Transcript: Nightly Business Report – August 22, 2018


market is officially the longest of all time. And key parts of the market
are in rally mode.

In the bullseye. Target`s big investments are paying off and investors are
reaping the reward.

Trade talks. As officials from the world`s two largest economies resume
discussion, a factory owner in Dongguan, China, is paying very close

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
August 22nd.

Good evening, everyone, and welcome. Bill Griffeth is off tonight.

History was made today on Wall Street. This bull market is now the longest
in history, surpassing the dotcom run-up of the 1990s. By most measures,
the bull was born on March 9th, 2009, during the depths of the financial
crisis. But nine years, five months and 13 days later, the S&P has more
than quadrupled and today sits just below its all-time high.

Today stocks finished mixed. The Dow Jones Industrial Average lost 88
points to 25,733, the Nasdaq was up 29, and the S&P 500 fell one.

An area of the market that`s been rallying has been the Dow Transportation
Index. Today, it closed just below its all-time high after finishing at a
record yesterday. And the rally confirms one-half of a classic market
theory that could point to more gains.

Here to talk about that is Matt Maley, managing director and equity
strategist at Miller Tabak.

Welcome, Matt. Nice to have you here.

Thanks, Sue.

HERERA: That theory is called the Dow Theory and it says that when the
transports and the Dow Jones Industrial Average both basically confirm we
have more gains to go. So, what`s been leading the transports higher?

MALEY: Well, it`s interesting because the transports have been doing quite
well for most of the year because of the rail stocks, and the railroad
stocks, which have been in a pretty consistent fashion, rising all year
long. However, the airline stocks have been lagging badly. In the last
two months or so, they`ve bounced back very, very strongly and this has
given another leg higher for the transportation index to make a new high
and if these, you know, the airline stocks are still a long way from their
all-time highs earlier in the year. So, they have a lot more upside

So, if they can keep going, it`s going to be very positive for the
transportation index. Of course, the transportation index is very
important and very economically sensitive. So, the higher that goes, the
better it is for everybody.

HERERA: Now, you know, the airline stocks, a lot of people think they`re
very highly correlated to the direction of oil, but that`s not always the

MALEY: No, you know, it`s absolutely correct. I mean, the one thing is
intellectually it makes sense. Geez, if oil prices are going up which is a
major cost in the airline industry, that means their profits must be

But however, if you look back in history, the vast majority of the time,
the stocks, the airline stocks and crude oil move in the same direction and
really because of the economy — think about it, with the economies doing,
people — you know, companies use a lot more oil products and oil prices
move up. The same thing with airline business, when the economy is doing
well, people go on vacation more and people send their business people
around the country more and they go up. So, it`s more economically
sensitive when they move in tandem.

There are instances when they move in the opposite direction and the
intellectual rule doesn`t follow when you look at it in practice. So, the
fact that, in other words, people are saying the only reason why the
airline stocks are bouncing is because oil came down a little bit and if it
oil goes back up, they`re going to go back down.

I don`t believe so, and history says otherwise.

HERERA: What about the broader market? You know, we talked a little bit
about this theory and the Dow and the transports, but if you look at the
broader market, as we go into the latter part of this year, how do you feel
about it?

MALEY: Well, it still looks pretty good, but I think one of the key things
that we`ve seen over the last two or three months now, or even four months,
is this move to a more defensive posture. And I think this is a good thing
for investors to do because as the, you know, the big fiscal stimulus that
we`ve gotten this year, as that winds down a little bit in 2019, that could
create a little bit of a headwind for the stock market.

Therefore, if you go — you know, you look in the last three or four
months, consumer staple stocks, the utility stocks and especially the
health care stocks, they`ve actually outperformed. So, those who have
rotated — I won`t say dump anything with defensive names, but if those
rotated some of their portfolio, those defensive groups have actually
outperformed. So, they`re getting both protection and upside potential.

HERERA: Good advice.

MALEY: And I think that`s something we should do as we go through and
invest this year.

HERERA: Matt, thank you so much. Matt Maley with Miller Tabak.

Well, it is the longest slump in existing home sales since 2013. Sales of
previously owned homes dropped 0.7 percent in July, marking the fourth
straight month of declines, rising prices, limited inventory and increasing
mortgage rates are pushing potential buyers to the sidelines. Purchases of
existing homes account for the majority of home-buying activity.

Federal Reserve policymakers appear to be on track to increase interest
rates. According to the minutes of the last meeting, officials said they
are wary of the current trade dispute, but see no reason right now to pause
their current path of hikes. The central bankers left rates unchanged at
their raft meeting and are widely expected to tighten policy when they meet
again next month.

And with the Fed focused on trade, U.S. and Chinese officials met in
Washington today for the first time in two months. Both sides hope to
outline a framework for further talks.

Kayla Tausche has more.


Chinese diplomats trickled into the U.S. Treasury to re-open trade talks,
as a multi-month dispute between the world`s two biggest economies has only
escalated. China`s vice minister of commerce leading Beijing`s delegation
invited by the U.S. last week.

The market jumped on the prospect of a truce, but such a deal is unlikely.
Treasury is not expected to provide an update at the close of talks
Thursday, and one Chinese official said the purpose of the visit was to
test each other`s boundaries.

A new test in the trade war comes tonight, when the U.S. would slap new
tariffs on $16 billion of Chinese products and China will retaliate

the high-stakes game, but what we need to do is find a way to conclude that
successfully, and that`s going to take some tough negotiations and some
willingness by China to really open their market in ways we`ve not seen to

TAUSCHE: While the China situation may remain on a standoff across town,
progress on NAFTA could be near. U.S. and Mexican delegations met again
today and could resolve bilateral issues by the end of this week, providing
a small breakthrough amid a backdrop of continued trade worries.

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


HERERA: Michael Cohen`s lawyer started a GoFundMe campaign to help
President Trump`s former attorney. Cohen`s attorney says the goal is to
raise $500,000 for something he calls the Michael Cohen Truth Fund.

Cohen yesterday pleaded guilty to eight federal charges and said he worked
to influence the 2016 election, quote, at the direction of the candidate,
end quote.

So, will there be a tipping point when markets start to take notice of
developments out of Washington, and will the government`s focus now shift
to ongoing trade tensions?

Joining us to talk about that is David Riedel. He is founder and president
of Riedel Research Group.

Good to see you. Welcome back, David.


HERERA: So, overall, the markets seem to have shrugged off much of what is
coming out of Washington. Why is that, do you think?

RIEDEL: You know, I think they`ve gotten used to this amount of noise
coming out of Washington as sort of a new normal. So, they expect this
kind of chaos. I think as we get closer to the midterms, though, if people
feel like it`s shifting the benefit to one party or the other, I think
that`s when the market is going to start to pay attention.

HERERA: In other words, the House and Senate races.

RIEDEL: That`s exactly right. I think when you end up with a government
that`s more divided than it is today, I think that start to affect the
ability to implement policies and that`s what the market doesn`t like.
That kind of uncertainty.

HERERA: Do you think that that could derail the market overall? I mean,
would that be the tipping point or maybe there is no tipping point?

RIEDEL: I think there say tipping point and I worry about inflation and
the impact of the trade wars more than I do about the politics of the U.S.
I fear that rising inflation around the world and the impact and the knock-
on effect of the Republican administration`s trade wars is really going
start to crimp people`s expectations for the 2019 growth and that will
finally get the market`s attention.

HERERA: And trade basically will trump, no pun intended, on the election
concerns, correct?

RIEDEL: I think that`s right.

HERERA: So what should an investor do at this point, do you think? And
what should we be watching for?

RIEDEL: I think we definitely want to watch inflation because if we start
to see the impact of the higher prices from the trade war start to end up
on supermarket shelves or in the gas stations or wherever people feel the
impact of inflation, that`s going to be a big deal and I think if we
continue on this path of ever ratcheting up tariffs with China, I fear that
that`s not going to result in the resolution of the situation and it really
will start to eat away at people`s pocketbook issues heading into the
midterms and beyond.

HERERA: Kayla Tausche just mentioned the trade talks that are going to be
going on this week into the weekend, some say. It doesn`t sound like you
have high expectations on that front.

RIEDEL: Well, these are talks about talks. So, I think it`s always better
to be talking, but this isn`t a point at which they`re prepared to start
making concessions and reaching agreements. I think you might see a
handshake deal with Mexico announced tomorrow or Friday, and I think that`s
a very big deal. But I think that the China rhetoric is going to continue
for some time.

HERERA: You make the point that China has tremendous ability to mobilize
public opinion against U.S. business interests. What types of companies
that do business there do you think might be affected if indeed that does

RIEDEL: Well, if you look at the past five years. They`ve had these
situations with Japan over the disputed islands and in that situation,
nationalist opposition to Japanese products resulted in almost a 90 percent
decline in sales of Japanese cars in China. Just more recently, there was
a dispute in South Korea which led to almost having of Chinese travel to
South Korea.

So, if Beijing decides to flip the switch of nationalism, I would want to
be very careful with companies like Apple (NASDAQ:AAPL) which China
considers very replaceable with their homegrown alternatives, as well as
high visibility targets like a Starbucks (NASDAQ:SBUX).

HERERA: On that note, David, thank you very much.

RIEDEL: Thank you.

HERERA: David Riedel with Riedel Research Group.

It is time to take a look at some of today`s upgrades and downgrades.
Starbucks (NASDAQ:SBUX) was downgraded to neutral from overweight at Piper
Jaffray. The analyst says the stock will be range bound until U.S. trends
improve. The price target is $53. The stock fell 2 percent to $52.82.

AT&T (NYSE:T) was downgraded to market perform from outperform at Wells
Fargo (NYSE:WFC). The analyst here also says the stock will be range-bound
as it navigates its purchase of Time Warner (NYSE:TWX). The price target
is $35. The shares fell 2 percent to $32.68.

Netflix`s price target was raised to $395 at MKM Partners. The analyst
says enthusiasm for the stock has increased following a recent pullback.
The rating remains a buy, the stock was up nearly 2 percent to $344.44.

Still ahead, shop until you drop. Why Target (NYSE:TGT) says its stores
are busier than ever.

But, first, if you had invested $10,000 in these stocks at the start of the
bull market, take a look at what that investment would be worth today.


HERERA: Oil prices rose to a two-week high after a government report
showed inventories fell more than expected last week. The price of
domestic crude is up for five straight sessions, rising 3 percent to about
$67 a barrel. Separately, Saudi Arabia has reportedly called off its
Aramco IPO at least for now. The story was first reported by “Reuters”.
The listing was the biggest IPO in history.

Ford has issued two safety recalls. The company is recalling 850,000
charge cords that came with certain electric car models. It is also
recalling the Ford Edge, the Flex and the Lincoln MKX for improperly
secured power supply cable fasteners. Those recalls weighed on the stock
which fell more than 1 percent in trading today.

Lowe`s is outlining a new strategy to better compete with its rival, Home
Depot (NYSE:HD). The home improvement retailer is shutting down its
orchard supply hardware stores and it plans to cut back on some inventory
at its Lowe`s stores. The healthy housing market helped the company report
better than expected earnings, but the retailer cut its profit outlook for
the rest of the year. But investors focused on the new strategy and sent
shares up more than 5 percent in trading today.

And a new strategy is certainly paying off over at Target (NYSE:TGT) and
investors are reaping the rewards. The retailer reported its biggest sales
growth in more than a decade as shoppers flocked to the stores and that
sent the stock 3 percent higher in trading today.

Courtney Reagan has more on what`s working at target.


rolls on. Add Target (NYSE:TGT) to the list of those topping expectations
with its latest quarterly results. The big box retailer saw comparable
sales grow 6.5 percent, the strongest rate in 13 years with both online and
in-store sales growing sharply.

BRIAN CORNELL, TARGET CHAIRMAN & CEO: We`re seeing a great consumer
response, and unprecedented traffic. As we go back and look, we`ve never
seen traffic growth like this.

KATE MCSHANE, CITI MANAGING DIRECTOR: It`s pretty amazing when you think
of e-com and the role of e-com in everyone`s lives that they are driving
traffic incrementally to the store and it`s very positive because it means
that their online sales aren`t necessarily cannibalizing their in-store

REAGAN: The retailer is in the middle of a three-year $7 billion plan to
remodel the stores, build new smaller locations in cities and near college
campuses, improve its digital business, lower prices and speed up delivery,
add and refresh brands that shoppers can only fine at Target (NYSE:TGT).

For now, investors are cheering target spending because it`s taking market
share even if it means profitability takes a hit.

CHARLIE O`SHEA, MOODY`S CREDIT ANALYST: This is an example I think from
investors that patients will pay off. These world-class retailers, the
Targets, the Walmarts, the Best Buys, Home Depots of the world, TJX, it
doesn`t happen overnight and it`s not free. It takes time.

It took Amazon (NASDAQ:AMZN) 15 years to scale and spend a lot of money.
And Amazon (NASDAQ:AMZN) still spends a lot of money. The brick and mortar
guys are doing the same thing.

CORNELL: Well, we feel great about today`s result and the best we
delivered since 2005. We`re still in the early stages of rolling out our
strategy. So, next year, you`ll see even more of what we`ve delivered this

REAGAN: While Target (NYSE:TGT) is improving its overall shopping
experience, it`s far from the only retailer to turn in a strong quarter,
the strength of the U.S. consumer and broader economy is a large factor.

CORNELL: It`s a healthy consumer environment. I`ve been doing this for a
long time. I think this is the healthiest environment I`ve ever seen. But
importantly for us, we`re building market share in virtually every

REAGAN: When the retailer first announced its investment plan early last
year, investors were skeptical, while the most recent results may quiet
critics today, the question remains whether the strength for both Target
(NYSE:TGT) and the U.S. consumer is sustainable.



HERERA: And the number of retail stocks hit all-time intraday high, before
pulling back. Names like Nike (NYSE:NKE), Best Buy (NYSE:BBY), Kohl`s
(NYSE:KSS) and Costco (NASDAQ:COST).

William Sonoma`s results impressed the street, and that is where we begin
tonight`s “Market Focus”.

After the bell, the retailer reported stronger than expected earnings as
strong online sales helped its results. The company said there was
especially strong demand at its West Elm and Pottery Barn kids and teens
brand. William Sonoma also saw margins improve and said it was raising its
full year forecast for profit and revenue. The shares took off in after-
hours trading and they ended the regular day up nearly 4 percent to $62.61.

Also out after the bell, the clothing retailer Nordstrom (NYSE:JWN) said it
was launching a $1.5 billion share buyback program. Shares of Nordstrom
(NYSE:JWN) initially rose in the after-hours. They finished the regular
session down 1 percent to $60.57.

And insurer Hartford Financials said it was buying specialty insurer
Navigators Group for $2 billion. Hartford said that deal will expand its
product offerings and give it a larger footprint. Shares of Hartford
Financial fell 4 percent to $50.16. Meanwhile, shares of Navigators rose
nearly 9 percent to $69.90.

Well, we often talk about the impact tariffs are having on businesses here
at home, but in this interconnected world, it is also important to get a
sense of the impact abroad and that`s what Eunice Yoon did when she
traveled to a factory in Dongguan, China.


Mark Wang isn`t shocked these days. The maker of lights and candleholders
received the letter from his biggest customer, a U.S. retailer, urging him
to split the cost of a 10 percent tariff imposed on his products by the
Trump administration.

Ten percent is too high, he says. It`s just too much for any of us to

Factories like this one have been the backbone of China`s traditional
exports for American household.

But with labor and raw material costs up as much as 15 percent from last
year, many manufacturers here are struggling.

Wang says more than half of his sales will be hit by the tariffs. So, he`s
looking for new customers in Europe and the Middle East, dropping low-
margin products and cutting back on sales to the U.S.

We need to shrink our volumes and focus on what we do best, he says.
Otherwise, we can`t survive.

Wang says the weaker Yuan hasn`t brought relief and moving production out
of China won`t work.

Businesspeople like Wang say that it`s not that easy to move the supply
chain. He says that his raw materials and his suppliers are nearly all in
the same place and on this street alone, there are 20 factories that are
making LED lights and candle holders just like Wang.

Wang believes the trade war will last as long as Trump is in power. At
least two years, he says.

We can`t afford orders that don`t make money. We won`t kill ourselves just
to stay in the U.S. market.

Leaving fewer choices and potentially higher prices for U.S. consumers.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Dongguan.


HERERA: But while a Chinese manufacturer struggles, an American factory in
Kentucky is expanding.


NIGHTLY BUSINESS REPORT, the president`s imposition of tariffs on imported
aluminum and steel helping certain companies in the country restart. The
question now that China`s hit back, will other companies stall?



HERERA: The Democratic National Committee says it stopped an attempted
hack of a voter database. That database houses the information of tens of
millions of voters across the country. The committee says it notified law
enforcement and that no information was compromised. An official said it
is not yet clear who was behind the attempted breach.

The tariffs imposed by the Trump administration have affected numerous
companies in different ways.

Jackie DeAngelis traveled to a manufacturer that`s expanding and creating
jobs and today because of the duties, it`s restarting a smelter. She is in
Hawesville, Kentucky, tonight.


DEANGELIS: As trade talks resume, tariffs on imported aluminum and steel
have American consumers optimistic that a more level playing field means
more business and a more competitive landscape.

Here at Century Aluminum (NASDAQ:CENX), a ribbon cutting today. This line
which was shut down now operational. And the company credits tariffs.

At 60 percent capacity now, next year, it will be at 100 percent. It will
create 300 direct jobs and for every job here, three others in the

Trump administration and before the tariffs were signed, that the aluminum
industry in the U.S. was dying. It`s not all but dead. Now, what we`re
doing is we`re bringing it back to life and we`re bringing the jobs back.

DEANGELIS: This aluminum is high purity, the kind used in military and
defense. This is the only plant in the country that makes it. Century
says this isn`t just about creating jobs, but it`s an issue of national

MICHAEL BLESS, CENTURY ALUMINUM CEO: It`s been absolutely critical for
national security that this country has the ability to produce primary
aluminum. This product, as you know, goes into tank armor, armored
personnel carriers, fighter jet skins and just think, we were within six
months a couple of years ago, as you well know of losing the ability in
this country to produce primary aluminum.

DEANGELIS: When the announcement to restart was made earlier this year,
China hadn`t hit back yet. It`s proposed tariffs on more than 500 U.S.
products including soy beans, beef, whiskey and vehicles, leaving some
experts asking if the aluminum win or ones like it are enough to make up
for other short falls that could be caused by a trade war.

WILBUR ROSS, U.S. COMMERCE SECRETARY: There will be some retaliation from
China to us. But so far, we`re way ahead of the game.

Look at the unemployment figures. They`re going down. Look at the fact
that there are now 6.6 million jobs unfilled and only 6 million workers
without them. The economy is surging 4.1 percent in a quarter. It doesn`t
feel like we`re being bothered very much by the retaliations as a country.

DEANGELIS: And global companies are more linked than ever. Aluminum
prices spiked 10 percent when U.S. sanctions threatened Russian producer
Rusal in April. China actually exported more aluminum in May.

So, as a threat of rising trade tensions loom, some industries are
restarting while others fear they could stall.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis, Hawesville, Kentucky.


HERERA: And finally tonight, Apple`s CEO has donated nearly $5 million
worth of Apple (NASDAQ:AAPL) shares to charity. According to an SEC
filing, Tim Cook gave more than 23,000 shares to an unspecified
organization. Executives are not required to disclose the recipient. Mr.
Cook has made similar donations in the past and he has said that he plans
to give away all of his wealth.

Before we go, let`s take a look at the final numbers on the market today,
set records for the longest bull run in history. The Dow fell 88 points,
the Nasdaq was up 29 and the S&P 500 was down one.

And who knows what tomorrow will bring?

That is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. We want to
remind you, this is the time of year your public television station seeks
your support. We thank you for that support.

Have a great evening. We`ll see you again tomorrow.


Nightly Business Report transcripts and video are available on-line post
broadcast at The program is transcribed by ASC Services II
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
of Nightly Business Report, or CNBC, Inc. Information presented on Nightly
Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.


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