Transcript: Nightly Business Report – December 4, 2018


tanks, falling nearly 800 points as investors run from equities in one of
the worst days of market this year.

market sends a stark message to investors. But what`s really going on
inside the economy?

GRIFFETH: Housing hurt. A leading luxury home build says sales could be
in for a winter chill.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Tuesday, December 4th.

HERERA: Good evening, everyone. And welcome.

Stocks were battered and bruised. The reason wasn`t just trade, though
that didn`t help. Today, a big focus was on the bond market, which some
say is signaling a slowdown in economic growth. The word recession is even
being thrown around.

The retreat from stocks was broad, all of the major indexes fell more than
3 percent with the financial sector getting hit the hardest.

Let`s get right to closing numbers. The Dow Jones Industrial Average
plunged 799 points to 25,027. The Nasdaq was down 283. And the S&P 500
slipped 90.

GRIFFETH: So, what exactly happened in the treasury market that sent
stocks plummeting like this?

Steve Liesman takes a look at what the bond market may be signaling.


worries that helped push markets to a big decline Tuesday is what`s called
an inverted yield curve. Sounds complicated but it`s a technical term, it
means a long-term bond like the 10-year yields less than the shorter bond
like the two. It`s supposed to be the other way around.

It`s called the 2-10 spread. Once the difference is negative, it has
almost a perfect record of predicting a recession from a year to 18 months
out. It`s not quite negative yet, but with the 10-year yielding around 2.9
percent and the two year at 2.8, the difference between the two is as small
as since 2007. That was on the eve of the financial crisis.

So, what`s troubling the market?

sniffing out a continuation of the slowdown in growth we are seeing and
possibly moderation or a topping out in inflation trends, particularly with
the drop in oil and in core PCE that we just saw last week, that showed a
little coming off of the edge.

LIESMAN: After celebrating the weekend trade talks between Presidents Xi
and Trump, a second look by the markets suggested there might be less to
the agreement than first met the eye. That creates the possibility that
the U.S. and China will be on the verge of another trade war just 90 days
from now.

Second, economies are slowing, especially abroad. And investors don`t
quite have a read on how much U.S. growth will eased back as a result.

Third, all of this has investors trying to game out how the Federal Reserve
will react by pushing ahead on raising rates or easing up on those rate
hike plans. While inversion has a good record of predicting recession, the
history suggests there is no recession signal if the difference between the
two and a 10 remains positive. And it is still positive. So, there`s
still a chance this is a false signal.



HERERA: Those trade concerns that Steve just mentioned were acknowledged
today by the treasury secretary at the “Wall Street Journal`s” CEO Council


STEVEN MNUCHIN, TREASURY SECRETARY: I think that the market is now in a
wait and see. And the market is trying to figure out, is there going to be
a real deal at the end of 90 days or not?

And I will tell you, there are very, very specific issues that the
president agreed on, OK, but now have to be dealt with on specific wording.
For the first time, China agreed that — to a concept of specific
timeframes, specific deliverables, and penalties if they don`t — if they
don`t respond. Now, whether we can get that to a real agreement, or at
least make a lot of progress over the 90-day period or not, time will tell.


HERERA: Trade sensitive stocks like Caterpillar (NYSE:CAT), Boeing
(NYSE:BA) and 3M (NYSE:MMM) were all lower in today`s session.

GRIFFETH: Well, let`s talk about this market selloff.

Bob Pisani who usually is at the New York Stock Exchange is actually with
us in studio.

the West Side Highway. So, I`m here.

HERERA: We`re happy.

GRIFFETH: And we`re very, very thankful about that.

What`s the mood of the market? What`s this message that the market is
telling us that you can tell from traders down town?

PISANI: Slower growth is the main message and concerns about — continued
concerns about tariff. As you heard Mr. Mnuchin there, we don`t have a
deal and the market is a bit skeptical.

GRIFFETH: Even though the economic data is still looking pretty good
right now.

PISANI: The U.S. economic data is looking very good. But remember, you
know this, the market is a discounting mechanism. We are trying to figure
out what`s the 2019 earnings picture is going to look like.

Right now, analysts think it`s not going to be a bad year, up about 10
percent. But certain signs globally, China and Europe, that the numbers
are not as strong as people think. Some people, Morgan Stanley (NYSE:MS),
for example, they have 4 percent earnings growth.

Now, the market moves on what earnings are going to look like a year from
now. And if you`re talking about 4 percent instead of 10 percent, the
market is going to have a problem. And that`s the problem.

We can`t figure out what the tariffs are going to be and what kind of
global growth or slowness are we going to get. A little bit better picture
on the Fed and raising rates, but those two X factors are really causing a
lot of gyrations.

HERERA: I was going to ask you about the Fed because does a day like today
coupled with the worry about slowing economic growth, do you think it
changes the dynamic for the Fed or not quite yet?

PISANI: Well, no, there are people who are out who will say yes, that`s
going to change the way the Fed is thinking. But in theory, that`s not bad
news if the Fed is going to go even slower than people thought.

So, two things happened today. First, we hit a very important technical
level about noon, the 200-day moving average for the S&P 500. When you
drop below that, that tends to indicate slower growth. Also we have the
flatter yield curve where the 10-year is coming down. Historically, that
also indicates a slower growth.

So, wait a minute, we get two indicators that historically has indicated
slower growth. This tells momentum traders, guys who trading on how growth
is doing, slow down a little bit. Take some risk off. And that`s
essentially what we had. The market went down notably when we hit that
200-day moving average.

GRIFFETH: Good to have you here.

PISANI: Pleasure.

GRIFFETH: Thank you, Bob Pisani, joining us tonight.

HERERA: While concerns over a slowdown dominated trading, not everybody is
worried because today we heard from a commerce secretary and two big bank
CEOs, all of whom said the economy is doing just fine.


WILBUR ROSS, SECRETARY OF COMMERCE: The economy itself is really strong.
You have seen the unemployment figures. You have seen the new claims. You
have seen industrial production.

You have seen executive confidence. You have seen consumer confidence.
Those are all very, very high.

the U.S. economy. The prediction is it will slow a little bit, but
underneath that, is a strong growth rate that we feel very strong about.

TIM SLOAN, WELLS FARGO CEO: We have been in a long economic recovery.
It`s been a little bit more muted than prior economic recoveries. That may
mean it`s going to last a bit longer. But I think we need to be very wary
of the fact that at some point, we`re going to have a cycle.

What we see today in the economy, what we`re seeing from our customers is
generally a positive. And so, we`re not overly concerned.


HERERA: So what`s really happening in this economy?

Peter Boockvar, chief investment officer with the Bleakly Advisory Group
joins us. He was, as you know, in Steve Liesman`s report earlier. He`s
back with us. And Ian Shepherdson, chief economist at Pantheon
Macroeconomics joins us as well.

Ian, let me start with you. How do you view the economy at this point?
And is the market really reading it completely wrong?

is probably overdoing. But I think all the talk of slowdown or heaven
forbid is imminent recession is overdone. There are pockets of weakness,
housing in particular. But I think even there, probably is being distorted
by the hurricanes Florence and Michael which hit the recent numbers.

Apart from that, yes, there has to be some slowdown because the tax cuts
gave us really strong second and third quarters. But we are not going to
go from those very into a rollover. That`s — we`re going back to
something probably in the middle or high 2 percent for GDP growth.

That`s fine. That`s enough to keep the unemployment rate, which remember
is already at a 49-year low, continuing on a downward track, heading
towards 3.5 or 3.25 percent, which to me is a pretty remarkably strong

GRIFFETH: Peter, you`ve been long looking at global growth and that`s been
a problem and now, it`s starting to creep to us, I guess. Or at least what
the market senses, right?

BOOCKVAR: Global trade has clearly slowed. In the third quarter alone, we
had economic contractions in Japan, in Germany, in Sweden, in Switzerland,
in Italy. Some of that with respect to Japan and Germany will rebound in
the fourth quarter. But those are a bunch of countries that saw a decline
in economic activity in Q3.

But there`s no questions that exports and global trade has slowed. A lot
of it has to do with tariffs, a lot of it has to do with China just
naturally slowing in a deleveraging process.

But that is now beginning to affect U.S. growth. It`s certainly going to
affect U.S. trade, because we do obviously rely on exports with about 15
percent of the U.S. economy.

GRIFFETH: So, Ian, what about that, can the U.S. economy weather a global
slowdown from the likes of India and China, and to a certain extent parts
of Europe as well.

SHEPHERDSON: There`s a hit from those things. But, you know, 85 percent
of the economy is domestic is the other way of looking at it. And the
domestic side of the economy really is still pretty strong.

The great uncertainty, of course, is tariffs because they could turn the
story upside down if in 90 days time, the tariffs on Chinese imports goes
from 10 percent to 25 percent as the administration threatening, then we`ll
have a much more serious slowdown. It will be absolutely chaotic.

My guess is that this is a big bluff game, and that actually, we`ll pull
back from the brink and probably extend that negotiating period further. I
don`t think either China or the U.S. really want to go down the rabbit hole
of huge tariffs on everything. It`s just too dangerous. Both economies
are suffering from it. But equally, if we take that threat away, both
economies will do better.

GRIFFETH: Peter, if we`re going to see a slowdown here, where do we see it
first? Which sectors typically lead a slowdown?

BOOCKVAR: Well, I think capital spending is at risk because of the
uncertainty with respect to tariffs, and the growth slowdown that we`re
seeing overseas. I think another key thing is, what coast the stock market

The consumer has been really the driving force. We are very asset price
dependent economy. If the stock market goes through the turbulence, if
this all actually continues, that in itself could start to affect consumer
spending behavior.

We`ve already seen a slowdown as you mentioned in housing. We`re seeing
the plateau in autos. You see a further decline in the stock market, and I
can guarantee not only is it going to affect consumer behavior, but it`s
also going to affect corporate behavior, because if you`re the CFO and the
CEO and see a decline in the stock market, you`re going to take a pause.

GRIFFETH: The transportation stocks were very weak today. The transport
average had its biggest point decline ever today. So, there is one
indicator right there I guess.

BOOCKVAR: Absolutely. A proxy for not only domestic but also
international trade.

HERERA: Weigh in on that, Ian. Do you agree?

SHEPHERDSON: Certainly, I don`t want to see the stock market keep falling
another few days like today, it`s going to get very difficult very quickly.
But my guess is that today was mostly a reaction to the president`s tweets
about tariffs, when he called himself a tariff man and kind of turn upside
all the warm thoughts that we had over the weekend from the meeting with Xi

So, I suspect he`ll be walking back from some of that language over the
next few days and hopefully things will settle down again. But it`s pretty
clear that the peak of earnings growth is now gone. And the question of
what happens to earnings growth next year really is becoming very pressing.

But I think some of these forecasts that we`re seeing now are getting to be
a little bit too bearish. I`m not ready yet to call a meaningful turn in
the economic cycle. I think the domestic story has legs for a while yet.

HERERA: On that note, gentlemen, thank you so much. Peter Boockvar with
the Bleakly Advisory Group, and Ian Shepherdson with Pantheon

GRIFFETH: Well, it`s time to take a look at some of today`s “Upgrades and

We begin with Intel (NASDAQ:INTC) which was downgraded to underperform from
market perform at Northland. The analyst there says weak demand will slow
growth. And he added that and we`re quoting here. It takes Intel
(NASDAQ:INTC) forever to turn the ship and even longer to change momentum.
Price target now $42, that stock fell more than 4-1/2 percent today to

Morgan Stanley (NYSE:MS) cut its price targets on FedEx (NYSE:FDX) to $232
and UPS to $87. The analyst cited competition from Amazon (NASDAQ:AMZN)
Air. The firm says that Amazon (NASDAQ:AMZN) Air could steal as much as 10
percent of the two shipping giants `revenue by 2025. Shares of FedEx
(NYSE:FDX) fell 6 percent, UPS dropped 7 percent. And as we mentioned,
that took down the broader Dow Transport Average which suffered its biggest
ever point decline today.

Meanwhile, Apple (NASDAQ:AAPL) was downgraded to hold from buy at HSBC with
the analyst citing too much dependence on a single product, namely the
iPhone, and the reality of what he called market saturation. Price target
now $200 and the stock closed below that level at $176.69.

HERERA: And speaking of Apple (NASDAQ:AAPL), have iPhone sales indeed
peaked? Still ahead, what that could mean for shares of one of the most
widely held stocks.


GRIFFETH: German auto executives went to the House today, including the
heads of Daimler and Volkswagen. They were to discuss the Trump
administration`s threats to impose new tariffs on European-made vehicles.
But Daimler has said that it planned U.S. investments. They are contingent
upon no new trade barriers. And the CEO of Volkswagen said today he is
working on an alliance with Ford which would increase capacity here in the
United States.

HERERA: Another Apple (NASDAQ:AAPL) supplier is warning of slowing sales.
Audio chip maker Cirrus Logic (NASDAQ:CRUS) said weakness in the smartphone
market would cause earnings for the third quarter to come in lower than
expected. This comes on the heels of several Apple (NASDAQ:AAPL) suppliers
reducing their financial outlooks in recent weeks. Shares of Cirrus Logic
(NASDAQ:CRUS) finished the day down nearly 2 percent.

GRIFFETH: And Apple (NASDAQ:AAPL) is now reportedly turning to promotions
to drive sales of iPhones. Bloomberg is reporting now that the tech giant
has instructed some of its marketing staff to stop working on current
projects so that it can focus on improving demand for the company`s newest
iPhones. Since that initiative, Apple (NASDAQ:AAPL) has indeed offered
consumers a number of trade in offers that reduce price on some of the
iPhones currently for sale.

HERERA: So, does all of that mean that the company may have reached peak
iPhone sales? And if so, what will it mean for the stock?

We are joined tonight by Timothy Lesko, principal at Granite Investment

Tim, welcome. Nice to have you here.


HERERA: Weigh in on the debate. Is it that iPhone sales have peaked? Or
people are just waiting longer to upgrade or renew with a new phone? How
do you feel about it?

LESKO: Well, I think that you`re finding that with the higher priced
iPhones and with the cycle seemingly stretching out where people might be
waiting two or three years to upgrade their iPhone, that there`s a concern
out there that that`s going to mean a massive decline in iPhone sales. I
think that that really maybe isn`t in the — baked in the cake.

Apple (NASDAQ:AAPL) grows internationally. So I think these analysts are
taking a very U.S. centered view of a product that is sold around the world
with plenty of growth opportunities.

GRIFFETH: You know, I can hear Tim Cook now — he has said for years that
Wall Street just doesn`t understand their growth strategy. Yes, hardware
sales have been slowing down. But it`s the services, the ecosystem that
feeds those services that are really the growth — future for this company.

What do you think about that?

LESKO: I think he is absolutely right. I think what Apple (NASDAQ:AAPL)
wants to be is the operating system for everything you do digitally,
whether it`d be your smartphone certainly as their lead product but also as
the computer, your tablet, your watch, eventually your car, perhaps your
automated you`re your thermostat and your smoke detector.

So, you know, even if iPhone sales slow, it`s not because people are buying
a different phone or moving to a different operating system. They are
staying within the ecosphere, which really creates long-term opportunity
for Apple (NASDAQ:AAPL) to continue to sell them, both other products and

HERERA: So, what do you do with the stock? We just said that HSBC
downgraded the stock today, it took a hit. If indeed there is this global
growth with India, China, with other parts of the globe, do you add to a
position here if you`re a long-term investor?

LESKO: Certainly if you are a long-term investor. You know, sales of
almost every product can be cyclical. As long as this isn`t a secular
change in the way people interact with technology, then you just have to
take it as a cyclical weakness in a product, or perhaps at a price point.

The other thing facing all cellphone manufacturers is in a year and a half,
we are going to have widespread 5G cellular service, which is going to
force everybody to want to upgrade their cell phone. So, I think Apple
(NASDAQ:AAPL) was wise to stop telling people how many iPhones they sell
because you probably see a meaningful decline over the next 18 months until
those 5G phones come on.

HERERA: Tim, thanks so much. Appreciate it.

LESKO: Thanks for having me.

HERERA: Timothy Lesko with Granite Investment Advisors.


GRIFFETH: Now to the housing market. And a weak report from Toll Brothers
(NYSE:TOL) which added to today`s overall concern in the stock market. The
luxury home builder reported its first decline in quarterly orders in more
than four years, and it issued a downbeat outlook at well.

Diana Olick has more.


home market is not immune to the widespread weakness in housing right now.
Toll Brothers (NYSE:TOL) whose average home price is about three times the
national average reported new orders down 13 percent from a year ago in its
last quarter. It also gave lower expectations for 2009 than the street was

DOUGLAS YEARLEY, CEO, TOLL BROTHERS: In November, we saw the market
further soften, which we attribute to the cumulative impact of rising
interest rates, rising home prices and the affect on buyer sentiment of
well-publicized data of a housing slowdown.

OLICK: Analysts, however, point out that we have been seeing a slowdown in
housing all year. This is just the first time Toll acknowledged it,
showing that luxury is also sensitive to rising mortgage rates, which took
a large leap in the last three months.

As for the well-publicized reports, they`ve come from all sectors of the
housing industry, the home builders, the U.S. census, the realtors, Fannie
Mae, all have reported weakness in home sales and pointed squarely at
affordability now at the lowest level in a decade.

Even Toll noted the most weakness in California, where home prices are

YEARLEY: Significant price appreciation over the past few years in
California, fewer foreign buyers in certain communities, and the impact of
rising interest rates all contributed to this slowdown.

OLICK: On the bright side, those hot home price gains are now cooling,
which should help more people afford to buy, except now that prices are
cooling. People want to wait, afraid if they buy now, they will lose

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


HERERA: Dollar General`s bottom line was hit by hurricanes and that`s
where we begin tonight`s “Market Focus”.

The discount chain cut its profit and sales outlook for the year, citing
storm-related losses. The retailer says many of its stores were damaged by
extreme weather in the Southeast and the company also warned of higher
freight costs. The stock fell more than 6.5 percent to $104.10.

AutoZone (NYSE:AZO) reported a 25 percent rise in earnings which surpassed
analyst expectations. Same store sales at the auto parts retailer were
also better than expected. Shares bucked the broader market trend, rising
more than 6 percent to $880.07.

GRIFFETH: Delta expects a key revenue metric to fall short of
expectations. The airline says that fourth quarter unit revenue will rise
3 to 5 percent despite recent declines in fuel prices, and that`s adding to
investor concerns about the industry`s ability to manage this decline in
oil prices we have seen. That stock fell 5 percent today to $56.94.

Also after the bell tonight, computer maker Hewlett-Packard (NYSE:HPQ)
topped Wall Street expectations as the company sold more storage and data
center products. Totals sales also grew at a faster than expected pace.
And shares were up initially in the after-hours but finished the regular
session down nearly 3 percent to $23.24.

HERERA: Oil prices settled slightly higher today after a volatile session.
As we reported yesterday, there is the expectation that oil producers could
reduce output at an upcoming meeting this week, a meeting that is taking on
greater importance.

Jackie DeAngelis explains.


from the crucial OPEC meeting in Vienna and news this week that Qatar
intends to withdraw from the cartel.

Qatar, the world`s largest natural gas producer, is a relatively small oil
producer but still the move is significant. Qatar is separating itself
from OPEC after clashes with Saudi Arabia. The country says the move is
strategic and not political. But either way, it makes a powerful

Qatar is forging ahead with plans for energy businesses and in a new
dynamic landscape fueled by the U.S. shale revolution, the implication is
the old way of doing business no longer applies. The move also raises
questions whether others will follow suit, putting their own interests
ahead of group to try to fight a bar on energy pricing that has gotten more

important part of in is the increased oil production out of the USA. It
used to be that OPEC was the only game in town and they had almost absolute
control of the prices. Now, they do not.

Are they still powerful? Of course, they are. Has their power lessened?
By a lot.

So, the fact that Qatar has left it`s interesting to me and it could be a
sign that people are looking at OPEC saying, you`re not the only game in
town any longer.

DEANGELIS: Oil prices dropped to $50 a barrel just recently as concerns of
oversupply and waning demand have hit the markets again, when oil prices
dropped, producers globally struggle and face difficult decisions on
production levels. It`s been a back and forth playing out over the last
few years.

Canada just announced a production cut from Alberta, suffering from lower
prices, taking matters into its own hands. Experts say the move shows
producers are at a loss on what to do.

And Thursday, OPEC meets. The expectation is for a cut of a little more
than a million barrels to support prices over $50. But does a cut that
comes on the inflated base really matter.

IUORIO: I think there are people have to shorten up positions prior to the
meeting. And I think oil could spike up to $56 prior to that. Does the
story itself matter? I don`t think it matters that much.

What really happens and what they say is going to happen, that takes months
to figure out. But I think we could have a spike in prices prior to the

DEANGELIS: While much is uncertain, one thing is for sure: times are
changing in the oil patch and the players are changing course. Qatar is
just the latest example of the crack in the OPEC`s armor.



GRIFFETH: Coming up, expanding economic opportunities for at-risk kids.


HERERA: Well, it was an ugly market day, but we have a story now about
giving back. At the center is an organization in the Bronx that received a
grant from the Chan Zuckerberg Initiative and Rockefeller Foundation.

Kate Rogers (NYSE:ROG) has all the details.


here in the Bronx are getting a second chance.


ROGERS: They`re participating in a program called Bronx Connect, which
works to keep at-risk youth out of the criminal justice system and reduce
youth incarceration. Bronx Connect does just that. It connects these
young adults with positive community resources like mentors, even job
training when many may have little else.

dysfunctional homes, so they don`t really want to go home and deal with
whatever they are dealing with. Some don`t — stay on the streets.

ROGERS: Bronx Connect is one of 10 grantees awarded $1 million each from
the Communities Thrive Challenge led by the Chan Zuckerberg Initiative and
Rockefeller Foundation. These organizations are turning to community
leaders to solve economic and social issues ranging from disenfranchisement
to financial literacy.

important to understand these complex issues and the real barriers that
actually prevent individuals from being successful. And the best — folks
who are best positioned to actually know and address these questions are
folks who are already embedded in the community.

ROGERS: Part of the premise of the challenge is that even in a strong
economic environment, many are being left behind.

generations ago, people had much more economic mobility and opportunity in
America than we do today.

ROGERS: Bronx Connect is already seeing success. Participants in this
alternative to incarceration program had only 17 percent recidivism rates
over the course of the year, compared to 76 percent for youth incarcerated
in the city.

CHAN: They are completely rethinking the way that we address the needs of
young people when they commit misdemeanors and felonies. And there — they
take it as an opportunity to give the mentorship — give the opportunities
for education, for kids to actually then move forward in their lives.

UNIDENTIFIED MALE: You started working — it`s been like a month, right?

ROGERS: And with the grant money, they`re hoping to help even more people.

that when we were young, we might have made a mistake. We want someone to
give us a chance and point us to a better direction than just punishing us.

York City.


GRIFFETH: And one final look at what turned out the worst day of the
market this year with each of the major averages down more than 3 percent.

HERERA: That`s it for NIGHTLY BUSINESS REPORT, I`m Sue Herera.

GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.


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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