Transcript: Nightly Business Report – July 9, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Monday rally. The Dow soars
more than 300 points. Is the bull ready to make a run to new highs? Or is
this as good as it gets?

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: New wealth. Homeowners are
sitting on a record amount of cash. So, why aren`t they tapping into all
of that equity?

HERERA: Planning for retirement. Why working a little longer can have a
big impact on your nest egg.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Monday,
July 9th.

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

Stocks rallied to start this week. The advance was broad, the mood was
upbeat, and it was enough to push the Dow back into positive territory for
the year, thanks to a notable move higher in bank stocks, which had their
best days since late March, and in turn, that helped to divert attention
away from fears of a global trade war, at least for today.

Here are the final numbers, the Dow Industrials up 320 points to 24,776,
the Nasdaq added 67, the S&P gained 24.

Bob Pisani has more now on today`s sharp move higher.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a strong start
to the week, with the Dow rising more than 300 points. Why the rally? You
know, for weeks, stocks have been on edge over rallies of a global trade
war. Over the weekend, there was no escalation of the trade war rhetoric,
and that may be enough for at least a short term rally.

China also reiterated its pledge to open its markets more and the Chinese
stock market rally more than 2 percent.

In the U.S., cyclical stocks like industrials and materials and technology
all rose while the banks had their biggest stay in several months on higher
rates and the prospects for better earnings. Remember, JPMorgan will kick
off the second quarter season earnings on Friday.

Defensive names that have gone well recently, like Merck and Verizon and
Coca-Cola, Procter and Gamble, all declined. Another positive catalyst was
Friday`s jobs report. Remember, that added 213,000 jobs in June, beating
expectations, but wage growth was very modest.

Now, that kind of goldilocks scenario makes traders more comfortable that
the Fed may not embark on an aggressive campaign to raise interest rates.

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

(END VIDEOTAPE)

HERERA: As Bob mentioned, next comes earnings which start in earnest on
Friday, but could profit reports and believe it or not trade actually help
the bull case for stocks?

Mike Santoli takes a look.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Trade tensions have
been seen as a drag on the stock market this year, but living with trade
policy friction for several months has actually helped the market backdrop
in a few ways. And along with the impending corporate earnings season set
to show stellar growth, this could set up Wall Street`s goals for another
shot at stretching a rally toward January`s peak levels.

How have global trade disputes been recast as a positive? Well, for one
thing, anxiety over trade has pressured areas of the stock market, most
exposed to big ticket exports, such as industrial manufacturer`s, which has
left the sector nearly 10 percent off its record high. This has made that
crucial group appear far less expensive than just a few months ago,
compared to earnings that are on track to go nicely through this year.

Weariness over trade has also compressed long term bond deals, with the 10-
year treasury now below 2.9 percent, which relieves borrowing costs and
makes equity valuations look a bit better versus bonds. Its trade issue
and threat to global growth has been among the factors leading some
economists to predict the Federal Reserve might ease off its tightening
campaign late this year.

Finally, all the aggressive trade rhetoric has drained away some investor
enthusiasm. Surveys of retail investor sentiment now show a three-month
low in optimism, and cash has been steadily pulled from stock funds in
recent weeks. Such subdued investor sentiment readings often serve as
contrarian signals that leave the market poised for relief rallies.
Meantime, earnings season kicks off in the coming days which could refocus
investors on strong corporate results in the wake of the tax cut and sturdy
domestic spending trends.

None of this means the market will decisively escape the trading range
that`s prevailed since February. Rallies lately have stalled while below
the January peak, and seasonal factors will begin to turn negative by late
July. Still, there`s a chance that the market has made a tentative peace
with the trade war story, opening a lane for the bulls to make a bit of a
mid-summer run at the wintertime highs.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

GRIFFETH: Now, despite today`s rally, there are a number of Wall Street
firms that have become very cautious on stocks. Today, for example,
Guggenheim Partners called this latest rally the last hoorah. A Morgan
Stanley strategist says it`s time to go full on defensive. Barclays says
not even small caps are immune to any trade war fallout. And recently,
Morningstar Investment Management Group told investors to brace for another
lost decade for stocks.

Now, one of the authors of that Morningstar Report is the group`s president
and chief investment officer, Daniel Needham. And he joins us tonight.

Dan, good to see you again. Welcome back.

DANIEL NEEDHAM, MORNINGSTART INVESTMENT MANAGEMENT PRESIDENT & CIO: Hi,
Bill.

GRIFFETH: I remember the Dow touched 1,000 for the first time in the mid-
`60s. It pulled back, didn`t see that level again until the early `80s.
The Nasdaq hit 5,000 in 2,000, pulled back. Didn`t see that level again
for 15 years.

Are you talking about something like that happening again?

NEEDHAM: Well, how it plays out, we`re not too sure about. We take a
long-term view. But relative to history, the stock market price relative
to say the earnings and the cash flows that it generates are very high.
And from this level, we think that returns for investors that hold the
stock market for the next ten years and reinvest their dividends are going
to end up with a low return.

So, low single-digit returns, which is going to be low relative to history,
and we think indicative of the high levels of valuation that we see in the
market.

HERERA: Yet we have an economy that seems to be firing on all cylinders,
we have record low unemployment. I mean, the fundamentals of the economy
look good. I know that doesn`t always translate into stocks, but that
doesn`t — that doesn`t you think bode well for the stock market or
contribute to higher prices in the stock market?

NEEDHAM: It`s a good point, Sue. What I would say is that everybody knows
that the jobs market is improving. We all see the unemployment figures.
You know, we all see the record levels of corporate balance sheets, the
high levels of profitability, there`s a lot of positives.

But, you know, capital markets and stock markets are forward looking. So,
prices reflect that information in our opinion. The challenge is, when you
get into these sort of later business cycle stages where you start to see
unemployment very low, you start to see inflationary pressures rising,
well, that`s the time when investors tend to be the most optimistic.

And, unfortunately, extrapolation can be hazardous to investor`s wealth.
So, at these points, people assume the good times are going to keep going.
But unfortunately, a lot of nose positives are already in these very high
valuation levels.

GRIFFETH: So, what are investors to do with this information? If we`re to
have a lower than expected return for equities over the next 10 years or
so, where do you suggest that they go to get the best return?

NEEDHAM: You know, look, I think it really depends on your type of
investment strategy. For many people, trying to time the markets and exit
the U.S. stock market now would be very dangerous and generally what we
think they should do is just brace for lower returns, the challenge when
you`ve hp high returns for the last five years and 10 years, is that people
start to think that`s normal and they start to adjust their spending and
their savings patterns.

So, we think, firstly, lower your expectations, I think this is going to be
a more challenging decade for stock market returns. Now, for those
investors that can take a long term view, and that maybe willing to be more
contrarian, and separate themselves from the pack, there`s value in stock
markets outside of the U.S., particularly the U.K. stock market. It`s
unpopular, but also priced accordingly. So, we think there`s value there.

We also think there`s value in emerging market stocks as well. At the same
time, the yield for cash and short term bonds is rising. So, the
alternative is much more attractive than it was, say, two, three years ago,
when cash rates were anchored around zero. But probably the lesson from
our perspective is, you know, the many people don`t try to time the market.

GRIFFETH: So noted.

Daniel Needham, the president of Morningstar Investment Management — good
to see you again. Thanks for joining us tonight.

NEEDHAM: Thanks, Bill. Thanks, Sue.

HERERA: Fund investors on average registered modest gains in the second
quarter. According to Thomson Reuters Lipper, the average diversified
stock funds return during those three months was 3.37 percent. Bond fund
returns were relatively flat, but they saw a lot of cash flow into them.
More than $126 billion according to the Investment Company Institute.
Stock funds saw $58 billion in outflows.

GRIFFETH: Shares of Pfizer were in focus today, after the president
targeted that company in a tweet. Mr. Trump wrote on Twitter: Pfizer and
others should be ashamed they have raised drug prices for no reason. They
are merely taking advantage of the poor and others unable to defend
themselves, while at the same time giving bargain basement prices to other
countries in Europe and elsewhere. We will respond.

Now, in response, Pfizer said, prices for the majority of its drugs do
remain unchanged, but last week we did tell you that Pfizer raised the
price of some of its drugs, although it lowered the cost of others at the
same time. Pfizer shares fell midday when the tweet was posted. By the
close, the stock was up a fraction.

HERERA: The Trump administration has decided to suspend key payments that
are part of the Affordable Care Act. The payments to insurers help
stabilize the insurance market. Experts say the freeze could increase
uncertainty and drive up premiums this fall. The White House cites a legal
ruling that tossed out the formula used to calculate those payments,
calling it flawed.

GRIFFETH: Well, it`s first day on the job for the man in charge of that
health care venture formed by Amazon, Berkshire Hathaway and JPMorgan
Chase. His goal, nothing short of bringing costs down, and changing health
care as we know it.

Meg Tirrell has more.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a tall order, fix
health care not only for the 1.2 million employees and families of Amazon,
Berkshire Hathaway and JPMorgan, but also aimed to create better blueprints
for better care and lower cost that could be emulated nationally. And on
the day one for CEO, Dr. Atul Gawande, even the name of the company isn`t
known. They`ve been referring to it as ABJ for its three founding
companies.

What is known, its independent, based in Boston and not for profit. Beyond
that, some is known about the enterprise`s mission. And for recent
speaking appearances and previously writing in the “New Yorker” and
elsewhere, there are some clues about how Gawande may seek to accomplish
it.

First, the goals. Gawande spelled them out recently at a conference in
Aspen.

DR. ATUL GAWANDE, AMAZON, BERKSHIRE, JPM JOINT HEALTH VENTURE CEO: I get
to have a million patients that I as a doctor get to add to my
responsibility. And my job for them is to figure out ways that were going
to drive better outcomes, better satisfaction with care, and better cost
sufficiency with new models that can be incubated for all. That is a tall
freaking order.

But, you know, what they`re saying for me is resources won`t be the
problem. Human behavior will be, and achieving scale will be.

TIRRELL: Gawande laid out three sources of waste in the health care
system. High administrative costs, serve largely by middlemen, second
pricing, and lastly, misutilization of care, what he said was the biggest
contributor to waste.

Gawande defined it as the wrong care at the wrong time in the wrong way.
And it`s a topic of much of his research and writing, including the 2009
“New Yorker” article that so impressed Berkshire`s Charlie Munger that he
sent a $20,000 check to Gawande sight unseen. The biggest knock on the
surgeon, writer and public health researcher as he begins his new venture
is that he`s never run a major health company or system.

But Andy Slavitt who ran Medicare and Medicaid in the Obama administration
argues instead that`s a strength. Many, including Gawande, expect progress
will take time, but say it`s not only possible, but much needed, as health
care now accounts for 18 percent of the U.S. economy.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

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

Dow component Procter & Gamble was downgraded to hold from buy at
Jefferies. The analyst cites rising commodity cost and is predicting that
the company will report earnings below expectations next fiscal year. The
price target is $79, the shares fell more than 1-1/2 percent to $77.86.

Shares of Anthem were upgraded to outperform from market perform at BML
Capital. The analyst cites the company`s new CEO and potential for
stronger earnings growth. The price target is $290. The stock was up more
than 2 1/2 percent to $248.69.

GRIFFETH: Capital One financial was upgraded to outperform from perform at
Oppenheimer with the analysts citing an improvement in credit card
delinquencies there. Price target now $113. That stock rose nearly 4
percent to $96.56.

Michael Kors was rated a buy in new coverage over at HSBC. Analyst says
that the stock`s current valuation is too low to ignore. Price target now
$88. The stock rose a fraction to $67.39.

HERERA: Still ahead, going to extremes, what one state is doing to attract
workers and alleviate the shortage that`s hurting some businesses.

(MUSIC)

HERERA: American Homeowners are sitting on more equity than ever before.
But they`re not taking advantage of it. Diana Olick explains why.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home values today are
skyrocketing, which means homeowners have a growing amount of cash at their
disposal. So called capital equity is the amount your home is worth, above
the 20 percent cushion most lenders require. It grew by 7 percent in the
first quarter of this year, compared to the previous quarter, according to
Black Knight. That is the largest single quarter growth since they began
tracking it in 2005.

Homeowners now have a collective $5.8 trillion in tapable equity, the
highest volume ever recorded. Boil it down to the average homeowner with
the mortgage who has gained $14,700 in tapable equity over the past year,
and has $113,900 available to draw. But fewer are doing that.

BEN GRABOSKE, BLACK KNIGHT FINANCIAL SERVICES: I think the typical
American doesn`t have that level of awareness. They`re not probably
studying the numbers.

OLICK: Home equity lines of credit which are second loans to pull out
cash, were flat at the start of this year, and for those who are using
them, the amount of cash they`re taking out is at a two-year low. More
people are actually doing cash out refinances on their first mortgage,
which doesn`t make a ton of sense, because interest rates are higher today
than they have been in several years, so people would be losing a rock
bottom rate they already have in order to refi.

But most primary loans are fixed rates, while home equity lines are not.

GRABOSKE: Who wants uncertainty when it comes to monthly finances? I
think a lot of Americans look at, what are my payments that — what are my
incomes coming in, what are my payments going out, and wanting certainty
around, I can cover my costs and not worry about it.

OLICK: Homeowners may have new wealth, but they also have long memories,
back to the last housing boom, when homes were used like ATM`s, and we all
know how that turned out.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: And to read more about Diana`s story and other housing market
trends, head to our Website NBR.com.

GRIFFETH: Now, we told you on Friday how the economy created more jobs
than expected last month, and how employers are still having a hard time
filling open positions. Well, some states which always battle each other
to attract business are now taking extreme measures to attract workers.

Scott Cohn has an example.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s dinnertime at the
Four Quarter Restaurant, the most important meal of the day because it`s
the only meal when they`re open.

The only thing that`s holding you back is not being able to find people?

JOHN HUNTER, WISCONSIN RESTAURATEUR: Absolutely.

The idea of trying to open more services here. You know, it`s not even —
we can`t even barely staff our dinner service.

COHN: The Four Quarter is in Madison, Wisconsin, but it could be in almost
any other state. The Labor Department reports 6.7 million job openings
nationwide. More openings than there are unemployed people to fill them.
In especially short supply, skilled workers, whether on computers or in
kitchens.

It`s really bad in Wisconsin, with unemployment at historic lows. And
that`s before the giant Foxconn plant now under construction that`s
supposed to add 13,000 jobs. So, Wisconsin is targeting Chicago
millennials.

UNIDENTIFIED MALE: An hour commute or an hour with friends? In Wisconsin,
the average commute is it less than 22 minutes.

COHN: Health care executive Patrick Cunningham and his wife made the move
three years ago.

PATRICK CUNNINGHAM, WISCONSIN TRANSPLANT: I had a misconception about
Wisconsin. It`s like beer and cheese, that`s farming, maybe. That`s all
people think of.

COHN: State officials know it will take more than flashy ads.

TRICIA BROWN, WISCONSIN ECONOMIC DEV. CORP.: Really trying to eliminate
that skills gap. Investments from K through 12 schools, to technical
colleges, even putting training facilities in some of our correctional
institutions.

COHN: For it`s part, Foxconn says it`s working with the government
partners and other stakeholders in Wisconsin, to make sure it has the
workforce that it needs. The company wouldn`t say whether the labor
shortage is affecting its time lines.

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn.

(END VIDEOTAPE)

HERERA: The biggest sale on Groupon may be Groupon. That`s where we begin
tonight`s “Market Focus”.

Recode reporting that the e-commerce platform has been in contact with a
number of public companies to gauge interest in a possible sale. Alibaba
and IAC are among the potential suitors. Wall Street liked that news,
sending shares higher by more than 10 percent to $4.83.

Acadia Pharmaceutical was pressured after an investigative report
questioned the safety of that company`s only drug. The report from the
Southern Investigative Reporting Foundation, also questioned the company`s
sales practices, and alleged that Acadia used regulatory loopholes to get
the Parkinson`s treatment improved. As a result, the shares fell nearly 7
percent to 16.63.

Consumer products company Helen of Troy said stronger international demand
and a rise in e-commerce sales helped overall results top estimates. The
company behind Dr. Scholl`s and Vicks also said it expects earnings for the
year to beat analyst`s targets. The shares rose more than 12 percent to
$114.85 and hit a 52-week high.

GRIFFETH: Snap may be teaming up with Amazon, a report from Tech Crunch
says Snap is developing a feature on its app that would allow users to take
a picture of an object and then be directed to an Amazon listing to make a
purchase. Snap shares rose nearly 1 percent today to $13.65. Meanwhile,
shares of Amazon were up more than 1 percent to $1,739.02.

And J.M. Smucker is saying goodbye to the Pillsbury Doughboy. That company
is selling their baking business for just under $400 million. The unit
houses the Pillsbury brand. Smucker wants to shed its less profitable
businesses and invest instead in faster growing coffee and pet food
segments. Shares were off a fraction to $110.91.

HERERA: The share of older workers ages 55 and up, who are either working
or looking for work is higher than it was a decade ago, and even higher
than the beginning of the Great Recession. That`s according to the Labor
Department`s June employment report. Many older workers may want or need
to work longer. And research shows that doing so could boost their
retirement income even more than increasing their savings.

Our senior personal finance correspondent Sharon Epperson is here to
explain why.

Good to see you as always, Sharon.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to be here.

HERERA: So, a lot of people worry that they aren`t on track saving for
retirement.

If they even add a little bit to the pot, why would working longer perhaps
be more additive.

EPPERSON: Well, it`s really interesting. A study came out from the
National Bureau of Economic Research that showed that even if you add an
extra percent a year for 30 years in terms of your retirement
contributions, you`re still going to come out much further ahead if you
work longer by just one year.

They took someone who wanted to retire at 66, and they saved — instead of
6 percent a year in their retirement contributions, they saved 7 percent, 1
percent more for 30 years. That increased their total retirement income by
about 2 percent. But if they worked one year longer and retired at age 67,
instead of age 66, that increased their retirement income by nearly 8
percent, 7-3/4 percent.

Most of that comes from Social Security.

HERERA: That`s a huge difference?

EPPERSON: It`s a huge difference.

GRIFFETH: What about drawbacks to working longer, Sharon?

EPPERSON: Well, there are drawbacks to working longer. One of the biggest
benefits, of course, is that your retirement contributions are going to be
able to add to them, and they can grow longer. You`re going to get
increased Social Security benefits.

But the drawback is that if you do want to get perhaps a part-time job or
want to work longer, many older workers, recent Labor Department also found
are unable to find the type of jobs that they may need to work longer, to
make it worth their while. So many Americans depend on Social Security for
a big part of their retirement income, and working longer would allow them
to increase that benefit, but then they really can`t find the jobs that
will allow them to increase it enough to get a sizable Social Security
benefit.

HERERA: What if you`re not in great health, you`re not able to work, you
can`t find a job, as you mentioned, that kind of suits your particular
circumstances? What can you do now, to help your retirement goals be met?

EPPERSON: Well, if you can, the most important thing you can do is to max
out your retirement contributions. And if you`re 50 or older, you can
contribute $24,500 to your 401(k), $6,000 to an IRA. You need to invest
that money aggressively, perhaps more aggressively than you think because
you may be retired for 20 years, a lot of that money has to be in the stock
market.

And the other thing to consider is how much money will you be getting in
your Social Security benefits? And if $1,000 a month or a bit more than
that, maybe you get a side job that allows you to earn that much money so
that you can work longer and not have to take those retirement benefits
early. Again, just increasing it and working one year longer can increase
your retirement benefits from Social Security.

HERERA: All right. I`m in.

EPPERSON: That`s a guaranteed return.

GRIFFETH: One more year.

EPPERSON: One more year. One more year.

GRIFFETH: All right. You got it.

HERERA: Thanks, Sharon, as always.

EPPERSON: Sure.

HERERA: Sharon Epperson.

GRIFFETH: Coming up, it`s the final straw, for Starbucks that is.

(MUSIC)

HERERA: Starbucks has decided to go strawless, adding its name to the list
of major brands that are ditching plastic straws in the name of
sustainability.

Kate Rogers reports to us tonight from New York.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: By 2020, the green
plastic straws synonymous with Starbucks ice coffee will be a thing of the
past. The company plans to eliminate single use plastic straws, just as
demand for cold beverages climbed. Cold drinks now make up more than half
of Starbucks beverage mix in the U.S., an increase of 35 percent from five
years ago.

Starbucks has designed this. It`s a recyclable strawless plastic lid,
available in 8,000 locations in the U.S. and Canada right now. These lids
will be phased in as the company phases out some 1 billion single use
plastic straws per year from its 28,000 stores around the globe.

UNIDENTIFIED MALE: I think it`s a good thing. I think they should cover a
bit before.

UNIDENTIFIED FEMALE: It`s going to be really bad, because I was realistic
and it`s much more convenient.

UNIDENTIFIED MALE: It`s a good thing. I mean , you know, you hear a lot
about straws not being so great for the environment. People grab them out
of habit. It`s convenient.

ROGERS: Straws made from alternative materials, including paper, will be
available for Frappucino drinks and upon customer requests for other
beverages. The company has not detailed how much the move would cost to
implement.

Starbucks is the largest food and beverage retailer to make a global
commitment to eliminate straws. Following the coffee chain`s announcement,
hotel giant Hyatt said it would also eliminate plastic straws and drink
picks. And McDonald`s has plans to phase out plastic straws in the U.K.
and Ireland and is testing alternatives in other markets.

The change is part of the bigger corporate eco-friendly push. McDonald`s
made a commitment to cut its greenhouse gas emissions and to make its
consumer packaging from renewable and recyclable materials. Chipotle has
vowed to cut is landfill waste in half, and Dunkin Donuts is doing away
with its foam cups.

Cities and municipalities are also tackling single use straws on their own.
Starbucks hometown of Seattle banned plastic straws just last week.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers in New York City.

(END VIDEOTAPE)

HERERA: 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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