Transcript: Nightly Business Report – April 19, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The chips get chipped.
Semiconductor stocks fall hard on a surprise warning from a major company
as investors wonder whether the market can make new highs.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Losing share. P&G, the
world`s largest consumer products company, had to lower prices as it
struggles to adjust to rising competition.

HERERA: Alpha male. Is too much testosterone what`s plaguing the hedge
fund industry?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
April 19.

GRIFFETH: And we do big bid you good evening, everybody.

We saw a classic chipwreck on Wall Street today. Semiconductor stocks
pulled the technology sector lower and that in turn was a big drag on the
broader market. It started after Asian chip maker Taiwan Semiconductor
delivered a disappointing revenue forecast. Now, because Taiwan Semi is a
big Apple (NASDAQ:AAPL) supplier, some interpreted its warning as a
prediction of softer smartphone sales.

And if that wasn`t enough, there was a report that Facebook (NASDAQ:FB) is
designing its own chip and will cut back on its reliance of products from
Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM).

Well, the result was a rough day for many of the chip makers. In fact,
Intel (NASDAQ:INTC) was the big drag on the Dow today.

Kim Forrest is senior portfolio manager at Fort Pitt Capital. She joins us
to talk about this.

And I know you own many of these companies but we already knew, Kim, about
the slowdown in personal computer sales. There`s a big reliance on
smartphone sales now and now we hear about companies wanting to design
their own chips. What`s going on?

KIM FORREST, FORT PITT CAPITAL SENIOR PORTFOLIO MANAGER: Well, it is a
time of change and that is a time of opportunity but I think that a lot of
the companies that want to design their own chips, I think the people who –
– the investors don`t understand that they are not necessarily going to
make their own chips, which means run the fabrication plant.

If Apple (NASDAQ:AAPL) were to make its own chips, it would have had to
have the shovels in the ground already and building that fabrication plant.
So they`re likely going to use either Taiwan Semiconductor or another
company or even Intel (NASDAQ:INTC) who does third-party chip building for
other people. They`re going to have to use these services to actually get
their chips made.

So, I think that we`re throwing the baby out with the bathwater today.

HERERA: You`ve had in the past and a slightly overweight position in
technology. Did today`s news influence you one way or another?

FORREST: No, not really. We`re looking three to five years in the future
and what we think is there`s going to be more semiconductors needed and
used in three to five years than there is today, driven by many uses,
including, you know, phones. But I think there will be new devices, but I
think things like cars are going to take a whole lot more semiconductors
than we can even imagine right now.

GRIFFETH: Now, I was looking at charts today and I saw that Intel
(NASDAQ:INTC) and Taiwan Semi are both just coming off all-time highs set
earlier this year. I know you are a value investor.

FORREST: Yes.

GRIFFETH: Are that too expensive for you now or you still like them here?

FORREST: Well, we don`t look at Taiwan Semi on a valuation basis, and I
think you have to make the call every single day of whether or not you`re
going to buy Intel (NASDAQ:INTC). But looking again three to five years
from now, we see that demand is going to be higher, so would take a look at
that if you know we needed to put money to work.

HERERA: And do you still find significant value in this market,
specifically in technology?

FORREST: There are pockets. There are overlooked pockets of technology.
I think the focus has been on FANG and that mostly the media aspect of
technology, and we have not been looking there for many reasons.

But — so we`ve been looking really to the suppliers and you know the chip
stocks because all of the technology that you`re fond of and even stuff
that you don`t know that they`re inventing right now that you`re going to
be fond of, it`s delivered on chips.

GRIFFETH: Very good. Kim, always good to see you. Thank you.

FORREST: Thank you.

GRIFFETH: Kim Forrest with Fort Pitt Capital joining us tonight.

HERERA: And Proctor and Gamble also had a rough day. Despite reporting
better than expected earnings, the Dow component lost market share as
competition intensified. Not only did that keep a lid on sales growth, it
also pressured the stock, which fell more than 3 percent, making it the
worst performing stock on the Dow today.

(BEGIN VIDEOTAPE)

HERERA: It`s still the world`s biggest consumer products maker but Procter
& Gamble (NYSE:PG), maker of iconic brands like Tide, Bounty and Gillette,
is not immune to a changing marketplace. Net sales were up but P&G dropped
prices by two percent in the first quarter.

CEO David Taylor acknowledging that changes are needed, saying we have
large businesses in several difficult markets. The ecosystems in which we
operate around the world are being disrupted and transformed.

JONATHAN FEENEY, CONSUMER EDGE RESEARCH: I think P&G, like a lot of big
CPG companies is finding consumers are less loyal in a post-mobile phone,
post-Amazon (NASDAQ:AMZN) world. It`s not that they like the brands less.
It`s just that they have more options.

HERERA: Amazon (NASDAQ:AMZN) is making lower priced household staples, a
staple of consumer shopping patterns. Also, discount retailers like Aldi
are helping keep prices down at supermarkets.

Hoping to find growth, P&G also announced it plans to acquire Merck`s
consumer health business at a cost of more than $4 billion. Margins on
Merck`s vitamins and nasal decongestants are good, but total sales amount
to roughly a billion dollars. And analyst wondered just how much impact it
will have on P&G, a company that does about $66 six billion in sales each
year.

FEENEY: It`s going to have a minimal effect. It`s a smart direction for
them to go. We know they`ve had some success. We know they continue to
have success in OTC with VIX, and some of their other brands. I like that
they`re going in that direction. No, I don`t think it`s a very material.

(END VIDEOTAPE)

HERERA: P&G`s guidance is unchanged, with sales growth expected at 2
percent to 3 percent this year and expectations that it may fall in the low
end of that range.

Bill?

GRIFFETH: Sue, there you have it. Semiconductors and consumer staples
pulled this market lower today. In fact, at one point, the Dow was down
almost 200 points. But losses were repaired late in the session on a
report that Deputy Attorney General Rod Rosenstein told President Trump
last week that Mr. Trump is not a target of any part of the special
counsel`s investigation.

So, by the close, the Dow was down just about 83 points, close to 24,664,
the Nasdaq was off by 57, the S&P lost 15. You know, the stock market has
been stuck in a trading range for three months now, and traders are
wondering what`s it going to take to return to those highs that we hit in
January.

Bob Pisani takes a look for us tonight.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks lost theme today
as rising rate fears started to take hold. Investors are once again
focused on earnings and earlier this week, it looked like the markets
wanted to push higher. The S&P is up six of the last nine trading days.
Now, the streets wondering if they can break the old record highs back in
January. We`re only 2 percent away from record highs in the small cap
Russell 2000, and 6 percent away in the S&P 500.

But most traders are doubtful we can get there because they fear the great
rally killer, the Federal Reserve. Now, nobody thinks a recession is
imminent but Fed rate hikes are ahead of us. We seem only one or two nasty
inflation reports away from rates rising again.

The market is interpreting this to mean there could be four rate hikes
instead of three in 2018. But we`ve got earnings and they`re fantastic.
They`re getting better and better and the majority of companies are beating
by much more than expected.

There`s other issues at play here. The markets for the moment seemed a
little overbought. Geopolitics could return. And remember, we`re entering
a seasonally weak time of the year.

Global growth also seems to become a little more difficult. European
earnings are expected to come in weak a measly 2 percent. That`s the
strong euro. That`s a problem.

The bulls can only pray that the earnings keep getting better and better
into the second, third and even the fourth quarters.

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

(END VIDEOTAPE)

HERERA: The International Monetary Fund says global growth is solid, but
the rising trade tensions between the U.S. and China risk undermining the
progress that`s been made.

(BEGIN VIDEO CLIP)

CHRISTINE LAGARDE, IMF MANAGING DIRECTOR: What I`m concerned about is that
this be debated in a multilateral setting, with everybody involved, because
at the end of the day, you know, enterprises, companies, corporates, they
operate on a cross-border basis. They know no boundaries. They organize
their supply chain on a completely multilateral basis. And so, all
countries that have to be at the table to address those issues.

(END VIDEO CLIP)

HERERA: Ms. Lagarde added that unilateral tariffs are not particularly
effective.

So, with global growth looking solid pretty much around the world, where
are some places that you should consider putting your money to work?

Joe Barrato joins us now to discuss some of his ideas. He`s director of
investment strategies at Arrow Investment Advisors.

Joe, good to see you. Welcome.

JOSEPH BARRATO, DIRECTOR OF INVESTMENT STRATEGIES: Thanks for having me.

HERERA: So, you feel as though there`s increasing value overseas, even
though our earnings are coming in pretty — pretty darn good and the
economy seems to be firing on all cylinders.

BARRATO: Yes. Well, look, there are three factors why, you know, you look
at last year, the U.S. equity market was up about 24 percent and you had
31-country markets that outperform the U.S. equity markets. So, there`s
been a movement overseas.

And we see three reasons why that is. You know, you see the dollar on
decline, you see inflation on the rise, and you see the spreads between the
U.S. equity and the commodity markets at this all-time low that we haven`t
seen since the dot-com bubble. And that all is a recipe for what could be
very well in favor for companies that that have exposure overseas.

GRIFFETH: So, you`ve — you have some ETFs here that invest overseas that
you want to tell us about. I can`t remember the last time somebody
recommended Finland but, you got an ETF that invests in Finland. Why
there?

BARRATO: Well, you know, we have ways of kind of getting exposure to the
international markets. We think first and foremost that investors should
be thinking about things that are not correlated to the U.S. equity
markets. So, you know, there`s a lot of exposure to the developed markets
through the ETAH (ph). ETAH (ph) is a broad market index.

But we like getting exposure down at that granular level at the country
level. Finland was very strong last year and Finland is continuing that
strength going into this year. The same could be said for Qatar. Qatar
was down dramatically last year for —

HERERA: Let`s go to your next which is the Guggenheim Frontier. Frontier
obviously indicating that it is maybe perhaps some of the smaller markets
around the world. Why do you like it?

BARRATO: Well, we like Frontier markets because, first of all, it`s a
package solution. So, you`re right. Finland trying to buy an individual
country. You really have to have — you know, you understand how to do
that.

There`s — and with a package solution like this, it`s going to give you
those countries in an in a balanced portfolio and there`s, you know, four
countries that are inside the Frontier markets today. And again, that`s
just another way for investors to play getting exposure to something that
would be maybe very difficult to do on an individual basis.

HERERA: Absolutely. Thanks, Joe. Appreciate it.

Joe Barrato with Arrow Investment Advisors.

GRIFFETH: Meantime, Main Street is also paying close attention to how the
latest trade tit-for-tat plays out.

Kate Rogers (NYSE:ROG) reports now on small business owners who feel caught
in the middle of the two economic superpowers.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For Alice Reed,
potential tariffs on exported goods to China could be make-or-break for her
business. Off the grid, Reed`s Green Growers in Lincoln, Nebraska, has
been in her family more than 100 years, growing corn and soybeans.
Retaliatory Chinese tariffs on exported soybeans have her on edge at a time
when she says the agricultural economy is already suffering.

ALICE REED, SOYBEAN FARMER: We`re pretty afraid of hearing about these
tariffs.

ROGERS: Reed says she supported Hillary Clinton in the election, concerned
about what President Trump`s policies might mean for Main Street.

REED: We`re small business we stand for American ways and we sure hope
that he would help out the small guy instead of harming us. We`re hurting
down here. The Nebraska economy is dependent upon farms and that`s our
business. We hope that he can come through and help us.

ROGERS: Others say a possible trade war is making planning ahead more
difficult. Jason Duff, owner of Bellefontaine, Ohio properties, invests in
and renovates small businesses in town. He says potential steel and
aluminum tariffs have led to price increases from vendors.

JASON DUFF, SMALL BUSINESS OWNER: Right now, as there is greater
uncertainty in the market it`s difficult for me to plan and take initiative
and risk in doing future projects. We`re watching every penny right now.

ROGERS: That being said, Duff said he said it`s the president`s decision
to try to level the playing field with our trading partners, and as an
independent voter, he decided to support the president in the 2016
election.

DUFF: I`m appreciative for the Trump administration taking action and
steps to make this trade and balance more fair, even with it being a short-
term setback for our companies in my business, I think the long-term
approach is smart that we have this conversation now.

ROGERS: Advocacy groups have been equally divided on the issue. The
conservative National Federation of Independent Business said tariffs don`t
have a big impact on its membership and point out that trade rank last out
of issues polled in its latest survey.

Meanwhile, the nonpartisan National Small Business Association and the
Small Business and Entrepreneurship Council have been more critical of
tariffs. In fact, the SBE Council just testified before Congress, urging
for free trade and the strengthening not undermining of NAFTA.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: Speaking of NAFTA, NAFTA negotiators were back in Washington
today, working on a deal in principle that they hope can be finalized in
the coming weeks. The talks have been described by Canada`s trade minister
as entering an intensive phase.

(BEGIN VIDEO CLIP)

CHRYSTIA FREELAND, CANADA`S FOREIGN AFFAIRS MINISTER: Rules of origin are
fiendishly complex, it`s important to use this as a process that certainly
enhances North American competitiveness, that is good for our steel
industries, that ultimately though, it does have to be something that
works.

(END VIDEO CLIP)

HERERA: Some of the sticking points that remain are over the automotive
and the agricultural sectors.

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

We begin with Walmart. Their rating was raised to buy from hold at Argos
Research. The analyst there says an improving job market should help low
and middle income shoppers to spend more. The price target on Walmart
raised to $100. Stock rose fractionally to $87.89.

And Sprint`s rating was upgraded to neutral from underperforming at
Macquarie. The analyst says that merger talks with T-Mobile could support
the stock near-term and lower the downside risk. Price target $6.25. The
stock drifted lower today to $5.96.

HERERA: Still ahead, fewer opioid prescriptions are being filled, but
there could be some unintended consequences.

(MUSIC)

HERERA: There are reports tonight that regulators are planning to fine
Wells Fargo (NYSE:WFC) about $1 billion for alleged auto and mortgage
market abuses. According to “The Washington Post (NYSE:WPO)”, the fine
could be announced as soon as tomorrow. It would be one of the most
aggressive finds of the Trump administration.

GRIFFETH: Airline regulators have now ordered ultrasonic inspections on
those fan blades the jet engines that are the same type as the one on the
Southwest Air flight that made the news this week. The FAA said it will
issue a directive in the next two weeks requiring certain fan blades to be
reviewed when they reach a certain number of takeoffs and landings.

Southwest for its own part has said that all those blades will be reviewed
within the next days or so.

HERERA: Americans are filling fewer prescriptions for opioids. In fact, a
new study shows that the number fell dramatically last year. But the
crisis is far from over.

Meg Tirrell has the details.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Prescription
painkillers like OxyContin have played a major role in the opioid crisis,
and public health officials have increasingly been calling for changes in
the way they`re prescribed. According to a new report, those measures
appear to be working. The volume of prescribed opioids in the U.S. peaked
in 2011, at about 72 pills per American adult, up from 22 pills in 1992.

New data today from the IQVIA Institute, an industry researcher, show that
decline accelerated last year, reaching an average of pills per adult in
this country.

MURRAY AITKEN, IQVIA INSTITUTE EXECUTIVE DIRECTOR: This is a significant
drop. We think it`s important to see that and to recognize that some of
the programs, perhaps many of the programs that have been put into place in
the past year or two seem to be having an impact. Health insurers and
pharmacy benefit managers have been implementing new regulations to try to
limit over prescribing of opioids, such as restricting new prescriptions to
just seven days and monitoring prescribing practices more closely.

TIRRELL: They`ve also lifted hurdles for accessing so-called medication
assisted treatment for opioid addiction and prescriptions for those
medicines such as buprenorphine have been on the rise.

AITKEN: What we`re reporting is almost doubling in the number of new
patient starts using one of these medication assisted therapies, going from
about 42,000 patients a month at the beginning of 2015, up to 80,000 a
month at the end of 2017.

So, a quite rapid increase in the use of those medication-assisted
therapies.

TIRRELL: Unfortunately though, prescription painkillers are not the only
source of the problem and both heroine and stronger synthetic opioids like
fentanyl have overtaken prescription drugs as the biggest causes of
overdose deaths, according to the CDC.

But overdoses from all forms of opioids were increasing through the end of
2016, and the reduction and availability of prescription opioids may have
had some complicated effects, according to public health researchers.

WALID GELLAD, UNIVERSITY OF PITTSBURGH: It`s generally good news that
prescription opioids have declined. It`s been accepted that there`s been
overuse. I guess unanswered question you might say is whether some of the
policies that have been in place have led to other unintended effects,
whether it`s transition and one of the main ones that people are concerned
about is whether it`s — there`s been a transition to heroin and other
forms of opioids, because of the reduction in prescription opioids and I
think that is an unanswered question and something people are looking at.
That I think is the concern.

TIRRELL: So, still, a lot of work to be done.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

GRIFFETH: Shares of Philip Morris get smoked and that`s where we begin
tonight`s “Market Focus”.

The tobacco giant said that revenue grew at a slower than expected pace on
a drop in cigarette volume. They also admitted that new smokeless tobacco
products haven`t resonated with customers. Philip Morris did increase
though its full-year earnings forecast, but that was a result of new tax
changes. And we saw the stock have its worst day in a decade today,
falling more than 15 percent to $85.64.

Botox maker Allergan (NYSE:AGN) is no longer considering a bid for drug
makers Shire (NASDAQ:SHPGY). Allergan (NYSE:AGN) had earlier confirmed
that it was interested in a merger, but then revised course, citing
opposition from shareholders. Shire (NASDAQ:SHPGY) which focuses on rare
disease treatments had already turned down a more than $60 billion takeover
offer from Japan`s Takeda Pharmaceuticals. Allegan shares fell 4 percent
to $158.59. Meanwhile shares of Shire (NASDAQ:SHPGY) were off 1 percent to
$160.74.

And earnings fell at Blackstone but the private equity firm still managed
to top analyst expectations. The company also delivered a revenue beat.
Blackstone said that it was adding $1 billion to its share buyback program
and also said it plans to pay a 30 cent special dividend this year.
Blackstone shares climbed by 1 percent to $32.12.

Sue?

HERERA: Bill, late today, Mattel (NASDAQ:MAT) announced that its CEO is
leaving the toymaker to pursue other opportunities. But her departure
comes after just a little bit more than a year on the job. She will be
replaced by the incoming executive chairman. Shares of Mattel (NASDAQ:MAT)
were off 3 percent to $13.45.

After the bell, trading platform ETRADE reported earnings that topped
street expectations. The company`s results were helped by an increase in
market volatility. The shares were initially lower in the extended
session. They ended the regular session up about 1 percent to $58.83.

And after the bell, Skechers reported profits and sales that came in ahead
of estimates, but the sneaker maker`s outlook for the current quarter
disappointed investors. They sent shares down sharply in after-hours
trading. The stock finished the regular day down a fraction to $42.08.

GRIFFETH: Coming up, taking the lead. The most valuable artificial
intelligence startup in the world is not in Silicon Valley but it`s in
China.

(MUSIC)

HERERA: Artificial intelligence is widely considered to be the next big
thing. But the world`s most valuable startup in that field is not in
Silicon Valley where you might expect it to be. Instead it`s halfway
across the globe.

Eunice Yoon reports tonight from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: You may not have heard
of SenseTime time, but the CEO of the Hong Kong startup has a message for
Silicon Valley — the face of the world`s leader in artificial intelligence
may be changing.

LI XU, SENSETIME CO-FOUNDER AND CEO: I think China really has advantages.

YON: Backed by Alibaba and Qualcomm (NASDAQ:QCOM), the three-and-a-half-
year-old facial recognition company led by Li Xu is now the most valuable
A.I. startup in the world.

XU: The government is encouraging different sectors and maybe different
industries to using those kind of new technology and this is very important
for maybe for us, for startups.

YOON: The Chinese government wants to be a leader in A.I., pledging to
turn it into a $150 billion industry by 2013.

XU: So face as ID shouldn`t makes life much easier, (INAUDIBLE) and all
those companies, they`re embracing the facial recognition technologies.

YOON: Privacy issues have risen to the forefront in the U.S. Not so in
China, says veteran investor Kai-Fu Lee.

KAI-FU LEE, SINOVATION VENTURES CHAIRMAN AND CEO: I think Chinese users at
this point in time are more willing to trade privacy for convenience, so
that I think will help the companies build up more of A.I. applications.

YOON: SenseTime`s Xu believes eventually people will become more
comfortable having their movements tracked, but until then, the privacy
debate may hold back U.S. tech companies from competing.

XU: Currently I think you were really well back. So, but maybe it takes
time. I think the U.S. or even the world can see that it is no harm to use
those kind of technology.

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

(END VIDEOTAPE)

GRIFFETH: The hedge fund industry has largely underperformed the broader
market during this current bull run and there have been any number of
reasons why — from a lack of market volatility, to a trend toward passive
investing. But now, researchers may have found another reason why. Brace
yourself.

Leslie Picker has our story from Orlando.

(BEGIN VIDEOTAPE)

LESLIE PICKER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hedge funds an
industry synonymous with alpha. That`s what most of them strive for alpha,
or outperformance. But it`s also an industry spearheaded by a certain
stereotype, straight out of central casting, the alpha males. A new study
asks, do alpha males or those with higher testosterone levels deliver
better returns?

Research conducted here at the University of Central Florida and Singapore
Management University found that hedge fund managers with higher
testosterone levels tend to underperform those with lower testosterone
levels by 5.8 percent each year on average.

Researcher Yan Lu used hedge fund managers facial dimensions as a proxy for
their testosterone levels. She studied images of over 3,000 hedge fund
managers, all male. She used this square tool to measure the facial ratio
to determine their testosterone levels, Lu`s report cites other studies
showing the facial width to height ratio as a reliable cue to masculine
behaviors.

Lu also found that high T levels in a firm`s figurehead made it more likely
the fund would close.

YAN LU, UNIVERSITY OF CENTRAL FLORIDA: We found like the high level of
testosterone care for human beings can bring aggression, fearlessness,
risk-taking and all egocentrism.

And then these features can also lead to the unethical behavior.

PICKER: Other studies have found that testosterone has been beneficial in
certain jobs, namely for CEOs and high-frequency traders. But for better
returns in the hedge fund world, Lu advises investors to avoid alpha male
managers.

For NIGHTLY BUSINESS REPORT, I`m Leslie Picker, Orlando.

(END VIDEOTAPE)

GRIFFETH: OK.

HERERA: OK. That 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.

END

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