Transcript: Nightly Business Report – June 6, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Rolling along. The Dow
soars more than 300 points to close back above 25,000, just as some say
they see turbulence on the horizon.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Hang on tight. Home prices
could rise at twice the speed of inflation and pay. And some say that is
not sustainable.

GRIFFETH: Skills gap. Companies cannot find the right workers, but a
program in Louisville, Kentucky, may have found a solution in high schools.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Wednesday, June the 6th.

HERERA: Good evening, everyone, and welcome.

A midweek surprise on Wall Street. Stocks urged, thanks to a rally in the
banking sector. Names like J.P. Morgan, Goldman Sachs (NYSE:GS), and
American Express (NYSE:EXPR) (NYSE:AXP) all climbed as interest rates rose
and the yield on the 10-year treasury inched all that much closer to 3
percent.

Also helping the Dow, Boeing (NYSE:BA) which closed at a record. Add to
that, an easing of trade concerns at least for today, and stocks took off.
The Dow Jones Industrial Average soared 346 points to 25,146, its highest
closed since March. The Nasdaq gained 51, that`s a record, and the S&P 500
added 23.

GRIFFETH: And despite the continued rise of equity prices that we`re
seeing, one longtime market watcher says he has started selling stocks
during rallies like we saw today. That`s because the chairman and CEO of
Omega Advisors, Leon Cooperman, thinks that this market is now fairly
valued.

(BEGIN VIDEO CLIP)

LEON COOPERMAN, OMEGA ADVISORS CHAIRMAN & CEO: I`m sympathetic to the idea
that sometime in the next 12 to 24 months, there`ll be events that will
catch the market. I think inflation and interest rates will catch up to
the market as we normalize.

(END VIDEO CLIP)

GRIFFETH: Cooperman also believes next year could be a turbulent one for
the stock market as the Federal Reserve raises interest rates and that is
similar to what the world`s largest hedge fund is saying right now.
According to published reports, Bridgewater Associates said 2019 is setting
up to be a dangerous period for the economy as the fiscal stimulus rolls
off, while the impact of the Feds tightening will be peaking.

HERERA: So, what could test the market in the coming months and what
should investors be watching for?

Mike Santoli gives us a look at Wall Street`s worry list.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street has been
contending with a spate of concerns this year, trade war fears, rising bond
yields and an oil price surged among them if for now the market seemed to
have made their peace with these issues as the broad indexes approach to
three-month high, tech shares set new records and market volatility settles
near its low for the year.

So, what potential worries might be going unnoticed for investors as the
sometimes jumpy summer trading season gets underway? Well, for one, what
if Goldilocks goes missing? The past two months of U.S. economic data has
been strong but not too strong, which has allowed treasury yields to pull
back a bit. But this weak evidence is starting to build that worker
shortages and transportation bottlenecks are raising costs for businesses,
which could threaten the not too hot, not too cold backdrop that usually
allows stocks to thrive.

Related to this concern of tight labor and resource markets might the
Federal Reserve send the message that three more rate hikes this year are
very much on the table. And last week`s flutter of market turbulence
coming out of Europe, traders reduced their bets on further hikes to one
for sure next week and perhaps another in coming months. Stock and bond
prices are probably not positioned for a more aggressive Fed than that.

And finally, some veteran investors are on alert for some sort of global
financial mishap of the kind that often pops up later in a market cycle as
central bank`s tighten financial conditions. Focus is landing on stress in
dollar borrowings by overseas companies and governments at a time when
large U.S. government deficits and the feds shedding its bond holdings mean
dollars are being pulled back home in large numbers, raising their cost
abroad.

There have been some hints of this kind of stress on and off this year
which bear monitoring. None of these hazards might end up arising of
course, and even if these jolts do strike, there`s always the chance that
stocks can absorb them thanks to sturdy corporate profits and still low
interest rates.

But it`s when markets are comfortable and the good news is obvious that it
sometimes makes sense to look for where the next scare might come from.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

GRIFFETH: So, with respected investors starting to issues some market
warnings, should investors start playing defense?

Joining us tonight with her insights, Shannon Saccocia is chief investment
officer at Boston Private Wealth.

Thanks for joining us tonight.

SHANNON SACCOCIA, CHIEF INVESTMENT OFFICER, BOSTON PRIVATE WEALTH: Thank
you for having me.

GRIFFETH: We should say you`re not all that concerned about 2019 unlike
Bridgewater Associates or maybe Leon Cooperman, right?

SACCOCIA: I think that`s fair. I think that one of the things that we`re
really thinking about and what we`ve been focused on is the U.S. economy.
I think that whereas we had a pullback in tech prices, you know, in the
early 2000s and then we had really the housing crisis in 2008, we`re really
looking for this next recession to be a more typical one.

And we`re not seeing U.S. economic data indicating that there`s a
deterioration ahead of us in 2019, certainly not 2018, and really not much
for 2019, unless something changes dramatically over the next several
months.

HERERA: And would that change be a more aggressive Fed perhaps or not.

SACCOCIA: That is definitely one of the bigger threats and I think that
one of the things that we`re thinking about is, you know, as you mentioned,
there are sort of two hikes expected this year. If we get another hike,
you know, making it four for this year, I think the markets would have
trouble digesting that.

I do think some of the events that have occurred in Europe over the last
several weeks are creating some uncertainty that that the Fed would
accelerate even, you know, in the face of continued inflation and wage
growth. So, we`re less concerned I think than we were even a month ago
about an additional rate hike this year, but that is probably the one thing
that could potentially lead us to a quicker recession than in sort of the
2020 timeframe.

GRIFFETH: But humor me for a moment. If we are telling people that maybe
they should start thinking at least about playing defense in this market,
what would be a good defensive play do you think equity-wise?

SACCOCIA: Well, I think if we think about sort of the traditional value
stocks, those remains sort of under pressure right now. I mean, dividend
yields are certainly not as attractive as they — as they typically were
from a defense perspective. You think about quality and you think about
earnings. I think those are still very important to traditional investors.
Technology right now, although it`s — it experienced some great gains,
there`s still some very quality companies in the technology sector that
makes sense as more of a defensive nature.

We are also in a late cycle. Cyclicals, you know, there are some
undervalued cyclicals that could make sense for clients over the course of
the next 12 to 18 months.

HERERA: What about the headline risk? We certainly saw it or earlier last
week with Italy and some of the turmoil in Europe, but also, we still have
not resolved numerous trade issues that are out there.

SACCOCIA: Sue, I think that`s honestly the biggest risk that we have right
now for the second half of this year. I think that as long as we`re
continuing to see trade policy focused on small parts of the economy, areas
of the economy that aren`t particularly additive to GDP, I think that it`s
a very limited scope as far as economic impact. If we start to see a
significant ramp up from our trading partners as far as tariffs go and we
start to expect there to be a lasting economic impact from the trade
policy, I think that`s something that could accelerate the recession that
that would change our view for kind of late 2019.

GRIFFETH: Shannon Saccocia with Boston Private Wealth — thanks again for
joining us tonight.

SACCOCIA: Thank you.

HERERA: And to the economy now, where the trade deficit narrowed to the
lowest level since September, thanks to record exports. Exports were
lifted by an increase in shipments of industrial materials and also
soybeans. Economists say the trade numbers point to strong economic growth
in the second quarter, but as we`ve been reporting, economists also warned
that those rising trade tensions could pose a threat to that outlook.

GRIFFETH: And it turns out that American workers were not as productive in
the first quarter as originally thought. The Labor Department said this
morning that the increase in productivity was only roughly half what was
first reported, and that`s because unit labor costs or how much it cost to
make each product rose a bit more than expected. When productivity rises
and workers increase how much they produce per hour, companies make bigger
profits and in theory they give larger pay raises.

HERERA: And now to the labor market itself where UPS workers voted
overwhelmingly to authorize a strike, which could potentially be the
biggest one the country has seen in decades. Two hundred eighty thousand
Teamster members have the option to walk out if current contract talks
fail. The contract expires on July 31st.

At issue is how UPS will expand to offer deliveries seven days a week.
Both sides noted though that the vote does not mean that a strike is
imminent.

GRIFFETH: And as we reported yesterday, right now, there are more job
openings than there are workers to fill them. And part of the problem is
that not enough workers have the skills that employers need right now. But
an innovative program in Louisville, Kentucky, is attempting to close that
skills gap.

And as Steve Liesman reports, it starts in high school.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here at the Oxmoor
Toyota (NYSE:TM) dealership in Louisville, Kentucky, a lot of the service
bays are empty not because there aren`t enough cars to fix, there aren`t
enough mechanics to do the fixing.

JOHNNY PITTMAN, OXMOOR AUTO GROUP: These cars are computers. They are no
longer the change the oil, change the belts. They are hooked up to a
diagnostic machine. You have to know how to read the codes. Sometimes you
have to know how to write codes.

LIESMAN: It`s a local example of a bigger national problem. The
government reports a record 6.7 million job openings and businesses
complained they can`t find the skilled workers to do the jobs.

MAYOR GREG FISCHER (D), LOUISVILLE, KY: It`s a high-class problem to have,
but it leads to other issues. Obviously, our economy is a little bit
hotter than our workforce`s ability to keep up with it.

LIESMAN: That has sparked a national debate about education. Should kids
learn trades in school to fill those open jobs or go on to get a college
degree?

RODNEY JANES, UNITED AUTO WORKERS AT FORD: Not every students going to be
a college student and there`s many other opportunities that — and we have
an aging workforce in the skilled trades area. So, we`ve been trying to
create the opportunities and let them understand this is a great field for
you to look into.

LIESMAN: The city of Louisville is addressing the question through the
academies, a partnership between local businesses, the public school system
and city government that establishes trade schools in the high school
system.

MADISON SHELY, MOORE HIGH SCHOOL: With traditional education, you are
going to be sitting in a desk a lot. You`re going to be like not really
getting to do a whole lot of hands-on, and I will be graduating with my EKG
certification and knowing a lot more about healthcare than many people that
I will be going to college with.

LIESMAN: Seventeen thousand high-schoolers of the district`s hundred
thousand students can choose from 140 career paths, ranging from welding
and manufacturing to health sciences.

Manning one of the bay`s at the Toyota (NYSE:TM) dealership, 18-year old
senior Ibrahim Nasruldeen is learning a trade now but plans to go on to get
the college degree.

IBRAHIM NASRULDEEN, SOUTHERN HIGH SCHOOL: This is my favorite thing and
doing and also, after I finished my career in here, OK, I`m still going to
be studying for engineering — airplane engineering.

MARTY POLLIO: All too often in school, the curriculum hasn`t changed in a
century and we know our world has changed greatly in a century. So, we`ve
got to provide kids with engaging opportunities in school that are going to
make them successful in today`s world once they get out so they`ve got to
be successful in college, but also in career. And it`s our responsibility
as educators to meet those needs of our students.

LIESMAN: For NIGHTLY BUSINESS REPORT, in Louisville, Kentucky, I`m Steve
Liesman.

(END VIDEOTAPE)

HERERA: Great story.

Time to take a look at some of today`s upgrades and downgrades. The health
insurer Cigna was upgraded to buy from neutral over at Goldman Sachs
(NYSE:GS). The analyst says Cigna is positioned to continue to increase
market share gains in the commercial risk market. And the price target is
$212. The stock rose more than 2 percent to $174.93.

Valeant rating was upgraded to overweight from equal weight at Barclays.
The analyst says Valeant business has stabilized and it points to its
product pipeline. The price target is $29. The stock gains 7 percent to
$25.41.

GRIFFETH: Manitowoc (NYSE:MTW) was upgraded to buy from hold at SunTrust
Robinson. The analyst there says the manufacturer is positioned for growth
right now, so raise the price target to $33. Shares soared by 15 percent
as a result today to $27.45.

And shares of Floor & Decor Holdings were upgraded to overweight from
neutral at Piper Jaffray. The analyst sees growth ahead for the flooring
retailer, even as interest rates continue to rise. Price target, $58.
Shares of Floor & Decor Holdings gained seven and a half percent to $52.48.

GRIFFETH: Still ahead, what happens to the housing market if home prices
rise twice as fast as wages? We`ll ask an expert, next.

(MUSIC)

GRIFFETH: The recent dip in interest and mortgage rates has not gone
unnoticed by home buyers. Mortgage application volume rose more than 4
percent last week from the previous week, but that was actually lower than
a year ago and that`s largely due to a drop-off in refis.

HERERA: And while mortgage applications are higher, a new “Reuters” poll
found that home prices are rising at twice the rate of inflation and wages,
signaling pain ahead for potential homebuyers.

So, when will we see conditions in the housing market normalize?

We`re joined tonight by Lawrence Yun. He`s the chief economist at the
National Association of Realtors, and he took part in that poll.

Welcome. It`s nice to have you here, Mr. Yun.

LAWRENCE YUN, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF REALTORS: Thanks
for having me on the show.

HERERA: So, when will we see a more normal housing market based on what
you see out in the environment? I mean, it`s been tight for so very long.

YUN: We need more inventory and only way to do that is to have more
construction. It could be possible if some of the real estate investors
begin to unload, but there are no sign of that. So, we are left with new
home construction as only game in town to increase inventory.

And right now, it is still a sluggish pace. It`s rising but not back to
historical normal. I anticipate maybe towards the end of the year, we may
begin to see stoppage and decline in inventory. Now, that does not mean
that we are back to normal, it just means that inventory will no longer
fall. It will still be a tight market.

GRIFFETH: Why have builders not been building enough to keep up with the
pace of demand? I mean, you`ve got supplies I guess that there`s — a rise
in prices there, not enough land, the fear that we could have another kind
of a financial crisis, that they have yet to recover from.

What`s going on here do you think?

YUN: Well, the fear of financial crisis is misplaced. Our banks are in
much healthier condition. The mortgage underwriting standards are very
tight. It`s going too high credit score individuals and the default rates
are historically low.

The condition as to why the builders are slow in recovering is partly due
to the prior segment there`s just not enough skilled construction workers –
– everything from wood framers, carpentry, plumbing, welders. So, that is
holding back some of the recovery potential. The other is that the
material cost that goes into construction recently has been rising much
faster than other priced component. Lumber, for example, has risen 60
percent over the past two years, partly from global economic recovery, but
also the tariffs are adding to the costs.

And small builders are not in the game because they have had a hard time
getting the construction loans from the community banks.

HERERA: And is that increasing costs across the board why you think that
that home prices will move at — to the upside at twice the pace of pay and
wages?

YUN: So right now, we are in a housing shortage. So, based on the
momentum factor, how much the builders can bring additional homes online
over the next two years, it looks like we may continue to see these
shortage condition. Maybe not the acute shortage of today`s condition, but
we have to remember, past five years, home prices have risen roughly 40
percent, while people`s wages have only risen by 12 percent, almost four to
one ratio.

And that train just simply cannot continue. It is unsustainable and only
way to moderate home price growth is to have more construction.

HERERA: We will see. Thank you so much, Mr. Yun. Appreciate it.

YUN: Thank you.

HERERA: Lawrence Yun with the National Association of Realtors.

GRIFFETH: Elsewhere, quarterly results shine at Signet Jewelers and that
is where we begin tonight`s “Market Focus”.

The owner of Zales and Jared reported a surprise profit helped by strong
performance in the company`s ecommerce business. Same store sales were
flat, but that was actually a lot better than analysts had been estimating,
and it marked a big improvement from a year ago. Shares popped 18 percent
to $52.27.

Meanwhile, Athenahealth (NASDAQ:ATHN) CEO Jonathan Bush is stepping down
from his role following recent allegations of inappropriate behavior. The
company also named former GE CEO Jeff Immelt as executive chairman and so
that it is considering selling itself following pressure from an activist
investor. Hedge fund Elliott Management launched a $7 billion dollar
unsolicited bid for that company last month. Shares of Athenahealth
(NASDAQ:ATHN) climbed by 4 percent today to $157.44.

And Delta Airlines (NYSE:DAL) said that rising fuel costs would cause
profits to come in lower than expected during the current quarter. Shares
of Delta were off by nearly 1 percent as a result today to $54.17.

Sue?

HERERA: Bill, UnitedHealth Group (NYSE:UNH) raised its dividend 20 percent
to 90 cents a share. The health insurer also said it plans to buy back 100
million shares. Shares of UnitedHealth Group (NYSE:UNH) rose nearly 2
percent to $248.65.

Jack Daniels maker Brown-Forman reported weaker than expected sales and
warned that gross margins would be pressured on rising freight and raw
materials costs and due to the ongoing disputes about tariffs, Brown-Forman
said that it was difficult to accurately predict future results. A portion
of Brown-Forman`s total sales comes from Europe Mexico and Canada . The
shares fell 6 percent to $52.47.

And after the bell, the discount retailer Five Below reported a rise in
sales and profits, and that top street estimates, as well as its own
expectations. The company also gave upbeat guidance for the current
quarter and the full year and added that it`s still growing and it plans to
open more than 1,000 more stores across the country.

The shares were initially higher in after-hours. They also finished the
regular session up 3 percent to $81.28.

GRIFFETH: Coming up, the push to give more women the roadmap to power in
Silicon Valley.

(MUSIC)

GRIFFETH: There are reports tonight that Fidelity Investments is planning
a big push into cryptocurrencies. The investment firm is reportedly hiring
developers to build a cryptocurrency exchange. According to Business
Insider, such a move would represent one of the biggest moves by a Wall
Street firm into the market for digital assets.

Fidelity, of course, is best known for being a provider of traditional 401k
and other retirement products.

HERERA: Women are carrying the biggest share of the country`s outstanding
student debt loan debt. According to an education advocacy group, women
owned nearly $900 billion in student loans. That`s nearly two-thirds of
the total. Economists say it will take longer for women than men to repay
their loans, potentially racking up more interest and falling deeper into
debt. Women make up 56 percent of today`s college students.

GRIFFETH: And women comprise less than one-third of Silicon Valley
employees, even fewer are founders of companies with financial backing from
venture capitalists and just a small number established early stakes in
startups. Well, now, a group of investors is trying to close that gap and
they say it all starts with a legal document.

Julia Boorstin has our story tonight.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sima Sistani became
COO of video chat platform Houseparty while pregnant with her second child.

SIMA SISTANI, HOUSEPARTY COO: There`s a prototype here of the startup
founder being white, single, young male, and you know, who`s dedicating
their entire life subsisting on ramen noodles to, you know, build an
empire. And you know, unfortunately, that didn`t look like me.

BOORSTIN: She was convinced by angel investor Chloe Sladden to leave an
executive job at Yahoo`s Tumblr to co-found Houseparty, a big risk in
exchange for potentially big upside, a chunk of shares on the company`s cap
table.

CHLOE SLADDEN, #ANGELS CO-FOUNDER: The cap table is the legal document
that records who`s going to make money when a successful startup exits.
The cap table is more than a legal document though. It is the roadmap to
power in Silicon Valley because the wealth that is created from the cap
table funds the next generations of startups.

BOORSTIN: Sladden`s investing collective called #Angels is focused on
getting startups to allocate more shares to women.

The Angels have invested in more than companies over the last three years,
working with the founders to explain the upside they`ll have an attracting
top talent if they offer more shares to female hires.

The Angels host dozens of events to discuss the cap table gap and coach
women to push for more shares.

JANA MESSERSCHMIDT, #ANGELS CO-FOUNDER: When you`re negotiating for
equity, there`s no real roadmap to understand how you can value the equity,
how much growth the company is going to have. And so, if we think that, in
general, it`s been harder for women and underrepresented minorities to even
negotiate as well for the equity.

BOORSTIN: The Angels draw on their network to help place women in senior
roles at early-stage startups. They partner with venture capital investors
including Sequoia and Kleiner Perkins. First Round Capital`s Phin Barnes
has collaborated with the Angels on an investing boot camp and on a number
of deals.

PHIN BARNES, FIRST ROUND CAPITAL PARTNER: Their networks tended to be
majority female and equally amazing to any other network that we could tap
into. And so, it really helped us sort of bring the diversity of their
networks into our community at First Round.

BOORSTIN: The next step for the angels pushing startups to disclose the
diversity of their cap tables.

JESSICA VERELLI, #ANGELS CO-FOUNDER: Understanding what percentage of a
cap table to women and underrepresented minorities own is going to be a
watershed moment in the industry, just as getting the initial diversity
reports worse.

BOORSTIN: And in the meantime, the Angels are working to change Silicon
Valley`s power and balance by helping executives like Sistani make sure
female employees get their fair share.

SISTANI: Those early women who were here have helped not only define our
culture and our product and our organization, but they`ll also be part of
the wealth creation one day should we exit.

BOORSTIN: For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: And before we go, here`s another look at the day on Wall Street.
The Dow soared 346 points, taking it back above 25,000. The Nasdaq gained
51. That`s a record. And the S&P 500 added 23.

And that will do it tonight for NIGHTLY BUSINESS REPORT. I`m Sue Herera.
Thanks for joining us.

We want to remind you that this is the time of year your public television
station seeks your support.

GRIFFETH: I`m Bill Griffeth. We do thank you for that support. Have a
great evening.
Sue and I will see you again tomorrow.

HERERA: Yes.

END

Nightly Business Report transcripts and video are available on-line post
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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

 

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