ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Wall Street sell-off.
Stocks tank as Apple (NASDAQ:AAPL) feeds into some of investor`s biggest
fierce of a global economic slowdown.
$74 billion-dollar bet. Bristol Myers Squibb is buying Celgene
(NASDAQ:CELG) to create a cancer drug powerhouse, but that`s not the only
reason for the get-together.
Power shift. A new Congress is sworn in. Ending the partial government
shutdown, though, tops the agenda, but there`s still no end in sight.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Thursday, January the 3rd.
And we do bid you a good evening, everybody. Sue is off tonight.
What a night to be coming to you once again here from the New York Stock
Exchange, where it was another rough session for stocks. It started last
night with that rare revenue warning from Apple (NASDAQ:AAPL) that we told
you about. The company blamed China, sparking new concerns of a global
economic slowdown. And those concerns then reverberated in the markets
around the world in the last 24 hours.
The selling then intensified here on Wall Street when a new report this
morning pointed to a decline in factory activity in December. And as one
strategist put it, that report shows that the slowing growth overseas may
have made it to our shores.
Here are the day`s closing numbers with the Dow closing on its low of the
day, down 660 points to 22,686. The Nasdaq was down more than 200. The
tech sector overall had its worst day in seven years. And the S&P 500 slid
By the way, Apple (NASDAQ:AAPL) dropped nearly 10 percent, suffering its
biggest one-day decline in six years. The company that was once the most
valuable in the world has lost nearly 38 percent of that value since early
Mike Santoli has more on today`s stock slide.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: One of the world`s
most important companies has confirmed one of investor`s greatest fears,
that the global economy is slowing sharply with China and the trade war
near the center of weakness. Apple (NASDAQ:AAPL)`s warning of a steep
shortfall in revenue for the latest quarter mostly due to poor iPhone sales
in China punished the company`s already battered stock and drove selling in
a wide range of shares exposed to the sputtering Chinese economy.
Semiconductor, aerospace, and industrial good stocks bore the brunt,
dragging the broad market lower on the year`s second trading day.
Fear that the U.S.-China trade standoff is hurting the economy has been a
key factor driving the three-month 50 percent selloff in the S&P 500. And
these concerns were amplified in a weaker than expected report on U.S.
manufacturing trends on Thursday. The ISM report is a closely watched
gauge on industrial conditions and its sharp pullback added to growing
worry that corporate profit forecasts for 2019 will need to be cut
Many strategists came into the year saying stocks appear attractive after
the recent decline, valued near a three-year low compared to consensus
earnings expectations for the coming year. Yet this is based on current
projections of about 7 percent profit growth. If that number needs to be
cut substantially, stocks wouldn`t necessarily prove inexpensive.
Then there is the larger debate on whether the chances of a U.S. recession
in coming quarters is rising appreciably due to all these issues. The bond
market has been dropping treasury yields in a way that hints at rising
recession concerns. Yet consumer spending and employment numbers have held
up quite well.
For all these reasons, investors are awaiting Friday`s jobs number. And
the coming flood of earnings report later this month with a mix of
eagerness and caution.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
GRIFFETH: Certainly, Apple (NASDAQ:AAPL)`s rare earnings warning has left
many wondering just how bad it`s going to get this earnings reporting
season. And who could be next if any?
Phil Blancato is the CEO of Ladenburg Thalmann Asset Management. He joins
us here at the New York Stock Exchange tonight.
Happy New Year. Good to see you.
PHIL BLANCATO, CEO, LANDENBURG THALMANN ASSET MANAGEMENT: Good to see you
GRIFFETH: Do you sense if this is a specific problem to Apple
(NASDAQ:AAPL) or is this a broader issue that other companies suffer from
BLANCATO: Remember, this is a bad movie second time around. In October
when they did this it was the first sign that really the market was
changing. And it did. We sold off since then.
Then we got to the moment of capitulation at the end of the year and
thought maybe OK. And here comes Apple (NASDAQ:AAPL) again and does it
again. So, for me, this is still an Apple (NASDAQ:AAPL) issue because
there are two things going on.
First, they`re transforming as a company. They`re going from a manufacture
of technology to a company that`s service oriented and that`s a slow,
painful transition. But it`s still a very powerful brand. Secondly, the
tariff issue and it is affecting the cost of their goods and is impacting
revenue specifically in China.
GRIFFETH: And other companies which we heard about like Caterpillar
(NYSE:CAT) or Boeing (NYSE:BA) have been poster children as well for the
trade tiff with China.
BLANCATO: For sure.
GRIFFETH: Do you think other companies like that will have problems as
BLANCATO: I do. Whether it`s Delphi — you mentioned Boeing (NYSE:BA),
sort of my poster child. When you think about this weakening of the
biggest plane market in the globe, one of the biggest, suddenly buying less
planes, having less consumer drivem traffic, buying less manufacturing from
us, that`s a problem. And that`s where the tariff really hits home.
GRIFFETH: The issue whether or not the slow growth in China has reached
our shores. What about our earnings season coming up not too long from now
for the fourth quarter, what do you expect to hear?
BLANCATO: I take the other side of that one. You know, you got to play
the averages like baseball a little bit. Sure, 25 percent earnings last
year was awesome. So, now, we`re going back to average, maybe 10 instead
of 12. That`s still growth.
GRIFFETH: Is that priced into the stock market, yes?
BLANCATO: It is.
BLANCATO: I do think it is. I think we have gotten to this moment where
the market has been far oversold. You are looking at a scenario, if the
Fed become somewhat accommodative, you`ve got a very powerful consumer,
full employment, wages increasing low inflation, low interest rates, these
are the signs of a strong consumer that should support us.
GRIFFETH: A lot of people out there wondering, so what do I do about it?
What do you say to the average investor then?
BLANCATO: So, take your time right here. You want to rotate the cash for
bonds. Let the volatility soften out a bit — that`s fine. Let`s see
where the Fed sits between now and March.
However there is going to be opportunity to buy in the stock market here
because I think earnings are going to grind higher.
GRIFFETH: Are you buying growth or you`re going to buy defensive issues
which became very popular last year?
BLANCATO: Great question. I`m not in the defensive camp. I don`t think
we are in the cusp of recession. You hear a lot of that.
But you and I grew up with runaway inflation, runaway interest rates.
Runaway — none of that exists today. Where is the exuberance in the
So, if that`s not there, and we got a strong consumer, it`s not time to be
GRIFFETH: Who are you going to buy? Technology? Are you ready to buy an
Apple (NASDAQ:AAPL) or any company like that yet?
BLANCATO: I start with the consumer discretionary and then I work my way
into the health care sector, which is a staple of where we are going and
the technology sector eventually. At some point, I keep an eye on the
banks. Wow, they`ve been hit hard.
Not yet. Let`s see if we get a leveling off here, maybe get a loan growth
later in the year, because we get some turnaround. That could be the
second half of your story.
GRIFFETH: Always wise counsel from Phil Blancato of Ladenburg Thalmann
Asset Management. Again, happy New Year.
BLANCATO: Happy New Year.
GRIFFETH: See you later.
BLANCATO: Appreciate it.
GRIFFETH: Take care.
Elsewhere, White House economic adviser Kevin Hassett today said a lot of
companies that do business in China, not just Apple (NASDAQ:AAPL), could
feel the pain of a slowdown in the world`s second largest economy.
(BEGIN VIDEO CLIP)
KEVIN HASSETT, COUNCIL OF ECONOMIC ADVISERS CHAIRMAN: I speak regularly
with people at Wall Street. This is something that people have been seeing
coming for a good long while. And it`s one reason why — and you could go
back and look at my TV clips in December that I was saying that, you know,
yes, the Chinese economy is slowing and one of the reasons why markets are
responding the way they are is that people are downgrading their earnings
forecast for folks who have a lot of business in China.
(END VIDEO CLIP)
GRIFFETH: As you know, trade tensions between the U.S. and China are high
right now. And adding to the economic strain today was a travel advisory
from the State Department saying that Americans need to exercise increased
caution when traveling to that country.
Well, even if you don`t own Apple (NASDAQ:AAPL) shares outright, there is a
good chance that you own some in an exchange traded fund or an index fund
or in a mutual fund. Vanguard right now is the largest institutional
shareholder in Apple (NASDAQ:AAPL), mostly through its index funds and
ETFs. Blackrock and State Street (NYSE:STT) also among the top holders in
apple. In fact, those three firms combined suffered paper losses of about
$10 billion just today.
And remember, Warren Buffett`s Berkshire Hathaway (NYSE:BRK.A) took a big
stake in Apple (NASDAQ:AAPL) last year, and today, its paper losses came
out to be roughly $3.5 billion.
Meantime, the head of the Federal Reserve Bank of Dallas says it`s time for
the Central Bank to hold off on interest rate increases. During an
interview earlier today, Robert Kaplan said the Fed should not take further
action until some of the market and economic uncertainties resolve
themselves. He added that that could take several months, so he feels
policymakers should keep an open mind about the time table for further
There was some positive news on the economy today and involved jobs.
Report on the job market showed the private sector added more jobs than
expected in December. The ADP Private Payroll report rose by 271,000, its
biggest gain since February of 2017. And tomorrow, of course, the
government issues its own monthly jobs report which is widely followed by
many market participants.
Well, despite the concerns that the economy may be slowing, auto sales
continued to a strong pace last month. In fact, the numbers in December
helped the industry post surprisingly solid sales for the whole year. But
can that continue in 2019? That`s the big question.
Phil LeBeau takes a look.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Whatever worries
analysts may have about America`s economy cooling off, auto dealers are not
seeing it in showrooms. December sales did drop compared to the same month
in 2017. But overall, business was robust, with sales climbing slightly
higher in 2018, topping 17 million vehicles for a fourth straight year.
That has never happened before.
Will it continue? There are mixed signals. The jobs market and consumer
confidence remain strong. And relatively cheap gas means Americans have
more money in their pockets.
They are also taking out larger and longer term auto loans. That`s because
they`re paying more than ever for a new model. So there is concern
consumers may be at their limit, especially with the wave of three and 4-
year-old models coming off lease. That gives buyers the options of paying
far less for a car or truck with low miles and most of the latest
ADAM JONES, MORGAN STANLEY: The worry is this industry for 2019 for the
first time in decade doesn`t grow.
LEBEAU: One thing is not expected to change for automakers this year —
trucks, SUVs and crossovers will remain in demand, as Americans continue to
move away from driving small cars and sedans.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
GRIFFETH: A blockbuster deal in the drug industry to tell you about.
Bristol Myers Squibb is buying Celgene (NASDAQ:CELG) for about $74 billion,
making this the first major deal of 2019. Shares of Celgene (NASDAQ:CELG)
soared by 20 percent while Bristol Myers Squibb went in the other direction
dropping 13 percent.
The focus of the combined company will be cancer treatments. But as Frank
Holland reports that`s not the only reason for the tie-up.
FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: Bristol Myers Squibb
is bulking up. Its acquisition of Celgene (NASDAQ:CELG) will create a
dominant pharmaceutical company with a focus on cancer treatments. But
both companies face a number of challenges, and that may have been the real
driver of this deal.
BRIAN SKORNEY, ADBAIRD BIOTECHNOLOGY ANALYST: I don`t see this as really a
— a deal that is driven by enthusiasm, excitement on either end. I think
it`s really two mature companies with, you know, consolidation benefits. I
mean, they have a lot of overlap in terms of their R&D and sales force. I
would expect a lot of that to get eliminated. And I think that`s what`s
really driving the deal here.
HOLLAND: The companies say the deal will create $2.5 billion worth of
savings by 2022 and increase profits by roughly 40 percent next fiscal
year. Those cost savings come as Bristol suffers a series of setbacks in
the development of new drugs. It`s also facing stiff competition from
Merck (NYSE:MRK)`s oncology drug Keytruda.
Celgene (NASDAQ:CELG) will lose patent protection for its best selling drug
by 2022 and has endured la number of clinical trial setbacks. Celgene
(NASDAQ:CELG) shareholder will receive Bristol Myers Squibb stock and cash,
giving them a premium on Celgene (NASDAQ:CELG)`s closing price on
BMO Capital Markets analysts Alex Arfaei called the deal expensive but
logical in a letter to investors.
ALEX ARFAEI, BMO ANALYST: The rationale is complementary portfolios in
oncology, inflammation and cardiovascular decease, a promising pipeline and
HOLLAND: The merged companies will have products worth more than $1
billion each in annual sales. Management says the combined company will
create a pipeline of potentially profitable drugs in development with six
near-term product launches that could deliver more than $15 billion in
revenue potential. But experts say it all depends on how these drugs come
forward and if they get to market.
Shareholders from both companies and regulators still have to give final
approval of the deal. If that happens, Bristol Myers Squibs` acquisition
of Celgene (NASDAQ:CELG) is expected to be completed by the third quarter
For NIGHTLY BUSINESS REPORT, Frank Holland.
GRIFFETH: Time to take a look now at some of today`s upgrades and
We begin with Alphabet which was upgraded to a buy from hold at Canaccord
Genuity. The analyst there cited the potential for 15 to 20 percent
revenue growth and declining margin pressure. The price target, now
$1,250, and that stock fell, along with the broader market today, down more
than 2.5 percent to $1,025.47.
Gilead Sciences (NASDAQ:GILD) was upgraded to outperform from perform at
Oppenheimer. The analyst cited the drugmaker`s new CEO and the company
prospect for growth as a result. Price target $85. Shares rose more than
2.5 percent today to $65.25.
And Dow component United Technologies (NYSE:UTX) has been rated a neutral
at Citi in new coverage. The analyst says the stock lacks a near-term
catalyst, making it tough for the stock to outperform. Price target now,
$120. Shares dropped to 4 percent today to $103.48.
Still ahead, cooling off. A once hot real estate market has its worst year
since the financial crisis.
GRIFFETH: The concerns about a slowdown in China spread today in the
luxury retail sector. The feeling is if Chinese shoppers are not willing
to spend on an Apple (NASDAQ:AAPL) iPhone, then they may put off purchases
of luxury goods overall. Over the years, China has become a growing and
lucrative market for many high-end brands. But analysts today say that`s
why companies like Ralph Lauren, Tapestry and Tiffany (NYSE:TIF) all traded
A power shift in Washington with the 116th session of Congress beginning
today. Democrats take control of the House and this divided Congress
starts work with a very long to-do list.
Ylan Mui reports for us tonight from our nation`s capital.
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nancy Pelosi, now
officially speaker of the House for the second time. The only woman to
hold the gavel, she arrived on the House floor with her family, her five
children and nine grand children as she called for common ground amid
REP. NANCY PELOSI (D-CA (NASDAQ:CA)), SPEAKER OF THE HOUSE: We have in no
illusions that that work will be easy and that all of us in this chamber
will always agree. But let us pledge that when we disagree, we respect
each other, and we respect the truths.
MUI: That bipartisan spirit might not last very long. On the Democratic
agenda, new rules to automatically raise the debt limit whenever a budget
gets passed, reform campaign finance and voting rights laws and protect the
Affordable Care Act. The first, a vote to reopen the government, that will
happen in the House tonight. And the bills don`t have any money for
President Trump`s border wall.
Senate Majority Leader Mitch McConnell said the Democrats` effort is dead
SEN. MITCH MCCONNELL (R-KY), SENATE MAJORITY LEADER: I made it clear on
several occasions — and let me say it again — the Senate will not take up
any proposal that does not have a real chance of passing this chamber and
getting a presidential signature. So, let`s not waste the time.
MUI: Negotiations over the shutdown will resume tomorrow. The White House
will meet with congressional leadership from both parties.
On Capitol Hill today, Vice President Mike Pence told reporters there is a
crisis at the southern border.
MIKE PENCE, VICE PRESIDENT OF THE UNITED STATES: We`re going to continue
to engage Democrats and Republicans to come together and to achieve the
kind of agreement that will provide the border security that the American
people need. And that means a wall, that means a physical barrier, but it
also means a broad range of border security measures to make the country
more secure, to prevent the flow of illegal drugs, illegal immigration,
MUI: But here in Washington, the reality is sinking in that this shutdown
is going to be measured in weeks, not days.
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.
GRIFFETH: Delta loses altitude, and that`s where we begin tonight`s
“Market Focus”, with the airline saying it has not able to raise fares as
much as had been expected. And it warned as a result, fourth quarter unit
revenue will be slightly below its prior forecast. And that`s creating
concerns that the major carriers will struggle to maintain profitability
this year. Delta shares were off nearly 9 percent today to $45.61. And
the news sent shares of other airlines lower as well — American, United,
Continental and Southwest.
Starbucks (NASDAQ:SBUX) is facing stiffer competition in China. Chinese
coffee startup Luckin now plans to open 2,500 new stores in an effort to
overtake the number of Starbucks (NASDAQ:SBUX) locations in the world`s
second biggest economy. Shares fell more than 4 percent on Starbucks
(NASDAQ:SBUX) today to $61.53.
Consumer products giant Johnson & Johnson (NYSE:JNJ) said today that sales
in India fell by 3 percent over the past 12 months. J&J, of course, has
been grappling with that country`s stringent medical device pricing
policies and the controversy surrounding its talcum powder has prompted
safety inspections all across that country. J&J shares fell more than 1.5
percent today to $125.72.
And generic drugmaker Teva said today that it`s going to pay an undisclosed
amount to settle a patent infringement dispute with drug maker Amgen
(NASDAQ:AMGN) over one of Amgen (NASDAQ:AMGN)`s treatment used for chronic
kidney disease and parathyroid carcinoma. As part of the settlement, Teva
will stop selling the drug until 2021. Teva recently won approval, though,
to market that medication in the United States. Teva shares rose 4 percent
today to $16.49. Shares of Amgen (NASDAQ:AMGN) fell more than 1 percent to
The volatility we`ve been seeing in the equity markets is causing some to
stay on sidelines when it comes to making other large investments, namely
real estate. And there is no place that that trend is more pronounced than
in New York City right now, with the market, they`re coming off its worst
year in a decade.
Robert Frank reports.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Manhattan is going
through two big corrections: the stock market and the real estate market.
The fourth quarter saw sales of Manhattan real estate fall 14 percent. It
was the fifth straight quarter of decline and made 2018 the worst year for
Manhattan apartments since the housing crash a decade ago.
Volatile markets are one cause. But buyers have been staying on the
sidelines for over a year due mainly to oversupply of new condos,
especially at the high end, a lack of foreign buyers and the new tax law
which makes real estate in high tax states like New York a lot less
JONATHAN MILLER, MILLER SAMUEL PRESIDENT & CEO: It really was a wet
blanket that has essentially laid over the market. Consumers when they are
confused, they pause. And that`s what buyers are doing.
FRANK: Inventory is growing. Discounts are getting steeper. And there is
now a 16-month supply of luxury real estate.
But if Manhattan is now a buyers market, it`s still a wealthy buyers
market. The average price of the Manhattan apartment is still just under
$2 million. The big question is how much worse will it get in 2019? That
may depend on the stock market which affects the buying confidence of the
wealthy as well as the New York hiring plans of tech giants like Google
(NASDAQ:GOOG) and Amazon (NASDAQ:AMZN).
MILLER: 2019, if we had conversation a year from now and the stock market
continues to be as volatile as it is, I would expect pricing to be softer
than 2018 and sales to be less than 2018.
FRANK: The most expensive sale in 2018 was a penthouse on Park Avenue that
went for $74 million. It`s close to 10,000 square feet with six bedrooms
and a 300 foot balcony. The buyer was vacuum cleaner tycoon James Dyson,
whose flagship Dyson Store is just a few blocks away.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
GRIFFETH: Speaking of which, in other real estate news office, vacancy
rates in the U.S. inched higher in the fourth quarter. According to a new
report, new construction of office space declined in the last three months
of the year. But rents which have been relatively steady over the last
eight years, they were up about 3 percent.
Coming up, help wanted in the oil patch.
(BEGIN VIDEO CLIP)
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Jane Wells in Deer
Park, Texas, at a Shell oil refinery. Yes, oil prices are low and yet the
help wanted sign is out here for women. We`ll have that coming up.
(END VIDEO CLIP)
GRIFFETH: Here is what we`re watching for and what should be another busy
As we mentioned, the monthly employment report will be released.
Expectations are for creation of about 176,000 jobs in December.
Fed Chief Jerome Powell will speak at the American Economic Association`s
annual meeting. And former Fed chairs Janet Yellen and Ben Bernanke will
be there as well.
And the president and congressional leaders are expected to meet to discuss
the partial government shutdown and border security once again. And that`s
what we are watching for on Friday.
Well, the price of oil may be down, but hiring in that industry is up. And
as we`ve been reporting many times, energy companies are having a hard time
finding skilled workers. That means more women are closing the gap in this
traditionally male business.
Jane Wells is in Deer Park, Texas, for us tonight with the story.
CHRISTINA SMITH, SHELL PRODUCTION TEAM LEADER: Afternoon, everybody.
WELLS: Christina Smith a mother of three. She used to manage a Subway
sandwich shop, worked at a commercial dive store. Then she went to school,
got a technical degree and now, she`s a shift supervisor as a Shell plant
in Deer Park, Texas, making good money.
SMITH: My dad says, kid, you hit the jackpot.
WELLS: The petroleum industry estimates only 15 percent of its workforce
is female. And only about half that number reach the executive level, like
Lori Fremin, a general manager in the Gulf of Mexico.
LORI FREMIN, SHELL GM SURFACE ENGINEERING: I personally set the bar high
for myself, so a lot of the challenges that I think I went through were
actually challenges that I set for myself.
WELLS: Now, big oil is going big on hiring more women. Helping them as
industry veteran Katie Mehnert who vividly recalls a remark made by a man
sitting next to her on a flight to Houston.
KATIE MEHNERT, PINK PETRO FOUNDER & CEO: And he said to me, what`s a
pretty young lady like you doing in a dark dangerous business like oil and
WELLS: She decided to create Pink Petro, a for profit funded by Shell and
others to reach out to women who may have never considered a career in
The outreach to women is happening as oil prices are falling, which is
providing an extra challenge to an industry with an aging workforce that
really needs a new generation of workers, male or female.
MEHNERT: We need to think about the marathon. It`s not a sprint.
SMITH: I`m 40 now, but I don`t remember growing up somebody saying, I
think you`ll work in a plant, or you could be an engineer or, you know?
WELLS: Some of the women mentor each other about opportunities and the
challenges like not always being recognized as a senior engineer.
FREMIN: When I walked in the room, a person asked if I could put their
WELLS: But that`s happening less and less.
SMITH: I work hard, want to learn. I like to help people. And because of
that, I feel respected.
WELLS: In the end, why recruit women? In an industry needing a pipeline
for a next generation workforce, the answer may be, why not?
For NIGHTLY BUSINESS REPORT, Jane Wells, Deer Park, Texas.
GRIFFETH: And before we go, a final look at the day on Wall Street.
Another big selloff today. The Dow fell 660 points, the low of the day.
Nasdaq down over 200. The S&P slid by 62. And Apple (NASDAQ:AAPL) dropped
nearly 10 percent today, suffering its biggest one-day decline in six
That is NIGHTLY BUSINESS REPORT for tonight. I`m Bill Griffeth. Thanks
for joining us. We`ll be back tomorrow night at the New York Stock
Exchange. Hope you can join us then. We`ll see you tomorrow.
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