Transcript: Nightly Business Report – October 25, 2018


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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Bounce back. Wall Street
rebounds from yesterday`s steep decline. But can this rally hold?

Attention turns to tech. Alphabet, Amazon (NASDAQ:AMZN) and Intel
(NASDAQ:INTC), key drivers of this market rally this year are out with
their earnings. And their results could set the tone for tomorrow.

The hunt for yield. Why you may be able to find it in some rather pricing
places.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for
Thursday, October 25th.

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

What a difference a day makes. Stocks surged after yesterday`s steep
slide. Pushing the Dow and S&P 500 back in the positive territory your for
the year. Upbeat earnings report calmed nerves, at least for today. And
the focus on quarterly reports put issues like rising interest rates and
global growth back on the back burner.

Here are some of the closing numbers for you from Wall Street. The Dow
Jones Industrial Average rallied 401 to 24,984, the Nasdaq advanced by 209,
and the S&P 500 added 49.

So is today`s move to be believed? Or is it just a short-term bounce?

We are joined from Nela Richardson, investment strategist at Edward Jones.

Good to see you as always, Nela. Welcome.

NELA RICHARDSON, EDWARD JONES INVESTMENT STRATEGIST: Great to be here.
Thank you.

HERERA: Let`s start first of all, with what you make of the bounce back
that we saw today.

RICHARDSON: Well, I think that bounce back as you call it more than a
bounce back. I think it really is to be believed. What we are seeing
across the corporate sector is really strong earnings. Earlier in this
week, you know, the market really got caught up in the trees for the forest
that you looked at trees instead of forest.

And what the market is concerned about is three issues, tariffs, higher
interest rates and slower global growth. And so, they focused on a few
high profile names that indicated higher costs going forward. But this is
in context of really strong earnings and really strong growth.

And so, we believe that a combination of solid growth and solid economic
fundamentals means that the overall outlook for investments is very strong.

HERERA: Do you think, though, the volatility we have seen this past couple
of weeks now — and especially in yesterday`s trading session, do you think
that`s here to stay.

RICHARDSON: It`s here to stay. And you know what? It`s normal. And — I
know it feels uncomfortable, we`re not used to it.

Last year, the market went through the entire year with never seeing a
decline or a selloff more than 3 percent. But the truth of the matter is,
this type of volatility is part of normal investment cycles. And
especially as we get to the later stage of this bull market, we can expect
to see more ebbs and flows. Prices go up, as well as down, but the overall
trend is still positive.

HERERA: So, you believe we`re still in the bull market trend, but where
would we fall within that cycle?

RICHARDSON: We`re late — we are late with in the late stages. We`re in a
position where the bull market has been running the increase in share price
year after year has been running for ten years. And so, we are starting to
see the signs of aging. But the aging does not mean decline, but it means
is volatility, a return to normal volatility as the Fed returns to normal
interest rate policy.

HERERA: OK.

RICHARDSON: And as we get to more normal financial conditions. That means
that we expect 20 percent earnings growth this year more than 20 percent
and double digits next year.

HERERA: All right.

RICHARDSON: That means that we are still seeing returns even as we enter
this late cycle.

HERERA: We have to leave it there, Nela. Thank you very much.

Nela Richardson with Edward Jones.

RICHARDSON: Thanks.

HERERA: Well, investors hope that Intel (NASDAQ:INTC) keeps the rally
going tomorrow, because late today, the Dow component topped Wall Street`s
earnings and revenue estimates on strong demand for chips used in data
centers. Intel (NASDAQ:INTC) earned 1.40 a share, easily beating
expectations of $1.15. Revenue rose 19 percent to $19 billion.

And investors also cheered the upbeat guidance, and sent the stock higher
in initial after hours trading.

Jon Fortt has the details.

(BEGIN VIDEOTAPE)

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: A solid beat and raise
from Intel (NASDAQ:INTC). Revenue came in a billion dollars above
expectations, and the reason why, the PC, the good old PC, it just keeps on
going. PCs and data center business really drove this business forward
where a lot of people in the industry and some could argue Intel
(NASDAQ:INTC) itself left that business for dead. We`ll have to see just
how far they can ride that.

Apparently, they`ll be riding it into next year.

For NIGHTLY BUSINESS REPORT, I`m Jon Fortt.

(END VIDEOTAPE)

HERERA: And now to Amazon (NASDAQ:AMZN) which turned in a record profit
and blew past earnings estimates but sales were not as strong as hoped and
neither was Amazon`s outlook for the holiday quarter. The company earned
$5.75 a share. Estimates were for $3.14. Revenue of $56 billion was up
from last year but less than expected.

And that sent the stock sharply lower in initial after-hours trading.

Deirdre Bosa has more.

(BEGIN VIDEOTAPE)

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: The main things
investors are focusing on is Amazon`s outlook for the all important holiday
quarter. Usually a blockbuster run for the ecommerce giant, Amazon`s
guidance failed to impress the street.

Amazon (NASDAQ:AMZN) CFO Brian Osalsky said they`re still anticipating a
strong holiday season and everything is ready to roll. Analysts, though,
are getting a little nervous about rising costs, particularly wage
inflation as Amazon (NASDAQ:AMZN) raises minimum wage for all of its
workers in North America and as that faces potentially higher shipping
costs from U.S. Postal Services.

Amazon`s other high growth, high margin businesses, cloud computing,
advertising and subscription services, they performed as analyst expected.
And the company notched another quarter of record profit. The focus though
is squarely on those holiday sales.

For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa, Vancouver, Canada.

(END VIDEOTAPE)

HERERA: Google`s parent Alphabet reported a rise in profit but slightly
slower growth in revenue. The company saw sales from its advertising
business rise. Revenue from its cloud unit also grew, but not as fast as
in previous quarters.

The report comes at a time when Google (NASDAQ:GOOG) is dealing with a
growing backlash from regulators over privacy. The results caused the
stock to dip in initial after-hours trading.

And as all these earnings roll in, some market watchers are trying to
figure out what might be in store for next year.

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stock market is a
voting machine on next year`s earning. And for the moment it`s signaling
that it`s doubtful the companies can deliver on these expected earnings
growth of about 10 percent and revenue growth of about 6 percent.

Now, why is that? Because the macro picture has gotten considerably more
complicated and frankly a lot more confusing. Six months ago, we were
dealing with a strong U.S. economy, tax cuts and less regulation, and
frankly not much else.

Now, the picture is much more complicated. With China slowing, tariffs,
the Fed hiking too aggressively but also a host of smaller issues like
strong dollar higher labor costs, higher raw material costs, a populist
government in Italy and the possible isolation of Saudi Arabia.

However, the main macro concerns are very obvious. China is slowing and
the Fed hiking too aggressively are the main issues that everyone believes
the glass is half empty suddenly. How much less, the bulls think earnings
growth will be seven to 10 percent in 2019. The market seems to be
telegraphing that that`s unlikely to happen.

The S&P 500 is trading at a multiple of 15 times 2019 earnings. It was
16.5 a month ago. Since the multiple is a reflection of the price
investors are willing to pay for a future stream of earnings, this multiple
is telegraphing that the market believes earnings might be lower than
anticipated next year.

So, instead of maybe 10 percent earnings growth, the market seems to be
anticipating growth of roughly half that. That`s a big haircut.

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

(END VIDEOTAPE)

HERERA: It is time to take a look at some of today`s upgrades and
downgrades.

Tesla was upgraded to outperform from peer perform at Wolfe Research. The
analyst cites Tesla`s free cash flow and the company`s focus on cost and
capital efficiency. As we reported yesterday, Tesla reported a profit for
the recent quarter. The price target is $410. The stock rose 9 percent to
$314.86.

Hilton was upgraded to buy from neutral at B. Riley FBR. The analyst cites
the pullback and calls the current value an attractive entry point. The
price target is $85. The stock was up more than 5.5 percent to $67.55.

UPS was downgraded to neutral from buy at Bank of America
(NYSE:BAC)/Merrill Lynch. The analyst there cites the deterioration of
margins in the third quarter. The price target is $116. The stock fell a
fraction to $107.82.

And still ahead, talk of tariffs is springing up in new surveys from the
Federal Reserve.

(MUSIC)

HERERA: President Trump proposing sweeping changes to Medicare drug
pricing. He wants to make some prescription drug prices more comparable to
what they cost in other countries.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We are taking aim at the
global free loading that forces American consumers to subsidize lower
prices in foreign countries through higher prices in our country. The
world reaps the benefits of American genius and innovation while American
citizens and especially our great seniors who are hit the hardest pick up
the tab. But no longer.

(END VIDEO CLIP)

HERERA: The regulation would set up an international pricing index that
would be used as a reference point to set prices for drugs paid for through
Medicare Part D.

And the president as you know has been very critical of the Federal Reserve
interest rate policy. Well, today, the central bank vice chair said more
rate hikes are warranted. In his first major policy speech since being
seated at the Fed, Richard Clarida said the strength of economy broadly and
the job market in particular has surprised him.

(BGIN VIDEO CLIP)

RICHARD CLARIDA, FEDERAL RESERVE VICE CHAIRMAN: Based on my reading of the
accumulating evidence, I believe that trend growth in the economy may well
be faster and the structure rate of unemployment lower than I would have
thought several years ago.

(END VIDEO CLIP)

HERERA: Clarida`s view of monetary policy could change if the data shifts
and inflation turns lower.

Tariff concerns are slowing up in the Fed surveys just yesterday the Beige
Book described the impact of the trade war on America`s farmers, something
we have been reporting on from different parts of the country.

Aditi Roy has the details.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Farmers across the
country feel the pain of tariffs, according to the Fed`s latest Beige Book.
Soybeans appear to be especially hard hit. The Chicago Fed reporting
farmers are seeing a notable drop in Chinese purchases of U.S. soybeans,
following an increase in Chinese tariffs. The Minneapolis Fed also
reporting that worldwide demand for soybeans has fallen dramatically.

And as demand falls, so does the price. Soybean futures on pace for their
worst year since 2015. Analysts don`t expect relief in the near future.

VIRGINIA MCGATHEY, MCGATHEY COMMODOTIES: The supplies are huge and no
where else to go with these future prices but to go down.

ROY: The Beige Book remarks also align with the latest USDA data on
soybeans. Just last week, the agency reported that since September 1st,
U.S. shipments are down 97 percent from one year ago. The hardest hit
areas are along the Mississippi River, Columbia River and Puget Sound.
This after China cancelled 180,000 metric tons of soybeans exports for the
marketing year.

MCGATHEY: I think the announcement of the cancellation of exports to China
is like the last nail in the coffin that we are going to be sitting here
and maybe a little bit lower until the end of the year.

ROY: Dairy farmers are also struggling. President Trump in Wisconsin,
Wednesday telling the crowd the new NAFTA agreement helps U.S. dairy
farmers by removing barriers to the Canadian market.

TRUMP: Now as you know the Canadian market which was not open is now open.
Go do well.

ROY: His comments come one day after the National Milk Producers
Federation sent this letter to Agriculture Secretary Sonny Purdue, asking
for more trade aid and citing multiple studies that say dairy farmers lose
more than $1 billion this year because of the tariffs. Dramatically higher
than the more than $200 million of federal aid to dairy farmers from the
administration as a result of the tariff impact.

But earlier this month, Agriculture Secretary Sonny Purdue told “Reuters”
the $12 billion to U.S. farmers could shrink after the new NAFTA agreement
was negotiated.

Other crops also seem to be affected by trade tariffs. The San Francisco
Fed says wheat and fruit growers in Washington state are also seeing a
slight decrease in demand because of tariffs troubles.

For NIGHTLY BUSINESS REPORT, Aditi Roy, San Francisco.

(END VIDEOTAPE)

HERERA: Cancer drug sales helped power quarterly sales for both Merck
(NYSE:MRK) and Bristol Myers Squibb. And that`s where we begin tonight`s
“Market Focus”.

The drugmakers reported better than expected third quarter profit and
raised their 2018 earnings forecast, thanks to revenue from their immuno-
oncology drugs. Merck (NYSE:MRK) also raised its dividend but the stock
moves were mixed. Merck (NYSE:MRK) shares fell a fraction, while Bristol-
Myers Squibb (NYSE:BMY) gained nearly 1 percent.

Investors remain skeptical about Biogen`s experimental Alzheimer`s drug.
One analyst said the latest data released was, quote, thin and suggested
that the treatment may only work in patients with a specific genetic
variation. Others called the latest data confusing. Biogen shares were
down 1 percent to $298.47.

American Airlines gave an upbeat outlook for profit margins and is
forecasting an additional $1 billion in revenue next year. But in the
current quarter, the carrier said high fuel costs cut into profits.

(BEGIN VIDEO CLIP)

DOUG PARKER, AMERICAN AIRLINES CEO: This run up in the last, you know, 10,
11 months of nearly doubling, that`s volatility and falling off in the last
week. So, it`s definitely volatile. But again, it`s not for to us try and
predict where it`s going to go. We need to make sure that, you know, it`s
one of the large cost components when the cost of production goes up, we
need to make sure we are being able to pass that along.

(END VIDEO CLIP)

HERERA: Shares of American airlines popped more than 6 percent to $32.37.

Hershey plans to raise prices. The company will start charging more for
chocolate as higher costs eat into profit margins. Food makers more
generally have faced record shipping costs this year as well as rising
ingredient costs. Hershey shares were off nearly 5 percent to $102.84.

Comcast (NASDAQ:CMCSA) (NYSE:CCS) reported a rise in profits. That
company`s the broadband business more than offset a decline in cable TV
subscribers. And the CEO said Comcast (NASDAQ:CMCSA) (NYSE:CCS)-Sky deal
makes a lot of strategic sense.

(BEGIN VIDEO CLIP)

BRIAN ROBERTS, COMCAST CHAIRMAN AND CEO: Sky does look a lot like Comcast
(NASDAQ:CMCSA) (NYSE:CCS) NBC Universal (NYSE:UVV). That subscription
model that market leadership, in re brand is better than any media brand in
the U.S. or communications brand. They really are a products company and
they have great leadership. We are going to drive a company so unique and
now global.

(END VIDEO CLIP)

HERERA: Comcast (NASDAQ:CMCSA) (NYSE:CCS), the parent company of CNBC
which produce this is program, saw its shares finish up 5 percent to
$35.84.

And Twitter`s earning better than expected thanks to increase in ad
revenue. The social media company reported a decline in monthly active
users but had previously warned that its efforts to remove fake accounts
would likely have this effect.

But the company says it`s having success attracting new users.

(BEGIN VIDEO CLIP)

NED SEGAL, TWITTER CFO: We still see lots of opportunity to grow DAU.
That`s the best way to measure whether we drive usage of Twitter at a daily
utility growing 90 percent this past quarter. That`s eight quarters in a
row where it`s grown, between 9 and 14 percent. And between the product
improvements that we made over the last couple years and all the
opportunity that we see to continue to improve the service, we see lots of
ways that we can drive DAU growth.

(END VIDEO CLIP)

HERERA: And Twitter shares jumped 15 percent to $31.80.

Well, investors on the hunt for yield may be basking in the recent stock
market selloff. Until recently, dividend paying stocks had been
underperforming the high flying tech names, but things have reversed a bit
and now, investors are looking for some safety.

We are joined by Petrides, portfolio manager at Point View Wealth
Management to discuss where you may be able to find some of that.

Good to see you, John. Welcome back.

JOHN PETRIDES, POINT VIEW WEALTH MANAGEMENT PORTFOLIO MANAGER: Good to see
you as well.

HERERA: It`s hard to see people are basking in the selloff. But this is
the first time in a long time that we have seen interest rates move
decidedly higher and stay higher.

PETRIDES: Right. I mean, in this environment where we had quantitative
easing or money printing where the Federal Reserve kept interest rates low
so long, how many times have we discussed investors looking for yield,
grabbing anywhere for income? Well, now with the selloff and interest
rising, yield is abundant. So, it`s easier to find today than at any point
in probably the past ten years.

HERERA: And you worked up names for us-on say some of these all have a
little bit of hair on them meaning there may be issues within the company
that they are working to resolve. One of the companies is Ford. And the
big question that analysts have been asking is whether or not the dividend
yield on Ford is safe.

Why would you put money in Ford right now?

PETRIDES: Well, Ford is really a good total return place. You get a 7
percent plus dividend yield. The company reported earnings yesterday, much
better than expectation. But it really is the valuation is so low, the bar
is so low for a company like Ford that they just really have to step over
it. They don`t have to jump over it to beat expectations. That`s why the
stock looks attractive.

HERERA: Some of the other names on the list include AT&T (NYSE:T), GM,
Invesco and Southern (NYSE:SO) Company.

PETRIDES: Yes.

HERERA: GM, I`m interested in that because GM has been performing better
than Ford certainly. Why do you like that auto space so much?

PETRIDES: Well, again, they are cyclical companies. The U.S. economy is
doing generally pretty well. Again, over 5 percent dividend yield on a
very high quality company like General Motors (NYSE:GM). GM does have a
stake in Lyft, you know, the competitor to Uber.

HERERA: That`s the tech side of it, right.

PETRIDES: Tech side of it, right? So, I do think that`s an option that`s
not being fully priced in for the stock. And I think, you know, with the
yield at the current valuation, I think GM is a good stock here.

HERERA: What about investors who may be retired or not comfortable putting
money in stocks right now in a big way, what part of the yield curve would
you like, the bond market?

PETRIDES: Sure. So, if you go into fixed income, I don`t think you have
to stretch too far to pick up yield. You don`t have to go out, 10, 15
years to pick income. You can go out three to five years. Try bonds A
rated or better and you`re going to get a 3 percent to 4 percent type of
return without taking on much risk.

HERERA: All right. On that note, John, thank you so much. John Petrides,
we appreciate it.

PETRIDES: Thanks for having me on.

HERERA: And coming up, if you looking for a reliable car, she tried to
say, you may want to avoid buying American.

(MUSIC)

HERERA: Altria is pulling some of its vaping products off the store
shelves. The tobacco giant says it plans to stop selling its pod based
devices until the FDA approves them or the issue of teens becoming addicted
to e-cigarettes is addressed. Altria also said it would refrain from
selling products with any flavor other than tobacco, mint or menthol. The
FDA recently targeted e-cigarette makers, urging them to put new measures
in place to prevent teen vaping.

Ford is recalling nearly 1.5 million focus vehicles on concern that a flaw
in the fuel system could cause the engine to stall. That recall applies to
Focus models that were built between 2012 and 2018, with two-liter four
cylinder engines. Ford is also instructing owners to keep their tanks at
least half full until the issue is repaired.

If you`re in the market for a new car, you want to see this. “Consumer
Reports” latest survey calls into question the rely ability of many new
models, particularly those made by U.S. automakers.

So which companies came out on top and which lagged behind?

Phil LeBeau breaks it down.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The show rooms may
look the same but the cars and trucks we buy are quickly changing, and
that`s creating new problems for their owners. “Consumer Reports” which
has ranked the most and least reliable auto brands for years says the
latest study finds domestic vehicles are average at best.

Ford leads the list but overall U.S. automakers are struggling, especially
when it comes to advanced transmission and turbo-charged engines.

JAKE FISHER, CONSUMER REPORTS: The domestics faired worse than they have
in years, because of many new introductions and the addition of new
technologies.

LEBEAU: Of the 29 auto brands evaluated by the owners, Tesla comes in
third to last, in part because new software and hardware additions to the
Model S are not working as owners expected. Meanwhile, Tesla`s newest
vehicle, the Model 3 has a higher reliability rating because it`s not as
complex.

Overall, Toyota (NYSE:TM) and its luxury line Lexus are once again ranked
as having the most reliable models. Why? “Consumer Reports” says they are
conservative approach to making big changes under the hood means fewer
things go wrong.

FISHER: The Tesla Model 3 up to this point has actually been a pretty
simple car. Now, they are starting to deliver cars with all-wheel drive.
They are talking about adding an air suspension to it. There`s a
performance model.

So, hopefully, they are able to maintain the reliability of vehicle as the
complexities increase.

LEBEAU: “Consumer Reports” says most new cars and trucks have pretty
strong reliability. The issue is when automakers push to make those models
more advanced with new technologies, features car buyers love when they
work as promised.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Finally, tonight, not only are cars going high-tech but so are
banks. And it may mean robots will one day be a main stay at your local
branch.

Leslie Picker recently attended the money 2020 Conference in Las Vegas.

(BEGIN VIDEOTAPE)

LESLIE PICKER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Meet Pepper. She is
a robot created by Softbank, a concierge of sorts for the banking industry
to help customers figure out tasks like depositing checks or opening
accounts.

The London-based bank HSBC thinks Pepper is a key to better service and
next generation technology for their branches.

JEREMY BALKIN, HSBC HEAD OF INNOVATION: It`s incredible the feedback and
we are learning. This is history. No one has done this in a U.S. bank
branch. We are learning.

PICKER: HSBC brought pepper to the money 2020 event in Las Vegas that
gathers together hundreds in the financial technology industry to discuss
the future of money. I decided to take Pepper for a test ride to see she
could do.

Pepper, tell me about credit cards.

PEPPER: Whether you are looking for cash back promotions, low introductory
APR, or travel benefits, HSBC offers a variety of credit cards to meet your
needs. See or tap one of the options on the screen to learn more.

PICKER: Cash rewards.

PEPPER: Would you like to learn more about applying for the cash rewards
MasterCard (NYSE:MA).

PICKER: Text link. I just got it.

When you hear the word robot, you may think job replacement. But HSBC
insists that Pepper isn`t replacing any jobs. She is augmenting those that
exist by handling the more mundane tasks. HSBC says Pepper ensures
customer privacy.

BALKIN: There is zero customer data. Zero personal identifiable
information. And Pepper is not asking for it. She`s not storing it.
She`s not recording it.

PICKER: Each pepper costs about $25,000, an investment that HSBC says they
recoup the just three hours after installing her at their flagship location
in New York this summer. The firm says she has brought in more foot
traffic and those customers have signed up for credit cards, checking
accounts and other revenue generating products for the company.

But Pepper`s not all business. She loves to show off her moves. Tell
jokes.

PEPPER: What do you call an alligator detective?

PICKER: I don`t know, Pepper.

PEPPER: An investigator.

PICKER: An investigator.

And even take a selfie.

Regardless of the gimmicky side, HSBC is banking on Pepper even if she just
helps someone crack a smile.

For NIGHTLY BUSINESS REPORT, I`m Leslie Picker.

(END VIDEOTAPE)

HERERA: Here is a look at the final numbers from Wall Street. The Dow
rallied 401 points. The Nasdaq advanced by 209, and the S&P 500 added 49.

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

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. 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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