Transcript: Nightly Business Report – September 20, 2018


charge Wall Street as the Dow and the S&P close at records. But which
stocks are still worth owning at these levels?

hit their highest levels in years, potentially scaring off some home buyers
who`ve never seen rates like that before.

GRIFFETH: In the market for a car? You can buy, you can lease and now
there`s another option. Subscription.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this
Thursday, September the 20th.

HERERA: Good evening, everyone. And welcome.

What a day on Wall Street. The Dow closed at the highest level ever, its
100th record finish since the 2016 election. The S&P 500 also closed at an
all-time high. The Nasdaq is ever so close.

And investors have been turning attention to the strong economy and away —
for now anyway — from trade concerns.

So, let`s get right to the numbers for you. The Dow Jones Industrial
Average rose 251 points to 26,656. The Nasdaq was up 78, and the S&P 500
added 22.

Bertha Coombs has more on Wall Street`s record day.


counterintuitive that the Dow and S&P 500 are hitting records just days
before new U.S. tariffs on $200 billion in Chinese goods go into effect.
But investors are convinced officials in Beijing and Washington ultimately
want and need to resolve the trade conflict despite the heated rhetoric.
And that sent stocks much higher. The Dow was the last of the major
averages to top its recent high this year.

Today`s sessions saw a broad-based rally with new records for the health
care and consumer discretionary sectors. And investors moving back into
recently beaten down tech shares, like Facebook (NASDAQ:FB), Apple
(NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Alphabet, large cap tech names
which have led the market higher for much of the year.

Tech also got a lift from Microsoft (NASDAQ:MSFT), one of the five Dow
components hitting all-time highs tonight. And the stock market highs did
not go unnoticed at the White House. President Trump tweeting:
Congratulations USA!

That underscores what a number of traders believe, that the president sees
the market as a barometer of his economic policies and if tariffs
negatively impact company earnings and stocks, the White House will likely
back off from draconian trade measures.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs at the New York Stock


GRIFFETH: So Bertha just mentioned one of the risks to the market being
tariffs. But there are others as well.

And as Steve Liesman reports, for the most part, they`re being ignored.


UNIDENTIFIED FEMALE: Fears over a trade war was rocking stocks yesterday.

UNIDENTIFIED MALE: Stocks are under pressure. The trade war with China

UNIDENTIFIED MALE: The market is clearly concerned about trade wars and

UNIDENTIFIED MALE: There is over a trade war slams stocks, full coverage
of that big move.

markets reacted negatively to almost all threats of higher tariffs. But
since President Trump slapped $200 billion of new tariffs on China Tuesday
and China retaliated, it`s been a different story.

UNIDENTIFIED MALE: The markets having a very good day. Stocks rallying
broadly this morning.

UNIDENTIFIED MALE: Stocks are surging. The Dow hitting a new record for
the first time since January.

TONY CRESCENZI, PIMCO: Market sentiment has changed with respect to the
tariff story, and it should have in the first place because tariffs amount
to only about 0.4 percent of world GDP, minuscule in the larger scheme of
things. The market has been able to shrug it off.

LIESMAN: Tariffs aren`t all the unflappable bull market is looking past.
The 10-year treasury yield is now convincingly trading over 3 percent, with
most increase happening right around the tariff news, which prompted many
economists to raise their inflation forecast.

Along with higher rates have come higher probabilities of Fed rate hikes.
Markets now see a 100 percent chance of a quarter point rate hike in
September and the 76 percent chance for another hike in December. Markets
now see the first 2019 hike coming two months earlier in March, instead of

Why ignore the headwinds?

along you have the good macroeconomic backdrop, which we expect, you have a
measured 10-year rise. You know, there is a lot of good news.

LIESMAN: And plenty of news that investors not long ago thought was bad,
but they have now decided is either outweighed by good news or maybe not
bad news at all.



HERERA: So where do stocks go next?

Tobias Levkovich joins us now with his outlook. He is the chief U.S.
equity strategist over at Citi.

Good to see you again, Tobias. Welcome.

How are you?

HERERA: I`m good. And the market seems good. But you think perhaps
investors are a little bit overly enthusiastic, too bullish about this

LEVKOVICH: Well, we trend to measure this in a variety of ways. So, one
is our panic euphoria model, which is a proprietary sentiment indicator and
we`re back in euphoria and we have been for the past couple of weeks. The
last time, we were here, Sue, was back in January, right before the market
took a little bit of a bath in February.

And we are still concerned about four items that, two of which you
mentioned, trade and inflation, the Fed reaction to it. But two others,
the midterms elections and earnings estimates for next year. They`re a bit
high, not terribly but scaling back a bit and those kind of things could
wobble the market. Not huge in terms of pullback but we think the markets
are a bit ahead of themselves.

GRIFFETH: And, in fact, Tobias, the S&P has already exceeded your
estimated close for the S&P by the end of year. You thought 2,800, 2,850,
we`re above that, well above that right now.

So, now what? You raise your estimates or are looking for a correction of
some kind?

LEVKOVOICH: Well, Bill, I couldn`t tell you if I was raising the target
before I did anyway.


LEVKOVICH: But, no, our sense here is that you know, it`s breaking news, I
know that. I don`t want to get in trouble with the SEC.

But the bigger issue though is if you were to look at 2 percent to 3
percent type inflation rates, which is where we are at right now, typically
the market rates if we go back to 1960 and look at that market rates
around18 times earnings, which we get to 2,840. It`s not how we get to our
targets, but it`s a simple way to kind of define where we are in the
markets already.

Earnings growth is going to slow by the fourth quarter into the first
quarter of next year. We`re not going to get all that wonderful news from
the tax cut again in 2019. And generally speaking, the economy is fine. I
don`t have an issue with that. But more about where markets are pricing,
fair amount of good news is already priced in.

HERERA: Right.

LEVKOVICH: And it almost seems like it`s ignoring some of the concerns.

HERERA: So, you mentioned those four triggers that we need to watch
midterm elections, inflation in the Fed, trade and earnings estimates that
are too high. So, where should investors put their money to perhaps hide
or hedge against any of those four occurrences?

LEVKOVICH: So, hiding is tough in a market that goes down.
Diversification is kind of the best way to do it.

But if you were worried about more volatility in markets and most investors
aren`t, but if you do think this could occur, the health care and
pharmaceuticals and biotech tend to do better. They`re not really going to
react to what Jay Powell says at a Fed hearing or congressional hearing,
but rather, they`re going to be focused on more like product pipelines, you
know, new approvals from the FDA on a new product.


LEVKOVICH: Getting through, you know, those type of things. So I would
look at that in the growth component. We are a little concerned how far
tech has run. We`d be looking at financials and we`d be looking at energy
which are not real favorites in the markets.

HERERA: Right.

LEVKOVICH: But if buying isn`t going up, typically, financials do much

HERERA: On that note, Tobias, thanks so much.

Tobias is with Citi.

LEVKOVICH: Thank you.

HERERA: And later in the program, a strategy session on picking — stock
picking with the market at these all-time highs.


GRIFFETH: In the meantime, existing home sales remain steady in August,
following four straight monthly declines. That was according to a new
report out this morning from the National Association of Realtors. And
while demand for housing does remains relatively high, there is a new
headwind hitting this market that`s both affecting buyers and sellers.

Diana Olick has more on that.


of these compared to last year. August saw the first annual increase in
the supply of homes for sale in over three years. But that good news is
tempered with a tough new reality.

Mortgage rates are rising again, knocking at the door of 5 percent on the
30-year fixed. While that may not seem historically high to older
generations, it is the first time most millennial homebuyers have seen it.
The realtors` chief economist Lawrence Yun says not only does that price
some younger buyers out, but it keeps more current home owners in place.

LAWRENCE YUN, NAR CHIEF ECONOMIST: Fourteen percent of realtors are
indicating that when they are speaking with their clients, that clients do
not want to list properties because they like their current low mortgage

OLICK: And that just exacerbates the already critical supply shortage,
especially on the low end of the market where housing is most in demand.
That was clear in the August figures, sales were down 12 percent for homes
priced under $100,000, but up 12 percent for those priced over a million.
There are far more million dollar homes available than cheap homes.

YUN: We have a good economic back drop, jobs are being created. Very high
net worth for people who have exposure to housing equity, as well as the
stock market, so the upper end market is moving.

OLICK: Higher interest rates however could help cool today`s inflated home
prices. In California, the priciest market in nation, sales dropped
dramatically and the price gains are finally shrinking.

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


HERERA: The stock market is getting a makeover, some of the recognizable
names, including Facebook (NASDAQ:FB), Twitter and Google (NASDAQ:GOOG) are
being reclassified.

Mike Santoli looks at tomorrow`s big sector shake-up.


widely followed benchmark is about to undergo a major reshuffling. One
that will place leading stocks in different packages under new labels.
Standard and Poor`s is creating a new sector called communications services
that will replace and enlarge the S&P 500 index`s current
telecommunications sector, a cluster of stocks now categorized as consumer
technology or discretionary will join telecom giants AT&T (NYSE:T) and
Verizon (NYSE:VZ) in this new sector.

Facebook (NASDAQ:FB) and Google`s parent Alphabet will move from tech to
the new communications grouping with cable and traditional media blue chip
such as Comcast (NASDAQ:CMCSA) (NYSE:CCS) and Walt Disney (NYSE:DIS) from
consumer discretionary. The rational behind the shift is to collect all
varieties of communications and media companies together, given similar
business drivers of advertising and subscriptions.

The revamp will also reduce at least cosmetically what has become a fairly
extreme tech weighting in S&P 500. Tech is now 26 percent of the value of
the S&P, its highest since the late `90s tech bubble.

After these changes take effect after Friday`s market close, the tech
weighting will fall to 20 percent or so, communications will amount to
about 11 percent compared to 2 percent for telecom now, and consumer
discretionary slips to 10 percent from 13 percent.

Investors in the overall S&P 500 or in a diversified large stock portfolio
should see no real impact from the changes. Owners of sector exchange
traded funds will see substantial changes, though. There is already a
communications services ETF trading in advance of the formal shift and it
is dominated by Alphabet and Facebook (NASDAQ:FB), which together make up
more than 40 percent of its value.

The S&P tech sector ETF meantime will become enormously dependent on Apple
(NASDAQ:AAPL), which will comprise about a fifth of the fund. Consumer
discretionary will be driven more by Amazon (NASDAQ:AMZN), which will
remain the largest member of a smaller sector.

And finally, investors who relied on telecom sector index funds for their
generous dividend yields will need to look elsewhere.

On the surface, it seems these shifts will better balance out the S&P 500
with a more rational classifications scheme. But there is no hiding the
outsized influence of what we typically think of as tech stocks, which will
now effectively dominate three of the 11 industry groups.



GRIFFETH: Time to take a look now at some of today`s upgrades and

And we begin tonight with Caterpillar (NYSE:CAT), which was upgraded from
outperform from neutral at Baird. The analyst there says demand growth
will continue into the next year. Price target now $191. The stock rose 2
percent today to $156 even.

Ralph Lauren was upgraded to neutral from underweight at Piper Jaffray.
The analyst there says earnings estimates are likely to go higher for that
company. Price target now: $125. That stock gained more than 1 percent in
today`s rally at $136.17.

HERERA: General Electric`s price target was cut to $10 over at J.P.
Morgan. The analyst expects weaker results for its power business. The
rating remains underweight. The stock fell 3 percent to $12.46.

Sketchers was downgraded to market perform from outperform at Cowen. The
analyst cites growing inventory levels and the price target is now $28.
The stock fell 4.5 percent to $26.58.

GRIFFETH: Still ahead, why one business owner says don`t toy with tariffs.


HERERA: It has been a tough year for the toymakers as many lost a major
partner when Toys “R” Us filed for bankruptcy and then closed its doors.
Now, that industry is facing another blow, rising costs from tariffs.

Ylan Mui is in Norristown, Pennsylvania, for us.


stretchy and it`s smack in the middle of America`s trade war with China.

Aaron Muderick invented a new kind of silly putty two decades ago. It`s
got the same squishy feel but it never dries out and it comes in fun colors
like good as gold and dinosaur poop.

His company, Crazy Aaron`s (NYSE:AAN) Putty World employs 85 people and
does millions of dollars in sales each year.

But now, his putty is in peril as tariffs on Chinese goods drive up the

AARON MUDERICK, CRAZY AARON`S PUTTYWORLD: It`s been a 1, 2, 3 punch this

MUI: First came the steel and aluminum tariffs. Those raised the cost of
the metal tins that the putty comes in by six figures this year. Then came
the tariff on silicone, the main ingredient in putty. Prices shot up
double digits. Now, the latest round of tariffs hit the pigments that give
his putty its distinctive look.

MUDERICK: If a global market, that prices the same everywhere, it`s not a
price where it`s cheaper in China and it`s more expensive in the United
States. But by throwing up that barrier, it`s going to add restriction and
constraint to the ability of that global supply to move around. The prices
are going up.

MUI: The company is feeling the squeeze even though all the materials are
sourced right here in America. Aaron has been stockpiling supplies in case
prices go up even more. And workers say they proudly stand behind their

like us, I still would buy it. It`s still really good putty.

MUI: But President Trump is threatening tariffs on all Chinese imports.
The toy association estimates that a 25 percent tax on everything would
cost 68,000 jobs and $3 billion in lost wages.

To Crazy Aaron`s (NYSE:AAN), the tariffs mean profit margins and delayed
investment and marketing and overseas expansion. Christmas is the busiest
time of year and Aaron is hoping that will help make up for his higher
costs. But he`s already locked into price commitments with major retailers
for next holiday season and he is not sure how he is going to keep those

MUDERICK: I`m hopeful that we`ll just find a way to keep shaving, keep
finding efficiencies. I don`t want to do things like reduce the amount
that goes into every container or move to smaller size containers, because
I think kids deserve more.

MUI: For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Norristown, Pennsylvania.


GRIFFETH: Profits stall at Thor Industries (NYSE:THO) and that`s where we
begin tonight`s “Market Focus”.

The RV maker reported weaker than expected earnings and decline in revenue
as it scaled back production and worked to reduce inventory levels. The
also company cited higher material costs. Shares fell nearly 13 percent
today to $91.95.

Under Armour (NYSE:UA) said it`s going to cut 3 percent of its global
workforce as part of a restructuring. That translates into about 400 jobs.
The athletic apparel maker now expects the overhaul to cost more than
initially thought. But at the same time, though, it`s raising the lower
end of its 2018 earnings outlook. Under Armour (NYSE:UA) shares rose by 5
percent today to $18.15.

HERERA: The battle between Comcast (NASDAQ:CMCSA) (NYSE:CCS) and 21st
Century Fox over TV broadcaster Sky will come to an end this weekend with a
final bidding war. British regulators will hold a rare auction that will
put an end to nearly two years of offers and counteroffers for that
European company. Comcast (NASDAQ:CMCSA) (NYSE:CCS) shares rose 1 percent
to $37.81. Twenty-First Century fell a tick to $44.57.

A reminder that Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of
CNBC which produces this program.

And after the bell, chip maker Micron quelled fear of the slowdown in the
chip market. The company said stronger demands for its products in several
categories resulted in earnings and sales that beat expectations. Micron
shares were volatile in after hours trading. They ended the regular
session up 2 percent to $46.06.

GRIFFETH: So, with all the market at records, stock picking becomes a
little harder you would think. But it doesn`t have to be.

Joining us tonight for a strategy session is Hank Smith. He`s chief
investment officer at Haverford Trust.

Hank, always good to see. Thanks for joining us tonight.

to be with you.

GRIFFETH: Last week, Ray Dalio said he thought we were in the late innings
of the economic cycle right now. You think we`re only about halfway
through. Why?

SMITH: Well, I think he said the seventh inning. So, that really isn`t
late and we might have extra innings. The bull markets almost always end
in anticipation of a recession. And it`s highly likely that we have a
recession on the horizon over the next couple of years.

And in fact, this will end up we believe being the longest post World War
II economic expansion and the longest bull market.

HERERA: What do you say to those who we interview and they say you know,
this market, many of the stocks and components of it are overvalued. You
don`t agree with that, obviously.

SMITH: No, we think the market is fairly valued selling at about 17 times
next year`s earnings. Historically, the market sells at about 16 times
earnings. So, it`s certainly not cheap but we don`t think it`s overvalued.

And in fact, this year we have had such tremendous earnings growth, the
market is cheaper today despite being up 10 percent than it was at the
start of the year.

GRIFFETH: Be that as it may, though, you are pounding the table here
tonight with high quality stocks. You are going with high qualities. In
fact, you`re going with three Dow components — Johnson & Johnson
(NYSE:JNJ), J.P. Morgan and DowDuPont. Why those three?

SMITH: Well, look, first of all, I think investors should own stocks to
hold for the long-term which means the good times and the bad times. That
is the key to success as being a long-term shareholder. And you can`t get
higher quality companies than these.

J.P. Morgan is the best run bank in the world. It`s — it has a fortress
like balance sheet. It`s returning capital to shareholders. They`re
increasing their dividend, in October, 43 percent.

J&J is the best managed health care company there is, with an enviable
track record of increasing dividends consecutively over 50 years.

And DowDuPont is a unique opportunity to take advantage of a company that`s
going to be splitting into three component companies this year. And the
track record of spinoffs is a very, very good record indeed.

And so, we are — we expect to own all three spinoffs, DuPont, which will
be the specialty chemical, Dow which will be the material company, and
Corteva, which will be the agricultural sciences company, all investment
grade, all paying dividends. We like all three.

GRIFFETH: All right. Very good.

By the way, I`m an old L.A. Dodgers fan and we tend to leave the stadium
after the seventh inning. That`s why I was calling that late innings at
this point.

Hank Smith with Haverford Trust, again, thanks for joining us tonight.

SMITH: Good to be with you.

GRIFFETH: The number of Americans applying for unemployment benefits fell
to a fresh 49-year low, in part though because of Hurricane Florence.
Applications in South Carolina dropped by an unusually large number as
government offices closed and the power went out. And today, many
homeowners are sorting through the damage and the flooding, figuring out
what insurance will cover and what it will not.

Seema Mody is in Kingston, North Carolina.


the coast and the Neuse River is still rising here in Kingston, North
Carolina, flooding gas stations, local businesses and wreaking havoc on
homeowners. That`s because many of them do not have flood insurance since
they`re not in a designated flood zone. Only 335,000 homeowners in North
and South Carolina have flood insurance, which means the majority of
residents will have to pay for repairs out of pocket.

a little too late. But I hope this is a wakeup call to people that
everybody needs flood insurance.

MODY: North Carolina`s department of insurance has set up camps across the
state for residents to meet with insurance companies to begin filing
claims, and answer questions for those who may have no insurance at all.

TONYA FLOWERS, KINGSTON, NC RESIDENT: I`m not insured. That`s why I`m out
here talking with FEMA. That`s — you know, I heard about this right here,
so I came out here to see what help can I get.

MODY: How much damage do you think you have at home?

FLOWERS: Oh, well, a few thousand. That`s all I can say.

MODY: Uninsured residents have two options. Apply for a grant through
FEMA which will likely get you a couple thousand dollars or seek out a
federal loan. But there is no guarantee you`ll get it.

For home owners with a mortgage, Fannie Mae say they will eligible to stop
making payments for up to 12 months without incurring late fees or
delinquencies. That buys some time for those affected by Florence. But
for others, the financial toll has just begun.

For NIGHTLY BUSINESS REPORT, Seema Mody, Kingston, North Carolina.


HERERA: Coming up, need a car. Well if you don`t want to buy or lease, we
now have another option.


GRIFFETH: Wells Fargo (NYSE:WFC) is cutting jobs. Up to 26,000 over the
next three years. That`s five to 10 percent of the workforce as part of
its turn around plan.

HERERA: Those looking to get a new car typically take out a loan or sign
up for a lease. But now there is another option. It`s called auto

Phil LeBeau tells us how they work and why they`re becoming more popular.


her Porsche Boxster, the perfect car for southern California. But Andre is
event planner who often spends months on the road. So, she wanted to avoid
paying for her Porsche when she wouldn`t be driving it. The solution: a
monthly auto subscription through the startup called Fair.

MELISSA ANDRE, FAIR CUSTOMER: For me, it just makes sense to be able to
move for a chunk of time and not worry about giving my car back or finding
a home for it.

LEBEAU: Auto subscriptions are a huge change for an industry where
millions typically pay for their cars through auto loans or lease deals,
that usually means a monthly payment for several years.

Now, automakers from G.M. to BMW are testing if auto subscriptions can
generate more business by offering customers the flexibility to rent a
vehicle for a shorter period of time. A feature Volvo drives home in

AD ANNOUNCER: It`s as easy as getting a new phone.

LEBEAU: Fair offers month-to-month subscriptions for thousands of used
cars and trucks.

SCOTT PAINTER, FAIR CEO: Americans are already at a place where we
understand that we pay for what we want to use. And this idea that the car
is a service and that it doesn`t have to require this big burden of debt.

LEBEAU: That`s one reason why Melissa Andre is happy to have her Porsche,
but not the big loan that would go with paying for it over five or six

ANDRE: It`s as easy as getting a cell phone, except you get a car.

LEBEAU: Fair has more than 18,000 subscribers, with many of them making
money driving their cars for ride share companies. Everyone puts down a
two-month deposit but after that, they can change vehicles as often as they
want and end their subscriptions when they want. A new way to pay for
getting a set of wheels.



GRIFFETH: “Forbes” magazine is out with the annual list of the most
valuable franchises in the NFL. By the way, the league itself is still the
most lucrative sports league in the world. In the top spot for the 12-
consecutive year, the Dallas Cowboys now worth $5 billion, the first team
to reach that valuation. New England Patriots are number two at $3.8
billion. The New York Giants round out the top three, worth $3.3 billion.

HERERA: And that is NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
Thanks for joining us.

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


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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