Transcript: Nightly Business Report – October 24, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Stock slump intensifies.
The Dow and S&P wipe out the gains for the year as the stock market route
deepens.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Tech tumbles. The hottest
sector this year is now in a deep freeze with the Nasdaq entering
correction territory.

GRIFFETH: Investor whiplash. What`s it going to take to calm the markets?
It`s a key question we try to find the answer to.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Wednesday, October the 24th.

HERERA: And good evening, everyone. Welcome.

Stocks were punished today. A late day selloff intensified sending the Dow
down 600 points. As we mentioned both the blue chip average and S&P 500
are now negative for the year.

Tech stocks were hit the hardest. The Nasdaq is now 12 percent below its
most recent high, putting its squarely in correction territory. The index
is having the worst month since November of 2008.

So, here is a look at today`s damage. The Dow tanked 608 points to 24,583.
The Nasdaq fell 4 percent, a loss of 329 points. And the S&P 500 was down
84.

Mike Santoli is with us tonight from the New York Stock Exchange to try and
explain the selloff.

Good evening, Mike. And what a day.

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It sure was, Sue.

You know it`s amazing. Over the course of the month it`s been an
accumulation of factors that became very acute in the last couple of days
specifically around big company earnings. I think investors have been
sensitive to the possibility that earnings growth is going to slow into
next year and getting some evidence from global industrial companies that
maybe that`s happening and at the same time I think there is a little bit
of wariness that the Federal Reserve will continue raising rates at a pace
that might feel uncomfortable given the potential for slowing.

To me, that all came together with a little bit of an acceleration of
downside momentum today.

GRIFFETH: And that downside momentum, Mike, has been occurring as we re-
test recent lows. We blew through yesterday`s low today and that`s when
the selling really took off late in the afternoon, right.

SANTOLI: Yes, absolutely, Bill. I mean, it was basically very technically
driven in that sense. I think a lot of investors, a lot of traders were
saying, OK, if we manage to hold around yesterday`s lows, which by the way
were very much in the region of the October 11th lows, which was the low
from earlier this month, then perhaps this is just a more routine pullback
and we can bet on a fourth quarter recovery from here.

So, it`s obvious we deepened stretched to the downside. And now, really
not too far above the lows for the indexes from early this year, after that
January and February correction.

HERERA: All right. Mike Santoli, thank you so much.

GRIFFETH: Well, as we mentioned, technology stocks were once the driving
force behind this market rally. They have been hit hardest this month.
The tech heavy Nasdaq is now down more than 11 percent just since October
1st. And now, wouldn`t you know, the tech giants are starting to report
earnings.

First out of the gate, Microsoft (NASDAQ:MSFT), which investors are hoping
will provide some relief when trading begins tomorrow, because tonight the
company reported better than expected earnings of $1.14 a share when the
market was expected 96 cents. Revenue in the quarter rose to $29 billion.

And the market liked the results. They sent the stock higher in initial
after-hours trading tonight.

HERERA: And tomorrow, the focus on tech will intensify when Alphabet,
Intel (NASDAQ:INTC) and Amazon (NASDAQ:AMZN) all report their results.

Josh Lipton gives us a preview on what`s on deck.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The information
technology sector including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT)
and Cisco (NASDAQ:CSCO) is down hard from its recent high. Strategists say
investors tend to sell what has performed best during sharp selloffs and
that`s certainly true of tech, which was among the best performing sectors
before this recent pullback.

Now, attention turns to the flood of big tech companies about to report
their latest earnings results. Tomorrow, Microsoft`s cloud rivals Amazon
(NASDAQ:AMZN) and Alphabet report, their cloud units bringing ever bigger
chunks of revenue and the competition is fierce. The cloud market is
expected to surge an estimated 20 percent this year to $175 billion.

Also tomorrow, investors will hear from chip giant Intel (NASDAQ:INTC).
It`s down hard so far this month though not as badly as the broader chip
sector which is on track for its worst month since November 2008. Some
analysts say there could be pressure ahead for some of tech`s big names
like FANG, Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix
(NASDAQ:NFLX) and Google (NASDAQ:GOOG).

BRENT HILL, JEFFERIES: We don`t know what the next year holds. We do know
things will slow. You can see that Amazon`s growth going from mid-30
percent growth down to low 20s. I think there is a lot of concern around
large cap cap tech pushing the investment decisions to look at some of
these other names outside of FANG.

LIPTON: On the other hand, what if big tech knocks it out of the park this
week and beats the forecast for this quarter and next? Perhaps that could
win back tech investors at least in the near term.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.

(END VIDEOTAPE)

GRIFFETH: So, what to make of this tech selloff? Well, where does the
important sector go from here?

Joining us tonight, Andy Hargreaves is a senior research analyst at
KeyBanc.

Andy, thanks for joining us tonight.

ANDY HARGREAVES, KEYBANC SENIOR RESEARCH ANALYST: Thanks for having me.

GRIFFETH: What`s your version of why we see the selloff in the market
leader right now?

HARGREAVES: Well, I think you have a combination of factors, right you
have a lot of companies in this space that have significant consumer
exposure and there is a view sew sort of global consumer may be rolling
over. You have a lot of companies highly valued and you have a lot of
China exposure variation varying degrees and you put all those together and
you get what we`re seeing, which is a lot of downside.

HERERA: Well, you know, I was also hearing a number of analysts today cite
the worry about tariffs and the trade war and all of that factoring in.
Just as key fundamental reasons for them to take some money out of tech at
this point.

HARGREAVES: Yes, I mean, absolutely right. To the extent that you have
any kind of hardware or consumer exposure that`s either a big in market or
big input. And on both sides, what you`re going to see is higher prices.
And that usually drives lower volume. So, you are going to have issues
throughout any company that`s trying to sell something physical.

GRIFFETH: Are there particular areas of technology that you think are most
vulnerable, whether it`s hardware, or software, social media, you know,
whatever happens to be? What do you think?

HARGREAVES: Yes. I mean you have to look at everything in the context of
valuation, right? And I think what we see a little bit is a risk off
mentality in which case you want to start looking a little bit more at
companies with a little bit of downside protection as opposed to what`s my
upside opportunity. For me right now, the names we like the most are
Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) in part because the valuation
really does provide some support.

GRIFFETH: Are you worried about regulation? I mean, there is a lot of
talk about that on Capitol Hill as it goes to the social media companies
and the Googles of the world.

HARGREAVES: Yes. Yes. I`m laughing just because yes, anytime politicians

HERERA: I wondered why you were laughing.

HARGREAVES: Any time politicians get involved, I start to get worried. I
think at least with Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) in
particular, it`s been such a prominent issue already. I think we have
priced in a lot of that risk. And for them to solve the issues that they
are trying to solve I think is going to take many, many years. So, it`s
not something I view as a near-term issue.

GRIFFETH: And we will be looking at that possibility of regulation of
those companies coming up in a little bit here on the program.

Andy Hargreaves from KeyBanc, thanks for joining us tonight.

HARGREAVES: Yes, thanks again.

HERERA: So, given the rock stretch for the market, what will it take for a
sense of calm to return to Wall Street?

Bob Pisani tries to answer that one.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Strong earning may not
be enough to calm the market until the higher yields is resolved. So far,
80 percent of the companies are beating earnings. Earnings growth is 22
percent, terrific. It`s expected to continue into the fourth quarter.

But it`s not helping because the markets shifted to rates and slowing
growth in China — macro issues. The main risk is rising rates on the back
of strong U.S. economic data. Therefore, the market will calm down.

If the market believes first ten-year yields are not rising too much more,
say 3.5 percent, and second that the Federal Reserve is not looking to
raise rates as aggressively as some traders believe. In other words,
taking out the words accommodative from their policy statements, it doesn`t
mean the Fed is going to keep hiking for years. They`ll certainly not
accelerate their gradual path to rate hikes. The market needs to believe
that. It doesn`t right now.

The market bulls are pushing back on this whole interpretation. They`re
arguing that beyond the housing market, these modestly high rates we see
are not a huge drag on the U.S. economy. We have already seen attempts to
buy beaten up housing stocks, for example, in the last few days.

Now, rates are rising but financial conditions are not tight, meaning
mortgage rights might be going up but they are still far from being
abnormally high. And the economy remains strong, but it`s not yet
overheating.

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

(END VIDEOTAPE)

GRIFFETH: As with every selloff, there is usually a bright spot. And
today, that bright spot was Boeing (NYSE:BA). The Dow component blew past
profit and revenue estimates and the company said that things are looking
pretty good right now. That sent the stock up more than 1 percent on this
otherwise ugly down day.

Phil LeBeau has the details for us tonight.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: I there are any
concerns about the global economy slowing down, they were not exhibited in
Boeing`s third quarter results. The company beat the street on both the
top and the bottom line, with free cash flow coming in at $4.1 billion. In
terms Boeing`s outlook, there is plenty of optimism.

The company has raised its full year earnings and revenue guidance. Its
commercial airplane division is improving deliveries and expects to improve
through the end of the year. And it`s not seeing a slowdown in China. The
trade tensions from people wondering if we start to see fewer orders from
China. But Boeing (NYSE:BA) executives say they are not seeing that so
far.

The bottom line is this — Boeing (NYSE:BA) reported a much better than
expected result for the third quarter. And that optimism is also reflected
in its fourth quarter and full-year guidance.

Phil LeBeau NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: And another bright spot late today was Visa (NYSE:V). The Dow
component topped earnings estimates thanks to increase in total purchases
made by people using their visa cards. The world`s largest payments
network said it benefitted from higher credit card and debit card spending,
as well as job growth and lower taxes.

And that sent the stock higher in initial after hours trading.

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

And we begin with Morgan Stanley (NYSE:MS) upgraded to outperform from
market perform at Wells Fargo (NYSE:WFC). The analyst expects the bank to
increase its financial targets in January, price target $60, shares though
fell along with the broader market today to $43.49.

Lululemon was upgraded to buy from hold at Canaccord. The analyst cited
the company`s product development and international expansion. Price
target now $160. Nonetheless the stock fell 2 percent to $134.29.

And Yum Brands (NYSE:YUM) was downgraded to hold from buy at Stifel
Nicholas. The analyst cited the stock`s recent strength. Price target:
$49. The stock dropped about 2 percent to $87.06.

HERERA: Still ahead, mixed messages is the market saying one thing to
investors and the economy saying another?

(MUSIC)

HERERA: New home sales for September fell for a fourth straight month to a
two-year low. That decline of 5.5 percent adds to the recent spate of weak
reads on real estate. As we have been reporting rising prices and mortgage
rates have decreased affordability for some buyers and economists say that
is reducing housing demand.

GRIFFETH: President Trump has stepped up his criticism of the Fed`s
monetary policy. During an interview with the “Wall Street Journal”, Mr.
Trump said the Fed Chairman Jerome Powell`s stance on rate increases
threatens economic growth. The president added that while it`s too early
to say, he may have regretted nominating Powell to the Central Bank. The
Central Bank has hiked the benchmark rate three times this year and another
increase is expected in December.

HERERA: In the meantime, the Fed`s Beige Book released today describes the
U.S. economy as growing modestly to moderately. The Central Bank`s
anecdotal snap shot of economic activity showed that businesses are
experiencing labor shortage. They`re also starting to notice the impact of
the trade war with China and simmering tensions with other trading
partners. And factories say they are raising prices because of tariffs.

GRIFFETH: Well, the president of the Cleveland Fed said today that she is
not adjusting her policy stance because of the drop in the stock market.
Loretta Masters said that the economy is strong, the labor market is solid
and there`s no sign of a recession any time soon.

But as Steve Liesman reports now, it`s exactly this split between the
declining stock market and the rising economy that investors are struggling
with.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The recent selloff
has feature add role reversal. Normally, optimistic investors grown
worried about the outlook than the usually pessimistic economists. The
list of what worries the market bear includes President Trump`s tariffs,
higher interest rates from the Federal Reserve and the effect of those on
sectors like housing and autos.

Also on the list, slower global growth, higher oil prices and lower
guidance from some companies. It`s all amounted to a three-week selloff
which shaved about 500 points off the Dow Jones Industrial Average.

But those same earnings are seen as positive by economists. Estimates are
for 25 percent tax cut fueled earnings in this quarter compared to last
year. That`s the third quarter in a row above 20 percent. Overall, U.S.
growth is also running a percentage point above trend and the unemployment
rate is 3.7 percent, the lowest since 1969 and most believe headed lower.
Inflation at just over 2 percent is mostly tame.

Both sides agree the economy and earnings will slow from here. But they
debate how much.

DAVID BIANCO, DWS GROUP: We expect S&P earnings growth will slow from 25
percent growth to 2018 to 5 percent growth in 2009, and the reason for the
slowdown is one going back toward a more normal earnings growth rate for
S&P, 5 to 7 percent. But also we think earnings growth is going to be
challenged by tariffs, stronger dollar and the curbed oil prices.

LIESMAN: The bull case though sees above trend growth continuing, in part
because of higher spending on capital goods by companies motivated by the
tax cuts.

HOWARD WARD, GABELLI FUNDS: The capital spending thing is big. Cap
spending now is growing at 8 percent. So this is what`s going to drive
increased productivity, and as you know you have to have the greater
productivity to get the growth rate of GDP up.

LIESMAN: No one is locked into their current position. If the economy
keeps running strong, well, bears could be bulls, and if it weakens, bulls
could once again be bears.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: Chinese and American businesses are trying to figure out how to
minimize the effects of the trade war.

Eunice Yoon has more on the trading relationship between the world`s two
largest economies.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: I met China`s most
prominent export fair. The Canton Fair in the manufacturing hub of
Guangzhou is where buyers from the U.S. and other parts of the world
connect with Chinese manufacturers of consumer products. The fair has been
going on for decades, but this year, because of the trade war, people are
nervous.

The discussion is mainly how to minimize the impact of President Trump
tariffs. One buyer told me he worked on a deal to sell frying pans without
a gift box because the box is subject to a 10 percent tariff.

Second point, a lot of companies are still dependent on China and cannot
uproot their supply chain as easily as one might think.

This is one American buyer here told me.

RANDALL DAVIDSON, U.S. BUYER: These are robust supply chains. Not just
the factories but the printers supporting the factories, the other
suppliers and subcontractors that support the factories, trucking,
shipping, all of that has been developing for three decades.

So, I don`t see a wholesale move out of China. But certainly, everyone is
looking at other options.

YOON: But what I found most surprising is how Chinese manufacturers are
giving non-American buyers better deals. The Chinese suppliers are worried
because of the trade war. One Indian buyer said he`s been surprised at the
lower prices the Chinese are offering.

So, while the non-American buyers are being cut better deals, American
buyers are still working out how to deal with the extra costs.

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

(END VIDEOTAPE)

GRIFFETH: And in fact, trade war concerns overshadowed profit gains at
UPS. And that`s where we begin tonight`s “Market Focus”.

The delivery company reported disappointing international results which UPS
says was caused by slowing economic activity resulting from changing trade
policies. The CEO did say, though, he expects overseas operating profits
to rebound in the fourth quarter during the holidays. UPS shares fell 5.5
percent to $107.93 today.

Boy, it was a tough quarter for AT&T (NYSE:T). The company lost more
satellite TV customers than expected during the summer. And it`s over the
top streaming video services added fewer subscribers compared to the same
period a year ago. And that caused its profits to miss analyst estimates
and the stock punished, down 8 percent to $30.36.

Meanwhile revenue at General Dynamics (NYSE:GD) fell short of expectations.
And investors appeared concerned about lower business jet deliveries. When
asked about business with Saudi Arabia, the CEO on the earnings conference
call said there has been no indication yet that it`s $10 billion sale of
armored vehicle has been affected by the controversy surrounding the death
of journalist Jamal Khashoggi. Shares of General Dynamics (NYSE:GD),
though, fell by 7 percent to $173.24.

HERERA: Rival Northup Grumman topped expectations saying a recent
acquisition and strength in the aerospace systems and mission systems units
helped results. The company also hiked its earnings guidance for the year
but left sales forecast unchanged. Shares fell 6 percent to $285.86.

After the bell, Ford reported earnings that beat analyst estimates by a
penny. Revenue was also stronger than expected but the company reported a
lot of weakness in many of its foreign markets. As a result, Ford says it
does not expect to hit its target of reaching 8 percent profit margins by
2020. Nonetheless, shares initially rose in after-hours but finished the
regular day down more than 4 percent to $8.18.

Also out after the bell, Tesla reported a surprise profit and better than
expected revenue. Investors have been concerned the electric car maker
would need to raise additional capital. But the company said it expects
the cash position to remain consistent even as it repays its debt and so,
shares took off in the extended session. They finished the regular day
down nearly 2 percent to $288.50.

And, Advanced Micro Devices (NYSE:AMD) reported weak revenue and issued
sales guidance below estimates. The chip maker is facing soft demand from
cryptocurrency miners for its graphic processors. The stock fell more than
20 percent in initial after hours trading, extending its 9 percent decline
in the regular session.

GRIFFETH: Coming up, one of Silicon Valley`s tech CEOs calls for stricter
data privacy protections. But could that be a bad thing for shareholders?

(MUSIC)

GRIFFETH: Late today, Amgen (NASDAQ:AMGN) said it is cutting the price of
an anti-cholesterol drug by 60 percent. That will bring the annual cost of
Repatha down to about $5,800, and it will lower patient co-pays and
barriers erected by insurers that have resulted in disappointing sales to
this point. Drug companies that make rival anti-cholesterol drugs have
already announced rebates and discounts earlier this year.

HERERA: ExxonMobil (NYSE:XOM) was sued by the New York attorney general by
misleading investor on climates change. The suit alleges that the company
did not tell investors about the true risks to the business posed by
climate change regulations. The lawsuit does not charge the company with
contributing to climate change or was suppressing climate science. It does
however claim that the former CEO Rex Tillerson was aware of the alleged
fraudulent behavior.

GRIFFETH: Well, on a day when extra attention is being paid to the tech
sector, the CEO of Apple (NASDAQ:AAPL) had harsh words for how other
Silicon Valley company manage data they collect. During a privacy
conference in Brussels today, Tim Cook said personal information has been
weaponized, in his words. But he stopped short of naming Facebook
(NASDAQ:FB) and Google (NASDAQ:GOOG) specifically, two of the largest
companies making money by selling ads.

(BEGIN VIDEO CLIP)

TIM COOK, APPLE CEO: We shouldn`t sugarcoat the consequences. This is
surveillance. And these stock piles of personal data serve only to enrich
the companies that collect them. This should make us very uncomfortable.
It should unsettle us.

(END VIDEO CLIP)

GRIFFETH: Mr. Cook has long spoken in support of personal privacy and he
often points out that because Apple (NASDAQ:AAPL) makes money selling
devices and not advertisements, it has less of an incentive to exploit
customer data.

HERERA: And Connie Guglielmo joins us more to talk about regulating
consumer data and what it could mean for both the industry and also those
who share — the share prices of those companies. She is editor in chief
over at CNET.

Connie, good to see you welcome.

CONNIE GUGLIELMO, CNET EDITOR-IN-CHIEF: Thank you.

HERERA: You know, Mr. Cook has always been outspoken and plain spoken.
And Apple (NASDAQ:AAPL) has actually been pretty aggressive at guarding its
users` data, correct?

GUGLIELMO, CNET EDITOR-IN-CHIEF: That is correct. And the point that you
made is well-noted. Apple (NASDAQ:AAPL) makes most of its money for sales
of the iPhone. It`s hardware. It does make money from software and
services but doesn`t monetize the use are data it collects as far as we
know.

So, it can afford to also take a stand on privacy. I`m not saying that
it`s not serious about it. Tim Cook is very genuine in how he talks about
the topic. But its fortunes are tied to the hardware and software
services.

GRIFFTH: And it`s not just Tim Cook that`s talking about this. Members of
Congress are as well. They`ve been holding hearings. More hearings are
coming as well.

The possibility of regulation of how these companies manage their data and
keeping it private, good for consumers, perhaps, but it is bad for
shareholders? What do you think?

GUGLIELMO: Well, it`s been a bad year for the tech sector when it comes to
data privacy. We have the Cambridge Analytica breach at Facebook
(NASDAQ:FB), 87 million users were affected by that. Google (NASDAQ:GOOG)
recently was forced to disclose that users of its Google (NASDAQ:GOOG) Plus
social network about 500,000 people were affected by a data breach there.

These are very large companies who make most of their money from
advertising and pushing targeted ads. They need personal data in order to
push their very lucrative targeted ads. So, from a user perspective, sure,
you want your data to be protected. You don`t want to be the victim of any
kind of identity theft or privacy hack. Very problematic to try to restore
your good name after it`s been stolen.

For shareholders, this is how these companies make money. Facebook
(NASDAQ:FB) made about $42 billion in 2017, 98 percent of that was from
ads. Google (NASDAQ:GOOG), $110 or so billion dollars, 83, 84 percent from
ads. So, yes, it`s a concern to shareholders, but at the same time, think
about it, if users don`t trust your platform, they`re not use going. And
if they`re not using, there is nobody to target those ads to.

So, there has to be some give here on the side of the tech industry.

HERERA: Before we let you go, do you think there is one company — let`s
put Apple (NASDAQ:AAPL) aside because they do different things as you said
they do the hardware — that is better prepared for regulation that might
be coming their way?

GUGLIELMO: I don`t think there is any one company. I do think you hear
companies talking about this topic. The CEO of Microsoft (NASDAQ:MSFT),
Satya Nadella, has also echoed what Tim Cook has said and he says privacy
is a fundamental human right. So, that idea that there should be
protections in place is something that tech executives are starting to talk
about whether they are forced to or not is the question.

HERERA: OK. Connie thank you very much.

GUGLIELMO: My pleasure.

HERERA: Connie Guglielmo with CNET.

GRIFFETH: And before we go, here`s another look at the day`s selloff. It
was a big one. The Dow tanked by 608 points. The Nasdaq fell 4 percent, a
loss of 329. The S&P was down 84.

HERERA: And it`s only Wednesday.

GRIFFETH: Yes.

HERERA: We`ll see you tomorrow. That does it for us tonight. I`m Sue
Herera.

GIRIFFETH: I`m Bill Griffeth. Thanks for joining us. Have a great
evening. We will see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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Business Report is not and should not be considered as investment advice.
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