Transcript: Nightly Business Report – August 29, 2018

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Still climbing. The Nasdaq and S&P 500 push further into record territory, but even as stocks rise, retirement account balances still have a ways to go.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Oh, Canada. Officials say trade talks with the U.S. are progressing and there’s one industry that has a lot at stake.

MATHISEN: And rising risks. Extreme weather is changing the value of homes and the face of neighborhoods. Our continuing series heads to Miami tonight on NIGHTLY BUSINESS REPORT for Wednesday, August 29th.

Good evening, everyone. And welcome. I’m Tyler Mathisen, in tonight for Bill Griffeth.

HERERA: And I’m Sue Herera. Thanks so much for joining us.

Well, Wall Street is in rally mode. The S&P 500 and the Nasdaq closed at new highs thanks to a gain in technology shares. In fact, the Nasdaq is on track for its best August in 18 years. A strong report on economic growth, along with optimism over trade put investors in a buying mood.

Today, the Dow Jones Industrial Average added 60 points to 26,124. The Nasdaq was up 79 or about 1 percent and the S&P 500 gained 16 points.

MATHISEN: And more now on trade. Canadian officials are in Washington tonight working toward a revamped North American free trade agreement and both sides do appear optimistic now that an agreement can be reached ahead of a Friday deadline.

Eamon Javers has the details.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump expressed confidence that Canada will join the agreement already hammered out with Mexico.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We’ll see whether or not Canada gets into it. Otherwise, we’ll do something separately or we won’t do anything which is OK, too.

JAVERS: Canada’s Foreign Minister Chrystia Freeland spent the day behind closed-door meetings and says she’s optimistic that progress can be made this week.

CHRYSTIA FREELAND, CANADIAN FOREIGN MINISTER : We’re now — need to have some good, deep conversations with our U.S. partners and that’s what we’re doing.

JAVERS: Among the sticking points, the U.S. wants greater access to the Canadian market for U.S. dairy exports, Canadian farmers oppose that, and the U.S. and Mexico agreed to weaken the rules that allow businesses and governments to challenge trade policies. These have been used by Canada in disagreements over dairy, soft wood lumber and commercial aircraft disputes.

Canada’s Prime Minister Justin Trudeau says he’ll fight to protect his country’s interest.

JUSTIN TRUDEAU, CANADIAN PRIME MINISTER: Our government and I personally will stand up to defend supply management and defend our dairy farmers. That is something that we have been very, very clear.

JAVER: But a final deal is far from finished. Congress would have to approve any deal as would legislators in Canada and Mexico.

For NIGHTLY BUSINESS REPORT, I’m Eamon Javers at the White House.

(END VIDEOTAPE)

HERERA: No industry has more at stake from any shift in trade policy than the automotive sector and that is because of the 17 million vehicles sold in the U.S. last year, a large portion of them were made in Mexico and Canada.

Here to talk more about the potential impact on the sector is Michelle Krebs, executive analyst at Cox Automotive.

Welcome. It’s nice to have you here tonight.

MICHELLE KREBS, COX AUTOMOTIVE EXECUTIVE ANALYST: Thanks for having me.

HERERA: It’s hard to know exactly what the complete impact will be because we don’t know all of the details. That uncertainty must be very unnerving to the automakers.

KREBS: Yes. Uncertainty is not the auto industry’s friend. The auto industry is a very long-lead business. Right now, automakers are planning for the vehicles and where they’ll be produced four years from now, so they really would like to know what the rules of the game will be.

MATHISEN: One of the rules in the agreement between the United States and Mexico is that 40 percent to 45 percent of the content of any car that is sold in the — in the trade zone has to be made by a worker earning $16 an hour. That is higher than the wages are right now. How much is that going to increase the cost of vehicles for U.S. consumers?

KREBS: Well, we don’t know how much, but we certainly know that this agreement will increase the price of vehicles. With production costs in Mexico higher because of the wages and because of some vehicles won’t be able to meet the content rule and that will go into the cost of the car and that probably will be passed along to the American consumers.

HERERA: Does that mean less cars get sold and many more cars get leased because it’s cheaper?

KREBS: Not necessarily. Lease rates have gone up higher than auto loans, but that brings up another factor. Interest rates have been rising and that has increased the cost of a vehicle, too.

MATHISEN: So, 75 percent of the auto content must be made in the United States or Mexico of these cars under that deal? I presume that that, too, is going to raise costs for automakers and that they will pass along those costs to American consumers.

KREBS: Well, right, and we’ve already seen the costs have gone up because of the aluminum and steel tariffs that have gone into effect. For right now, the automakers have pretty much absorbed that and not passed it along to consumers, but we think, eventually with the pressure Wall Street about profit margins and cash flow, eventually, that will have to be passed along to the consumer.

HERERA: And do you have any gauge as to when that might be? I mean, if people are out there thinks I don’t want to buy a new car because the tariffs are going into effect, I mean, it may take a while for it to trickle down to the bottom line.

KREBS: Right. We don’t know the time table yet, but I will tell you an interesting situation is we have seen used car prices go up because people are thinking oh, the price of new cars is going to go way up, I’ll go for a used car. That’s increased demand and that has increased prices of used cars at a time of year we typically see them go down.

HERERA: Interesting.

Michelle, thank you so much. Appreciate it.

KREBS: Thank you.

HERERA: Michelle Krebs with Cox Automotive.

MATHISEN: Well, the White House is prepared to start its emergency aid for farmers impacted by retaliatory tariffs, especially from China. Six billion dollars of U.S. money will be available after Labor Day. The Department of Agriculture has authorized a total of up to $12 billion in relief to U.S. growers.

(BEGIN VIDEO CLIP)

SONNY PERDUE, SECRETARY OF AGRICULTURE: The tariffs on top of the low commodity prices already was kind of a double whammy, but no, there’s no ability to make farmers whole in this regard and we just try to calculate the mitigation efforts based on the tariff disruption there for farmers.

(END VIDEO CLIP)

MATHISEN: The secretary added that farmers would rather have trade deals than a bailout and that the agreement with Mexico is a start.

HERERA: The economy logged its best performance in nearly four years. Economic growth for the second quarter came in a bit stronger than initially reported. Gross domestic product for the April through June period increased at a 4.2 percent annualized rate thanks to an uptick in business spending and a decline in petroleum imports. That same report showed that corporate profits rose 16 percent and that is the largest gain — annual gain in six years.

MATHISEN: Pending home sales fell for the seventh straight month. The decline in contracts to buy previously owned homes dropped 0.7 percent in July, a sign that buyers are balking at higher prices and a lack of options on the market. As we’ve been reporting, home values have been climbing at roughly double the pace of average wage growth.

HERERA: It is time to take a look at some of today’s upgrades and downgrades. Morgan Stanley hiked its price target on Amazon to $2,500, the highest on Wall Street. At that price, Amazon would have a $1.2 trillion market valuation. The firm maintains its overweight rating on the stock. The shares rose 3 percent to $1998.10.

And that same Morgan Stanley analyst raised his price target on Alphabet to $1,515, also the highest on Wall Street. The analyst cites Waymo’s leadership in the race to develop driverless cars. The new target implies the stock could rise 20 percent over the next 12 months. The stock was up 1.5 percent to $1,264.65.

MATHISEN: Square is being called the best new idea and highest conviction name in fin tech by Guggenheim. The analyst there forecast higher subscription revenue for Square. The price target now $100. The stock up 6 percent to $85.70.

Kansas City Southern was upgraded to outperform from market perform at Cowan. The analyst cites the preliminary trade agreement between the U.S. and Mexico, saying 50 percent of the company’s business comes from the Mexican market. The price target now $138. The stock rose almost 1 percent to $119.45.

HERERA: Still ahead, why the summer was a hot one for the airline sector.

(MUSIC)

MATHISEN: Ford’s credit rating was downgraded a notch above junk by Moody’s. The ratings agency warned that its rating could be cut further if the automaker doesn’t make clear progress on its turnaround plan. Ford faces weakening profit margins in North America, softer business in China and losses in South America and Europe.

HERERA: The rally in stocks has been broad and some say the market is firing on all cylinders and that’s not necessarily translating into more savings for retirement.

Bob Pisani explains.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets are at new highs. How is your retirement fund doing? The good news is the value of retirement funds has risen as the markets risen, both Fidelity and Vanguard have recently reported that the value of the average retirement fund rose in the last year.

Here’s the bad news: the results are still pretty dismal. Fidelity recently reported that the average 401(k) in their system was worth $104,000 and the second quarter up 6 percent from a year ago. The average individual retirement account or IRA, the balance increased to $106,900. That’s a 7 percent increase.

Hey, all this is good news, more money, and more companies are using auto enrollments in retirement accounts, that’s helping investors save more.

Here’s the bad news. We’re still not saving nearly enough. At Vanguard, for example, the average 401(k) account for investors 65 years and older is $209,984. Now, that sounds like a pretty good number and it is, but there’s a problem, the number is polled higher by a small number of super savers and high-income earnings.

The median balance is what you want. Half have more and half have less and here, the median balance among those 65 years and older is a measly $64,811. Now, average that out over 20 years, most Americans is going to live into their 80s, for example, and that’s not a lot to pull out on a yearly basis, $3,000 or $4,000 a year?

Why are the savings so low? Because many don’t contribute the full amount they are out to contribute? Indeed, many don’t participate at all. It’s incredible. Only 72 percent of eligible employees are enrolled in their employer’s voluntary savings program. That’s according to Vanguard. Given that most employers provide a matching contribution and it’s like passing on free money.

The bottom line is investors cannot wait and hope a rising market will bail them out. We just all need to save more.

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

(END VIDEOTAPE)

MATHISEN: So how can you amass more on your 401(k) plan?

Reed Fraasa is here with some tips. He’s a wealth adviser at Highland Financial Advisers.

I guess the two critical things here, Reed, are to start young, as young as you possibly can and never miss a year and number two, to obviously put in as much as you can at least to get the full company match.

REED FRAASA, HIGHLAND FINANCIAL ADVISORS WEALTH ADVISOR: Yes. If there is a match, yes. Absolutely.

I mean, a lot of people are just maybe uncertain about what 401(k) plan is, how it works, and investing in general. We always encourage people to start small. You know, the journey of a thousand steps starts with the first step. So, start with 1 percent. If you really need that, just start with 1 percent.

And what we encourage people is every six months increase that, by 1 percent. In five years, you’ll be at 10 percent. It’s just — you modify that behavior and the thing to remember is, that the money you’re deferring, only 75 percent of that comes out of your paycheck because you’re not taxed on that money.

HERERA: What about choosing the investment itself? Some people find that quite daunting.

FRAASA: It can be.

HERERA: If your employer offers say a target date fund, would you recommend just deferring to that if you don’t feel like you have, you know, the knowledge of the market to pick another type of investment?

FRAASA: Absolutely. Target date funds have become more popular. Not everybody has the acumen or the knowledge to be confidently investing. Target day funds makes that easy for you, especially if you’re young and you just don’t have experience.

The thing you have to understand, what is a target day fund? It’s very simple actually. It’s just a very globally allocated, diversified investment in one vehicle. So, the management of the company is taking care of rebalancing and everything. You’ve got cash. You’ve got bonds and you’ve got stocks.

The target date — go ahead.

MATHISEN: No, no, finish it off, I’m sorry.

FRAASA: The target date comes from the idea that it will be a target date with a year. You want to target that fund to be generally close to the year in which you turn 65, but that’s just a guideline. So, as you get older, if you still want to be aggressive, target a date for a fund that matches about 10 years after your retirement age and you still maintain your more aggressive or moderate allocation.

MATHISEN: And the third, a real key, we hit on it earlier, is to take advantage of that company match because if you don’t do that, you’re giving away free money.

FRAASA: It’s huge. You never want to leave the table. Most companies have what’s called a safe harbor match. The first 3 percent, you get 100 percent match. The next 2 percent you get a 50 percent match. So if you put away 5 percent, getting a 4 percent match that’s 9 percent savings rate which is almost double the national average, and that 4 percent they’re giving you is like an 80 percent guaranteed return.

HERERA: Not to throw you a trick question by any means, but do you find that people tend to pay more attention to their retirement and their savings in an up market? I mean, we’ve seen records made on Wall Street. Or do they worry about it more in a down market and pay more attention to it?

FRAASA: I think the problem that we see and we consult on plans with people is that there’s just a fear, a lack of understanding and a lack of knowledge. They don’t trust the markets. They don’t understand so education is a big thing.

That’s why we encourage people, take the small steps. Start with 1 percent and increase it regularly, pick a target date fund and take advantage of that match. After you get some experience, the knowledge will come and you get more confident. But the fact is it’s just the general lack of understanding the knowledge.

HERERA: OK.

MATHISEN: All right. Reed, thank you very much. Reed Fraasa of Highland Financial Advisers, we appreciate your time.

FRAASA: Thank you.

HERERA: Dick’s Sporting Goods is blaming — using the blame game for its weak quarter and that’s where we begin tonight’s “Market Focus”.

The retailer is pointing fingers at Under Armour saying weak sales of the brand weighed on same-store sales, but the company is hopeful headwinds will ease and it raised its full-year profit forecast. But nonetheless, the shares fell 2 percent to $35.60. Under Armour dipped early in the day, but then reversed course and it finished higher.

The clothing retailer Express reported a surprise rise in same-store sales and better than expected earnings. The company cited strong e-commerce sales and lifted its full-year forecast. Nonetheless, the shares were up a fraction to $9.93.

And sales at American Eagle’s Aerie and its namesake brand rose in the most recent quarter, but the positive momentum may not last. The retailer warned that sales are expected to cool and that could cause profits to come in below expectations. Shares of American Eagle had a hard landing today. They fell 6-1/2 percent to $25.50.

And Shoe Carnival beat Wall Street’s financial targets as stronger demand for women’s footwear gave a lift to its results. The company also said customers are responding well to the fall season product lineup. Shares of Shoe Carnival, a small-cap stock, ran up 13 percent to $41.74.

MATHISEN: A rise in international sales helped Movado grow earnings and revenue at a faster than expected clip. The watchmaker said it recently acquired Olivia Burton brand and continues to perform very well. Movado also raising its 2018 profit and sales outlook, but it seemed investors wanted more. Shares fell sharply, as you see there, finishing the day down 15 percent at $41.80.

The glaucoma treatment company Glaukos saw its shares get a lift after drug maker Novartis recalled a rival device. The news means that Glaukos faces reduced competition for eye stents. Shares of Glaukos soared 40 percent on that news to $62.86 and Novartis meantime down a fraction at $83.67.

And after the bell, the cloud computing company Salesforce surpassed analysts’ estimates, but gave disappointing earnings guidance for the current quarter. Shares were initially lower in the extended session, but finished the regular trading day up 1 percent at $154.80. Watch this one tomorrow.

HERERA: As temperatures soar heading into Labor Day, so are the fortunes of the airlines. Many of the stocks in that sector have risen more than 10 percent in the last month.

Phil LeBeau explains why a very busy holiday weekend will cap a summer surge for the industry.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: If it seems like everyone is flying somewhere this summer, that’s because carriers are seeing more passengers getting onboard. In fact, U.S. airlines expect a record number of people to fly in the week wrapped around Labor Day.

SHARON PINKERTON, AIRLINES FOR AMERICA: We are clearly hitting a place on demand where it’s very strong. The airlines are very upbeat about continued strong, economic growth, household income are at all-time highs. So, we’re optimistic about the future.

LEBEAU: That optimism is due not only to the record number of people flying in the U.S., but also the type of passenger buying tickets. Airlines are seeing more near-term bookings and those tend to be business travelers, who on average, pay more than leisure flyers.

SUSAN DONOFRIO, MACQUARIE: I think what’s happening is closing booking trends and demand is really strengthening for the group, and I think investors are really starting to zero in on that.

LEBEAU: Spirit, Delta, United and nearly every airline have seen its stocks august rally, helped in part by a moderation in jet fuel prices.

Also remember, carriers are being more cautious about adding more seats and more planes in the air. Add it all up and you see why investors are optimistic airlines are poised to fly even higher from here.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: And from planes to another subject Phil covers cars. Some good news finally for drivers. Gas prices are expected to drop soon.

According to AAA, the national price for a gallon of gasoline will likely average $2.70 this fall and that is 14 cents less than current prices. The automotive association is citing relatively stable oil prices in August, a seasonal switch over to winter blend and an anticipated decline in consumer demand.

HERERA: Coming up, hurricanes have been an integral part of Miami’s history, but rising seas may define its future. Next, the installment of our “Rising Risks” series is next.

(MUSIC)

MATHISEN: More than a dozen human rights groups are urging Google not to offer censored internet search in China. This amid reports that the company is planning to provide such a service. In a letter to Google’s CEO the groups asked the company to explain how it plans to safeguard users from censorship and surveillance.

HERERA: Amazon responds to Senator Bernie Sanders’ accusations of poor working conditions in its fulfillment centers calling the claims, quote, inaccurate and misleading. In a blog post, Amazon said it asked Senator Sanders and his team to tour one of its centers and to date, he has not seen one. The senator has been saying that Amazon does not pay its lower level employees a fair wage and he recently issued a call for Amazon employees to share their experiences.

MATHISEN: Well, as we move into hurricane season once again, Morgan Stanley did an analysis of the sectors that are most impacted. There are the obvious beneficiaries like Home Depot and Lowe’s which typically see a sales boost as people repair property, but on the other end of the spectrum there are surprise. According to the report, PVH, the parent company of Calvin Klein and Tommy Hilfiger tends to be negatively impacted in part because nearly a quarter of its stores are located in hurricane-prone areas and the same, by the way, is true of Dunkin’ Donuts.

HERERA: Remember Hurricane Irma? Well, it took a toll on Miami last year even without a direct hit. It changed real estate development strategies and is reshaping local economies.

Diana Olick has the latest installment on her continuing series “Rising Risks.”

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This $25 million water-front home is the epitome of Miami Beach paradise, but it is paradise at a price, because rising tides and increasingly extreme storms may already be lowering its value. In fact, this home just five miles inland in Miami’s little Haiti could actually be a better investment according to a controversial new study.

JESSE KEENAN, HARVARD UNIVERSITY PROFESSOR: What we see here is the theory of climate gentrification.

OLICK: Harvard University’s Jesse Keenan tracks the values of more than 100,000 single-family homes across Miami going back 45 years, and in a published study coined the term climate gentrification.

So, you’re saying home prices are already falling 10 percent because of climate change?

KEENAN: Ten percent to where they would have been had their not been climate change.

OLICK: Evidence, he says, that climate change is authoring home values both on the coast and inland.

KEENAN: What we found is the higher elevation properties are essentially worth more now increasingly and will be worth more likely in the future?

OLICK: Because multiple predictions like this one from climate central are dire. The ocean overtaking vast swaths of Miami in just the next few decades, precisely, Keenan argues why climate gentrification, that is wealthier investors displacing low-income residents in high elevation neighborhoods is already happening in little Haiti.

Fabiola Fleuranvil is a real estate investor and community activist in the area.

FABIOLA FLEURANVIL, COMMUNITY ACTIVIST: All of the community sees is just new people buying up properties, raising their property values and property taxes, pricing them out.

OLICK: On the street, most of the homes are valued around $100,000, but this home renovated by an investor is listed for sale at $559,000. Its value has almost doubled in just the last three years and the neighborhood around it is upgrading as well.

FLEURANVIL: You have longtime commercial tenants who have been here for 10, 15, 20 years and new investors and developers no longer want their rent checks. Why? Because now, they’re redeveloping it.

OLICK: Part of what’s behind the gentrification here is just the current trend toward urbanism, but it also scenes like this from last year, Miami narrowly missing a direct hit from Hurricane Irma. Valuable new properties in the heart of its growing downtown were under water.

DAVID MARTIN, TERRA GROUP PRESIDENT: I would say water for a firm like ours is becoming a decision-maker as it relates to strategies for investment.

OLICK: Miami native David Martin is president of terra group, a commercial and residential developer. He just finished a luxury waterfront condo and is building more next door. He claims these towers will actually help protect Miami from water.

MARTIN: We looked at areas that are on the beach and along the coast and we say how can we fortify these buildings? How can we create incremental tax revenues from these areas along the beach or along the coast and start reinvesting that incremental tax dollar into the infrastructure in order to make those neighborhoods more resilient?

OLICK: Miami is already investing nearly $200 million into resilience, installing pump stations and upgrading its infrastructure. Miami Beach is on track to spend twice that, raising sidewalks and sea walls. The money is coming from new bonds, voters raising their own property taxes to protect their property.

But Martin is also starting a new project here on much higher ground, a $162 million residential and commercial development on five acres adjoining a metro rail station.

Are you hedging your bets?

MARTIN: I think there are opportunities both areas.

OLICK: Because while values are rising up here, demand is still high on the coast. Real estate agent Danny Hertzberg doesn’t really buy the climate gentrification thesis, but admits his clients are more wary of rising water.

DANIEL HERTZBERG, REAL ESTATE AGENT: People are focused on new construction, homes because with the new code they’re in a higher elevation. So, that’s been a change. I don’t think people are going to give up the beauty of living on the water.

OLICK: For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Miami.

(END VIDEOTAPE)

HERERA: To read more about Diana’s story on climate change and real estate in Miami specifically, you can head to our website, which is NBR.com.

MATHISEN: And before we go, let’s take another final look at the day on Wall Street and it was a happy one. The Dow added 60 points to 26,124. The Nasdaq up 79, about 1 percent to a record and the S&P 500 also gained 16, and that, too, was a record.

HERERA: Wow, all of the way around.

That will do it for us. Thanks for joining us. I’m Sue Herera.

MATHISEN: And I’m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. And we’ll see you right back here tomorrow night.

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