Transcript: Nightly Business Report – November 7, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stocks surge. The Dow breaks
above 26,000 and the S&P 500 has the best post-midterm election rally since
1982.

Health care prognosis. It was the driving issue for voters. Now investors
want to know what changes may be in store for that industry.

Safety warning. Boeing (NYSE:BA) alerts airlines worldwide to a potential
faulty pieces of software following a deadly crash last month.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
November 7th.

And good evening, everyone, and welcome. Bill Griffeth is on assignment
tonight.

Today, there was a big rally on Wall Street. Stocks took off at the
opening and just kept on going. Investors embraced the results of the
midterm elections, the Democrats took the House, the Republicans maintained
control of the Senate.

That seemed to lift a cloud of uncertainty that was hanging over the
market. Adding to the optimism were comments by President Trump that he
would be willing to work with the Democrats to bolster economic growth.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Now is the time for members
of both parties to join together, put partisanship aside, and keep the
American economic miracle going strong.

(END VIDEO CLIP)

HERERA: And that was all investors needed to hear. The Dow Jones
Industrial Average soared 545 points to 26180. The Nasdaq was up 194. And
the S&P 500 added 58.

So what should investors focus on next?

Mike Santoli takes a look.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: With a midterm
elections past and the result largely as expected, Wall Street has turned
the focus to the chances for the stock market to continue its rebound from
a nasty October with a year end rally. That would follow the popular
script as many strategists have noted midterm election years have a
tendency to finish strong.

And the prevailing wisdom holds that markets do fine with D.C. gridlock and
a power split between the two parties. Yet, it`s important to note that
the major indexes rose more than 7 percent from the October 29th low and
investors have not been freed by the election from some of the concerns
that have weighed on the markets all year — trade frictions with China,
question base how aggressive the Federal Reserve will be in raising rates,
and uncertainty he over how much growth in the economy and in correspondent
profits might slow in 2019.

The election had no direct bearing on the China tariff issue which has been
an overhang on stocks.

As for the Fed, it meets and will issue a policy statement tomorrow. But
no move on rates is expected until next month when the fourth quarter point
hike of this year is anticipated.

Many investors have suggested that the Fed should back away from stated
plans for three more hikes next year, but the recent employment and wage
data have been strong enough to support the stance for now. Correspondent
earnings for the third quarter on pace to show 27 percent growth over a
year ago, that`s the third straight increase above 20 percent. This surge
in profit has supported equity valuations but by the first quarter of next
year growth is seen sliding to about 5 percent.

This has left Wall Street unsure how generously to reward companies for the
current strong results. For now, today`s rally showed investors are taking
advantage of a calmer market and stock prices that are a good deal lower
than they were just seven weeks ago. It all fits with the post election
rally script for now. But don`t be surprised if the market trips over one
of the lingering challenges if the index approaches former high which is
just 5 percent higher from here.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

HERERA: Stocks typically do well when Congress is split and the White
House under Republican control.

According to analysis from Bank of America (NYSE:BAC)/Merrill Lynch, the
S&P 500 averages an annual return of 12 percent. The firm calls gridlock
as the best case scenario for the markets, because it may prevent a lot of
things from getting done or undone.

Well when voters went to the polls, a number of issues were top of mind.
The exit polls show that health care topped the list, with more citing it
as the top concern than the economy or any other issue. That`s the first
time that`s happened in a decade. Second was immigration. The economy
more broadly fell to number three.

And health care is just one of the agenda items on the to-do list for the
new Congress.

Ylan Mui in Washington tonight.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: With change in power
comes change in leadership. Democrats winning control of the House makes
Nancy Pelosi the presumptive speaker. She is already laid out the top
three priorities. Campaign finance and ethics reform, lower drug prices
and infrastructure.

REP. NANCY PELOSI (D), MINORITY LEADER: Two years ago today, everyone came
together and said we see the urgency, we want to take responsibility, and
that gave us opportunity to protect the Affordable Care Act. That was so
essential to the health and financial security of America`s working
families. And we knew it would be a target of the Trump administration.

MUI: The lawmakers expected to turn that agenda into legislative action
are all veteran Democrats. They are likely to serve as committee chairman
and they spent months preparing the proposals. Maxine Waters (NYSE:WAT) on
Financial Services. Frank Pallone on Energy and Commerce. Peter DeFazio
on Transportation, just to name a few.

But will anything get done in the divided government? Senate Majority
Leader Mitch McConnell spoke with Nancy Pelosi over the phone today. He
said there could be room for a deal on infrastructure or maybe even
prescription drug pricing.

SEN. MITCH MCCONNELL (R-KY, MAJORITY LEADER: I have to tell constituents
you think we all hate each other, that the Senate is a pretty collegial
place. And even though we had obviously big differences over things like
taxes and judges, there were plenty of other things we did together. And
there is no reason that would stop simply because the House now becomes
Democratic.

MUI: The wild card could be President Trump himself. He told reporters
today that he is willing to work with Democrats but not if they launch a
flurry of investigations into his administration. If government grinds to
a halt, Trump said he plans to blame the Democrats.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

(END VIDEOTAPE)

HERERA: With health care in focus in Washington, the sector rallied on
Wall Street today. The insurers got a lift, even some — hit some new
records, as did Medicaid stocks and as Bertha Coombs reports. Investors
are now trying to figure out what`s next for that industry.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Health care was a
number one issue for voters in this election who desperately want help with
high costs. After years of tremendous regulatory upheaval, a divided
Congress could bring some welcome predictability. Democrats can`t push
through Medicare for all, while Republicans can`t push a repeal of the
Affordable Care Act or health program cuts.

MATTHEW BORSCH, BMO CAPITAL ANALYST: Republican oriented ideas around
Medicaid block granting are, you know, in essence off the table now with
this election result. And the fear that some investors had that Medicare
might be a source of — a source of cuts perhaps is part of the way to pay
for the deficit impact of tax reform. That as well is pretty much off the
table.

COOMBS: At the state level, more support for the ACA as voters in Idaho,
Nebraska and Utah approved Medicaid expansion measures, while Maine elected
a Democratic governor, will carry out that state`s 2017 referendum which
has been blocked by its Republican governor. Analysts say more coverage is
a positive for hospitals and insurers.

BENJAMIN ISGUR, PWC HEALTH RESEARCH INSTITUTE LEADER: You now have the
opportunity for some states to expand Medicaid, for some states that are
going to invest more in the health insurance exchanges. You may have more
paying customers at the end of this.

COOMBS: Investors are certainly breathing a sigh of relief sending health
care shares broadly higher. But even in a divided Washington combating
high drug prices resonates on both sides of the aisle.

ISGUR: When we asked consumers what should the government be doing around
drug prices? I mean, the number one answer we received was, they should
actually be addressing the costs themselves, really price controls.

COOMBS: Still the risk of bipartisanship breaking out on Capitol Hill
looks just as unlikely in the next Congress as it has been. For NIGHTLY
BUSINESS REPORT, I`m Bertha Coombs.

(END VIDEOTAPE)

HERERA: So what could the possible changes in the health care industry
mean for your investments?

Kara Murphy joins us now to talk about that. She is the chief investment
officers at United Capital.

Welcome, Kara. Nice to have you here.

KARA MURPHY, UNITED CAPITAL CHIEF INVESTMENT OFFICER: Thanks for having
me.

HERERA: I talked to one analyst today saying this is a perfect or best
case scenario for those who are involved in the health care industry.
Would you agree with that?

MURPHY: I do. Of all the different areas of the market who had an issue
at stake in yesterday`s election, health care is the clearest signal. And
I think the two biggest takeaways — and, you know, you`ve been talking
about them earlier, the Affordable Care Act is here to stay and Medicaid
rather than being brought down is being expanded. I think both of those
are very positive for the health care sector.

HERERA: And what about drug pricing? I mean, both sides of the aisle seem
to want to do something? Now whether or not that happens certainly we
don`t know yet. But that seems to be the intent. What might the impact be
on some of the drug companies?

MURPHY: Well, so what`s interesting is that today, we had both the managed
care companies and the pharmaceutical companies rallying. Typically, one
will rally at the expense of the other because drug costs are an input to
manage care. But here, we`re seeing it rallying.

So the most immediate impact from the election is that the population that
both of those groups of companies serve has just increased. You know, you
think about Medicaid. We have 600,000 new people who are going to have
access to doctors, to hospitals, to pharmaceuticals. So, while drug
pricing continues to be an issue and didn`t get resolved yesterday, the
pool of people who can buy those drugs increased.

HERERA: And I would assume that that goes for the insurers to a certain
extent as well.

MURPHY: Absolutely. That`s all very positive for the insurers as well.

And also, when you think about the Affordable Care Act, a big thing holding
both the managed care companies and pharmaceuticals companies back was just
that uncertainty. So, now with Democrats taking control of the House, I
think not only do we have the Affordable Care Act in place for the next two
years while the Dems continue to control the House. But I think it`s not
going away.

The longer people get used to having access to that program, the more used
to it they get and the more difficult it is to difficult to dismantle. So,
that`s a lot less uncertainty from the insurer`s perspective.

HERERA: From an investment standpoint, if you are a long-term investor is
this a good time to look at some of the particular players in this arena?
And if so, what sectors?

MURPHY: I do think — I am positive in the market heading into the back
part of the year. So, you know from a very macro perspective I think we
are in a seasonally strong period of the year. We have the uncertainty of
the elections behind us. You know, Santa Clause is coming to town.
Everybody feels good.

But we`ve also seen a rotation into more defensive areas. So I tend to
favor those that are less tied to top line GDP growth. When you think
about health care, we still have strong growth characteristics.

As I mentioned, we just expanded the pool of potential customers that they
can work with. And so — and you`re not beholden to that next quarter of
GDP. So, I think, you know, particularly as managed care stocks and the
pharmaceutical stocks have much stronger characteristics heading into the
back half of the year.

HERERA: Kara, thank you very much.

MURPHY: Thank you.

HERERA: Kara Murphy with United Capital.

As Mike Santoli mentioned earlier in the program, the Federal Reserve will
wrap up a two-day policy meeting tomorrow, with interest rates in focus.

Steve Liesman tells us what the strategists and those money managers out
there have to say about monetary policy, the market and the economy.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: No rest for the
weary. Fresh after dealing with the U.S. midterm elections, investor haves
to think about the Federal Reserve.

Here are the Fed expectations for the November meeting of the U.S. Central
Bank. Ninety percent of our panel says no rate hike in November. Eighty-
five percent, though, expect that rate hike in December. So, some pretty
good certainty around a fourth rate hike for this year.

How many next year? Two and a half. What does that mean? It means pretty
much good agreement on doing two and about half of the panel of 30 say
they`re going to stay at two another half say they do three next year.

Let`s put all the quarter point rate hikes together and I`ll tell what you
it all adds up to. We`ll end the year at a Fed funds rate, that`s the
overnight rate the Fed uses to adjust overall — the overall economy at
2.4, going up to three. And then we stay there. And eventually, at some
point in time, the panel believes the Fed gets a little bit restrictive by
a quarter the point and ends its cycle at 3.3 percent.

Now, remember hiking rates is just one of the things the Fed is doing.
It`s also reducing its balance sheet. If it stays on course, it will
reduce its around the $4 trillion balance sheet by $600 billion.

We asked the panel, what`s that worth in rate hike terms? Well, 15 percent
say it`s less than one hike, 32 percent say it`s equal to a single quarter
point hike. And 32 percent say it`s really two or three hikes. The
average is 35 basis points.

So, in your mind when you think about how much the Fed is going to do next
year, it`s the rate hikes maybe two or three. But then an additional $600
billion reduction in the balance sheet.

Back to you.

(END VIDEOTAPE)

HERERA: Wall Street was also keeping an eye on the resignation of Attorney
General Jeff Sessions which came at the president`s request. Sessions`s
departure follows more than a year of public criticism for his decision to
recuse himself from the Russia investigation. Session`s chief of staff
Matthew Whitaker was named acting attorney general.

It is time to look at today`s upgrades and downgrades.

Target (NYSE:TGT) was upgraded to outperform from market perform at Cowen.
The analyst cites traffic at the stories, private brand innovation and its
push into digital. The price target is $100. The stock rose more than 1
percent to $86.76.

AIG was downgraded from to inline from outperform at Evercore ISI. The
analyst cites the potential for earnings to come in below consensus. The
price target is $51. The shares fell one percent to $44.43.

Freeport-McMoRan was downgraded to underperform from sector perform at RBC
Capital Markets. The analyst cites that stocks valuation ahead of what is
expected to be a decline in 2019 production. The price target is $15, but
the stock rose along with the broader market today to finish at $12.33.

Still ahead, smooth sailing, money is pouring into the cruise industry,
thanks to a strong economy and now a major cruise line is pouring money
into Miami.

(MUSIC)

HERERA: Facebook (NASDAQ:FB) says Russian trolls tried to influence the
midterm elections. The social media company blocked more than 100 Facebook
(NASDAQ:FB) and Instagram accounts with potential ties to a so-called troll
farm. Those accounts may be linked to a group that was indicted earlier
this year over allegations it interfered in the 2016 presidential election.

In San Francisco, voters approved a plan that would tax big companies to
help the homeless. It will be the largest tax increase in that city`s
history. As we reported, the measure known as Prop C divided the tech
companies. It had the backing of Salesforce but was opposed by other firms
including Twitter and Lyft.

Separately, Missouri and Arkansas residents voted yesterday to raise their
state`s minimum wages. Missouri approved a hike to $12 per hour, in
increments by the year 2023. Arkansas`s minimum wage will increase to $11
an hour by the year 2021. Roughly a quarter of that state`s workers will
benefit from that increase.

Defense stocks are among those expected to benefit from that divided
Congress. It is considered one of the areas where both Democrats and the
president may find common ground. If you recall, the Democrats agreed to a
Defense Department budget increase for the fiscal year 2019. Today, Boeing
(NYSE:BA), Northrop Grumman (NYSE:NOC) and Lockheed Martin (NYSE:LMT) were
all higher.

Boeing (NYSE:BA) and the FAA are warning airlines around the world about a
potential faulty piece of software that could leave pilots confused and put
airplanes in dire situations. The warning comes as investigators continue
to search for the cause of a crash of a brand-new Boeing (NYSE:BA) 737 Max
off the coast of Indonesia.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: As investigators
continue probing for clues about why a Lion Air 737 Max 8 airplane crashed
into the Java Sea, they are increasingly focusing on whether the pilots
were seeing erroneous information in the cockpit. Specifically, what was
the data coming from the plane`s angle of attack indicator?

That sensor, which is a vein on the outside of the fuselage, gives pilots a
visual reading of whether the plane is flying at an angle that could lead
to a stall and potentially a steep dive. Boeing`s bulletin reinforces how
pilots should handle that type of situation. As investigators review Lion
Air`s flight data recorder, they are drawing some conclusions. Boeing
(NYSE:BA) says investigators have indicated Lion Air Flight 610 experienced
erroneous input from one of its AOA sensors.

When search crews find and listen to the plane`s cockpit voice recorder,
they`ll have a better picture of what the pilot saw and how they reacted in
the final moments of the flight. Boeing (NYSE:BA) has delivered
approximately 200 737 Max 8s with more than 2,500 schedule to be built over
the next several years. It is the company`s most popular plane.

At this point, there`s no indication airlines have to ground the 737 Max
8s, in part because Boeing (NYSE:BA) and safety regulators believe this
bulletin addresses a potential concern for pilots, while investigators hunt
for the official cause of the Lion Air crash.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Michael Kors falls out of fashion that`s where we begin tonight`s
“Market Focus”.

The handbag maker missed quarterly revenue expectations for the first time
in almost two years. Sales at its retail stores in Europe were weak and
analysts are expressing skepticism over the company`s acquisition strategy.
Together, that sent shares lower by 14 percent to $49.05.

Beauty products maker Coty missed revenue estimates the second straight
quarter. The company reported a 10 percent sales drop in Europe, which is
its biggest market, as well as supply chain disruptions. The shares
plunged more than 22 percent to $8.66.

Dean Foods (NYSE:DF) reported disappointing third quarter earnings and
lowered its full-year outlook. The largest milk producer in the country
said its costs are rising and it is losing market share to Walmart, Kroger
(NYSE:KR) and other grocers. The company`s closing seven plants. The
stock down nearly 50 percent this year fell 22 percent today, closing at $6
even.

Well, a rising tide lifts all boats. And so does a strong economy
apparently, which may be why the cruise industry is firing on all
cylinders. Demand is up. Bookings are soaring.

And now, Royal Caribbean is making a big bet on the consumer with its
recently opened new port in Miami.

Seema Mody has the details.

(BEGIN VIDEOTAPE)

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: As more baby boomers
retire, the cruise industry is expecting a strong upturn in 2019 with a
record 17 ships set to debut next year. The problem is there is not enough
capacity at the ports to accommodate the new ships.

Royal Caribbean is taking matters into its own hands, launching a state of
the art terminal, making it the first cruise line to build and launch a
terminal in port Miami.

RICHARD FAIN, ROYAL CARIBBEAN CRUISES CEO: This was a $250 million
expenditure. But it is — it will pay back fairly nicely in terms of guest
satisfaction, in terms of what it does for the community, and also our
operating costs on a per passenger basis ends up being less. So, the net
to us is a slight improvement to our bottom line.

MODY: Royal broke ground on terminal A last year. The build employed
2,000 construction workers. Port Miami estimates it will have a $500
million annual economic impact on the state of Florida.

MAYOR CARLOS GIMENEZ (R), MIAMI-DADE COUNTY: We continue to have increases
every single year. So, we had a record year of over 500 million cruise
passengers come to Port Miami. We`re the cruise capital of the world. We
expect that to grow another 2 million by adding additional facilities, by
adding more ships. We`ve already contracted more ships, more lines, are
now going to make Port Miami their home port. So, we expect that growth to
continue and start to expand a little bit to the year 2021.

MODY: With the new terminal, Royal Caribbean is forecasting cruise
bookings to rise, from 750,000 to 1.8 million over the next year.

But the terminal launch comes at an uncertain time as investors debate the
future of the economy, the impact of higher rates and the state of the
consumer.

Royal Caribbean`s Fain says while he is concerned about geopolitics and
ongoing trade disputes, it`s not having an impact so far.

FAIN: I`m a free trade advocate, and anything creating tensions about free
trade I view as economically a bad thing. But our business in China
continues to do well. I think part of it is because the Chinese market is
so embryonic. It`s so small that it doesn`t take much to attract new
customers.

MODY: Analysts say travel is an economically sensitive sector, and any
downturn in the economy can have profound consequences on whether consumers
continue to spend money on travel and cruises.

For NIGHTLY BUSINESS REPORT, Seema Mody, Miami.

(END VIDEOTAPE)

HERERA: Coming up, the economic issues that matter to suburban Americans.

(BEGIN VIDEO CLIP)

BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Coming on up on
NIGHTLY BUSINESS REPORT, we tell you why this bucolic suburb in New Jersey,
just across the river from Pennsylvania in New Jersey`s third district, may
be the perfect representation of the election as a whole.

(END VIDEO CLIP)

(MUSIC)

HERERA: As we reported, Americans care a lot about health care and the
overall economy. And no where is that more evident than in suburban
America.

Brian Sullivan is in Moorestown, New Jersey, for us tonight.

(BEGIN VIDEOTAPE)

SULLIVAN: You may not think it, but this little congressional district
that cuts across the middle of south central New Jersey may just perfectly
represent the nation as a whole. Now at this recording, this district, New
Jersey`s third, has not been decided. It is too close to call and votes
are coming in.

But why it may represent the country as a whole is not about that part.
It`s about what people care about, whether or not it`s here in the
wealthier suburbs of Moorestown, just across the river from Philadelphia,
or out near the ocean in Tom`s River which leans Republican, because the
election is about the economy. But more than that, it`s about health care.

Listen to what David said about his main concerns.

UNIDENTIFIED MALE: The meditation that I take to keep me alive, to keep my
cancer in remission costs $9,000 a month. I am covered with the Affordable
Care Act. If the Republicans are to monkey around with that much more, or
God forbid, take it away, I won`t be able to afford the meditation I need
to keep me alive literally.

SULLIVAN: Of course, though, the president also loomed large even in a
leaning blue Democrat area like this, you`re going to find Trump
supporters. It doesn`t mean they necessarily like the president. But they
like the way the economy is going.

UNIDENTIFIED FEMALE: I am a Trump supporter. I don`t like always what he
says. But I like what he does. So, I look beyond that and I`m really
pleased with what he accomplished.

When the economy is good, everybody is happy. I have never seen so many
trucks in my street. People having work done. They`re confident. They`re
doing things. They feel good about the money they have in the bank.

SULLIVAN: So, you got health care and you`ve got the economy and you`ve
got a race right here that is still yet to be decided. But even among
that, there are still those who remain cynical about politics in general.

Out in Tom`s River, you meet some who say, well, doesn`t matter who is in
office, nothing is going to change anyway.

UNIDENTIFIED MALE: No matter who is in office there seems to be some issue
everybody wants to fight about. So, whoever gets voted in there will be a
new set of problems to talk about.

SULLIVAN: Whatever, though, the ultimate outcome is here in the New Jersey
third district, they won`t matter. The house is going to be Democrats.
The Senate has been locked down by the Republicans.

But hopefully, both sides will understand and hear what residents all
across New Jersey have to say. The economy is important. But health care
is their number one concern.

For NIGHTLY BUSINESS REPORT, Brian Sullivan, Moorestown, New Jersey.

(END VIDEOTAPE)

HERERA: Here`s a look at final numbers on Wall Street. A big rally, 545
point to the upside for the Dow. The Nasdaq rose 194. S&P 500 added 58.

That will do it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
Thanks for joining us. And we will 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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