Transcript: Nightly Business Report – March 28, 2018


sector has led the market higher. If it starts to falter, what happens to
the bull run?

reaches an agreement with South Korea. And at the center of it: the

GRIFFETH: Riding in style. Why a luxury sedan just doesn`t cut it

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Wednesday, March the 28th.

HERERA: Good evening, everyone, and welcome.

Tech is struggling. It was evident today again as the sector fell again.
One of the biggest decliners was Amazon (NASDAQ:AMZN). Shares were down
more than 4 percent, wiping billions off its market value, on reports that
the president wants to rein its power and change the way the company is
taxed. The White House though says it`s not considering any specific

And then there is Apple (NASDAQ:AAPL). Goldman Sachs (NYSE:GS) cut sales
estimates for the iPhone, which is Apple`s flagship product. The Dow
component is also facing multiple lawsuits over its controversial move to
slow older smart phones. And for a change, shares of Facebook (NASDAQ:FB)
were higher after that company redesigned some of its security settings.

GRIFFETH: Whatever the decline in tech did weigh on the broader market
again today, although the losses were modest this time.

Here are the numbers. The Dow dropped by nine points, that was it, to
23,848. The Nasdaq was the biggest percentage decliner. It was down by 59
points. The S&P fell by seven.

As you know, the tech sector has been powering the broader market higher
over the past year or so. It`s a widely owned sector over this past two
weeks and has lost half a trillion dollars in value.

And so, now, some are questioning whether tech`s dominant position in the
market is over.

Bob Pisani explains.


shifted. Just two weeks ago, it was about tariffs and trade wars. Now,
there is new uncertainty around technology and what effect that might have
on earnings.

Facebook`s data scandals that thrown social media into an existential
crisis, then you have got Nvidia`s driverless car issues and Tesla`s credit
downgrade. Apple (NASDAQ:AAPL) is getting hit after Goldman cut iPhone
sales estimates this year.

And now, there is word that President Trump might go after Amazon`s tax

Here`s the deal: Technology has gotten too big for its britches. It`s so
big that as tech goes, so does the S&P 500, and that`s risky. The three
biggest stocks in the S&P 500 are Apple (NASDAQ:AAPL), Amazon
(NASDAQ:AMZN), and Alphabet. Combined, they have a market cap of $2.3
trillion out of the S&P`s market cap of $23 trillion.

So, three stocks make up 10 percent of the S&P 500. Tech is 25 percent of
the S&P in total. Add financials into the equation and those two groups
make up about 40 percent of the S&P. That`s a lot.

Meanwhile, the smaller sectors — energy, utilities, materials, telecom,
real estate, they`re only 15 percent. They don`t matter that much.

So, what does matter is the swing groups — health care, industrials,
consumer discretionary, consumer staple stocks — they make up 45 percent,
all the rest of the S&P. So, if tech and financials falter, these are the
only ones left with the heft needed to move needles. Do you see the

So, those are the ones investors will try to rotate into providing the
market is healthy and earnings are rising in those sectors. But tech and
financials are supposed to see the biggest earnings growth this year.
That`s why the market is so vulnerable to a selloff when the earnings
quality of this largest group, technology gets called into a question. Do
you see the issue? It is a very tough situation right now.

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


HERERA: So, let`s turn now to Chris Zaccarelli for more on weakness in the
tech sector and what it might mean for the bull market. He is the chief
investment officer at the wealth management firm Independent Advisor

Nice to see you, Chris. Welcome.


HERERA: I think Bob set it up for us perfectly about the risks that are in
the market for tech. But you also make the point you think we are at a
turning point or an inflection point for this market?

ZACCARELLI: I do. Bob has it right. Tech is 20 percent of the market.
You know, as tech goes, so does the rest of the market. And it`s going to
be leading the market upward or downward. Right now, we have been seeing
tech have some weakness and that`s taking us down. But if these things we
can turn in the next few weeks as we start season, we start to see
technology earnings, if they are strong again that can provide support for
technology, and therefore, for the rest of the market.

GRIFFETH: But we`ve been asking some other money managers who they feel
could lead higher if technology doesn`t do that. Some have said financials
as the Fed raises rates, that`s good for the financials. Others say the
tariffs won`t bother the small to midcap stocks out there.

Who do you vote for?

ZACCARELLI: I`m in favor of financials. I like the setup for financials
in terms of fundamental reasons. If you look at rising interest rates, if
you look at the credit quality of loans out there because we`ve got low
unemployment and people are able to pay back those loans.

If you look at the strength of the underlying economy as the economy
continues to grow, you see more economic activity that`s typically followed
by more banking activity, whether that`s mergers and acquisitions or just
more loans.

So, in general, fundamentals are really good for financials. If sentiment
can turn around and some of the pessimisms in the market that we`ve been
seeing were to change because of either positive earnings reports or some
of the fears blow over, we could really see a turning point. That`s really
the catalyst that could turn things around.

HERERA: And what about earnings? Because as Bob highlighted not just for
technology but for many parts of the market, the expectations are pretty

ZACCARELLI: I think that`s true. Earnings expectations have been rising.
But keep in mind: those tax cuts are going to drop a hot to the bottom
line. So, if you see earnings expectations rising about 6 percent but yet
tax cuts, if you filter through all the earnings estimates, would lead to
an additional 8 percent, which is what a lot of analysts believe, you
actually may have some room there to actually surprise the upside, even
with those heightened expectations.

GRIFFETH: Let`s go back to tech then as we wrap this up here. Do you
think it`s a pause or could it move higher? Who would you look at to maybe
invest in here?

ZACCARELLI: Sure. I think right now, we`re going to go sideways. I think
until would see some positive catalysts, most likely to be earnings, you`re
going to have a lot of concerns over the market, and it`s a sell first, ask
questions later type of market.

If you look within technology, I think the semiconductors have been hit.
You`ve got the social media companies have been hit. And you look at the
hardware companies, they`ve all been hit.

Looking through all of those, I think where you are most likely to see a
rebound will be in that semiconductor area. The reason I say that is
because that`s such a part of all the different themes that are in
technology, whether that`s cloud computing, increased need for storage,
self driving cars. They can rebound from some of the negative news
headlines that they have had lately. That`s the area of the market within
technology I would look for as a bellwether and also to invest in.

HERERA: Chris, we`ll leave it there, thanks so much.

ZACCARELLI: Thank you. Appreciate you having me.

HERERA: Chris Zaccarelli with Independent Advisor Alliance.

GRIFFETH: To the economy now, which saw growth in the fourth quarter
revised here. According to the Commerce Department, GDP, the broadest
measure of the economy, grew by 2.9 percent in the final three months of
last year. That was more than expected. Growth was helped by the biggest
gain in consumer spending in three years. And that offset a drag in trade
which saw a rise in imports.

HERERA: The number of homes that went under contract rebounded last month.
Pending home sales were up 3.1 percent after falling in January. The
National Association of Realtors blames the uneven performance on a
shortage of houses for sale. The agency says that will likely cause 2018
to be a challenging year. It expects sales to be flat from a year ago.

GRIFFETH: The White House has inked its first significant trade deal, in
this case it`s with South Korea. It`s a one-on-one agreement that some say
could represent a blue print for other deals.

Kayla Tausche reports from Washington for us tonight.


notched a trade win, touting a new deal with South Korea to replace a six-
year-old agreement he spent the last year criticizing.

Korea is a very one-sided deal. It`s a deal that has to be changed.

TAUSCHE: The goal: to lower the U.S. trade deficit with Korea, which stood
at $10 billion in 2017. The bulk of the imbalance: automobiles. U.S. car
companies could only sell 25,000 cars each into Korea before, a limit they
didn`t come close to meeting. The new deal doubles that limit, which
Ambassador Robert Lighthizer says should spur more business.

make real improvements. It`s to the going to go to 50,000 per manufacturer
immediately. But I think it`s going to get way above 25,000, and I think
we`re talking in the not too distant future about billions of dollars of
additional sales. And I would say that other countries do sell in there,
and we have the kind of products that they will buy.

TAUSCHE: The White House says there are new cuts to regulation in Korea
and a side deal combating currency manipulation, as well as new caps on how
much steel Korea can send to the U.S. That`s in place of recently
announced tariffs. Despite being close allies, trade talks were
contentious when they started with President Trump surprising South Korea`s
new president by publicly slamming the deal during their first meeting.

TRUMP: Our trade deficit with South Korea has increased by more than $11
billion. Not exactly a great deal.

TAUSCHE: And then threatening to withdraw all together. Today, Trump
tweeting, the two countries can now focus on their security relationship,
as a summit between the U.S. and North Korea nears.

political reason behind this as well. As President Trump thinks about his
meeting with Kim Jong-un at the end of May and reflecting on what`s just
happened, this surprise visit by Kim to Beijing, South Korea and the United
States could not afford to be in a trade fight with this big strategic
event ahead of us. I think that`s probably another rationale for what
happens over the last 24 hours.

TAUSCHE: The White House says preparations are still underway for that
meeting with nothing set in stone. Meanwhile, another major trade event
looms, that`s the renegotiation of NAFTA. Foreign officials say the U.S.
has not set the date of the next round of talks which is supposed to take
place in Washington in April.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche at the White House.


HERERA: As Kayla just reported, that trade deal comes as South Korea`s
leader met with China`s president.

Eunice Yoon picks up the story for us from Beijing.


Kim Jong-un travelled to Beijing to meet with China`s President Xi Jinping.
But he had a message for President Trump.

According to Chinese state media, Kim told Xi that Pyongyang is willing to
start a dialogue with the U.S. agreeable to hold a North Korea-U.S. summit,
and committed to denuclearizing the Korean peninsula. The Chinese
government-run Xinhua news agency also quoted Kim as saying: The issue of
denuclearization of the Korean peninsula can be resolved if South Korea and
the United States respond to our efforts with goodwill.

The timing is extremely important. Kim is scheduled to hold a summit with
South Korea`s President Moon Jae-in in late April. And there is a
possibility that he will be meeting with President Trump soon after that.

So, analysts here believe that this visit was meant to prepare for those
meetings and also to get support from Chinese officials who traditionally
have been his closest allies. North Korea watchers believe that the
relations between China and North Korea have come under strain because
Beijing has been for strictly adhering to U.N. sanctions.

And today, though, the official papers were full of praise of the
relationship, calling it a sign that the ties are unshakeable. This visit
was unofficial, but it had the same pomp and circumstance as for any other
foreign leader, including a banquet at the Great Hall of the People. This
was Kim`s first trip outside of North Korea since he took power in 2011.

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


GRIFFETH: Time to take a look now at some of today`s upgrades and

Dow component Verizon (NYSE:VZ) saw its rating raised to a buy from hold
over at HSBC. The firm says that Verizon (NYSE:VZ) is well-positioned in
the Internet media space that could help its revenue grow. Price target,
$55. That stock rose about 1.5 percent today to $48.

And coverage of fellow Dow component American Express (NYSE:EXPR)
(NYSE:AXP) was initiated with a buy rating at UBS. The firm says that
accelerating business volume and loan growth could drive revenue there, and
in turn that could result this stronger earnings per share. Price target
they put in, $111. The stock rose fractionally to $92.21.

HERERA: In that same note, the UBS analyst started coverage of Discover
Financial with a sell rating. The firm cites potential erosion of asset
and revenue growth. The price target is now $70 a share. The stock was up
slightly nonetheless to $70.28.

And Bernstein initiated coverage of the Dow component Visa (NYSE:V) with an
outperform rating. The analyst calls Visa`s business model attractive and
says it should benefit from the growing payments market. The price target
there is $143 a share. The stock fell a fraction to $116.99.

GRIFFETH: Still ahead, some of the brightest minds in health care together
in one place discussing one of the most complex industries in the world.


GRIFFETH: Japan`s largest drug maker is considering a possible bid for
Irish biotech company Shire (NASDAQ:SHPGY). The price tag could top $40
billion. Takeda Pharmaceuticals said everything is preliminary right now
and no approach has been made to Shire`s board.

Shire (NASDAQ:SHPGY) sells treatments for rare diseases and hyper activity
disorders. And Takeda believes that a combination with Shire
(NASDAQ:SHPGY) would strengthen its position here in the U.S. Shares of
Shire (NASDAQ:SHPGY) rose on that news by 12 percent to $144.53.

HERERA: Health insurance startup Oscar health raised $165 million in a new
round of funding. The company said that money will help accelerate its
expansion that includes move into four or five new cities every year.
Oscar offers individual and small group health insurance policies and has
grown its affordable health care offering this year to more states.

GRIFFETH: The changing health care industry was the focus of CNBC`s
healthy returns conference that brought innovators, investors and business
leaders together to discuss new solutions to some very complex problems.

Meg Tirrell has more from New York.


Paige Whorton has already been through more than most adults.

PAIGE WHORTON, PATIENT: That was very depressing for me because like, no,
this is real. You`re like, it could just be in your head. We`re not
saying it`s not real. We think you are creating it. I`m like, I think I
know if I`m creating it.

TIRRELL: She had a pain in her joints that got worse and worse over the
years. It took an odyssey of testing to figure out what was wrong. Paige
has a rare genetic disease.

She shared her story on stage at CNBC`s Healthy Returns Conference today in
New York, where she was joined by people working across health care, from
industry, to government, to Wall Street.

FDA commissioner Scott Gottlieb kicked off the day talking about the
agency`s efforts to lower drug prices through increasing competition. He
also focused on the agency`s worked and public health.

SCOTT GOTTLIEB, FDA COMMISSIONER: I think the most important thing we can
do is get back to public health basics, reduce smoking rates, promote
healthy diets, promote vaccination rates. If we could actually make
significant progress in those three things, the public health gains would
dwarf any single invention that we can come up with.

TAUSCHE: Other topics on display at the conference were the Amazon
(NASDAQ:AMZN) effect on health care, cutting edge technology like gene
editing and the use of big data. And, of course, the changing face of the
industry through massive consolidation.

As for Paige, she was lucky, there is a treatment for her condition, but
she still lives with the pain every day.

WHORTON: I`m still getting a lot of pain, but the treatment isn`t supposed
to take pain away. It`s supposed to prevent it like from getting worse.

UNIDENTIFIED MALE: And it has done that? It`s no worse than it was?

WHORTON: It is no worse than it was.

TIRRELL: Something for medicine to keep working on.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in New York City.


HERERA: A strong pharmacy business helps Walgreen`s results. That`s where
we begin tonight`s “Market Focus”.

Walgreen`s posted results that topped analyst`s expectations as that
company filled more prescriptions for more expensive specialty drugs. Same
store sales in its retail business continued to be pressured, though, as
customers increasingly shift their buying habits online. Walgreen`s also
hiked its full year earnings forecast. The shares rose 2.5 percent to

The credit monitoring company Equifax (NYSE:EFX) named a former General
Electric (NYSE:GE) executive Mark Begor as its CEO. Its September,
Equifax`s former chief executive, Richard Smith, stepped down following a
data breach of that company that compromised the personal information of
nearly 150 million Americans. As the new executive, Begor said that he
plans to prioritize efforts to win back customers` trust. Equifax
(NYSE:EFX) was up more than 2 percent to $119.04.

And growth in BlackBerry software and services business helped sales beat
estimates and it led to a smaller quarterly loss. The company has shifted
its focus from hardware, to software and licensing. BlackBerry said the
strategy is working and it`s optimistic about future performance.


JOHN CHEN, BLACKWBERRY CEO: We`re done with the turn around so to speak.
And we`ve got a very good business here, shown a good couple of quarters.
I think three — ad a good fiscal `18. So, we are happy and we`re ready to
tackle it.


HERERA: Shares fell 20 cents to $12.20.


GRIFFETH: So, elsewhere, defense contractor CACI International (NYSE:CACI)
has withdrawn its $7 billion offer for CSRA, effectively ending its bidding
war with rival General Dynamics (NYSE:GD). Last week, you recall, we told
you General Dynamic had raised its all cash offer for the information
technology company in an effort to compete with CACI`s bid. CACI and GD
were both lower today. While CSRA was unchanged in today`s session.

And after the bell tonight, GameStop reported a rise in revenue and same
store sales, thanks to strong demand for Nintendo`s Switch Games console.
Earnings were also ahead of expectations. Shares of the video game
retailer were up 2 percent to $14.15.

And clothing company PVH also topped earnings expectations after the bell
tonight, thanks to strength in its Calvin Klein and Tommy Hilfiger brands.
PVH expects that momentum to continue. It gave an upbeat outlook for the
entire year as a result. Shares were initially higher following the news
after hours, and ended the regular session today up a fraction at $144.02.

HERERA: Coming up, the big demand for bigger cars.


but right now, buyers want more than just another luxury sedan. What are
they looking for?

I`m Phil LeBeau at the New York International Auto Show. I`ll tell you



HERERA: Moody`s (NYSE:MCO) lowered its credit rating on Tesla by one notch
late yesterday. The credit rating agency sites the company`s large
negative free cash flow and the shortfall in production of its model 3
electric car. Tesla is also under scrutiny by the National Transportation
Safety Board which is conducting an investigation into a fatal crash in
California. The stock dropped 7 percent to $257.78.

GRIFFETH: Federal regulators want to cancel a planned increase for higher
penalties for gas guzzling vehicles. The rule was put into place by the
Obama administration. It called for a doubling of fines if the cars failed
to meet minimum fuel economy standards. The National Highway Traffic
Safety Administration says that a higher penalty would have a negative
economic impact. Not surprisingly, automakers had opposed that increase,
saying it could raise compliance cost by $1 billion annually.

GRIFFETH: Trucker pay is rising. A recent study by the American Trucking
Association showed the median salary increased about 15 percent to $53,000
from 2013 to 2017. By comparison, average hourly earnings for all private
workers rose about 10 percent during the same period of time. The trucking
industry, as we have been reporting, is facing a shortage of drivers, and
increased demand for shipping services.

GRIFFETH: For years now, the New York Auto Show has been the place to see
the latest luxury cars. But this year, the luxury lines are pushing new
SUVs and crossovers, which now make up a majority of the sales among the
high-end models.

Phil LeBeau has our story from the Big Apple (NASDAQ:AAPL) tonight.


LEBEAU: From the return of the Lincoln Aviator to BMW`s redesigned X4 to
Cadillac`s new XT4, automakers are pushing luxury SUVs harder than ever.

JOHAN DE NYESSCHEN, CADILLAC CEO: The XT4 puts us into the heart of one of
the hottest growing segments in the U.S. market and that`s a very
compelling entry and I think Cadillac is going to take a large share of
that business.

LEBEAU: Cadillac and other luxury auto brands are cashing in on America`s
growing appetite for bigger vehicles. What started over a decade ago with
mass market brands offering a wider variety of crossovers and SUVs has now
extended to the luxury players who are capitalizing on wealthier buyers who
want to sit higher in a more refined interior.

The demand for high end SUV is so strong, BMW`s plant in South Carolina
which only builds SUVs is expanding production.

BERNHARD KUNDT, BMW NORTH AMERICA CEO: We feel in a very position. We`ve
got (INAUDIBLE) here. We produce — this is the biggest factory we have
globally. We export about 70 percent. We sell about 30 percent here in
the U.S. and I have to say we feel in a very good position.

LEBEAU: Right now, over 60 percent of the vehicles sold in the United
States are trucks and SUVs. But that percentage is even higher among some
luxury brand like Lexus.

70 percent luxury SUVs. In fact, in New York, we are launching another new
one, the UX, which is just below NX. So I think we have got a great
portfolio, and a great SUV to offer any customer.

LEBEAU: With gas prices expected to remain relatively low, demand for
bigger, less fuel efficient vehicles should remain robust and even a little
stronger among luxury names.



HERERA: And from cars to boats, business has been growing, thanks to the
rising stock market and the strengthening economy. But at the recent Miami
boat show, experts say the industry could be starting to face some waves.

Landon Dowdy has more.


International Boat Show attracts marine enthusiasts from around the world
for a sneak peek at the industry`s latest innovations. And this year, a
rising tide is lifting all boats.

all boat sales are being driven by, again, consumer confidence, the wealth
effect. People just feel good today.

DOWDY: The industry is entering its seventh straight year of growth. And
though growth in the number of boats sold annually is actually slowing, the
average cost of a new vessel is on the rise. Consumers are opting for
bigger boats and higher horsepower outboards.

This Brunswick (NYSE:BC) 3`8″ Boston whaler yacht retails for almost $1
million. It comes fully loaded with new smart boat features allowing boat
owners to monitor things like battery charge and oil levels remotely, plus
autonomous driving technology to help with navigation at sea, and docking

Nailed it.


DOWDY: For those in the market for a boat or a yacht, watch the stock
market closely and there may have been some concern with the recent
volatility but it wasn`t enough to turn people away.

MARK SCHWABERO, BRUNSWICK CHAIRMAN & CEO: Technology is something that
excites people and says I really got to get one of those.

DOWDY: And it`s not all about giant yachts. Torpedo`s electric outboards
powered by solar panels on the dock offers sustainability.

And for surfers in search of the perfect wave, Malibu`s patented technology
lets riders built that wave was just the top of the rest. Still, the
industry is facing some headwinds, like millennials preference for renting
over buyin, fueling the rise of boat rising and boat clubs, and the recent
memory of last year`s devastating storms.

JOHN GIGLIO, FREEDOM BOAT CLUB CEO: Our business really soared after the
hurricanes that hit the west coast of Florida here, and the other areas of
the country. What`s more frustrating than worrying about your asset
sitting in the water when you have a hurricane bearing down on it?

DOWDY: For some shipless captains, the lure of the open ocean will prove
too much. Follow Hurricane Katrina and Super Storm Sandy, the industry
benefited from consumers replacing and upgrading damaged properties, boat
builders, dealers and marine industry analysts say they expect insurance
payouts for hurricane damaged boats to provide some extra wind in 2018

For NIGHTLY BUSINESS REPORT, I`m Landon Dowdy in Miami.


GRIFFETH: And before we go, another look on the day on Wall Street. A
much calmer session today than we saw Monday or Tuesday. The Dow dropped
just by nine points, the Nasdaq was down 59, the S&P down seven.

HERERA: And hat does it for us tonight. I`m Sue Herera. Thanks for
joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.


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