Transcript: Nightly Business Report – October 3, 2018


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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Dow powers higher. The
blue chip logged the 15th record close of the year. But not every part of
the market is red hot.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Auto pact. Honda and General
Motors (NYSE:GM) team up to create a new generation of driverless cars
instead of going it alone.

GRIFFETH: Hack attack. Layers of security are meant to provide extra
protection when you log on. But a former hacker says that`s not the case.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
October 3rd.

HERERA: And good evening, everyone. And welcome.

The Dow Jones Industrial Average pushed further into record territory.
Investors cheered a solid economy and rising optimism. Not only did stocks
rise but bond yields did as well. The yield on the 10-year treasury is now
at a 7-year high and that helped lift the financial sector. The Dow Jones
Industrial Average rose 54 points to 26,828. And the Nasdaq climbed 25 and
the S&P 500 tacked on two.

But even with the Dow at a record, not everything is rising along with it.

Mike Santoli tells us what`s working for investors and what`s not.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Judging by the
headline indexes, the stock market is running hot. The Dow Jones
Industrial Average and S&P 500 are up 9 percent so far this year. Yet
below the surface, big sections of the market have cooled quite a bit.
Shares of smaller companies as measured by the Russell 2000 index are down
for about 4 percent this month, a period when the S&P has gained better
than 1 percent.

And bank stocks long seen as a bellwether for the economy and broader
market have been stubbornly weak. The sector stock is off by nearly 4
percent the past the month and is down slightly for the year, even after a
rally on Wednesday.

Finally, some strategists are noting that the number of stocks making new
52-week lows has often been exceeding those hitting fresh highs lately even
on days when the main indexes are positive. This pattern is clear but what
it means is open to question. Traditional Wall Street wisdom holds that
the broader a rally, the stronger and more lasting it should be. But small
stocks have lagged for long stretch of the time in this and other bull
markets without the entire market hitting a rough patch and while bank
stocks probably can continue declining without hurting the overall market,
there is no requirement that they need to lead the way.

Some are arguing that the mixed performance is about the waning of the
trade war fears lately. Less worry over friction has allowed big multiple
nationals to gain at the expense of smaller domestic companies in recent
weeks. Whatever the root cause, this behavior is pretty typical of a
market in the later phase of an economic cycle. As investors emphasize
those companies that can sustain growth for years to come.

All in all, investors are becoming more selective without fleeing stocks
entirely. That`s not necessarily a trend to worry about at least not yet.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

GRIFFETH: By the way, that positive economic news that Sue alluded to came
from the rip-roaring labor market. The private payroll company ADP said
this morning that employers added 230,000 more positions in September.
That was well ahead of expectations. Job gains were spread across
industries with the services sector leading the way and as big increases
came despite disruptions that were expected from Hurricane Florence. On
Friday, of course, the government will issue its own monthly employment
report.

HERERA: The U.S. economy is set to look good, quote, for some time.
That`s the outlook from the president of the Chicago Fed who expressed
optimism over the job market and inflation.

(BEGIN VIDEO CLIP)

CHARLES EVANS, FEDERAL RESERVE BANK OF CHICAGO PRESIDENT: Fundamentals are
very strong. Labor market is doing terrific. Unemployment is below 4
percent, which is really something. Payroll employment has been over
200,000 per month for many months, which is really, really good showing.
And inflation is up to 2 percent. I spent quite a long time indicating
that I think inflation needs to get up to 2 percent. And here we are.

(END VIDEO CLIP)

HERERA: And while Mr. Evans is comfortable with another rate hike this
year, the head of the Philadelphia Fed said he`d like the Central Bank to
take its time raising rates, citing tame inflation.

GRIFFETH: Seems like nothing stops oil prices from moving higher these
days. The government today reported the largest weekly build in domestic
crude inventories in more than a year. But even that seemingly bearish
news failed to push the price of crude lower. It settled above $76 a
barrel today, another 4-year high. But yet there are question base whether
the upward climb can continue.

Geoff Cutmore is in Moscow for us tonight at the Russian Energy Week
Conference.

(BEGIN VIDEOTAPE)

GEOFF CUTMORE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The hot speculation
here at this Russian energy week event is whether Saudi Arabia and Russia
already have a tacit agreement to increase output. Inevitably, if
sanctions are imposed on Iran by the U.S. president in November, as much as
a million barrels a day of oil could come off the market, possibly even
more. So the question that has been driving oil prices higher, how would
that gap in output be filled?

There is also the question of who is to blame for prices at a 4-year high.
President Trump says it is OPEC ripping off the world whilst the Qatari
energy minister says, no, OPEC is not responsible.

MOHAMMED SALEH AL SADA, QATAR ENERGY MINISTER: OPEC is trying not to
manipulate the price. It`s trying to bring the market to balance.

CUTMORE: For the time being, the Russians and OPEC are playing their cards
very close to their chest. But, nobody wants to see oil at $100 a barrel.
Not even them. Whilst they may make more profit in the short term, it will
inevitably to demand destruction over the longer term.

This is Geoff Cutmore in Moscow for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: And with oil prices at these levels, what does that mean for the
energy stocks?

Matt Maley joins us now with some answers. He is an equity strategist at
Miller Tabak.

Good to see you, Matt. Welcome back to the program.

MATT MALEY, MILLER TABAK EQUITY STRATEGIST: Hi, Sue.

HERERA: You think it is time — a good time, anyway, to move to the energy
stocks. Obviously, prices have been high. But what else are you looking
at?

MALEY: Well, I think the key is that the energy stocks not only are they
high, I think they will stay high. Now, they may — crude oil has had a
run, so it may take a breather and pull back slightly. But I think that`s
just going to create an opportunity.

And the reason why I think oil stays up is twofold. Number one, you have –
– everybody is talking about OPEC. And President Trump is saying OPEC has
got to pick up production. The problem is they haven`t — they haven`t
updated their production facilities, their capabilities over the last
decade like the United States has. So, even if they wanted to they can`t
pick up the production the way they used to in the past. So I just don`t
think that`s going to be a big issue.

On the technical side of things, of course, we have the — oil is broken
out of its sideways range. It had been in a long time. You know, the
commodities traders invented technical analysis. So, that`s very bullish
too.

HERERA: Right.

MALEY: So, you have the fundamental and technical reasons to like it.

GRIFFETH: You know, when you`re talking about the stocks, you might want
to invest in, people will think of the giants, the ExxonMobil (NYSE:XOM),
the Chevrons, and so forth. But you are looking at small companies for
maybe better leverage as the market goes higher. Why? And who are you
thinking of?

MALEY: Well, you know, as you mentioned, the big companies like Exxon and
Chevron (NYSE:CVX), they`re good because they paid a way — they pay a real
nice dividend. And they`re also highly weighted in the ETF, but I like the
others. Because with oil breaking out here, you know, it really took off
once it broke out of the range.

And we`re seeing a couple of stocks like Apache (NYSE:APA) Oil, Marathon
Oil (NYSE:MRO), and the old Enron Oil and Gas, EOG Corp. Those stocks are
right at their 2018 highs. So, if they can break out further, that`s going
to give the same kind of momentum we have seen in the underlying commodity.

I mean, crude is the lag — I`m sorry, the energy stocks have been lagging
crude oil by quite a bit. So, if they can break out of these areas, it`s
going to track a lot of momentum. And I think it would be quite positive
for the entire sector.

HERERA: One thing we have seen so far this year in energy is volatility.
So, what might derail the upward trajectory of oil prices and then
obviously the stocks?

MALEY: Well, I mean, you can always have — I guess the biggest thing, of
course, would be if we had some softening in the situation with Iran. If
they can come back on with their production, that`s going to be a
significant impact to the price of oil. But, you know, the one thing I
like about the situation is that these energy stocks do exactly what they
did last summer when they lagged behind the price of the commodity or the
price of crude oil.

GRIFFETH: Right.

MALEY: And then a couple of weeks later, they really rallied. I think
that`s what we`re about to see in the coming months.

GRIFFETH: Quickly, Matt, before we let you go, I assume you`re not
throwing darts at all energy stocks here, who might be the laggards in this
category right now?

MALEY: Well, you get some of the ones, like you said, it`s a momentum play
and a confidence. If you don`t have confidence in them — some of these
stocks are already rallying like the ones I mentioned. But they haven`t
really broken out yet.

But you have stocks like Nabors (ph), McDermott and Weatherford
International (NYSE:WFT), they`ve been in downward sloping trend. It`s
dead money. I don`t necessarily say sell them or bearish on them. But I
just don`t think they have the upside potential of the other ones I
mentioned have.

HERERA: All right. Matt, thanks so much. Matt Maley with Miller Tabak.

MALEY: Thank you.

GRIFFETH: Time to look now at some of today`s upgrades and downgrades.

And we begin tonight with Nike (NYSE:NKE), which was downgraded to hold
from buy at HSBC. The analyst there cited the stocks valuation following
that huge 60 percent run up over the past year. The price target now $92.
Shares of Nike (NYSE:NKE) a fraction today to $82.50.

Oracle (NASDAQ:ORCL) was downgraded to inline from outperform at Evercore
ISI. The analyst says that a lack of any catalyst will keeps that stock
from pushing any higher. The price target now at $53. The stock fell
about 1 percent today to $49.75.

HERERA: Michael Kors was upgraded to buy from neutral over at Citi. The
analyst cites steady earnings and its recent acquisition of Versace. The
price target is $79. Shares rose 3 percent to $68.08.

And Tempur Sealy (NYSE:ZZ) was upgraded to neutral from sell, at UBS. The
analyst says the company could benefit from a potential Mattress Firm
bankruptcy. The price target is $56. The stock rose more than 10 percent
to $53.66.

GRIFFETH: Still ahead, the road ahead, how long before highways are full
of self-driving cars?

(MUSIC)

GRIFFETH: The National Retail Federation is forecasting a jolly holiday
seasons for retailers. The industry trade group today said that it expects
to sales to increase about 4-1/2 percent compared to last year, to a total
of $720 billion. The figure by the way excludes cars, gas and spending at
restaurants.

HERERA: Senator Bernie Sanders wants to break up large financial
companies. He says their size exposes the economy to too much risk. The
Vermont independent introduced a bill that would require any financial
company that has a total exposure of greater than 3 percent of gross
domestic product to split up. That would include J.P. Morgan, Goldman
Sachs (NYSE:GS) and Berkshire Hathaway (NYSE:BRK.A) among others.

GRIFFETH: Yesterday, remember, we told you Amazon (NASDAQ:AMZN) surprised
everybody by raising the minimum wage it pays workers to $15 an hour.
Well, last night, CEO Jeff Bezos explained why.

(BEGIN VIDEO CLIP)

JEFF BEZOS, AMAZON CHAIRMAN & CEO: Thinking about this and trying to
decide, do we want to change? We realized we just made a decision, well,
you can offer competitive compensation or you can decide to lead. And as
soon as we framed it that way, we`re like, let`s decide to lead.

UNIDENTIFIED MALE: That`s great.

BEZOS: I think people will follow.

(END VIDEO CLIP)

GRIFFETH: Mr. Bezos made those comments after receiving the Spirit of
Service Award organized by the Partnership for Public Service which honors
people who make a difference through their work.

HERERA: General Motors (NYSE:GM) and Honda are teaming up to build a new
car. But not just any car, this one will be self driving and sold around
the world. The reaction was mixed. Shares of GM rose. While Honda`s
stock fell.

Phil LeBeau tells us why these two auto giants are doing it together,
instead of on their own.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: General Motors
(NYSE:GM), the world`s second largest auto maker, is joining forces with
Honda, Japan`s second largest automaker. Technically, Honda is investing
just under $3 billion and taking a small stake in GM subsidiary Cruise.

Together, the automakers will develop and build an autonomous vehicle.
This is a partial image of what that vehicle might look like when it`s
finally sold around the world at some point in the future.

DAN AMMANN, GENERAL MOTORS PRESIDENT: What we are doing is designing a
purpose built vehicle that`s fully autonomous that can be deployed in a
shared network or for the transportation of passengers, transportation of
other things. And so, we see a huge a opportunity and flexibility coming
out of this.

LEBEAU: With practically every automaker and many tech firms working on
self-driving cars, why did Honda approach GM about making a deal? Mainly
because Cruise and its development of self-driving cars is viewed in the
auto and tech industries as being at the forefront of putting autonomous
vehicles on the road.

Waymo`s fleet has logged more miles and will be available for the public to
use later this year. But Cruise is not far behind. GM plans commercial
service of self-driving Cruise cars by the end of 2019.

AMMANN: We will deploy when we deliver the level of safety we think is
necessary to have this technology deployed in a driverless environment on
the road and as soon as we are ready to do that, we`ll be doing it.

LEBEAU: The race to develop self-driving vehicles is just starting. But
it will really heat up over the next three to five years, when robo taxis,
autonomous drive delivery vans and self-driving cars become a much more
common sight.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

GRIFFETH: And Rebecca Lindland joins right now to talk more about these
ongoing developments in the efforts to develop these self-driving cars.
She`s the executive analyst at Kelley Blue Book.

Good to see you, Rebecca. Thanks for joining us tonight.

REBECCA LINDLAND, KELLY BLUE BOOK EXECUTIVE ANALYST: Thanks for having me
on.

GRIFFETH: What do you think of the latest development with GM and Honda?
I mean, we already have some self-driving features on cars, you know, the
emergency braking, the development to keep you in your lane and so forth.
But this takes it really quite a bit further down the road, doesn`t it,
this development?

LINDLAND: It takes it very, very far down the road, no pun intended. It`s
really looking at what the Society of Automotive Engineers or SAE calls
level 5. And what that means is you will have this vehicle that doesn`t
have a steering wheel and doesn`t have pedals or anything it`s really a pod
that you just get in and it brings you to your destination.

This is quite a long way off in widespread use. But it`s exciting to see
this kind of collaboration between Honda and General Motors (NYSE:GM).

HERERA: I was really fascinated by show many levels you told us there
were. So if that`s level 5, where are we now? As Bill mentioned we have
the lane change issue and things like that. But —

LINDLAND: Right.

HERERA: Where does that put us?

LINDLAND: So what you`ll find too is that most cars on the road today are
level zero or one. Which means that at level zero are the older cars that
don`t even have cruise control. Level 1 is things like cruise control,
break — detecting braking systems and such.

Level 2 is where we get more and more new cars. That`s where you have lane
departure warning. You have actually — well like in the Honda Accord your
hands on are the steering wheel, if you drifting, the car will actually
move back for you or actually take the curve for you. It`s a very
unsettling feeling.

GRIFFETH: Yes.

LINDLAND: But they will. And you`ll also, of course, have self-parking
cars. So we are starting to get more and more what we call level 2.

GRIFFETH: I know you are not a stock picker we didn`t bring you here to
pick stocks for people.

LINDLAND: Good.

GRIFFETH: What are the companies that are sort of becoming the leaders in
not only the cars themselves but the technology that will go into the cars
that you can think of?

LINDLAND: Right, well this is interesting because it wouldn`t necessarily
be a traditional car company leading the charge. Google (NASDAQ:GOOG) or
Alphabet division called Waymo, which is headed by John Krafcik, who used
to be president of Hyundai North America. He is definitely leading the
charge. Waymo is well ahead especially in the pod scenario situation.

But also, a couple of years ago, Ford Motor (NYSE:F) Company invested a
billion dollars in Argo AI, which is really designed to get the artificial
intelligence that the vehicles require. So, it`s coming from all different
sources, which is why we see some strange bedfellows like Honda and General
Motors (NYSE:GM).

GRIFFETH: Very good. Rebecca Lindland with Kelley Blue Book, it`s
fascinating technology coming our way.

LINDLAND: It is.

HERERA: It really is.

GRIFFETH: Thanks for joining us tonight.

LINDLAND: Thank you.

HERERA: Margins come under pressure at Acuity Brands (NYSE:AYI). That`s
where we begin tonight`s “Market Focus”.

The lighting manufacturers topped quarterly profit and sales estimates, but
said higher costs across the board hurt margins. The company pointed to
wage inflation, the impact from tariffs and rising freight rates. Shares
plunged 13 percent to $135.01.

The mining company Peabody Energy (NYSE:BTU) has reportedly engaged in
talks to buy Columbia-based Drummond International for as much as $4.5
billion. “The Wall Street Journal” says a potential transaction would
involve Peabody taking an 80 percent stake in the coal exporter. Shares of
Peabody Energy (NYSE:BTU) rose a fraction to $36.05.

Higher home praises help Lennar (NYSE:LEN) top Wall Street`s earning
expectations. The home builder however painted to a duller picture for the
current quarter. It cut its orders and deliveries forecasts, citing the
impact from Hurricane Florence and also weaker industry conditions. The
shares were off 1 percent to $46.24.

GRIFFETH: Elsewhere, Upwork, that`s an online marketplace that connects
freelancer with clients, they began the first day of trading today on the
Nasdaq. The company priced its IPO at $15 a share. That was above the
expected range. Upwork executives candidly admit that going public was not
just to raise money but also to get more eyes on the business.

The company said a big change in the workforce is helping its business
model.

(BEGIN VIDEO CLIP)

STEPHANE KASRIEL, UPWORK CEO: We seen the market, ready for us and we are
ready for the market. We have been preparing for this for many, many
years. And, you know, there is a big shift happening in the workforce
today. The baby boomers are retiring. They were much less likely to be
freelancers. The millennials are now the largest generation in the
workforce, almost half a million are freelancing today. And for them, what
we do make a lot of sense.

(END VIDEO CLIP)

GRIFFETH: Well, it`s a very successful debut. The stock up 40 percent on
the first day of trade at $21.18.

Then after the bell tonight, specialty software firm Cloudera said it
planned to merge with rival Hortonworks. That`s an all stock transaction
worth just over $5 billion. Under this deal, Cloudera shareholders will
own about 60 percent of the combined company and Cloudera CEO will serve as
chief executive. Shares of Cloudera were higher in after hours end of the
regular day up 1 percent at $17.08. Hortonworks shares also initially
higher the extended session finishing the regular session up 2 percent at
$21.88.

Also after the bell tonight, Barnes and Noble (NYSE:NE) said it is
launching a strategic review. The bookstore chain said there are several
parties interested in buying the business, including company founder and
chairman Leonard Riggio. Shares were initially higher in the after hour
session but they did finish the regular down more than 1 percent at $5.46.

HERERA: Coming up, keeping your online accounts safe so hackers don`t
stand a chance.

(MUSIC)

HERERA: North Korea may have stolen hundreds of millions of dollars by
hacking banks. According to the security firm FireEye, the country has
been infiltrating the computer systems of financial companies around the
world since 2014. The attacks are described as highly sophisticated, and
have spanned 11 countries. FireEye says the group is still active and it
poses a global threat.

GRIFFETH: By now, you have probably logged into your email or your social
media or online bank account and you`ve been prompted to create a second
step to verify your identity. It`s called two-factor authentication. And
it`s an extra layer of security that more and more companies are using to
protect customer accounts.

But it turns out hackers have already figured out a way to bypass that
feature. Andrea Day explains.

(BEGIN VIDEOTAPE)

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Username, password, and
now for extra security two factor authentication. Typically, a special
code sent to the smartphone. Enter it in and you are good to go, right?

KEVIN MITNICK, KNOWBE4 CHIEF HACKING OFFICER: Just by enabling two-factor
authentication, you can`t relax.

DAY: Meet Kevin Mitnick, once one of the FBI`s most wanted hackers. He`s
now the chief hacking officer at cybersecurity firm KnowBe4.

MITNICK: Even though you use the two factor authentication, a smart
attacker could get access to your account.

DAY: It could open up your personal accounts or business files to
criminals. And here is the scary part.

MITNICK: The tool to actually pull the attacks off has been made public.
So, any 13-year-old could download the tool and actually carry out these
attacks.

DAY: KnowBe4 CEO Stu Sjouwerman.

STU SJOUWERMAN KNOWBE4 CEO: It`s happening as we speak.

DAY: He says they attack banks on social engineering. That`s where
hackers take advantage of human behavior to get you to do something like
click on a link.

SJOUWERMAN: Social engineering, if you do it right, can be used to get
into almost anything.

DAY: And in this case, even your two-factor authentication won`t keep them
out. Here is how it works. Mitnick says the bad guys start by sending you
a phony email that looks like the real deal. It`s called phishing. In
this demo, the fake email is from LinkedIn (NYSE:LNKD), saying a fan wants
to connect. He clicks the link and is directed to the real LinkedIn
(NYSE:LNKD) page.

MITNICK: Now, LinkedIn (NYSE:LNKD) basically brought up a message that I
have to enter my two-factor code.

DAY: The code is sent to his device.

MITNICK: Now I got the message.

DAY: He enters the code.

MITNICK: And now I`m logged in.

DAY: But now, the bad guys can log in to. Here is how. Before he was
directed to LinkedIn (NYSE:LNKD), it secretly went through the hacker`s
server, where it left what`s call a cookie. That`s a bunch of info about
Mitnick like his username and password and all hackers need to get in.

MITNICK: Now, when I hit refresh I`m magically logged into the victim`s
account without using the username or username or two factor code.

DAY: His advice, learn how to spot those phony emails and never click on a
link unless you are 100 percent sure.

MITNICK: It`s not linked in that`s vulnerable. It`s the actual user.
It`s a security flaw with a human.

DAY: Take a look closely at our demo, the email came from a fake domain
not LinkedIn (NYSE:LNKD) but llnked.com.

MITNICK: Which people initially might not even realize.

DAY: LinkedIn (NYSE:LNKD) tells us, quote: We take these types of reports
very seriously. And have a number of technical measures in place to
protect our members. When we detect this type of activity we work to
quickly remove it and prevent future reoccurrences. We strongly encourage
members to report any messages or postings they believe are scams.

Companies like Google (NASDAQ:GOOG) and others now have tools to try and
prevent it. It`s called a security key. And here is how it works.

Director of product management Mark Risher.

MARK RISHER, GOOGLE DIRECTOR OF PRODUCT MANAGEMENT: The security key
stores its own password. And requires the site to prove it`s legitimate
before releasing the password and getting you signed in.

DAY: And while they made strides he says there are still open areas.

RISHER: It`s not ubiquitous by a long shot. But we are encouraged to see
more and more sites, more and more apps, and also more and more hardware
manufacturers come online and make these products.

DAY: And the solutions may be one step slower. But the pros say you need
to pay a role and pay close attention to everything you enter even with the
special code.

For NIGHTLY BUSINESS REPORT, I`m Andrea Day.

(END VIDEOTAPE)

HERERA: Finally, tonight, “Forbes” is out with the annual list of the 400
richest Americans and for the first time since 1994, there is a new number
one. Amazon`s Jeff Bezos now tops the list with a net worth of roughly
$160 billion, about double what it was a year ago. Bill Gates loses the
crown. He`s now at number two worth $97 billion. Rounding out the top
three is Warren Buffett at $88 billion.

And the minimum net weather to join the very exclusive club hit an all-time
high of $2.1 billion. Not bad.

GRIFFETH: How nice for them.

HERERA: How nice.

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

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

END

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