Transcript: Nightly Business Report – August 15, 2018

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

Stocks fell today on concerns that trade tensions and trouble in emerging
markets could slow the global economy.

trounces expectations and says sales are looking up this year, but that
wasn`t enough for investors.

GRIFFETH: Door to door. When drivers don`t go to the dealer to fix a
deadly defect, Honda takes the dealer to you.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
August the 15th.

HERERA: Good evening, everyone, and welcome.

A wild Wednesday on Wall Street. Stocks fell broadly as trade tensions
persist and investors grow anxious about a potential slowdown in global
growth, though the major indexes finish well off of their lows, it shows
issues that have been simmering in the market for months now have not gone

The Dow Jones Industrial Average fell 137 points to 25,162. It had been
down more than 300 points midday. The Nasdaq was off 96 and the S&P 500
was down 21.

Bob Pisani takes a look at the two major issues facing the market.


biggest one-day drop since late June. What`s going on here? Let`s call it
a double whammy. First, there`s concerns that there`s a minor crisis in
Turkey could spread to other countries. Now, at its part, the issue for
Turkey is really about a country with a lot of debt, much of it was
denominated in dollars that is keeping interest rates way too low to
continue to stoke growth.

The second issue is slower global growth in general. The Chinese stocks
are 20 percent off the highs they hit earlier this year. It`s partly on
trade war worries, but it`s also due to concerns about a slower economy
over there in general.

Now, today, investors were spooked at the open when Chinese tech giant
Tencent missed earnings expectations and reported its first net profit
decline in over a decade. Wait a minute, Chinese tech companies aren`t
expected to see profit decline. That doesn`t happen. Much of it is due to
a clampdown in games sales. That`s 40 percent of their revenues.

Also, these Chinese internet companies, they all closed lower today.
Alibaba had its worst trading day since 2016.

See? The combined contagion fears with slower growth, and then throw in a
strong dollar, that`s a recipe for a sell-off in commodities and commodity
stocks. The oil names today, EOG and Apache (NYSE:APA), the metals
companies like Alcoa (NYSE:AA) and Freeport-McMoRan, they were all down 5
to 8 percent.

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


GRIFFETH: Ad as Bob mentioned, Turkey`s currency crisis and tensions with
the U.S. continued to influence the market and in fact, today, it was
Turkey`s turn to impose heavy tariffs on U.S. goods.

Kayla Tausche has those details for us.


down on the trade dispute with Washington. Its latest salvo: doubling
tariffs on imports of U.S. products including cars, alcohol, tobacco,
cosmetics, rice and coal. Turkey says it`s responding to a deliberate
attack by the U.S. with tariffs on Turkish steel raised 50 percent as of

Earlier this week, Turkish President Erdogan said that was an act of
economic war. The tensions have caused a steep drop in Turkish currency,
the lira, over the last week.

White House Press Secretary Sarah Sanders says that`s not the fault of the

problems, those are a part of a long-term trend, and something of its own
making and not the result of any actions the United States has taken.

TAUSCHE: President Trump says tariffs worked, tweeting, our country was
built on tariffs and tariffs are now leading to great, new trade deals.

Talks are ongoing and no new trade deals have been ratified and the U.S.
Chamber of Commerce agree tariffs have helped and they threaten both
country`s economic interests and called on the two governments to address
their differences through dialogue rather than the unilateral application
of tariffs, sanctions and boycotts.

The White House says sanctions may be relaxed if Turkey release a U.S.
pastor on house arrest, but says tariffs on metals won`t be rolled back
because of national security concerns.

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


HERERA: Let`s turn now to Marc Pouey for more on the markets and what he
sees ahead for stocks. He`s senior U.S. equity strategist at Bank of
America (NYSE:BAC) Merrill Lynch.

Marc, welcome. It`s nice to have you here.

Tell me what —

Thanks for having me.

HERERA: Tell me what your reaction is to not only what has happened today
in the market, but the past couple of days. Is this a decisive turning
point in the bull market? Or do you think it`s just kind of a bump in the

POUEY: Sure. I think this is an amalgamation of what we`ve seen for the
last several months. If you think back to last year, you had global growth
really firing in all cylinders. Every major economy has started to see a
big pickup in growth and that was reflected in equity markets around the
world with very, very powerful returns across the world.

This year, the story has been a little bit different. You started seeing
pockets of weakness around the world while U.S. growth has been
accelerating. And on top of that, concerns around trade tensions and the
stronger dollar. In my mind, that explains why the U.S. stock market has
been continuing to accelerate and has been outperforming other markets
around the world this year.

GRIFFETH: But you have to admit, I mean, there are signs of wear and tear
in our own market. This week, we`ve had retailers reporting, Home Depot
(NYSE:HD), a stellar report on Monday, and Macy`s (NYSE:M), a strong report
today, both of those stocks, though, being hit rather hard by Wall Street,
and there was some analysts suggesting that maybe that signals there`s
maybe a peak in a very important part of our economy right now.

What do you think?

POUEY: Sure. What I think is quite interesting is we had stellar results
in the first quarter of this year. Twenty-three percent year-over-year
growth and we saw 8 percent revenue growth, and consensus on Wall Street
thought that was going to be the peak of growth and we`re going to see a
deceleration from that.

What we`ve seen this quarter so far is we`ve seen actually an acceleration
of growth to 25 percent on earnings growth. We`ve seen revenue growth at
10 percent. So, it`s not all tax reform. We`re seeing top line growth.
So, that to me comes as a big surprise that every consensus stock that
we`ve seen a deceleration, we`ve actually seen it coming better. It`s been
on average about 4 percent better than consensus expectations.

And we`re seeing something that`s quite interesting is we haven`t seen
stocks that have beat on expectations reward for a number of quarters,
almost two years now, and you`re starting to see stocks being rewarded

So, I think rolling up your sleeves, doing your homework is starting to pay
off again. On top of that, I`d say the management guidance that we`ve seen
so far has been fairly optimistic, as well. You`re not seeing much concern
around trade yet. Guidance has been very healthy, and you`ve seen an
absolute explosion of capital expenditures. Capital expenditures are up 24
percent year over year, which again to me is a sign that corporates are
pretty optimistic about the future and willing to spend their money.

HERERA: Marc, we`ll leave it there. Thank you so much for joining us.

POUEY: My pleasure.

HERERA: Marc Pouey with Bank of America (NYSE:BAC) Merrill Lynch.


GRIFFETH: Elsewhere, the Treasury Department is increasing economic
pressure on North Korea, now adding new sanctions on companies in China and
Russia for violating trade restrictions with Pyongyang. And Treasury
Secretary Steve Mnuchin said today there will be consequences for violating
sanctions until there is full, verified denuclearization of North Korea.

HERERA: The White House is preparing to expand its buy America rules to
include government infrastructure projects. According to CNBC, the new
executive order is nearing completion. The added rules will apply to
roadways, pipelines and broadband. But federal agencies have raised
concerns about the cost and the legality related to that program.

GRIFFETH: New reports on the economy today showed that the second quarter
productivity was the strongest in three years. According to the Labor
Department, the measure of hourly output per worker rose at a 2.9 percent
annualized rate. Labor costs also increased, pointing to modest wage
inflation. A separate report showed manufacturing activity in the New York
area remained robust. The August reading rose to a 10-month high, as a
matter of fact, and industrial production edged up in July, but those gains
were capped by weakness in the mining and utility sectors.

HERERA: A separate report showed sentiment among homebuilders fell to its
lowest point in almost a year. According to the National Association of
Homebuilders, affordability is becoming a bigger concern. Separately,
mortgage refinancing has dropped to the lowest level since 2000 as the
interest rates rise. And the Commerce Department says retail sales rose
0.5 percent in July, thanks to strong high hiring and low unemployment.

GRIFFETH: And that brings us to Macy`s (NYSE:M) which I mentioned earlier
reported strong quarterly across the board earnings this morning. The
retailer`s results topped both earnings and revenue expectations and it
raised its outlook for the year. However, the stock sold off in part I
guess because of profit-taking after a run-up and in part over concerns
about sales growth.

Courtney Reagan digs deeper into Macy`s (NYSE:M) results.


surprised investors with a strong second quarter, the biggest surprise
coming from its comparable sales which were expected to drop, but instead
the department store posted a gain, marking three straight quarters of

The retailer said the rest of the year looks good which points to the
potential for a strong fourth quarter, its most important of the year.

But some investors wonder if the strength will continue.

BRIAN TUNICK: Comparisons get tougher from here. I think there are a rot
of investors who are locking in those gains worrying about what`s going to
happen in the third and fourth quarters when that`s really when the retail
recovery started a year ago.

REAGAN: Macy`s (NYSE:M) CEO Jeff Gennett said both Macy`s strategy and a
strong economy drove sales which improved through the quarter. The
retailer`s online sales logged the 36th straight quarter of double-digit
growth, but Gennett said he was most excited about the progress in the
stores where there were more transactions and subsequent foot traffic.

With malls seeing fewer shoppers than in the past, Macy`s (NYSE:M) has been
reworking its store strategy from the way products are displayed, to fewer
discounts and newer fashion, coupled with a stronger consumer and it`s
working to sell more at full price.

The department store has been adding outlet areas to some of its stores
called Backstage, which Macy`s (NYSE:M) said is increasing the amount of
time spent in the store and the amount of money spent at checkout.

Still, Amazon (NASDAQ:AMZN) is becoming a bigger competitor grabbing more
and more apparel sales and on track to be the biggest online clothing
seller very soon.

JAY SOLE, RETAIL ANALYST: The market`s appetite for department stores is
still not good. They still think that they`re at risk from (INAUDIBLE)
market share to Amazon (NASDAQ:AMZN) and I think that we`re going to
continue to see that play out.

REAGAN: Macy`s has had a good year so far, but that means expectations are
getting higher and the holiday season is just around the corner.



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

Nvidia got a double upgrade from Wells Fargo (NYSE:WFC), lifting its rating
to outperform from underperform. The analyst says the new rating reflects
the company`s long-term position in gaming, data centers and autonomous
vehicles. The price target is $315. Nvidia reports earnings tomorrow.
Nevertheless, the stock fell about 1 percent to $259.08.

Chipotle was upgraded to overweight from equal weight at Morgan Stanley
(NYSE:MS). The analyst says Chipotle`s turnaround is working and sees the
stock surging 20 percent. The price target is $600. Shares today closed
up 6 percent to $525.89.

GRIFFETH: Hasbro (NYSE:HAS) was upgraded to buy from neutral at MKM
Partners. The analyst there says that investors should anticipate a
material recovery in the next two years, thanks to the company`s toy line
expansion. The price target now $115. That stock was up a fraction today
to $98.71.

Western Digital (NYSE:WDC) was downgraded to market perform from outperform
at Cowen. The analyst cited competitive pricing in that industry and a
cost structure that is not as efficient as those of its rivals. The price
target $70. That stock fell more than 1 percent to $63.95 today.

HERERA: Prices are on the rise. So what can you do to protect your
portfolio from inflation? Some possible answers coming up.


GRIFFETH: Senator Elizabeth Warren wants to make companies and CEOs more
accountable to employees. During an interview with “Mad Money`s” Jim
Cramer, the senator said that she`s introduced legislation which would
require corporations with more than $1 billion in annual revenue to obtain
a federal charter. That charter would then obligate all directors to
consider the interests of all stakeholders.


SEN. ELIZABETH WARREN (D), MASSACHUSETTS: We have seen over the past 25
years, extraction of about $7 trillion of investment in America`s
companies. That`s not how we build a long-term future. So I have a
proposal to deal with it, and my proposal says, let`s get a little
accountable under the system.


GRIFFETH: And that accountability includes proposals that include putting
employees on the board of directors, as well.

HERERA: A cryptocurrency investor has sued AT&T (NYSE:T) for more than
$200 million. Michael Terpin alleges fraud and gross negligence in
connection with the theft of digital currency tokens from his personal cell
phone account valued at $24 million. In the lawsuit, he said AT&T (NYSE:T)
was his service provider and that the company`s employees actively
cooperate with hackers. AT&T (NYSE:T) disputes the allegations.

GRIFFETH: Meanwhile, the new CEO of Verizon (NYSE:VZ) says its digital
media unit called Oath is not for sale. During a CNBC interview, Hans
Vestberg called oath an important piece of Verizon (NYSE:VZ) strategy. He
also emphasized the top priority of the wireless carrier is building out a
faster 5G network.


HANS VESTBEG, VERIZON CEO: We are the head of the game. I mean, Verizon
(NYSE:VZ) is first. We are actually doing this now commercial launch on
the proprietary software of 5G. So the global software on 5G is coming by
the end of the year and you start rolling them out, and then you need
devices, sheep set for IOT coming out. So, you need to be a little bit
understanding that it`s going to take some time.


GRIFFETH: Vestberg took over as CEO just on August 1st. Shares of the Dow
component rose in today`s trading session.


GRIFFETH: Bill, fellow Dow component Cisco (NASDAQ:CSCO) reported solid
quarterly results driven by growth in its cybersecurity business. The
network equipment and services company posted earnings that topped
estimates and it issued an upbeat outlook. Cisco (NASDAQ:CSCO) earned 70
cents a share, that`s a penny better than expectations, revenue rose nearly
6 percent to $12.8 billion. Investors liked what they saw, sending the
stock higher in initial after-hours trading.

Josh Lipton has the one key takeaway from Cisco`s quarter.


platforms, revenue and Cisco`s latest quarter jumped 7 percent to $7.44
billion and that was better than expected. Piper Jaffray`s Jim Fish says
that number is critical and it refers to Cisco`s core business, networking
offerings related to switching and routing. Fish emphasized the product
backlog of $6.6 billion, a big acceleration, nearly 40 percent from last
year, he says.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.


GRIFFETH: Elsewhere, a major spirits company is betting big on cannabis-
infused drinks and that`s where we begin tonight`s “Market Focus”.

Constellation Brands (NYSE:STZ) is investing $4 billion in Canadian
marijuana grower Canopy Growth, the biggest wager to date in the burgeoning
pot industry. But the company`s products will not be introduced here in
the U.S. until they are allowed by federal law. Constellation, which owns
Corona and other beer and wine brands, has been dealing with a recent
decline in beer consumption. Shares fell 6 percent today to $208.27.

Meanwhile, the hedge fund owned by the CEO of Sears (NASDAQ:SHLD) is
offering to buy the Kenmore appliance brand from the retailer for $400
million. Kenmore is considered one of the cash-strapped department store`s
last remaining valuable brands and it`s no secret that Sears (NASDAQ:SHLD)
has struggled for years with the shrinking sales and it`s been forced to
sell off other popular brands just to raise cash. The stock which is now a
small cap fell 13 percent today to $1.59.

And it was a disappointing quarter for Performance Food Group which missed
earnings and revenue expectations and provided a downbeat outlook. The
food distribution company blamed rising labor and fuel costs and executives
say they do not expect those fuel expenses to go down any time soon.
Shares dropped more than 10 percent today to $33.60.

HERERA: Warren Buffett loaded up on shares of Apple (NASDAQ:AAPL) and
Goldman Sachs (NYSE:GS) in the second quarter. According to regulatory
filings released late yesterday, Buffett`s Berkshire Hathaway (NYSE:BRK.A)
added more than 12 million shares of the iPhone maker, making Berkshire
Apple`s second biggest shareholders. It added more than 2 million shares
of Goldman Sachs (NYSE:GS) to its holdings. The positions are as of the
end of June.

The stocks moved in opposite direction. Shares of Apple (NASDAQ:AAPL) rose
today to $210.24. Goldman fell to $229.25.

The SEC has reportedly served Tesla with a subpoena just days after CEO
Elon Musk tweeted that he was considering taking the company private and
that financing was secured. The subpoena was first reported by “The New
York Times (NYSE:NYT)”. Shares dropped 2.5 percent to $338.69.

Well, Kleenex and Huggies are about to get more expensive. Kimberly-Clark
(NYSE:KMB) is raising prices across most of its products to combat higher
commodity costs. It`s risen 60 percent, and that`s according to one
estimate and consumers will start to see the higher prices in the first
quarter of this year and the first quarter of next. Shares popped nearly 5
percent to $116.46.

GRIFFETH: And that move by Kimberly-Clark (NYSE:KMB) follows price
increases by other consumer companies like Procter & Gamble (NYSE:PG), also
due to rising commodity costs. And those costs concerns, according to
economists are intensifying because of the ongoing trade tensions with
Canada and with China.

So, if rising prices continue to be a part of a bigger trend. How do you
inflation protect your portfolio?

Joining with us some ideas tonight, Ken Mahoney, the president of Mahoney
Asset Management.

Good to see you again. Welcome back.

Bill and Sue.

GRIFFETH: Obviously, as inflation goes up, rates go up and that`s bad for
bond holdings. But you advocate floating rate funds. Tell us about the
one that you like.

MAHONEY: Yes, (INAUDIBLE) floating rate funds. So, the American Beacon
floating rate fund, it doesn`t lock in like other the bond funds. So, it
keeps adjusting its rates. The portfolio manager happens to keep short of
maturities and kind of keeps up with that. So, you don`t have the basic 3
percent and losing 4 percent or 5 percent in asset value.

We`ve seen the last few years, and that`s when the best floating rate funds
there are other.

GRIFFETH: Do you have decent income?

MAHONEY: Yes, it`s almost about 5 percent dividend. But the biggest thing
is some protection against rising rates. In fact, if inflation is
increasing, commodity prices, we just heard Procter & Gamble (NYSE:PG), you
know, passing on to their prices.


MAHONEY: And again, a company that will be higher rates. If you have
higher rates for bondholders that are looking for income, and then we have
to start looking at some floating rates in the portfolio.

HERERA: You also say some of the big banks you might want to look at.


HERERA: And you point out J.P. Morgan. But, you know, as interest rates
go up, the banks make more money.

MAHONEY: Yes, the spreads are there. Jamie Dimon, CEO of the concerned
J.P. Morgan, definitely gets it. Their dividend is about 2 percent. They
have a lot more. They got to raise the dividend between earnings per share
and with a dividend`s payoff.

But Jamie Dimon, the CEO of J.P. Morgan, if you`re going to invest in a
bank, you know, invest with best management is, and to me that`d be J.P.

GRIFFETH: Health care is a classic, defensive play.


GRIFFETH: In most cases. And you picked UnitedHealthcare in that
category. Why?

MAHONEY: Yes, these are all weather type of stocks. So, whether we`re
going through recession which I hope is not in the cards, or we ramp this
inflation type of process, you know, that`s kind of a fun also stock. It
pays 2 percent dividend. It also has great management and they could also,
hint, hint, raise the earnings per share versus what they`re paying out to

HERERA: That sector, though, I mean, night after night, we seem to be
doing stories how health care is changing.


HERERA: Talking about the pharmacy benefit managers or the insurance
companies. You`re not worried about investing in that particular sector
right now or is the UnitedHealthcare unique?

MAHONEY: I think somewhat unique. If you look at the report for the
second quarter, which ended in June 30, that`s a great quarter and they
guided higher. So the companies like J.P. Morgan I just mentioned or any
of those types of companies, see what they just reported and what they`re
saying for the guidance going forward.


MAHONEY: And both of them are very positive.

GRIFFETH: Ken Mahoney of Mahoney Asset Management, always good to see you.
Thanks again for joining us tonight.

Coming up, Honda`s new pit crew.


like Honda going door to door to fix recalled vehicles? I`m Phil LeBeau in
Miami. I`ll have that story coming up on NIGHTLY BUSINESS REPORT.



HERERA: And here`s a look at what to watch for tomorrow.

Dow component Walmart reports its earnings. Investors will find out if the
retailer`s hefty e-commerce investments are paying off.

JCPenney and Nordstrom (NYSE:JWN) also report their quarterly results and
housing starts are out.

It is a key report because home construction has not been increasing as
much as the market needs. \

That`s what to watch for on Thursday.

GRIFFETH: Uber is still a long way from turning a profit each as its
quarterly loss narrows. The ride-hailing company lost $880 million in the
second quarter, but revenue rose more quickly than gross as the company
pulled back on promotions. Uber has plans to go public next year and it`s
had to deal with corporate scandals and it faces pushback from cities like
New York.

HERERA: Believe it or not, it`s been almost a decade since the first
recall for potentially deadly air bags was issued and today, millions of
those vehicles remain on the road. That has the federal government warning
owners of countless models to check if they`re driving a recalled car that
has not been fixed, but one automaker is doing something different. It`s
going door to door, hunting for those owners in order to replace those
faulty parts.

Phil LeBeau is in Miami tonight.


LEBEAU: Odylas Garcia is one of the lucky ones. Honda going door to door
in Miami found her 2003 Civic had a defective and potentially deadly air

ODYLAS: I wasn`t aware the vehicle had a recall on it. I only purchased
the vehicle a year ago and it was sold to me, I wasn`t aware that it had a
recall on it. I came to find out when the young lady knocked on my door
and notified me that the car had a recall.

LEBEAU: She`s not alone. Millions are unaware their car is under recall,
despite high-profile stories of drivers being killed by exploding air bags
that shoot out shards of metal and nearly every major automaker recalling
and fixing millions of vehicle, Chrysler, Honda, Ford, Toyota (NYSE:TM) and
other automakers still have millions more that need new air bags, so some
like Honda are scanning license plates around the country to see if the
vehicle has been recalled and repaired.

SEAN KANE, SAFETY RESEARCH STRATEGIES: These are extraordinary measures
and these are extraordinary measures done by companies that are desperate
because they know that they`ve let this dropped for many years. And this
problem should have been resolved more than a decade ago.

CHRIS MARTIN, HONDA: We did recalls as we got information from them,
indicating that we needed to. So I think we acted appropriately, but
certainly in hindsight, we wish we had known more, we wish we had more
actual information at the time to act earlier.

LEBEAU: Why are scores of vehicles still on the road, despite several
recall notices? Well, part of the problem is that many of these vehicles
have been sold numerous times. So, automakers often lack up-to-date
information on the vehicle`s exact location.

And other times, owners ignore a recall notice they get in the mail.

ARIK LITTRELL, 2004 HONDA CIVIC OWNER: It sounds that simple, but it
really isn`t because especially if you get a lot of — I wish you could see
my mailbox. You get a lot of junk mail. So, it`s easy to kind of ignore
one of those big, flashy cards that looks like it`s junk mail.

LEBEAU: After a quick check by Honda, Arik Littrell`s 2004 Civic is clear,
good news, but scores of other vehicles with potentially deadly airbags
remain on the road.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Miami, Florida.


GRIFFETH: Finally tonight, the highest-paying jobs in America. Glassdoor,
that`s a job in recruiting website, has analyzed salary reports submitted
by employees and median and base salaries from across the country.

Most of the highest-paid jobs are in the health care industry. Physicians
topped the list with a median base salary of $195,000. Coming in number
two, pharmacy managers at $146,000. And rounding out the top three,
pharmacists with a median base salary of $127,000.

HERERA: Before we go, here`s a look at the final numbers for Wall Street.
The Dow fell 137 point, but it had been down more than 300 about midday.
The Nasdaq was off 96 and the S&P 500 was down 21.

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

GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you


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