Transcript: Nightly Business Report – August 21, 2018

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: What a run. The S&P 500
hits an intraday all-time high and the bull market ties the record for the
longest ever as the summer rally accelerates.

But the proverbial wall of worry that stocks are said to climb acquired
more bricks like today. A guilty plea from the president`s former lawyer
and a guilty verdict for his one-time campaign chairman.

Hard as steel, but not immune to tariffs. We`ll take you inside a
manufacturer in Holland, Michigan.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
August 21st.

Good evening, everyone and welcome. I`m Tyler Mathisen. Sue Herera is on
assignment and Bill Griffeth is off tonight.

Well, the S&P 500 came oh so close to finishing the session at a record,
but a late day pullback left the index just below its highest closed since
January. It did however hit an intraday high, that`s good for something
and it was a record finish for the small-cap index the midcap stock index,
and the critical Dow Transportation Index.

Here are the closing numbers: the Dow Jones Industrial Average rose 63
points to finish at 25,822, Nasdaq up 88 and the S&P 500 added five.

Bob Pisani now with a look at what`s behind the move higher today.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks soared to fresh
highs. The S&P 500 breaking through its all-time high hit back in January,
though it didn`t close at a new high. Small and mid-cap stocks along with
the Dow Transports also hit new highs.

Another notable milestone: the stock market has now tied its previous
record for the longest bull run in history, that runs started in 1990 and
ended when the dot-com bubble burst back in 2000.

So why does this rally just keep on rolling along day after day? Well, tax
cuts and strong corporate earnings are, of course, a big part of that
equation. But there`s also been strong sector rotation. So, when growth
stocks like technology stocks and semiconductors pull back, consumer stocks
have stepped in to take their place, and retails also been on a tear, and
healthcare stocks like biotech and pharmaceutical stocks, they`ve hit new
highs.

So, every time we fall back, the market seems to find a way to just still
hold up. Traders don`t just sell everything and leave, they buy new stuff.
But beyond just the S&P 500, we`ve seen breakouts to record highs in a
number of sectors, everything from small cap companies mid cap companies
and the Dow transports, airline names were doing well and that`s given a
big boost of the transports.

All right. So, what could kill the bull market? The two classic killers
of a bull market and things that caused bear markets our first a recession,
and second, Federal Reserve that suddenly gets overly aggressive with
raising interest rates. So far, there`s no signs of either of those
happening.

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

(END VIDEOTAPE)

MATHISEN: And meantime today, Wall Street keeping an eye, a close eye on a
courtroom in New York City where President Trump`s former personal lawyer
Michael Cohen struck a plea deal with federal prosecutors. He pleaded
guilty today to a variety of charges, including tax fraud and making false
statements to a financial institution. He also and significantly admitted
to violating campaign finance laws at the direction of a candidate for
federal office. He arranged to make payments for the principle purpose of
influencing the election. That caused stock futures to drop after the
market closed.

And separately, President Trump`s former campaign manager was found guilty
on eight of 18 counts involving financial crimes.

So, clearly, there is political risk in this market but what else could
cause the bull to grow claws and turn into a bear?

Dominic Chu takes a look.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The baseball analogies
about the market are all over the place. Are we in the early innings, the
middle or perhaps the ninth inning of a bull market? Maybe it`s the extra
innings after seeing the S&P 500 index more than quadruple since the depths
of the financial crisis back in 2009.

Economist David Rosenberg at Gluskin Sheff thinks the rally is on borrowed
time and lays out five reasons why.

Number one is the job market. There`s a big skills gap in America with
millions of unfilled jobs and just not enough qualified people to do them.

Number two is wage inflation, a tighter labor market could mean higher pay,
but have coupled with higher prices for goods due to increase tariffs, we
might see the Federal Reserve move more quickly to raise interest rates.

The third is the growth and money supply like cash and checking accounts
and savings accounts. That`s slowing growth in cash is showing signs of
perhaps a slowing economy.

The fourth is a housing market that appears to have peaked. That`s playing
noticeably out in the markets where there are still a number of downtrends
in early place from the highs for home building stocks.

And fifth he says, it looks like markets are past the peak in the credit
cycle with problems starting the show in investment grade bonds. By now,
we`ve all heard the bullish case for the stock market, corporate profits
are still growing, the full positive effects of the Trump tax cuts have not
yet been fully realized and the U.S. economy is better off than many others
around the globe. But with stocks setting fresh record highs and what is
going to be the longest bull market in history, some traders are making
sure they`re aware of any potential downside risks.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: So what happens next to the market? Joining us to talk about
that is Teague Sanders, portfolio manager and co-manager of small cap
investment strategy at Whittier Trust.

Teague, welcome. Good to have you with us.

TEAGUE SANDERS, WHITTIER TRUST PORTFOLIO MANAGER: Thanks for having me.

MATHISEN: Let`s start with the day`s late news and that is the guilty plea
by President Trump`s former personal lawyer, Mr. Cohen, in a case that now
involves campaign finance violations that he says were made at the
direction of the president. Does this introduce a political headline risk
into the broader market that is more than the market can withstand?

SANDERS: Well, I think the last part of your statement is the most
important thing. I mean, there`s definitely been geopolitical risk ongoing
for a while. These are not new allegations. We`ve seen this coming for a
little bit of time.

The fact that we got eight plea convictions is a little bit interesting,
but I don`t think it`s too much for the market to withstand. I mean, we`ve
seen broad fundamental strength across a number of industries. So, I think
at the end of the day, the market will be able to digest this. We will be
able to move forward.

But it`s definitely adding is a geopolitical narrative of we don`t really
know what`s happening in the White House. We have Vladimir Putin and some
other exogenous factors trying to influence what`s happening here locally,
and yet, we`ve seen earnings growth of 20 percent, we`ve seen 4 percent GDP
growth, and yet, wage inflation is only 2.7 percent.

So, from a market perspective and a fundamental perspective, we`re in a bit
of a goldilocks scenario where it`s not too hot/not too cold.

MATHISEN: Right.

SANDERS: But to your point, there`s a lot of geopolitical tension ongoing
right now.

MATHISEN: Yes, and a lot of things as we go into what is historically
seasonally not the most favorable months of the year for equities,
September and October.

But be that as it may, let`s turn to your specialty, small cap shares,
which have been doing very, very well lately. Do you — do you predict
that that will continue and why are they doing so well?

SANDERS: We do think this is going to continue for the fundamental reasons
I outlined before, but from a small cap perspective, they continue to
benefit from a number of different things. There`s tax reform ongoing.
There`s the fact that less revenue actually come from international
sources, so the geopolitical tensions are less impactful for small cap U.S.
equities.

You also have the fact that small cap supply chains are less multinational
and so, these tariffs they`re a little more insulated from the tariff
bubble that`s being created around it. And finally, a regulatory reform
happening across a number of different industries.

Now, if you see the geopolitical tension and it`s political narrative kind
of unhinge a few of these aspects, that could shift, but we think the
markets overall are strong enough to get through that.

MATHISEN: All right. So, the little guys may rule for a little while
longer.

Teague Sanders, thanks very much. Teague is with Whittier Trust.

Well, meantime, Microsoft (NASDAQ:MSFT) says Russian hackers linked to
cyberattacks during the 2016 election are now widening their targets to
include the upcoming midterms as well, as conservative groups. The company
took down six domains last week that were registered to a Russian hacking
group.

(BEGIN VIDEO CLIP)

BRAD SMITH, MICROSOFT CHIEF LEGAL OFFICER: There is no doubt in our minds
that this is the same group that was responsible for attacks in the United
States during the 2016 elections. There is no doubt in our minds that this
is the same group that targeted every major presidential candidate last
spring in France.

(END VIDEO CLIP)

MATHISEN: Microsoft (NASDAQ:MSFT) says it has no evidence that the hackers
had succeeded in compromising any user credentials before it took control
of the malicious sites.

Now to trade, the auto industry is breathing a sigh of relief at least for
now. “The Wall Street Journal” reports that the Trump administration will
likely push back its timetable for imposing tariffs on auto imports. The
White House said — in the past, has said that it is considering 20 percent
or 25 percent tariffs, something the auto industry has vigorously opposed.

But one manufacturer in Holland, Michigan, is trying to navigate the
financial fallout from the trade war.

Our Leslie Picker has the story tonight.

(BEGIN VIDEOTAPE)

LESLIE PICKER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here at Trans-Matic
headquarters at Holland, Michigan, the fallout of the steel tariffs hit
practically overnight once they were announced in March. Trans-Matic uses
mostly domestic steel, but the cost of the coils coming on to Trans-Matic
factory floor have soared as U.S. steel makers boosted their prices by 25
percent.

That steel is then stamped into components for auto parts, door locks and
plumbing materials, and shipped to customers all over the world. So far,
the higher costs are being passed on to customers, but eventually Trans-
Matic expects they will chase lower prices abroad, buying those same parts
cheaper from Trans-Matic competitors in Europe and Asia.

STEVEN PATTERSON, TRANS-MATIC CFO: In a trade war, which is essentially
what we`re in their clear winners and clear losers and, unfortunately,
there`s a lot of collateral damage and people`s lives and livelihoods are
put between the crosshairs.

PICKER: If the tariffs stay in place, Trans-Matic maybe could transfer
production to its overseas plants in Mexico and China in order to stay
viable against the competition, even if that means rolling back hours and
investments here at their headquarters in Holland, Michigan.

Trade uncertainty hitting home for the factory workers.

ROB MITCHELL, TRANS-MATIC EMPLOYEE: We unfortunately fall into that area
that it doesn`t really help, so it would be nice that it did, but it just
doesn`t.

SHANE HEADLEY, TRANS-MATIC EMPLOYEE: A little bit of nerves I guess what
might come if they continue to go the way they`re going. But short term,
we haven`t felt that on the floor yet.

PICKER: Trans-Matic employs about 300 people in Holland and manufacturing
represents about one third of the lakeside town`s economy. So, the tariffs
have raised questions for the local government as well.

MAYOR NANCY DEBOER, HOLLAND, MICHIGAN: So, you don`t really know how it
all is going to end and how long the tariffs would last and how it would
affect down the food chain when the manufacturers are nervous about it,
we`re nervous about it too.

PICKER: To add insult to injury, Trans-Matic is bracing for possible
retaliatory tariffs from China on some of the products it exports there.
It would be yet another new twist for this 50-year-old family owned and
managed company and the thousands like it across America.

For NIGHTLY BUSINESS REPORT, I`m Lesley Picker, Holland, Michigan.

(END VIDEOTAPE)

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

Discovery upgraded to buy from hold at Jefferies. The analyst there cites
several opportunities that could increase the company`s free cash flow,
including stronger U.S. distribution growth. The price target now $34 a
share, and shares rose today more than 5 percent to $29.55.

Symantec (NASDAQ:SYMC) was upgraded to positive from neutral at
Susquehanna. The analyst cites the potential for change following the
involvement by activist shareholder Starboard Value. The price target:
$23. The stock rose about 1 percent to $19.55.

And Estee Lauder louder was upgraded to buy from neutral at D.A. Davidson.
The analyst says the company`s fundamentals are, quote, the strongest seen
in years. Price target now, $167. The stock did however fall nearly 3
percent to $136.63.

And still ahead, a big bank jumps feet first into no-cost investing and it
could change retail trading as we know it.

(MUSIC)

MATHISEN: What we usually tell you about startups that are trying to
disrupt industries and today though, it is an old-timer`s turn to do just
that. The nation`s largest bank is jumping into low-cost investing and in
this case, free investing. J.P. Morgan will launch an app that lets
customers trade online at no cost. It comes at a time when competition to
attract investors has been heating up, a trend that has pressured fees
downward across the industry.

And today`s news from J.P. sent shares of discount brokers as you see their
lower, sometimes a lot lower.

Joining us now to talk more about this new service and what it could mean
for investors is Gerard Cassidy, managing director and banking analyst at
RBC Capital Markets.

Gerard, let`s turn first to J.P. Morgan stock. Is it — is it a good move
for them to be offering no fee trades? Is it good business?

GERARD CASSIDY, RBC CAPITAL MARKETS BANKING ANALYST: I think it is Tyler
and the reason being is that what J.P. Morgan is trying to do is with this
approach, two particular strategies. The first is to offer an additional
product to their existing customer base. They want a greater share of that
customers wallet and by offering this product, they`ll be able to do that.

But second they`re also looking to build the new customer base and by
offering this product, they could get new customers into the door the new
customers can take a look at not only this product but other consumer
products that J.P. Morgan offers. So, it`s a two-pronged strategy.

And then lastly, it`s also a focus on the millennial generation where many
of them really haven`t invested and this is a way for them to test out
investing without very high costs to them at all.

MATHISEN: So it is in effect a lure that J.P. Morgan will then employ to
cross sell products.

CASSIDY: That`s right. It`s a strategy that J.P. Morgan uses throughout
their business. They do it on the corporate side where they`ll make a
commercial loan to a customer and over time, they hope to sell that
customer additional products.

Same thing with the consumer. If you and I have a credit card with Chase
Manhattan, we`ll obviously be approached about other types of consumer
products, and this is just another arrow in the quiver for J.P. Morgan.

MATHISEN: It`s an app. It will appear on your phone if you don`t already
have the app, I assume it`ll be added to the app you have. It`s an app
that you can use on your computer, that`s one thing.

But is this really on the bell being rung that says we are beginning a race
to the bottom in terms of fees and charges that will affect all the online
brokerages?

CASSIDY: That`s the $64,000 question because when you think back to the
1975 deregulation of retail commissions, you might recall so-called May
Day, that`s when they deregulated the commission`s and that`s what
introduced discount brokers like Charles Schwab, and rates of trading or
the commission`s that people paid has steadily declined.

This is just a continuation of that long, long term trend and you`re right.
It`s going to cost obviously the online brokers some revenues if this
catches on.

The other thing we got to wonder about is what about the other universal
banks. If J.P. Morgan really gains traction here and starts to take market
share, you have to wonder if a Wells Fargo (NYSE:WFC) or a Bank of America
(NYSE:BAC) is going to employ a similar strategy.

MATHISEN: Gerard, thank you for your perspectives tonight. We appreciate
it. Gerard Cassidy is with RBC Capital Markets.

Well, customer traffic rises for the 16th straight quarter at TJX, and that
is where we begin tonight`s “Market Focus”.

The off-price retailer that operates T.J.Maxx and Home Goods, my wife`s
favorite store, grew same store sales at a quicker than expected pace at
all of its divisions as new customers were eager to snatch up discounted
items. TJX expects that measure to remain strong throughout the end of the
year and it also hiked its profit forecast for 2018. Shares of TJX up more
than 4 percent to $106.46.

Kohl`s (NYSE:KSS) decision to scale back promotion seems to be working.
The retailer sold more merchandise at full price this quarter and that
helped overall earnings top estimates. The company also raised its profit
outlook for the full year but the new figure was shy of Wall Street
expectations, and shares climbed more than one-and-a-half percent
nonetheless to $80.20.

And J.M. Smucker (NYSE:SJM) topped profit estimates but missed on revenue
as demand for its core products like JIF peanut butter and Folgers Coffee
fizzled a bit. The company also cut its sales guidance for the full year.
Shares of J.M. Smucker (NYSE:SJM) off more than 6 percent on the session to
$108.20.

And the medical device maker Medtronic (NYSE:MDT) said a rise in sales for
its diabetes and heart products helped overall earnings and sales edged
past expectations. The company also raised its organic revenue growth
output for fiscal 2019. Shares finished up nearly 6 percent to $95.17.

Well, if earnings results from Toll Brothers (NYSE:TOL) are any indication,
the housing market in America is alive and kicking. The luxury homebuilder
said demand was strong across the country and that sent the stock up 13
percent in today`s session. But the same is not true for all high-end
markets.

Manhattan, famous for its luxury listings, is sending mixed signals,
decidedly mixed ones.

And Diana Olick has the story.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It could be a record-
breaking year for Pennsylvania-based home builder Toll Brothers (NYSE:TOL).
The company beat expectations in its third quarter report and raised
guidance for the full year, saying revenue could hit a new high.

JACK MICENKO, SUSQUEHANNA HOMEBUILDING ANALYST: The two parts of the
market we think are still pretty strong are that first-time low-cost entry-
level buyer and then the upper end.

OLICK: Toll Homes carry a median price tag of about $850,000, nearly three
times that of all other newly built homes. So, its buyers that are not
exactly on the margins and not super sensitive to slowly rising mortgage
rates.

CEO Doug Yearley said the company was not seeing affordability issues but
he did notice slight softening in California where prices are highest and
new tax laws that limit deductions hurt more.

JONATHAN MILLER, MILLER SAUMEL, PRESIDENT AND CEO: The federal government
is essentially extracted itself from the homeownership promotion business
and it really is going to take a couple of years for buyers and sellers to
recalibrate whether it`s the overall market or the luxury market.

OLICK: That`s a big reason why luxury sales are now plummeting in New
York, that and a sharp pullback by international buyers who favor
condominiums.

MILLER: Participation down to by about half and the key reason has been
the currency play that the dollar is stronger, so their money doesn`t go as
far. And the other part is that they can see the excess supply that`s in
the market, so there`s less upside potential.

OLICK: Manhattan luxury home sales fell 17 percent annually in the second
quarter of this year, according to Douglas Elliman. Luxury being the top
10 percent of the market.

The weakness was worst in condos with sales down 20 percent annually and
prices down 8 percent.

While Manhattan is literally an island unto itself, sales of higher priced
homes in the rest of the nation are strong, thanks to a stronger economy
and more high-end supply. That is not the case at all in the bulk of the
market where listings are very limited and both sales and affordability are
weakening.

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

(END VIDEOTAPE)

MATHISEN: Coming up, the sector that helped drive the bull market with
many twists and turns along the way.

(MUSIC)

MATHISEN: Food and Drug Administration is extending the expiration date of
some lots of EpiPens, the move designed to help mitigate the national
shortage of the medicine. The life-saving drug would be good for an
additional four months now says the FDA. The agency approved the first
generic competitor last week, but it will take a few months for it to reach
the market.

Well, we return now to our lead story, the big bull market. As we
mentioned, tomorrow, it will become the longest of all time and as Bertha
Coombs reports, the biotech sector played a big role in the run higher.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For investors,
biotech has been a roller coaster ride during the market`s bull run, big
gains early in the decade, then a 20 percent plunge in 2016. Presidential
candidates vowed to crack down on high drug prices.

But now, biotechs back at record highs, fueled by hope over new drugs that
treat and even cure difficult diseases.

MICHAEL YEE, JEFFERIES MANAGING DIRECTOR: For the last couple of years,
there`s been a huge breakthrough in some of the transformative medicines
like gene therapy and cell therapy. You had some new FDA approvals of some
of those important new drugs. And so, there really has been a big
breakthrough in some of the new technologies for new biotech medicines.

COOMBS: For investors who could stomach the volatility, taking a risk on
these novel drug makers has paid off with healthy returns. A hands-down
best performer, Jazz Pharmaceuticals (NASDAQ:JAZZ), which launched a
blockbuster drug for excessive sleepiness last year. It`s gained 30,000
percent from the 2009 market bottomed.

Investors saw impressive gains as well from specialty drug makers
Neurocrine Biosciences (NASDAQ:NBIX), Incyte (NASDAQ:INCY) Pharmaceuticals
and Regeneron, all up about 3,000 percent or more, while Parkinson`s
treatment maker Acadia gained 1,500 percent.

But some of those long-term winners are now lagging this year. Acadia
Pharma is grappling with reports of negative side effects of its key drug,
while pricing issues have weight on Regeneron. It`s Eylea blindness
treatment could be impacted by new Medicare Advantage rules on physician
infused drugs. And Incyte (NASDAQ:INCY) has already faced lower prices on
a key drug.

Trump administration`s pushback on high prices is an increasing headwind
for the pharma industry, but analyst Michael Yee expects the specialty drug
players will continue to outperform.

YEE: You have some challenges at some of the large biotechs and large
pharmaceutical companies and those challenges over the next few years have
driven a likely move towards acquiring many of the smaller and mid cap
biotechs. We believe that many of these other earlier stage biotech could
be acquired.

So, there`s a lot of enthusiasm for the speed at which these companies are
developing drugs and the potential for them to be taken out.

COOMBS: Still, the price tag of some of these new drugs in the pipeline
that offer cures will be in the million dollar range which will pose a real
challenge for the nation`s health system.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.

(END VIDEOTAPE)

MATHISEN: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler
Mathisen.

We want to remind you that this is the time of year your public television
station seeks your support. We thank you and have a great evening. We`ll
see you tomorrow.

END

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