Transcript: Nightly Business Report – June 4, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Record finish. The Nasdaq
closes at an all-time high with some big name tech stocks getting new
milestones.

New promise. The companies behind cutting-edge cancer treatments that are
leading the charge against that disease.

End of an era. The man who turned Starbucks (NASDAQ:SBUX) into a global
coffee brand is leaving the company, and many are wondering what’s next for
him and the business.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, June
4th.

Good evening, everyone, and welcome. I’m Sue Herera. Bill Griffeth is off
this evening.

Investors started the week in a buying mood. The Nasdaq notched a record
close, its first since march, led by names like Apple (NASDAQ:AAPL), Amazon
(NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). A rise in retail stocks also
helped lift the Dow and the S&P 500. Today’s gains follow Friday’s rally
which was fueled by better than expected employment report. The Dow Jones
Industrial Average finished up 174 points to 21,813. The Nasdaq advanced
52 and the S&P 500 added 12.

HERERA: Well, with markets off to a strong start, let’s talk about what
may be in store for the major indices for the rest of this week. And we’re
joined to do that by Liz Ann Saunders, senior vice president and chief
investment strategist at Charles Schwab.

Good to see you, Liz Ann.

LIZ ANN SONDERS, CHIEF INVESTMENT STRATEGIST, CHARLES SCHWAB: Hi, Sue.
Thank you.

HERERA: It does seem to be good news pretty much all the way around on the
economy and also on earnings.

SONDERS: No question about it. The jobs report obviously was gangbusters.
The only thing you could find fault with was a little bit of a dip in labor
force participation.

But there are some long-term secular demographic reasons for that not least
of which being the aging population. It was over all a good number. I
think what a day like today as well as Friday’s action in the market just
tells you that for now, anyway, good fundamental economic news is
offsetting concerns that will be ongoing on tariffs and trade. So, for
now, I think the economy is reining supreme. But that may not persist.

HERERA: Right. So, what does that mean for the market? Are there certain
things that you are going to be watching for this week or looking for?
Trade obviously is kind of front and center right now, but are there other
things that you’re going to be keeping an eye out for?

SONDERS: No, I do think trade is front and center. And if you look at the
last couple of months and you look at some of the more volatile individual
days, many of them have been tied to announcements that come on tariffs or
trade. And obviously, those are moves in the market in both directions.

So I think any news on that front will continue to either support stocks on
a given day or hurt stocks on a given day. But I also think any change in
expectations around Fed policy, I think in the next few weeks and even
beyond the Fed meeting in June, I think that is probably the most important
thing that’s front and center in the minds of investors is a trajectory of
interest rates as we look into the rest this year.

HERERA: And is June pretty much a foregone conclusion that we will see a
rate hike? And how many more do you expect given the strong economic data
and Friday’s jobs report? How many more hikes do you expect?

SONDERS: Yes, I think June is a foregone conclusion. It’s interesting.
When we were going through the turmoil a week or so ago in Italy, you
actually saw expectations in the futures market dip a little bit even for
June.

So, for a little while there, it wasn’t a foregone, i.e., 100 percent
chance. That popped back up in the immediate aftermath of the jobs report.
But also, the possibility of total four rate hikes this year, which would
be three more in addition to the one that the Fed gave us in March, those
expectations actually moved back up pretty significantly, not to anywhere
near 50 percent, but they moved up in the aftermath of the jobs report.

So, we’ve been saying at least three this year and our calculus on that
being the most likely look for Fed policy hasn’t changed in light of
Friday’s number.

HERERA: And, you know, there are those who kind of are hand wringing about
the fact that we might get those four interest rate hikes, but on the other
hand, it means the economy is strong enough to take those hikes, correct?

SONDERS: Yes. I think that really what you have to look at is inflation
and inflation expectations. There’s kind of a double risk here. I think
if the Fed sort of continues on this path, doesn’t move beyond what they
telegraph and where the expectations bar is, I think we’re probably fine.

There is a risk, of course, if they pare back the pace of interest rate
increases in the face of rising inflation, then the risk is that they’re
seen as being behind the curve. And, of course, there’s the other side of
that which is if they continue to move and they end up at four hikes this
year but the inflation data does not support that, that’s a risk that the
market views the Fed as going a little bit too far. But I think the
current balance between the data we’re seeing on inflation and expectations
for Fed policy is probably about the right recipe for the market in the
near term.

HERERA: All right. On that note, Liz Ann Sonders, thank you so much.
Appreciate it.

SONDERS: Thanks, Sue.

HERERA: Liz Ann Sonders is with Charles Schwab.

Shares of Microsoft (NASDAQ:MSFT) meanwhile hit a 52-week high on news that
the company is buying the coding Website GitHub for $7.5 billion.
Microsoft (NASDAQ:MSFT) hopes the purchase will convince more developers to
create applications for its cloud computing business. It is also a way for
Microsoft (NASDAQ:MSFT) to challenge Amazon (NASDAQ:AMZN). Microsoft
(NASDAQ:MSFT) CEO says this deal is similar to past acquisitions.

(BEGIN VIDEO CLIP)

SATYA NADELLA, MICROSOFT CEO: What we have done with Minecraft, what we
have done with LinkedIn (NYSE:LNKD) give us confidence that we can, in
fact, acquire, grow, have these communities thrive. And that’s what will
basically be things we’ll look for. It’s not that we have speed up or slow
down but we’ll go by those three criteria.

Is it a growing market? Can we add value? Can we integrate it well?

(END VIDEO CLIP)

HERERA: Investors like the acquisition sending the stock higher in trading
today.

Shares of fellow Dow component Apple (NASDAQ:AAPL) closed at a record. The
stock hit that milestone on the first day of the company’s developer’s
conference and at that conference, Apple (NASDAQ:AAPL) addressed a
controversial topic surrounding its flagship iPhone and that is smartphone
addiction.

Josh Lipton has the story from San Jose.

(BEGIN VIDEOTAPE)

CRAIG FEDERIGI, APPLE SVP SOFTWARE ENGINEERING: It’s become such a habit
that we might not recognize how distracted we’ve become.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the Apple
(NASDAQ:AAPL) Worldwide Developer Conference, the tech giant revealed new
ways for you to spend less time on your iPhones and iPads.

FEDERIGI: And today, you know, we’re announcing a comprehensive set of
built-in features to help you limit distraction, focus and understand how
you’re spending your time.

LIPTON: The features will be included in the new iPhone iOS update include
a “do not disturb” mode, a setting that allows you to sleep without being
disturbed by incoming messages or e-mail alerts. This feature can also be
applied during the day.

Another way you’ll soon be able to cut back on your screen time is a
feature called Time Limit, allowing users to set usage limits on individual
apps so if you spend too much time on something like Instagram, your phone
will alert you.

And soon, you’ll be able to receive a weekly report that shows the amount
of time spent on different apps. There has been a big push from the
investor community for Apple (NASDAQ:AAPL) to do more when it comes to
customers’ digital well-being. The debate began earlier this year when
Barry Rosenstein at Jana Partners, along with CalSTRS, raised the issue.
The Apple (NASDAQ:AAPL) investors who collectively own $2 billion worth of
the stock argue that teenagers spend too much time on their smart phones
and Apple (NASDAQ:AAPL) needs to do more to combat this iPhone addiction.

Jana responded to today’s news: While we will review the details and
Apple’s follow through will be important, this looks like a clear win for
parents and families, as well as shareholders given that this should
strengthen Apple’s ecosystem for years to come.

The iOS 12 update will come in the fall when parents will also get more of
power to control the amount of time that their kids spend on iPhone apps.

For NIGHTLY BUSINESS REPORT, I’m Josh Lipton, San Jose, California.

(END VIDEOTAPE)

HERERA: And in the race to a $1 trillion market cap, Apple (NASDAQ:AAPL)
remains in the lead at $942 billion. Amazon (NASDAQ:AMZN) is second and
Alphabet rounds out the top three.

Microsoft (NASDAQ:MSFT) is in fourth place, by the way.

Dow component McDonald’s (NYSE:MCD) is modernizing its business. The
company plans to order self-order kiosks to 1,000 stores each quarter.
Markets like Canada, Australia and the U.K. already have kiosks service and
mobile ordering. And the CEO says he expects the investment in the U.S. to
pay off.

(BEGIN VIDEO CLIP)

STEVE EASTERBROOK, MCDONALD’S CEO: If they want to dwell, have a little
bit more time then go to a kiosk, they can browse through the menu. They
start selecting and start to see the broader ranges perhaps, or they may
want to customize the food they’ve got. Then you can also pay clearly on
credit/debit there as well.

And you can then receive table service. So, you can then take a little
tent card, Bluetooth-enabled tent card, take it to the table and we’ll
bring your food out for you. So, what we are finding is when people dwell
more, they tend to select more. So, there is a little bit check boost as
well.

(END VIDEO CLIP)

HERERA: Investors liked what they heard, sending the stock higher in
trading today.

A battle is brewing between Dow component Boeing (NYSE:BA) and two of its
largest suppliers. Today, Boeing (NYSE:BA) raised the stakes by announcing
it will start building a key component that for years has been manufactured
by Honeywell and United Technologies (NYSE:UTX). That lifted shares of the
stock by about 1 percent.

Phil LeBeau on why Boeing (NYSE:BA) is branching out.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Boeing (NYSE:BA) is
best known for building some of the most popular commercial airplanes in
the world, but increasingly, it’s looking to boost profits by making and
servicing the guts of those planes, the avionics and key components from
the cockpit to the tail.

The company’s latest move is a joint venture with the French aerospace firm
Safran. Together, they will build and supply auxiliary power units used
primarily to start up planes parked on the tarmac. The APU area is
dominated by Honeywell and United Technologies (NYSE:UTX). Those aerospace
suppliers have grown their bottom lines in part by offering APUs to a wide
array of aircraft systems and services to the airline and cargo operators
who spend billions on new planes.

It’s a lucrative business with healthy profit margins, which is why Boeing
(NYSE:BA) CEO Dennis Muilenburg wants more of it. As he told us in April,
Boeing (NYSE:BA) is actively looking to make deals that will grow its
services division.

DENNIES MUILENBURG, BOEING CEO: So, where we can find strategic
acquisitions that complement our organic investment and services. That’s a
top priority.

LEBEAU: Last year, about a fourth of Boeing’s revenue came from its global
services division, a percentage that the company expects to increase,
especially given the backlog of orders and the ability to sell more
components and services to customers.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Howard Schultz, the architect of the modern Starbucks
(NASDAQ:SBUX), is severing all ties with the company. His departure is
effective at the end of the month. The news sent the stock initially lower
in after-hours trading.

Andrew Ross Sorkin broke the story and has more from Seattle on Schultz’s
departure.

(BEGIN VIDEOTAPE)

ANDREW ROSS SORKIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is the ends
of an era at Starbucks (NASDAQ:SBUX). Howard Schultz, the executive
chairman of Starbucks (NASDAQ:SBUX), announcing he’s going to be stepping
down from the company and the company’s board at the end of the month. Of
course, Howard Schultz built today’s modern Starbucks (NASDAQ:SBUX) from
just 11 stores here in Seattle to 28,000 stores in 77 countries around the
world.

The announcement coming just a week after the company closed down stores
for four hours in the United States for an anti-racial bias training
program after an incident in Philadelphia. Mr. Schultz had planned to step
down in May, but his plan was upended by that incident in Philadelphia in
April.

Schultz’s decision to step away from Starbucks (NASDAQ:SBUX) likely to only
fuel speculation that he could run for president in 2020. He has been
quite outspoken on a number of big social issues and his name is often
bandied about among a number of executives that could run, including Jamie
Dimon, Bob Iger of Disney (NYSE:DIS) and Mark Cuban.

In a letter to employees today, Schultz said, I’ll be thinking about a
range of options for myself, from philanthropy to public service, but I’m a
long way from knowing what the future holds.

In an interview with me in “The New York Times (NYSE:NYT)” he said, quote:
I want to be truthful with you without creating more speculative headlines.
For some time now, I’ve been deeply concerned about our country, the
growing division at home and standing in the world. One of the things I
want to do in my next chapter is to figure out if there’s a role I can play
in giving back. I’m not exactly sure what that means yet.

In the meantime, Mr. Schultz says he plans to run his family foundation and
write a book about corporate social responsibility.

For NIGHTLY BUSINESS REPORT, I’m Andrew Ross Sorkin in Seattle.

(END VIDEOTAPE)

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

Evercore ISI is telling clients to invest in Macy’s (NYSE:M) for the long
haul. The analyst says Macy’s (NYSE:M) is figuring out how to manage
inventory and market to consumers in the digital age. The firm also raised
its earnings estimates on the company for this year and next. The stock
gained 4 percent to $37.10.

Whirlpool (NYSE:WHR) was upgraded to outperform from neutral at Credit
Suisse. The analyst there says the rise in appliance prices should help
offset higher input costs. The price target is $195 and the stock rose
more than 2 percent to $149.22.

Prudential Financial was upgraded to buy from neutral at Goldman Sachs
(NYSE:GS). The analyst cites the company’s strong cash flow. The price
target is $117. The stock rose a fraction to $99.17.

That same analyst at Goldman Sachs (NYSE:GS) downgraded shares at MetLife
(NYSE:MET) to neutral from buy. The analyst sees a drop-off in buy-backs
in the second half of this year. The price target is $52 and the stock
finished lower at $46.33.

Still ahead, medical advancements in the fight against cancer.

(MUSIC)

HERERA: It may seem counter-intuitive to think that a recession could be
on the horizon, but that’s exactly what some economists are saying. Even
as growth picks up and the unemployment rate falls.

Steve Liesman explains.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The National
Association of Business Economics out with its latest survey conducted
before the Friday jobs report, showing that strong growth is expected to
continue. For the next two years, forecasters expect above trend GDP
growth rates and unemployment falling further below the near two-decade low
of 3.8 percent reported this past Friday. But some economists and market
watchers see a warning sign in that low unemployment rate.

ERIC AANES, TITUS WEALTH MANAGEMENT: When we see unemployment under 4
percent, around 3 percent, 3.5 percent, the last time we saw that, that is
a signal we’re getting towards the end of a bull market. We’re coming into
our — basically our ninth year of a bull market and these usually do tend
to turn around and slow down as you can have some wide deviations. And as
we move forward and rates go up, we may take a breather.

LIESMAN: A look at the past 70 years shows unemployment bottoms out months
just before recessions start. Sometimes, it’s a full year and sometimes
it’s just a month. On average, unemployment hits a low a little less than
5 1/2 months before a recession starts. That recession can often be
created by Federal Reserve interest rate hikes designed to cool an economy
that it deems to be running too hot and risk inflation.

Will it happen this time? The Fed currently forecast interest rates will
rise just above the so-called neutral rate which means it expects to
lightly put the brakes on. That doesn’t mean a recession is inevitable.
The majority of economists surveyed don’t see a recession until mid-2020 at
the earliest. And while inflation is rising, no one at the Fed seems ready
to panic. They plan modest rate hikes in the years ahead.

But the low unemployment rate bears watching. If the Fed gets spooked by
an economy that it thinks it’s running too hot, recessionary history could,
unfortunately, repeat itself.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

HERERA: Southwest books fewer business passengers. And that’s where we
begin tonight’s “Market Focus”.

The airline said overall bookings fell after an engine failed during a
flight in April, leaving one passenger dead. Southwest said the drop in
ticket purchases would cause a measure of revenue to fall 3 percent this
quarter, but it seems as though investors were expecting a steeper decline
because the shares finished up more than 1 percent to $51.65.

Nectar Therapeutic saw billions of dollars shaved off of its market value
after reporting disappointing trial results from its experimental skin
cancer drug. The latest finding shows patients with melanoma are not
responding as well to the treatment as past patients did. Shares of Nektar
Therapeutics (NASDAQ:NKTR) plunged falling nearly 42 percent to $52.57.

After the bell, Coupa Software said an increase in subscription revenue
helped overall earnings improve and top expectations. The company also
gave guidance for fiscal 2019, the beat. The shares were volatile in the
extended session, but finished the regular day up 2 percent to $55.33.

And the small cap Ascena Retail reported stronger than expected earnings
after the bell, even as customer visits slowed. But the owner of Ann
Taylor did give a profit outlook for the current quarter that was short of
estimates. So, the shares sold off in after-hours, erasing a 10 percent
gain from earlier when shares closed at $3.66.

Pioneering research into cancer treatment was on display at the world’s
biggest cancer conference. It’s an event that the medical community and
investors pay very close attention to.

Meg Tirrell is in Chicago tonight with a look at the companies leading the
fight against the disease.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: The world’s largest
cancer research conference, ASCO, drew almost 40,000 doctors, researchers
and executives to Chicago this weekend, to hear about the latest advances
in treating cancer. The conference also moved stocks as the biggest drug
makers compete for a market worth $133 billion last year.

A key revival is in lung cancer, where new drugs had harnessed the power of
the immune system of making major headway. Merck (NYSE:MRK), Bristol-Myers
Squibb (NYSE:BMY), AstraZeneca and Roche are all competing there. Merck
(NYSE:MRK) appeared a winner out of the weekend, with its drug Keytruda
which improves survival on long patient with advance non-small cell lung
cancer, the most common form of the disease.

Bristol-Myers’ CEO though said in an interview today that its drug looks
likely interchangeable with Merck’s.

DR. GIOVANNI CAFORIO, BRISTOL-MYTERS SQUIBB CHAIRMAN & CEO: When you look
at the totality of the data, Meg, there is really no difference between
those two medicines.

TIRRELL: Merck’s head of research disagrees.

DR. ROGER PERLMUTTER, MERCK RESEARCH LAB PRESIDENT: There are no
comparable data. No other agent has shown improvements in overall survival
and not small cell lung cancer. And, you know, that’s where we are right
now.

TIRRELL: Another key focus out of the conference was a major trial in
breast cancer. It assesses whether chemotherapy is necessary based on the
score of patients’ genetic risk.

DR. STEPHANIE GRAFF, SARAH CANNON RESEARCH ASSOCIATION DIRECTOR: The child
shows us if a woman has an intermediate risk score, she really gets no
benefit from chemo. And nobody wants chemo. So, it’s a really — it’s a
good opportunity for patients.

TIRRELL: Based on the results, doctors say they’ll feel comfortable
knowing that most patients avoid the chemotherapy.

GRAFF: It’s hundreds of thousands of women that will be impacted.

TIRRELL: The results also drove up the shares of the maker of that genetic
patent, Genomic Health (NASDAQ:GHDX). Experts here said it’s another
example of the promise of personalized medicine.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell in Chicago.

(END VIDEOTAPE)

HERERA: And that breast cancer study that Meg just referenced was funded
in part by the Postal Service. Yup, proceeds from the breast cancer stamp
put researchers over the top financially when they were trying to get
enough money to do the landmark study. The American Cancer Society said
without that stamp money, the study may never have been done.

Coming up, a health care job that’s in big demand.

(BEGIN VIDEO CLIP)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: More and more baby
boomers are choosing to age at home and that’s creating a boom in home
health care. We’re going to tell you more tonight on NIGHTLY BUSINESS
REPORT.

(END VIDEO CLIP)

(MUSIC)

HERERA: Global airlines are cutting the profit outlook, this as fuel costs
rise. The International Air Transport Association is warning that higher
interest rates and geopolitical tensions will also add to operating risks.
But the stronger global economy is expected to lift passenger yields, which
are seen as a proxy for airfares this year. It would be the first annual
gain since 2011.

Well, the U.S. economy created a lot of jobs last month. As we reported on
Friday, a bulk of those positions came from the health care sector and
demand for health care workers, especially home health care aides, is
expected to skyrocket as the population ages.

Kate Rogers (NYSE:ROG) is in South Orange, New Jersey, tonight.

(BEGIN VIDEOTAPE)

ROGERS: For Eneika Fowler, being a home health aide is an opportunity to
make a difference.

ENEIKA FOWLER, HOME HEALTH AIDE: When you walk into the room, you
introduce yourself and they lit up. And that’s a lot for me.

ROGERS: The 39-year-old isn’t alone. Some 3 million personal care and
home health aides are employed today, and that number is expected to
increase by 41 percent by 2026, according to the Department of Labor.

BILL DOMBI, NATIONAL ASSOCIATION FOR HOME CARE AND HOSPICE: It is
considered the fastest growing area of employment over that period of time.
So, the demand will grow as we see the aging of the population.

ROGERS: Companies like Homewatch CareGivers are recruiting heavily, eager
to serve a growing number of clients.

JULIE SMITH, HOMEWATCH CAREGIVERS PRESIDENT & CEO: Every single day,
10,000 seniors turn 65 years of age in the United States. Over 90 percent
of them want to age at home. So, that demand is driving a huge amount of
growth in our sector.

ROGERS: The company employs 5,000 home care experts, focusing on in-home
care for seniors. But finding the right aides can be a challenge as the
job is stressful and complex.

SMITH: The best caregivers can handle the emotional content and makes the
lives of families and clients much easier.

ROGERS: The industry faces an array of challenges including a shortage of
aides like these ladies, steady opportunities for workers and low wages.

To remain competitive, Homewatch Caregivers give background checks, train
their workers via an online course. They also hire staff as W-2 employees,
not contractors, and offer benefits including insurance and a 401k plan.

Aides like Fowler say the work pays off. On a typical day, she may help a
patient get out of bed.

FOWLER: On the count of three, I’m going to lift you up, OK?

UNIDENTIFIED FEMALE: Uh-huh.

FOWLER: One, two, three.

ROGERS: Check their vitals.

FOWLER: Very good pulse.

ROGERS: Or perform even lighter tasks, like just keeping a patient
company.

But her most important job, being compassionate.

FOWLER: I love it. I love it, love it, love it. I love being a
caregiver. I love giving care and I love the fact that when I give the
care, the clients or, you know, family members, they appreciate whatever
little I do.

ROGERS: For NIGHTLY BUSINESS REPORT, I’m Kate Rogers (NYSE:ROG) in South
Orange, New Jersey.

(END VIDEOTAPE)

HERERA: And before we go, here’s another look at the day on Wall Street.
The Dow rose 178 points. The Nasdaq advanced 52 and the S&P 500 added 12.

And that is NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks
for watching.

We’d like to remind you that this is the time of year your public
television station seeks your support. We thank you for that support.
Have a great evening, we’ll see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by ASC Services II
Media, LLC. Updates may be posted at a later date. The views of our guests
and commentators are their own and do not necessarily represent the views
of Nightly Business Report, or CNBC, Inc. Information presented on Nightly
Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

 

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