Transcript: Nightly Business Report – July 10, 2018


logged its seventh gain in eight sessions, as investors look to earnings to
lead the market higher.

Trump lands in Brussels to meet with NATO allies and he brings a clear
message: Pay up.

GRIFFETH: Go big or go home. Why Texas is now the best state for

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Tuesday, July the 10th.

HERERA: I would bid you good evening, everyone, and welcome.

The S&P 500 closed at its highest level since early February, but it was
the Dow that led the charge. The blue chip index advanced for four
straight days. The small cap Russell 2000 hit a record midday before
pulling back a bit. Investors were focused on earnings, hoping that
Pepsi`s strong earnings report today would set the tone for the rest of the

The Dow Jones Industrial Average rose 143 points to 24,919, the Nasdaq was
up three and the S&P 500 added nine.

Bob Pisani explains why this earnings season is critical for the market.


season was all about raising estimates, thanks to corporate tax cuts and
share buybacks and expanding global growth. But a lot has changed in the
last three months.

This time around, investors really just want to see companies maintaining
their earnings estimates and not cutting them. That`s important. Now that
may seem like a bit of a downgrade in expectations, but it`s not, given the
big gains we`ve seen in the earnings recently. Second-quarter earnings,
for example, are expected to grow about 20 percent in the S&P 500. That`s
not far off from the first quarter`s 26 percent growth.

Despite the trade war talk, companies feel comfortable with the earnings
guidance that they gave earlier in the year and that`s a very bullish sign
for stocks and one of the reasons the market has been moving up recently.
The market has held up remarkably well if you look at it. Take Monday, for
instance, stocks surged and the mere absence of any trade war headlines.

The market`s come to believe that cooler heads will prevail on global
trade. They might be wrong, but that`s what the market believes right now.
But it goes beyond trade. The market is pricing in an awful lot of good
news right now.

So, for example, solid U.S. growth coupled with muted inflation has put the
Federal Reserve in a very passive stance, and it should keep them from
aggressively raising interest rates beyond what it has already expected.

Second, growth over value is a big story in the market. Traders believe
that technology, the ultimate growth story will continue to outperform.
Tech earnings are expected to grow 25 percent in the second quarter and
that`s a big deal and the main reason the market`s up so much.

Third, higher commodity costs and the stronger dollar, they`ve been minor
worries, but they`ve not yet translated into really negative trading
action. Even PepsiCo today shrugged off the idea of a strong dollar drag
when it reported earnings today. But corporate guidance could derail this
rosy scenario, if we see earnings estimates for the third and fourth
quarter dropped below about 20 percent growth. That could signal rockier
times ahead.

We`ll keep an eye on that one.

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


GRIFFETH: And one thing to keep an eye on tomorrow is a late report for
Bloomberg, that the Trump administration is preparing a list of new tariffs
on $200 billion worth of Chinese goods. The stock index futures fell on
that report and yields on the ten-year treasury declined on the prospect of
an ever-widening trade war. The Trump administration last week, as you
know, imposed 25 percent duties on $34 billion of Chinese imports. China
immediately then retaliated.

Meantime, the president did arrive in Belgium today for the NATO summit and
the start of his four-nation European tour. It is a trip that Wall Street
will be watching carefully and one that is expected to be tense. And it
started with harsh words being leveled by the president and by NATO allies.

Eamon Javers is in Brussels for us tonight.


arrived in Brussels Tuesday to face an alliance of military allies poised
for a confrontation with the American president. Even so, his meetings
here are being nearly overshadowed by speculation about Trump`s sit-down
later in the week with politically beleaguered British Prime Minister
Theresa May and his face to face session next week with Vladimir Putin of

Here in Brussels, E.U. leader Donald Tusk directly replied to President
Trump`s persistent criticism that the European allies don`t spend enough on

about this tomorrow when we meet at the NATO summit. But above all, when
you meet President Putin in Helsinki, that it is always worth knowing who
is your strategic friend and who is your strategic problem.

JAVERS: As he left the White House for his three-part European trip, Trump
suggested he`s surprised at how difficult the meetings with the U.S. allies
will be.

U.K. which is in somewhat turmoil, and I have Putin. Frankly, Putin may be
the easiest of them all, who would think? Who would think?

JAVERS: Even Trump`s critics agree that he has a point. Many NATO
countries are not living up to a 2014 commitment to spend 2 percent on
their GDP on defense, just five countries are expected to hit that goal
now, although U.S. officials say they have commitments from others to crank
up spending.

FABRICE POTHIER, RASMUSSEN GLOBAL: He`s right because Europeans are not
spending enough since the 1990s and they need to catch up, but it`s wrong
because the message becomes so polarized and so toxic that the European
leaders would struggle to sell to the European voters, oh, we need to spend
more on defense because of Trump. That`s not going to work politically.

So, I think that`s why it`s important that he should have kept this message
private and left the European leaders to do the hard work.

JAVERS: In a tweet today, President Trump explicitly linked defense
spending with European trade. The president arguing that the European
allies aren`t being fair to American taxpayers, ensuring there will be
plenty of drama this week at NATO.

In Brussels, I`m Eamon Javers for NIGHTLY BUSINESS REPORT.


HERERA: Here at home, President Trump nominated federal appeals court
Judge Brett Kavanaugh to the Supreme Court. Kavanaugh is a Yale graduate
and a former clerk to retiring Justice Anthony Kennedy. If confirmed, he
could shift the balance of the court to the right, and as Kayla Tausche
reports, he could also shift the landscape for business.


confirmation battle, Judge Brett Kavanaugh began meeting with key lawmakers
on Capitol Hill today, beginning with Senate Majority Leader Mitch

SEN. MITCH MCCONNELL (R-KY), MAJORITY LEADER: I think the president made
an outstanding nomination.

TAUSCHE: Kavanaugh served on the U.S. Court of Appeals for the D.C.
Circuit, which hears a high volume of cases on government regulation. On
that topic, his record is clear.

BRIAN GARDNER, KEEFE, BRUYETTE AND WOODS: He is generally suspect of the
administrative state and one, I think, he wants to restrain it and force
Congress to be a little bit more explicit in the laws that it writes.

TAUSCHE: He voted to limit Obama-era regulations including EPA rules on
greenhouse gasses and hazardous air pollution, FCC regulations on Internet
traffic, and he found the Consumer Financial Protection Bureau, now the
BCFP, unconstitutional. But his rulings have been narrow in scope.

GARDNER: When you look at the CFPB case in which he ruled that the CFPB as
structured was unconstitutional, he didn`t go out and strike down the
entire CFPB. He fixed it in a very narrow way, giving the president the
power to fire the director.

TAUSCHE: At the White House podium, Judge Kavanaugh said if confirmed,
he`d keep an open mind on every case.

straightforward. A judge must be independent and must interpret the law,
not make the law.

TAUSCHE: Kavanaugh`s critics have seized on his political roles, working
for Ken Starr during the Whitewater investigation and the George W. Bush
White House. His ties to a California judge who resigned amid a sexual
misconduct investigation and his view that a sitting president should be
shielded from investigation.

Here`s top Senate Democrat Chuck Schumer.

president. Is it any wonder that President Trump chose Kavanaugh from the
list of 25? When we know he`s obsessed with this investigation?

TAUSCHE: Democrats stalled Kavanaugh`s previous appointment for three
years. Two Republican senators who remain key today, Lisa Murkowski and
Susan Collins, supported his 2006 confirmation which passed 57-36.

President Trump expressing lawmakers to work quickly.

TRUMP: This incredibly qualified nominee deserves a swift confirmation and
robust bipartisan support.

TAUSCHE: The confirmation of Justice Neil Gorsuch took roughly two months.
Republicans hope to confirm Kavanaugh before the new Supreme Court term
begins in October.

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


GRIFFETH: Well, as Republicans and Democrats in the Senate gear up for
that latest battle, a new Gallup survey commissioned by Wells Fargo
(NYSE:WFC) found that in fact, the political climate in Washington is the
biggest threat to the U.S. stock market. Nearly half of those surveyed
said they are very worried about that.

Erik Davidson is chief investment officer at Wells Fargo (NYSE:WFC) Private
Bank. He joins us to talk more about those findings.

I`m curious about the findings here, Erik. I mean, typically, people want
gridlock, they want partisanship in Washington because it gets them out of
the way of business and allowing them to do their business.

So, what, specifically, do you sense people are worried about in Washington
right now as it pertains to the stock market?

are the top worry, and you`re right. Often times, the gridlock is seen as
a positive, but the level of acrimony and the level of partisanship seems
to be digging at investors no matter if they`re on the right or on the
left. That is the top worry these days of investors as they look out into
the future.

HERERA: Now, trade has also one the market has been worried about, but it
didn`t rank quite as high as I thought it would be, and you make the point
that the timing of this particular survey may have influenced that.

DAVIDSON: Right. We did the survey in May and I bet you if we did it now,
now that the first shots of the trade war have been fired, it probably
would inch up. But that likewise is sort of tied into the whole political
realm, as well.

GRIFFETH: But again, does this — is the concern — I mean, usually,
people would be worried if this is going to affect the economy in some way.
It`s going to hurt jobs. It will hurt profitability and so forth.

So, again, I`m stymied in trying to make the correlation between their
concerns about what`s happening in Washington and the impact it will have
on profitability in the United States.

DAVIDSON: Well, the interesting thing for investors, while there are
certainly these worries out there, there are so many things that are going
well for investors and consumers overall, and I think that seems to buoy
the confidence as we see in this survey of investors.

GRIFFETH: It`s not — it`s high, but not near the all-time highs. And so,
it`s sort of weighing these good tailwinds that are out there with these
challenges that they do see in front of them. So, I would say, in general,
investors are happy, but they`re worried for the future.

HERERA: How much of it has to do with the way the acrimonious situation in
Washington is playing out? It`s a little bit more public this time around
than it has been.

There have always been tensions and as Bill pointed out, there`s always
been the talk of gridlock and Washington and Wall Street interaction, but
it seems as though it just seems to be much more public and perhaps much
more persistent than it has been in the past.

DAVIDSON: I think you`re right. The acrimony levels have gone up and the
partisanship, probably the divide is wider, certainly not the widest it`s
ever been, there certainly have been points in our history where it`s been
wider. But it`s pretty wide right now with people on the left and people
on the right not finding a lot of common ground. That makes people from an
investment standpoint be anxious for what`s to come.

GRIFFETH: Interesting. Erik Davidson with Wells Fargo (NYSE:WFC) Private
Bank — thanks for your insights tonight.

DAVIDSON: Thank you.

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

Dow component Walgreen`s was downgraded to in line from outperform at ISI.
The analyst cites a number of headwinds, including an increase in online
competition, and the potential for muted profit growth. The price target
is $67. The shares fell a fraction to $63.20.

Chipotle`s rating was downgraded to underperform from neutral over at
Mizuho. The analyst cites the lack of clear innovation in the near-term.
The price target is $330, the stock fell 2 percent to $454.21.

GRIFFETH: Meanwhile, eBay`s rating was downgraded to hold from buy at
SunTrust Robinson Humphrey. The analyst there cited headwinds to changes
to sales tax laws as a result of that recent Supreme Court ruling. The
price target is now $40. The stock fell 2 percent today to $37.04.

Wynn Resorts (NASDAQ:WYNN) was upgraded, though, to buy from hold at Stifel
Nicolaus. The analyst called the recent macro concerns related to both
trade and the World Cup soccer tournament possibly diverting high rollers
away from gaming tables. He says it`s overblown. The price target, $207,
the stock rose by 3 percent to $165.38.

HERERA: Still ahead, buybacks are at a record and that could be good news
for investors.


GRIFFETH: The number of job openings is no longer at a record, but it`s
still pretty close. According to the Labor Department, 6.6 million
positions are waiting to be filled. That`s a level that remains consistent
with the tight job market. The so-called quick rate in May rose to a 17-
year high and that usually indicates that Americans are confident that they
can leave their current position for better opportunities.

HERERA: More than a third of small businesses cannot fill open jobs. That
matches a record according to the latest report from the National
Federation of Independent Business. The survey found that 21 percent of
mom and pop owners cited workers as their single most important business

GRIFFETH: Speaking of which, the Transportation Security Administration is
looking to add thousands of workers to its ranks and it turns out
recruiting is becoming trickier in this tight labor market.

Kate Rogers (NYSE:ROG) reports tonight from Newark Airport.


its next generation of talent.

UNIDENTIFIED MALE: Do you guys have any questions?

ROGERS: The agency tasked with keeping the nation`s sky safe is currently
looking to add to its ranks. Instructors like Efren Arocho are preparing
new officers with mock screening, image interpretation and even an
explosive demonstration — at a federal law enforcement training center in
Glynco, Georgia.

EFREN AROCHO, TSA ACADEMY INSTRUCTOR: What make a good officer is the
sense of being responsible, making sure you work on time, your uniform up
to par, always have professionalism. Treat everyone with respect.

ROGERS: The agency is currently hiring for thousands of positions that
range from security officers to K-9 handlers at airports across the
country. Entry level salaries begin at around $35,000 a year, but vary on
role and location.

With the uptick in the U.S. economy and increases in wages and conversation
packages, I think just like most employers, we have steeper competition.
So, we work hard to sell the benefits of federal employment to try to
attract folks who are a very important mission of securing America`s
traveling public.

ROGERS: New hires like Valeria Garcia attend the TSA Academy and have an
additional 60 hours or more of instruction with the coach on site at their
local airport.

Accuracy is key. Trainees are instructed on using x-ray machines properly,
following protocol and working with passengers.

VALERIA GARCIA, TSA OFFICER-IN-TRAINING: I think people think we`re taught
to not really care. Can you please hurry up? It`s not like that. We
actually learn how to treat passengers with a lot of care and respect, and
try to connect with them.

ROGERS: For Garcia, like many officers, the threat of another September
11th attack is a great motivator to get things right on the job.

GARCIA: Being able to work at the TSA, I feel like I`m giving back. I`m
doing something to avoid that ever happening again.

New Jersey.


HERERA: Pepsi gets a lift from its snacks and that`s where we begin
tonight`s “Market Focus”.

The beverage giant said strong demand for Cheetos and Lay`s potato chips
offset declines in soft drinks and that led to an earnings beat. Pepsi
also said it put more ad dollars behind its beverage business, helping to
slow a year-long drop in soda sales. Overall, the company said it`s
pleased with the results.


HUGH JOHNSTON, PEPSICO CFO: Our revenue and EPS obviously came in quite
strongly and the investors seemed pleased with that. If you look at where
we are, the international businesses in total are performing very well,
developing in emerging markets up 6 percent, operating profit
internationally up 12.


HERERA: Shares rose nearly 5 percent to $112.89.

The merger between Keurig and Dr. Pepper is complete. The newly formed
company which is now one of the largest beverage providers in the U.S.
began trading on the New York Stock Exchange today. The previously
announced deal gives the company greater scale and a stronger portfolio.
Shares of Keurig Dr. Pepper rose 11 percent to $22.19.

And Nordstrom (NYSE:JWN) lay out its five-year financial forecast through
2022. The retailer says it expects earnings to rise as much as 6 percent
on average, on an average annualized basis. The company also reaffirmed
its sales outlook for 2018. That`s below street estimates. But some
analysts questioned how Nordstrom (NYSE:JWN) would continue to grow and the
shares fell 2 percent to $52.09.

GRIFFETH: Chipmaker analog devices is teaming up with Chinese tech company
Baidu (NASDAQ:BIDU) to create self-driving technology. The company will
share resources to improve Baidu`s existing autonomous driving system.
Shares of analog devices rose more than 1 percent to $98.54, while Baidu
(NASDAQ:BIDU) was down a fraction to $261.25.

And Boeing (NYSE:BA) said that strong demand for its 737 jets helped
deliveries for the first half of this year rise by more than 7 percent.
That was more than double the deliveries who rival Airbus during the same
timeframe. Boeing (NYSE:BA) rose 1.5 percent today to $347.16.

And “The Wall Street Journal” says that the European Union may hit Google
(NASDAQ:GOOG) with a multibillion-dollar fine. Officials believe that the
tech giant illegally views the dominance of its Android operating system.
Shares of Google (NASDAQ:GOOG) parental Alphabet were off a fraction to

HERERA: Companies are repurchasing stock at a record pace. According to a
recent report from TrimTabs, public companies announced more than $435
billion in buybacks in the second quarter. During that three-month period,
Apple (NASDAQ:AAPL) announced the biggest buyback at $100 billion.
JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), and Citigroup (NYSE:C)
announced buybacks following the results of the Fed`s stress test. And
Nike (NYSE:NKE) with the $15 billion buyback rounds out the top five.

So, joining us to discuss this is Mark Luschini. He is the chief
investment strategist at Janney Montgomery Scott.

Good to see you again, Mark. Welcome back.

Thanks, Sue.

HERERA: So, do you expect this to continue and what are the contributing
factors that led to pretty much record results?

LUSCHINI: Sure, of course. Well, I do expect it to continue. I mean, if
you look at the recent past in the last five or six years, the amount of
corporate buybacks has been averaging about $100 billion to $150 billion a
quarter. So, this quarter is no different in that respect, that number`s
getting close $200 billion which would be a record going back at least 15,
almost 20 years at this point.

Given the level of corporate profitability, we know corporate profits are
running very high last quarter, 23, 24 percent year over year, this quarter
is expected to be up around 20 percent, barring any earnings surprises to
the upside, that compounds the cash that companies are generating today,
not to mention the fact that as a consequence of the Tax Reform Act,
companies are repatriating tens of millions, if not billions of dollars.
And as a consequence, that`s going to fuel further buybacks as we go

GRIFFETH: But you know what the naysayers say about buybacks, Mark. I
mean, it`s not the best use of capital. They should be building factories
or innovating or creating jobs in some way. This is financial engineering
that artificially inflates stock prices. They`re buying at a high level
right now with the markets where they are.

What do you say to them? Is this a good thing or not for investors?

LUSCHINI: Well, Bill, I frankly have sympathy with that view. I think,
you know, companies do use this as a reason to not be necessarily creative
enough relative to the other things they can do to deploy shareholder
capital. And especially if they`re measured on the metric of profitability
or something tied to it, obviously, it can pad management`s profits as
opposed to holders in other ways, through as you said a smart, strategic
acquisition or perhaps capital expenditures, which are increasing,
increasing at a relatively high rate. So, I expect that to continue if you
would contemporaneously with share buybacks.

But I think investors do need to be discriminate with regard to the
companies that are using their capital properly and those who don`t seem to
be particularly creative with it and are retiring share prices at very
elevated valuations.

HERERA: Very, very quickly, Mark. Is some of the reasons these buybacks
are taking place is because they`re safer than doing deals or, you know,
investing in other areas?

LUSCHINI: Well, I think, Sue, it`s the easiest one and it probably results
in the quickest return on investment because you can retire shares and
immediately see accretion to your profitability over that which might take
days, months or even years in the case of an acquisition to turn out.

HERERA: Mark Luschini, thank you so much, Mark.

LUSCHINI: Thanks, Sue.

HERERA: Mark Luschini with Janney Montgomery Scott.

GRIFFETH: Coming up, why Texas is a lone economic star.


difference the price of oil makes. We`re in a state that was a competitor
for sure, but now is America`s top state for business.

The story is coming up on NIGHTLY BUSINESS REPORT.



GRIFFETH: Tesla has plans now to build a factory in Shanghai. The
electric carmaker`s plan is expected to produce 500,000 vehicles a year
some time in the next decade. Shanghai authorities reveal that Tesla`s CEO
Elon Musk was in that city to sign the agreement. China is already Tesla`s
second biggest market after the United States.

HERERA: CNBC is out with the annual ranking of the top states for
business. All 50 states were ranked for competitiveness across ten
categories. So, here are the top three.

Utah ranked third. It has a strong economy, but it lost points on
education, because it faces underfunding of its schools. Washington state
came in at number two, thanks to the solid workforce and a growing economy,
but high costs were a negative. And the top state for business is Texas,
helped by rising energy prices and the job growth that goes right with

Scott Cohn is in the Lone Star State for us tonight.


COHN: Year after year, from the Hill Country to the Gulf Coast, no state
has more of what it takes to compete than Texas, America`s top

UNIDENTIFIED MALE: This is the energy capital of the world.

COHN: Ready access to capital and a culture of innovation. But this year,
Texas has something else.

UNIDENTIFIED MALE: Proprietor here, the mayor of Midland.

COHN: You can see it at the Mulberry Cafe in Midland, one of the fastest
growing cities in America.

MAYOR JERRY MORALES, MIDLAND, TEXAS: Starting January 1, I mean, the city
became on fire.

COHN: Texas crude up some 60 percent from a year ago, helping make Texas
America`s top economy, with more than 350,000 new jobs in the last year.

GOVERNOR GREG ABBOTT (R), TEXAS: Texas is the number one state in the
United States for any migration from other states. People are voting with
their feet. People are coming up to the state of Texas more than any other
state, and that`s people and companies.

COHN: But, Texas does poorly in education. No state has a larger
percentage of people without health insurance. Crime is up and the
Democratic nominee for governor warns about the message that`s sent by
measures like a state ban on sanctuary policies for immigrants and the
proposal to regulate transgender use for bathrooms.

bill. This needs to stop being the Texas brand.

COHN: There are other issues, a potential trade war or an end to NAFTA
could have a huge impact on Texas`s import and export business, and there
are concerns the state could face a budget deficit when the legislature
reconvenes next year. But for now, Texas is enjoying the best of times as
America`s top state for business.

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn in Fredericksburg, Texas.


HERERA: And to see the complete list for the top state for business and to
find out where your state ranks, head to our Website,

GRIFFETH: One last look at the day on Wall Street, another rally day. The
Dow up 143 points, the Nasdaq and the S&P up a fraction as well today.

HERERA: And that will do it for us tonight. I`m Sue Herera. Thanks for
joining us.

GRIFFETH: I`m Bill Griffith. Have a good evening. We`ll see you


Nightly Business Report transcripts and video are available on-line post
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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
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Business Report is not and should not be considered as investment advice.
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