Transcript: Nightly Business Report – June 29, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Halfway mark. The first half
was marked by the return of volatility. Should investors expect more of
the same in the second?

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Oh, Canada. Our neighbor
to the north moves ahead now with tariffs on U.S. products as tensions
escalate with one of our closest allies.

HERERA: Market monitor. A top-rated fund manager who`s outperforming the
market this year has a list of under-the-radar stocks he says are worth
buying.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday, June
29th.

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

Stocks got a lift today as — get this — we closed out the week, the
month, the quarter and the first half of this year. The market was helped
by a big move higher in Dow component Nike (NYSE:NKE) following that strong
earnings report that we told you about last night.

At its peak today, the Dow was up 293 points but that rally fizzled as the
closing bell approached this afternoon. And when all was said and done,
the Dow gained just 55 points to 24,271, the Nasdaq was up the six, the S&P
rose by two. And for the week, the major indexes were all lower.

So, now, we`re at the midway point of the year after a choppy six months on
Wall Street, to say the least.

Mike Santoli takes a look now at what defined that first half and what may
lie ahead for the second.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks worked their
way to modest gains in the first half of 2018, but they did it the hard
way. The biggest January surged in three decades gave way to a swift
percent drop into February for the S&P 500 index. Since then, the broad
market has been recovering in a choppy, fitful pattern, finishing the first
half with a gain of a bit more than 2 percent.

Among the issues investors have had to grapple with, a rise in interest
rates to multi-year highs, a spurt in oil prices above $70 a barrel and a
flare-up in tensions and tariff threats with America`s trading partners.
These headwinds slowed the major indexes after a very strong 2017, but
didn`t stop them. That`s thanks to a pickup in U.S. economic growth,
strong consumer spending and record corporate profits, in part due to the
December tax cut package.

In these opposing currents, some areas of the market have thrived others
have struggled. Big tech stocks remain the clear leaders, driving the
Nasdaq to nearly a nine percent gain. Energy also came to life, climbing
almost 6 percent, and shares of smaller companies were favored as havens
from a trade war, helping the Russell 2000 to a 7 percent first half rally.

On the downside, big industrial stocks suffered from the heated trade
rhetoric, slipping some percent and pressuring the Dow Jones Industrial
Average to a slim 1 percent loss for the first half, and consumer staples
sank close to 10 percent on steady shortfalls and profits from big food and
household product companies. The outlook for the second half of the year
will hinge on how the Federal Reserve recedes with interest rate policies
whether the trade issues need or some resolution and how much economic and
corporate profit growth might slow toward year-end.

History shows that midterm election years are often choppy for stocks
through the summer which is yet another complication.

But with profit growth set to rise close to 20 percent for the full year
and stock valuations well off their January highs Wall Street`s bulls are
betting that business conditions are sturdy enough to absorb some more
political noise and perhaps even two more rate hikes from the Fed.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

HERERA: So let`s talk a little bit more about the second half with
Kristina Hooper, chief global market strategist at Invesco.

Good to see you again, Kristina. Welcome back.

KRISTINA HOOPER, CHIEF GLOBAL MARKET STRATEGIST, INVESCO: Great to see
you. Thank you.

HERERA: We`ll the second half of the year do you think be marked by the
type of disruption and volatility that has been characteristic of the first
half?

KRISTINA HOOPER, INVESCO CHIEF GLOBAL MARKET STRATEGIST: Absolutely. I
think it`s very likely we`re going to see that because we have the same
drivers in place, specifically monetary policy is being unwound, and this
isn`t just ordinary monetary policy, this is experimental monetary policy.
And so unwinding it is an experiment in and of itself.

What I think is going to happen is we`re going to see continued
normalization of capital markets as we normalize that monetary policy.

GRIFFETH: You also see higher prices. You see a little slow roll. Is it
enough that you would tell investors to start thinking about investing in
traditional inflation hedges?

HOOPER: Traditional inflation hedges should always be part of an
investor`s portfolio. So, if it isn`t, they should include it in there.
And there`s a wide array of options from commodities to treasury inflation-
protected securities, to income producing areas like dividends which have
historically held up well in rising inflation environments. So, there`s a
lot of options to choose from.

HERERA: What about going globally, Kristina? I mean, the U.S., you expect
growth to slow a little bit certainly, but the trajectory is still higher.
What about investing outside of the United States?

HOOPER: Well, if you were to have invested outside the U.S. in the first
half of this year, you would have been disappointed relative to the U.S.
It`s pretty much a sea of red year-to-date.

But having said that there are different drivers for different economies
and markets and so it makes sense to be very well-diversified. Yesterday`s
winners may not be tomorrow`s winners and so, we need to hedge our bets
with diversification.

HERERA: Kristina, thank you so much as always. Kristina Hooper with
Invesco.

Bill?

HOOPER: Thank you.

GRIFFETH: And on this last day of the first half, a new report show that
inflation has in fact hit the Fed`s target of 2 percent. It`s the first
time the so-called PCE index, which is the Central Bank`s preferred
inflation gauge, first time it`s hit that level in six years.

The acceleration and the inflation came despite a moderation in consumer
spending though. Another report showed at 0.2 percent gained last month.
That was below expectations. In fact, consumer spending is closely watched
because it does account for more than two-thirds of U.S. economic activity.

HERERA: But consumer sentiment improved slightly this month. According to
the University of Michigan index, Americans are feeling better about the
current state of the economy, but details of that report were mixed.

Americans lowered their expectations about the future with many citing
trade and tariff concerns.

GRIFFETH: And those trade tensions were ratcheted up today when Canada
said that it was moving ahead with tariffs on U.S. products.

Kayla Tausche is in Washington for us tonight.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: One month after
Canada started paying new tariffs to send steel and aluminum to the U.S.,
Foreign Minister Chrystia Freeland flanked by steel workers says they`re
striking back.

CHRYSTIA FREELAND, CANADIAN FOREIGN MINISTER: We are acting very much in
sorrow not in anger. But the U.S. tariffs leave Canada no choice but to
defend our industries, our workers and our communities.

TAUSCHE: Starting Sunday, U.S. ketchup, candy and toilet papers as well as
steel and aluminum will see new fees at the border. Canada`s retaliation
comes after similar actions from Europe, Mexico, and China, some $20
billion in U.S. goods targeted in all, from politically sensitive states
like Pennsylvania and Kentucky.

This week, top U.S. trade official Robert Lighthizer called the retaliation
unjustified, saying it showed blatant disregard for WTO rules, referring to
the World Trade Organization which governs cross-border business. The
White House believes its actions are WTO compliant but the counter punches
are not.

The moves against the U.S. have bolstered President Trump`s disdain for the
organization, a new report suggests he`ll move to withdraw. An outside
advisor to the president says this may indeed be the catalyst.

Even Larry Kudlow, White House economic adviser, an avowed free trader, has
raised his own doubts.

LARRY KUDLOW, NATIONAL ECONOMIC COUNCIL DIRECTOR: The World Trade
Organization, for example, has become completely ineffectual and even when
it makes decisions, even in the rare moments when it makes decisions,
important countries don`t even abide by them.

TAUSCHE: President Trump believes the tariffs while painful for now are
working.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Many countries are calling,
saying, let`s negotiate. They were never doing that. They`re saying,
let`s negotiate, please, please, we want to negotiate.

TAUSCHE: That strategy will be tested again next week. On July 6th, the
U.S. will add new fees on $34 billion in Chinese imports, and China will
add new tariffs in return. White House officials are telling businesses to
expect those to go into effect, barring any last-minute deal.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.

(END VIDEOTAPE)

HERERA: General Motors (NYSE:GM) warns that some of the tariffs on
imported vehicles being considered by the Trump administration could lead
to a, quote, smaller GM. The largest U.S. automaker also said that
expansive tariffs risk isolating the company from the global market. In
May, the White House launched an investigation into whether imported
vehicles pose a national security threat. Shares of GM were down more than
2-1/2 percent in today`s session.

GRIFFETH: Mexican voters are heading to the polls this Sunday in an
election that could shift the political paradigm in that country and the
results could have far-reaching implications for trade and business as well
here in the U.S.

Michelle Caruso-Cabrera has more for us.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: The next
president of Mexico is likely to be a man who goes by the nickname AMLO.
It`s an acronym for Andres Manuel Lopez Obrador. He has run for president
twice before, looks like the third time is going to be the charm because he
is way out ahead in the polls.

He`s historically been known as a real radical leftist, sometimes he`s been
compared to Hugo Chavez. This time around, during this campaign, he`s
moved much more to the center even though he`s definitely left-leaning in
his economics, right leaning in his social policies.

Some in the administration had been worried about his rise to power and had
tried to push for NAFTA to be renegotiated before the election because they
thought it might be tougher to get a deal done with AMLO in power.

There`s some thinking however that maybe it actually might be easier to get
a deal done. He`s very much a nationalist and maybe the president might
actually like him a little more than the current president of Mexico.
Additionally, the U.S. would like Mexico to raise wages. Right now,
manufacturing jobs down there pay only four dollars an hour compared to $39
an hour here in the United States, and that`s why so many companies often
move their businesses down there, at least their manufacturing jobs down
there.

AMLO pretty much agrees that we just should go up and so maybe there`s some
place to find consensus there in a way that previously hadn`t been thought.
Still, there`s a long way to go before the NAFTA negotiations are done.

For NIGHTLY BUSINESS REPORT, I`m Michelle Caruso-Cabrera.

(END VIDEOTAPE)

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

Walgreens was downgraded to hold from buy at Jefferies. The analyst cites
new competition from Amazon (NASDAQ:AMZN) which we told you about
yesterday. That the analyst says could weigh on future earnings. The
price target is $65. The stock rose just a fraction to $60.02.

Nike`s price target was raised to $84 a share at Bernstein. The analyst
cites the Dow component`s strong quarterly results. The firm maintains an
overweight rating on that stock and it rallied 11 percent to $79.68.

GRIFFETH: A different analysts at Bernstein cut Diageo`s rating to market
perform from outperform. The analysts there says he believes the rally in
that stock has come to an end. Shares have risen about 19 percent in the
past year. The firm also notes that the potential for some Diageo brands
to face challenges in case of a global trade war breaking out. The stock
rose one penny today $144.0.1.

Shares of KB Homes were upgraded to buy from underperform at Bank of
America (NYSE:BAC). The analyst there says concerns surrounding the
homebuilding sector are overblown. Price target $37. That stock rose 8
percent today to $27.24.

HERERA: Still ahead, fire sale. Why the young California cannabis
industry is offering deep discounts to its customers.

(MUSIC)

GRIFFETH: California has now passed the strictest online privacy law in
the country. This law gives consumers sweeping control over their personal
data and grants them to the right to know what information companies like
Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) are collecting on them. The
law takes effect in 2020.

HERERA: Also in California, new laws governing the cannabis industry take
effect this weekend, and that means a lot of businesses are scrambling to
sell inventory that won`t meet those new requirements.

Aditi Roy is in Berkeley.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Marijuana is flying off
the shelves at the Green Cross dispensary in San Francisco. The lines are
long because the discounts are deep. Some cannabis products, up to 80
percent off.

JOHN DIXON, CUSTOMER: Seaweedy (ph) used to be wild like $30. Now, guys,
Green Cross got it over here for $5 at eight, which is way better. It`s
not hurting my pockets.

ROY: The reason, six months after the state of California legalized
recreational marijuana. New regulations are scheduled to take effect July
1st, which require all cannabis products on store shelves undergo extensive
lab testing for pesticides, pathogens and potency. So, pot shops are
trying desperately to unload their untested inventory before it becomes
illegal.

The president of the Green Cross dispensary Kevin Reed says they slash
prices as low as possible so they won`t have to toss out the pot.

KEVIN REED, THE GREEN CROSS PRESIDENT: There`s lines going out the door
and down the sidewalk. It`s like it`s 4:20 every single day.

ROY: But labs that test cannabis products are busy too.

TONY DANIEL, STEEP HILL CHIEF REVENUE OFFICER: We have seen about a
tenfold increase in inbound inquiries.

ROY: The new testing requirements are creating a backlog at marijuana labs
like Steep Hill in Berkeley. It`s one of only 31 marijuana testing labs in
California, a state with more than 400 licensed retailers.

Chief revenue officer Tony Daniels says he doesn`t expect a man to subside
any time soon, so they`re hiring 200 workers by the end of the year and
moving into a bigger building.

DANIEL: Sales looks kind of like a hockey stick right now, and we
anticipate that trend to continue. You know, cannabis is here to stay and
the genies out of the bottle, so we`re moving into every legal jurisdiction
and internationally as well.

ROY: Other labs are experiencing turnaround delays. Reed says the lab he
works with is taking several days longer to get his weed back to him,
forcing him to leave inventory in quarantine while he waits for the test
results. While he waits, he worries.

REED: We`re going to have a lot of empty shelves come July 1st and we`re
going to do what we can to get those shelves full again as quickly as
possible.

ROY: Some in the industry worried that this latest set of regulations will
drive out some of the mom-and-pop retailers and lead to bigger more
corporate names driving California`s marijuana market.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Berkeley, California.

(END VIDEOTAPE)

GRIFFETH: A buzzkill for the maker of Corona Beer and that is where we
begin tonight`s “Market Focus”.

Constellation Brands (NYSE:STZ) reported quarterly profit that was below
expectations. Freight costs coupled with a rising dollar pressured its
operating margins and marketing expenses were also higher. Shares fell
more than 5-1/2 percent as a result today to $218.87.

Meanwhile, Deutsche Bank`s CEO said today he remains committed to his
company`s U.S. unit despite failing the Fed`s stress test this week,
something we`ve reported on yesterday. In an interview today, he added
that he is confident that his bank is on the right path.

(BEGIN VIDEO CLIP)

CHRISTIAN SEWING, DEUTSCHE BANK CEO: First of all, we have done a lot
already. We see the progress, but we also where that more needs to be
done. That is all in the plan and therefore we are confident to get over
this over the next 12 months.

(END VIDEO CLIP)

GRIFFETH: Shares of the Deutsche Bank rose more than 1 percent today to
$10.62.

HERERA: Novartis and Gilead Sciences (NASDAQ:GILD) won the backing of a
key European panel for their separate cancer cell therapies. That move
likely clears the way for approval within months. The European commission
has the final say before those medicines can be sold. Novartis gained more
than 3 percent to $75.54. Gilead Shares were also higher.

Greenbrier reported earnings that blew past analysts estimates for the
second straight quarter. The freight transportation equipment supplier
reported a rise in new orders that were helped by strong demand for its
rail cars. The shares rallied 12 percent to $52.75, its best one-day
percentage gain in more than a year.

GRIFFETH: Time for our market monitor. He`s investing in midcap stocks, a
— he`s got a five-star rated fun of by Morningstar (NASDAQ:MORN). His
fund is up 14 percent so far this year, easily outpacing the broader
market.

We welcome back Stephen Denichilo. He is portfolio manager at the
Federated Kauffman Funds.

Stephen, good to see you again. Welcome back.

STEPHEN DENICHILO, FEDERATED KAUFFMAN FUNDS PORTFOLIO MANAGER: Hey, great
to see you. Thanks for having me.

GRIFFETH: These midcaps now — I mean, I keep hearing that people are
expecting the small caps and the midcaps to outperform in the second half,
maybe the over — the large caps have become too expensive, trade worries,
all those things.

Is that what you`re looking at here as well?

DENICHILO: Right. Well, actually, I think the appropriate way to look at
it is not so much small versus mid versus large, but is actually value
versus growth. Right now, we`re coming off seven and this is what the last
day of the second quarter from a training perspective, we`re coming off of
seven consecutive quarters of accelerating GDP on a year-over-year rate.
We have never had that time type of growth before, it`s only happened one
other time since the 1940s.

So, in that environment everything has won, right? We`ve had low
volatility high growth and an accelerating economy. Now, while we well we
don`t think the economy is necessarily slowing, it`s still going to be
good, that rate of change is going to slow. Meaning, we`re going to be
getting better but at a slower rate.

HERERA: OK.

DENICHILO: In that environment, coupled with higher interest rates,
typically growth stocks outperform. Companies where you don`t need to
worry about who`s president, trade wars, interest rates what`s going on in
the government — these are companies that are creating their own
innovative solutions and helping customers make money and improve their own
assets.

HERERA: So, let`s talk about — you gave us three picks. I don`t know if
I`m going to pronounce this correctly.

DENICHILO: Sure.

HERERA: But it`s a play on the electric vehicle growth. Albemarle
(NYSE:ALB) Corporation.

DENICHILO: Correct.

HERERA: ALB?

DENICHILO: Absolutely. Look, we are at the dawn of a revolution in
electric vehicles, electric vehicles. For all the press they get with
Tesla are only 1 percent of overall new car sales in the world.

We think that 1 percent is going to go to 10 to 12 percent over the next
five to seven years, electric vehicle sales globally are up over 50 percent
in 2018. You are going to need a lot of lithium.

Right now, there`s this narrative on Wall Street that says lithium is
oversupplied, we don`t think that`s the case. This is a specialty
material, not a commodity. And Albemarle (NYSE:ALB) is the most profitable
point of the value chain to invest in electric vehicles today.

GRIFFETH: Couple of seconds left to talk about these other two companies
which are similar in business model. You`ve got Tyler Technologies
(NYSE:TYL) and Veeva Systems, sort of like Salesforce I guess, huh?

DENICHILO: Absolutely, like Salesforce. Look, the comparison between the
two is they make governments and life sciences companies more efficient
they make their sales process better and more efficient. Both companies
have very high customer retention rate and very high recurring revenue.

So, again, in this volatile time and look, 2018 is already twice as
volatile as we saw in 2017, you`re going to need companies that have high
recurring revenue in good line-of-sight into growth.

GRIFFETH: Very good. Stephen Denichilo with the Federated Kauffman Funds
— good to see you again. Thanks for joining us tonight.

DENICHILO: Good to see you. Thank you.

GRIFFETH: And coming up, ride-sharing in the sky is causing annoyances on
the ground at some tony summer getaway towns.

(MUSIC)

GRIFFETH: The president`s new tax law was passed six months ago today, and
today, the Treasury Department and the IRS unveiled a draft of a revamped
1040 tax form and yes, it really is the size of a postcard. The agencies
claim that the new form will streamline the tax filing process for more
than 150 million people next year. One thing though, the IRS does say that
nearly 90 percent of Americans filed online this year.

HERERA: Citigroup (NYSE:C) will refund more than $330 million to credit
card customers. Those customers may have been overpaying interest on their
credit cards. The settlement with the Consumer Financial Protection Bureau
will refund more than 1.7 million customers.

Earlier this year, Citi disclosed that it had used a flawed methodology
when determining which customers were eligible for a rate reduction.

GRIFFETH: Well, a part of toy history is now gone. The last of the
remaining Toys “R” Us stores are closing their doors for good this week and
as you know, the once popular toy chain filed for bankruptcy back in
September. And today, a simple message was posted on Toys “R” Us Website
that read: don`t ever grow up, play on.

HERERA: Are you tired of getting stuck in traffic heading to that resort
town maybe for this weekend`s getaway? Well, helicopters have been the
desired mode of transport for several years now and they`re now swarming
over rich beach towns around the country. New technology making it easier
and cheaper to book and that could mean more headaches for the residents in
years to come.

Robert Frank is in East Hampton, New York, with more on the battle brewing
over helicopters.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a picture-
perfect day here in the Hamptons, which means cocktails, parties and noisy
helicopters.

The business of ride-sharing in the sky has exploded across the country as
companies make booking a seat on a chopper as easy as booking an Uber.
Here in the Hamptons, Blade was the pioneer, offering seats for $700 to
$800 from Manhattan to the Hamptons, turning a three or four-hour wait in
traffic into a quick 40-minute chopper ride.

This summer, a new competitor has landed, Blackbird, founded by a tech
entrepreneur, there are more like Expedia (NASDAQ:EXPE) in the sky. You
could go on their app and book a seat on any of the local operators. They
already have 100,000 people on their app, and they`ve flown four thousand
people to the Hamptons just since Memorial Day. We booked a flight today
on Blackbird and flew on a carrier called Foxtrot.

We are just landing in the East Hamptons 42 minutes after takeoff from
Manhattan.

RUDD DAVIS, BLACKBIRD CEO: We are like Airbnb for flights most private
flights only have about 15 percent occupancy on those flights, tons of open
seats. And so, we bring together all those flights for people to book.

Now, Davis said that new technologies and helicopters could make that ride
even cheaper, perhaps in 10 years, the ride from Manhattan to East Hampton
could be as low as $50. But that would make the caravan of loud
helicopters flowing into quiet mountain retreats and beach towns like this
one even noisier.

Last summer there were more than 6,000 helicopter takeoffs and landings at
this small airport. In August, that averages nearly a day, creating what
some locals call a warzone.

SHERYL GOLD, EAST HAMPTON RESIDENT: It`s very loud. It`s stressful. It`s
distracting. You could be on the phone — you could be reading, you could
be having a meal with friends, you could be sitting on the deck just trying
to relax or enjoy the peace and quiet of your home, and it`s constantly
disrupted.

FRANKK: Blade and other companies say they are buying quieter aircraft and
try to spread out the traffic over multiple airports.

But there are only so many places to land in the Hamptons. And the town of
East Hampton is threatening to shut down the airport in three years if
things don`t improve.

Hamptonites also complained that the choppers are bringing in a much
younger and rowdier group they call riffraff, who don`t respect the
community. Of course, only in the Hamptons would people who pay $700 for a
helicopter ride be considered riffraff.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank in East Hampton, New York.

(END VIDEOTAPE)

GRIFFETH: OK. Before we go, let`s take a look final look at the day on
Wall Street. The Dow was up 293 points at one time but just finished up 55
points. Nasdaq up six, the S&P was up two. Now, it was the worst first
half for the Dow since 2010 by being down nearly 2 percent. The Nasdaq had
its seventh first half gained in the last eight years and the S&P, first
half has been positive now for the last eight years.

HERERA: Wow.

GRIFFETH: Pretty good.

HERERA: Pretty good indeed.

That`ll do it for us tonight. Thanks for joining us. I`m Sue Herera.

GRIFFETH: I`m Bill Griffeth. Have a wonderful weekend. See you Monday.

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.
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