and privacy practices.

Separately, the company has acknowledged now that it does save extensive
call and text data made by Android users when those users opt-in to the
feature. And CEO Mark Zuckerberg has now been asked to testify by the
Senate Judiciary Committee.

The stocks spent much of the day lower. In fact, it was down 5 or 6
percent but it finally eked out a small gain at the close to $160.06.

HERERA: The tech sector overall bounced back today, but it`s had a hard
run of late.

And as Mike Santoli reports, it may be time to rethink the way we invest in
this group.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stock market has
almost never been as reliant on the technology sector as it is today. And
suddenly, big tech is suspect. The industry is under fresh regulatory
pressure over misuse of customer data with Facebook (NASDAQ:FB) at the
center, and tech stocks are being newly scrutinized by investors who spent
the past years paying up aggressively for shares of the most powerful
Internet company excited for a digital feature that`s now looking less
clear and bright.

Facebook`s role to enable information to be used as target election ads has
driven a nasty selloff in its stock and caused investors to rethink the
value of leading Internet platforms. The reason Facebook (NASDAQ:FB),
Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) were
so popular on Wall Street in recent years was their natural dominance where
the winners take most of the rewards.

Now that very dominance is making these companies targets. The stock
market implications are significant. The tech sector including Amazon
(NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) which are technically in the
consumer category now makes up about 30 percent of the S&P 500 index. And
big tech over the past year has become valued at a substantial 20 percent
premium to the overall market based on stock price to earnings multiples.
So, if investors become less willing to accept less risk valuations, the
broader market would be held back or weighed down.

Of course, this could simply be a temporary market panic over alarming but
fleeting headlines. Facebook (NASDAQ:FB) stock for one thing has never
been as cheap based on its expected profits which are still set to grow
close to 20 percent this year. And the good news is that outside of tech,
large cap stocks look quite a bit less expensive than they did just two
months ago before the market pullback.

When the clear driver of the market runs into trouble as tech has lately,
rallying around new leadership can be a nervous and messy process.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

GRIFFETH: And joining us right now to talk more about the markets where
he`s finding opportunities following last week`s sell-off, Barry James back
with us, president and portfolio manager at James Investment Research.

Good to see you again. Welcome back, Barry.

BARRY JAMES, JAMES INVESTMENT RESEARCH PRESIDENT: Hi. Great to be with
you.

GRIFFETH: Mike mentioned new leadership. You feel like the smaller caps
are the new leadership for this market. Why?

JAMES: Well, it`s like what Yogi Berra said that, given directions to his
house, when you come to the fork in the road, take it. I think we`ve hit
that fork in the road right now. What we`ve seen up to this point it`s
been all large cap all growth, all tech all the time. And we`ve seen a bit
of a change this year.

We just look through the end of last week, small cap stocks haven`t gone
down as much as the large cap. And as we look at small caps, there`s a
couple of important things that I think are different.

One is valuation. If I look at really small companies versus really big
companies, they`re cheaper by valuation methodologies. Secondarily,
they`re not impacted by all this tariff stuff quite as much because they
don`t necessarily do that much exporting and have those problems. And
lastly is this tax reform. If you look at the effective tax rates on
companies, small companies have had higher effective tax rates, so they`ll
get more of a benefit.

So you got those three things. And just one other thing I`d add is when we
come to these forks in the road in the past, I look back at 1999 and then
in the year 2000, all the tech stocks running, the Nasdaq fell 39 percent
in 2000 while the small cap index was up. And you heard me right, it was
up 22 percent, the value component of the Russell 2000.

So, there are opportunities out there and maybe we`re rolling over into the
small area.

HERERA: Well, speaking of which, we asked you for some opportunities, and
you gave us a few stocks.

Western Digital (NYSE:WDC), that`s a tech place for you. Why do you like
it?

JAMES: Well, it is in the tech space, but it`s not expensive. It`s only
running, I think, around 11 times earnings. The earnings are very strong.
It`s been at new highs earlier this year then recently pulled back.

So, we`ve got a little bit of an entry opportunity. It does the steady
state and other, you know, hard disk types of drives and everybody needs
more disk space, that`s for sure.

GRIFFETH: You got the Radian Group (NYSE:RDN). They`re the largest PMI
insurance company. So, you like the insurance component for interest rates
and also the mortgage component, huh?

JAMES: That`s right. Not many people pay 20 percent down and can avoid
that insurance. So that is something that we think is going to go really
well. As you said, they are the largest and last year was a record year, I
think, for them.

We might run into a few problems with the rising interest rates maybe
slowing down some purchases, but I think there`s a built-up demand there
and they`ve had really solid earnings up to this point. So, this little
bit of a pullback may be a good opportunity. Again, cheap company with
solid earnings.

HERERA: You also like gold, physical gold in particular, and it`s been
performing quite well. It moved up above what has been considered a key
technical level, what they call the 200-day moving average. But you also
point out it can be held in IRAs.

JAMES: It can. These exchange-traded funds offer you something that`s
maybe a little harder to do with the physical components and all the
headaches and hassles and so forth that come with it.

And, of course, you have incredible liquidity with it as well. One of the
reasons we like gold is it moves typically the opposite direction of the
dollar. And the dollar has been, you know, that week or so, gold has been
in an up trend.

And when you get these times of turmoil, gold tends to hold up pretty well.
It does tend to anticipate future inflation and some of this tariff stuff
is inflationary.

GRIFFETH: Barry, always good to see you, thanks.

Barry James —

JAMES: Good to be with you.

GRIFFETH: — with James Investment Research joining us.

HERERA: It is time to take a look at today`s upgrades and downgrades.

Morgan Stanley (NYSE:MS) is raising its price target on Microsoft
(NASDAQ:MSFT) to $130 a share, the highest level on the street. That price
indicates a 50 percent rise in the stock price and a $1 trillion valuation.
The firm expects Microsoft`s dominant share of the cloud market to grow.
The shares rose 7.5 percent today, making it the best performing stock on
the Dow index.

Fellow down component Intel (NASDAQ:INTC) saw its rating upgraded to market
perform from underperform over at Raymond James. That firm cites a
strengthening of underlying business conditions. The analysts there does
have some longer term concerns, including the return on Intel`s investments
and the steady decline of the PC market.

But nonetheless, Intel (NASDAQ:INTC) was the second best performing stock
on the Dow index, up more than 6 percent.

GRIFFETH: Elsewhere, Advanced Micro Devices (NYSE:AMD) saw its rating cut
to negative from neutral over at Susquehanna. The firm says that AMD faces
increased competition from a cryptocurrency chip from China. Price target
cut to $7.50. Shares fell nearly 2 percent to $10.44.

And Dollar Tree (NASDAQ:DLTR) saw its rating raised to overweight from
neutral at Piper Jaffray. The firm saying the dollar tree is making what
it called sensible investments in its family dollar unit. Price target was
lifted to $112 a share. The stock rose more than 3 percent to $95.21.

HERERA: Still ahead, despite a cooling of those trade tension, some
farmers still don`t feel any better.

(BEGIN VIDEO CLIP)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Aditi Roy in Romney,
Indiana, where some soybean farmers are getting increasingly nervous about
the trade tensions between the U.S. and China. I`ll have that story coming
up.

(END VIDEO CLIP)

(MUSIC)

GRIFFETH: There are reports tonight that San Francisco Fed president is
the top candidate to become the New York Fed president. John Williams must
first be formally nominated by the New York Fed Board, then approved by the
board of governors. His views do fall in line with the current approach of
gradual interest rate increases. The New York Fed president serves as vice
chair of the policy making committee and supervises the big money center
banks. It is considered one of the most powerful positions in the
financial sector.

HERERA: Despite a cooling of trade tensions, at least today, some farmers
are nervous.

Aditi Roy has the story from the heartland.

(BEGIN VIDEOTAPE)

ROY: Welcome to Romney, Indiana, where you`ll be hard pressed to find a
traffic light or anyone out on a Sunday afternoon.

Homes and businesses are decorated by American flags, and the region is
blanketed by farm fields which produce soybeans, making this bucolic town
an epicenter for the trade tensions with China. Brent Bible owns
Stillwater Farms on the west side of town.

When will you start planting?

BRENT BIBLE, OWNER, STILLWATER FARMS: We hope to start planting in about
two weeks.

ROY: Once the snow recedes and spring gets under way, half his fields will
be filled with soybeans.

BIBLE: Essentially, this is one of the bins that we store our soybeans in.

ROY: But he`s rethinking his crop plan amid chatter about China lowering
its soybean imports from the U.S. to retaliate against U.S. tariffs.

BIBLE: It`s frustrating to think about the government can have — can
affect policy that`s going to negatively impact our price. It`s the
different between a profit for the year and a loss for the year.

ROY: The stakes are high for American soybean farmers like him. China is
the top importer of U.S. soybeans, buying $14.5 billion worth of the
product which makes up a staggering 61 percent of all U.S. soybean exports.

The war of words has become increasingly heated. Just over the weekend,
China`s former finance minister reportedly told a public audience, if I run
the government, I would hit soybeans first.

And U.S. agricultural groups like the American Farm Bureau Federation are
speaking out, too, saying farming has fallen by about 50 percent over the
past four years. Retaliation in the trade arena makes the outlook even
worse.

But some analysts who follow soybean futures aren`t as worried, saying
China`s demand for soybeans is so large it cannot shut out U.S. supplies in
the long run. That`s little consolation for Bible who is now closely
monitoring events half a world away.

BIBLE: What we see is that the ag industry, the ag economy is very likely
going to be the first casualty of the trade war.

ROY: Besides soybeans, fruit, wine and pork are some of the other
agricultural products mentioned by China as possible retaliation targets.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Romney, Indiana.

(END VIDEOTAPE)

GRIFFETH: Lowe`s CEO is retiring, and that`s where we begin tonight`s
“Market Focus”.

After a 13-year stretch as chief executive, Robert Niblock says he plans to
retire from the company once a successor has been found. The home
improvement retailer has struggled to keep up with Home Depot`s performance
and recently added three new directors to its board following calls by an
activist investor. Shares of Lowe`s rose 6 percent to $89.30.

Hedge fund Third Point which is run by billionaire investor Dan Loeb has
taken a stake in United Technologies (NYSE:UTX), that according to a
regulatory filing. Earlier this year, United Tech said it was explores
whether to keep the company intact or break it up. Shares today rose by
3.5 percent to $126.64.

And construction materials company USG (NYSE:USG) said that it has turned
down a nearly $6 billion unsolicited takeover offer from German rival
Knuth. USG (NYSE:USG) said that the offer significantly undervalued the
company. By the way, Knuth is USG`s second largest shareholder. Share of
USG (NYSE:USG) jumped on the news by 19 percent to $40.03.

HERERA: The retailer Finish Line said it will sell itself to Britain`s JD
Sports Fashion for more than $500 million. Finish Line said the merger
gives it a stronger position in the athletic apparel space. Shares
finished strong, up 31 percent to $13.83.

Shares of General Electric (NYSE:GE) fell today, hitting a near nine-year
low at one point. There was no announcement by the company that prompted
the drop, but a “Wall Street Journal” article published last night raised
questions about risks that could stand in the way of the company`s
turnaround. The report said investors could face risks stemming from GE`s
former lending businesses and the company`s exposure to subprime loans. GE
shares finished down 1 percent to $12.89.

And Campbell`s Soup has completed its $6 billion acquisition of the snack
maker Snyder`s-Lance (NASDAQ:LNCE). The deal will shift Campbell`s focus
away from meals to snack products. To reflect the change, the company is
changing its name to Campbell`s Snacks. Campbell`s Soup rose a fraction
today to $42.47.

GRIFFETH: Wow, changing the name.

HERERA: Yes.

GRIFFETH: The nation`s oldest gun maker Remington has filed for bankruptcy
protection. The company`s sales have been declining since the 2016
presidential election. They`re thinking apparently being that gun control
regulations would be less likely under President Trump.

Last year alone, Remington sales were down more than 30 percent. Remington
is facing a heavy debt load and a number of lawsuits.

HERERA: And as overall gun sales slow, so does business at America`s gun
shows.

Jane Wells picks up the story from Costa Mesa, California.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: As many Americans
marched across the country Saturday demanding new gun restrictions,
including tens of thousands in Los Angeles, not one protester showed up at
California`s largest annual gun show, the Crossroads of the West Show. But
in the gun showdown, gun show traffic appeared down.

MICHAEL BLANCHARD, GUN SHOW PATRON: When we drove up today, I thought,
wow, where is everybody? I actually thought maybe it was canceled.

BOB TEMPLETON, CROSSROADS OF THE WEST GUN SHOW: It`s a little bit slow
starting. We only had a 15-minute ticket line, but it`s very busy inside.

WELLS: Inside the show, merchandise ran the gamut from collectibles to, in
one corner, Nazi memorabilia. But the most popular attractions were the
assault rifles, AR-10s and AR-15s which face the greatest risk of being
banned.

There`s a new law in California that bans AR-15 from having magazines,
which attached easily from the outside. You have to take apart the gun.
It slows you down. And so, one of the hottest new products here are these
kits which allow you to take your existing AR-15 and convert them to be
compliant under state law.

The owner of the show says traffic has been down generally since Donald
Trump became president as gun owners are less fearful about more
legislation, though some of that fear is now returning.

RICK SALAZAR, NRA VOLUNTEER: We`re getting quite a few people that are
interested in joining because they`re interested in protecting their gun
rights.

WELLS: That`s especially true in California though some believe compromise
might be inevitable.

TEMPLETON: There`s common ground and we need to seek that so we can begin,
I think begin a dialogue with — between the two sides, but such a
polarizing issue.

GENE GRAVETT, GUN SHOW PATRON: You know, California is, in my mind, a
little bit overregulated, but my opinion is that if the rest of the country
was as regulated as this, we`d have fewer problems.

WELLS: That`s probably not the most popular opinion here, but one that may
signal change could be coming.

For NIGHTLY BUSINESS REPORT, Jane Wells, Costa Mesa, California.

(END VIDEOTAPE)

GRIFFETH: Now that new legislation is in place, several significant tax
breaks are going to disappear. And your 2017 returns will be the last time
you can grab them.

Coming up, what`s going and what`s still in play for you to claim.

(MUSIC)

GRIFFETH: Despite experiencing one of the longest bull markets in recent
memory, state and local pension systems are still underfunded. Investment
returns have been uneven and funding levels have not yet recovered as a
result. According to “Reuters” which cited analysis by Wilshire Funding,
back in 2007, the median funded level was 92 percent for state retirement
plans. In 2016, that had fallen to 68 percent. Lower funding levels, of
course, mean that more money is required to meet future obligations.

HERERA: Favorite time of year. The countdown is on for the April 17th tax
filing deadline. And it`s the final call to claim several tax deductions
that will be going away after this year.

So, Sharon Epperson joins us as she always does at this time of year.

Great to see you, Sharon.

GRIFFETH: This is a good news.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, a great news,
a great news.

HERERA: This is the last time taxpayers can file their federal returns
under the old tax law. So as they do that and they compile the paperwork,
what did they need to remember?

EPPERSON: Well, we know there`s been a big overhaul of the tax code. And
one of the most important parts, of course, is going to be the doubling of
the standard deduction going forward. That means a lot of folks may decide
not to itemize.

But on top of that, itemized deductions will be less generous than they
have in the past. And you add to that the personal exemptions that are
going away, there are a lot of changes that are taking place that people
need to be aware of. So, now is the time to look at those tax breaks that
are still here and take full advantage of them.

GRIFFETH: All right. So, which breaks go away?

EPPERSON: Personal exemptions and dependent exemptions. That`s $4,050 for
you and your spouse or if you`re taking care of someone else. So, that`s
significant and that`s going away.

The other is a number of miscellaneous itemized deductions, those that
exceed 2 percent of your adjusted gross income or the ones that you can
deduct now. Things like job expenses, things like tax prep fees,
investment related fees, these are things that people don`t always
consider. Hobby expenses, if you actually get income from a hobby you`re
doing.

So, those are the ones that you want to take a look at again. If you`ve
moved for a new job in 2017, at least 50 miles away, that is something that
you could also deduct and it could be above the line deduction, but going
forward you can only do it if you`re in the active military, if you`re
active duty and doing it because of military orders.

GRIFFETH: Because they ordered you, yes. There are other deductions that
we thought were going away and they are eventually, just not this year.

EPPERSON: They`re back again for 2017. So, that`s a good — we have to
look at some silver lining here. So, if you pay mortgage insurance —

GRIFFETH: We have to because those of us who haven`t finished our tax
returns have to do this.

And exclusion for foreign debt, that`s another thing to consider. But if
you had a short sale or loan modification, normally, you know, you would
have to count that as income. You don`t have to do that in this regard.

Tuition and fees for college expenses, that`s up to $4,000 that you could
possibly get a tax break on there. And if you have done some home
improvements and there`s an energy efficient window you put in or door, you
can get up to a $500 tax credit, even better than a deduction.

HERERA: Can you follow me around, it`s like do my tax —

EPPERSON: Can you help me and remind me to do mine?

GRIFFETH: You are always the last one.

EPPERSON: I`m always the last one, I`m always the last one. But I will
get it in.

HERERA: Thanks, Sharon.

EPPERSON: All right. Take care.

HERERA: And that will do it for us on NIGHTLY BUSINESS REPORT. For all of
us, including Sharon, thanks for joining us.

GRIFFETH: I`m Bill Griffeth. Enjoy your evening putting your taxes
together.

HERERA: Yes, exactly.

GRIFFETH: We`ll see you tomorrow.

END

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