ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue
Herera.
(BEGIN VIDEO CLIP)
JEROME POWELL, FEDERAL RESERVE CHAIRMAN: The case for raising rates has
weakened somewhat.
(END VIDEO CLIP
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Hikes on hold. That`s how
some are interpreting the Federal Reserve`s pledge to be patient when it
comes to raising interest rates. And the Dow reclaims 25,000.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Blowout quarter. Boeing
(NYSE:BA) reports strong results and books $100 billion in annual sales for
the first time in its 102-year history.
HERERA: House hunters hibernate. A new measure of sales falls to a five-
year low, sending a shiver through the real estate market.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for this
Wednesday, January 30th.
GRIFFETH: And we do bid you a good evening, everybody, and welcome.
Yes, the Fed pledged patience, earnings were solid, and those two things
combined were a recipe for a rally on Wall Street today. It started with
Apple`s results that we told you about last night. Then came a strong
report this morning from Boeing (NYSE:BA), which was followed then by the
Fed, which suddenly seems to be speaking Wall Street`s language.
And when all was said and done, the Dow was up a strong 434 points today,
back above 25,000, the Nasdaq added 154, and the S&P was up 41.
Bob Pisani has more on this big day on the market from the New York Stock
Exchange.
(BEGIN VIDEOTAPE)
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks roared higher
today on a handful of positive news and earnings beats. The Dow jumped
more than 500 points at session highs to cross back over 25,000, with Apple
(NASDAQ:AAPL) and Boeing (NYSE:BA) alone adding more than 200 points today.
Now, the Federal Reserve wrapped up its first meeting of the year, and the
language used in today`s Fed statement showed a change in tone, saying the
Fed remains patient when it comes to rate hikes and that balance sheet
policy is entirely flexible. Those are the two things the market wanted to
hear. And while bond yields sunk on the heels of those comments, overall,
traders were happy.
Now, never mind that the Fed did not change its economic outlook. The
change in tone alone was good for more than 20 points in the S&P 500. That
happened right after their announcement was made.
Now, this is the good news. Here`s the bad news. The market is looking
very pricey right now. The S&P 500 has punched through its recent trading
range. It`s now trading at its highest level since December 6th.
It`s pricing in an awful lot of good news, not just a patient and dovish
Fed, but optimism over trade talks and the continuation of what I call
slowing, but still positive earnings growth.
Here`s the bottom line. In an environment with a lot of positives priced
in and very limited earnings growth, the higher the market goes, the
tougher it`s going to be to be really bullish.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
(END VIDEOTAPE)
HERERA: The statement by the Fed, which dropped its long-standing
reference to future rate hikes, was embraced by investors and seemed to
alleviate a lot of anxiety.
Steve Liesman reports tonight from the Central Bank in Washington.
(BEGIN VIDEOTAPE)
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Reserve
in a sweeping policy change from its December rate hike gave the doves
almost everything they were looking for at the conclusion of their January
meeting. The Fed in its policy statement kept rates unchanged, said it
would be, quote, patient in considering further hikes and removed from its
statement language that telegraphed further rate increases ahead.
The Fed even said its plans to reduce its $4 trillion balance sheet
described just last month as on auto pilot were up for consideration now if
the economy weakens.
POWELL: Growth has slowed in some major foreign economies, particularly
China and Europe. There is elevated uncertainty around several unresolved
government policy issues, including Brexit, ongoing trade negotiations, and
the effects from the partial government shutdown in the United States.
Financial conditions tightened considerably late in 2018, and remain less
supportive of growth than they were earlier in 2018. And while most of the
incoming domestic economic data have been solid, some surveys of business
and consumer sentiment have moved lower, giving reason for caution.
LIESMAN: Analysts took the new policy pronouncements to mean the fed was
on hold for at least six months, pending more clarity in the economic
outlook.
Economist Joe Brusuelas at RSM called it, quote, “a strategic retreat” for
the Fed. Ian Shepherdson at Pantheon said it was about as dovish a
statement as possible unless it was a rate cut, which it wasn`t. Powell
said the Fed could take its time in figuring out its next move because
inflation is muted and lower oil prices should keep it that way.
What`s unclear is if the fears of weaker growth that gripped markets prove
transitory, will the Fed double back again to talk about rate hikes later
this year, or is the Fed now paused for more permanent patience.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.
(END VIDEOTAPE)
GRIFFETH: Now to all those earnings started with Boeing (NYSE:BA), which
helped lead the Dow higher. The aerospace giant posted record reported
earnings for the fourth quarter and said it expects more of the same this
year. And shareholders certainly enjoyed the flight today as the stock
rose more than 6 percent.
Phil LeBeau has more on Boeing`s big earnings beat.
(BEGIN VIDEOTAPE)
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Pardon the pun, Boeing
(NYSE:BA) is soaring right now, delivering record earnings, revenue and
cash flow in the fourth quarter.
Boeing`s CEO says it`s proof the company is performing at a higher level.
DENNIS MUILENBURG, BOEING CHAIRMAN & CEO: I think what you see reflected
here is a strong growth in the aerospace industry and the marketplace. And
in a way, we`re leveraging that growth as we ramp up commercial airplane
production. Now, we`re driving bottom line profitability and cash flow
while we`re doing that.
LEBEAU: Boeing`s earnings are surging thanks in large part to the
company`s most popular plane, the 737, where monthly production has
steadily climbed higher, pushing airplane deliveries to a record high.
SHEILA KAHYAOGLU, JEFFERIES: The deliveries are in place and the free cash
flow is there. So, you know, we view any pullback as an opportunity on the
stock.
LEBEAU: Supporting Boeing`s lofty outlook, the fact more people around the
world are flying somewhere. In recent years, roughly 4 billion people have
taken to the skies, so airlines around the world are ordering more planes.
MUILENBURG: The world needs 43,000 new airplanes over the next 20 years,
about 7,700 of those are in China. So China needs the airplanes. They
need to lift to continue to grow economically and to fuel their broader
economic growth across multiple sectors.
LEBEAU: Right now, Boeing (NYSE:BA) has enough orders to cover the next
seven years of production, 5,900 planes worth nearly a half trillion
dollars, a backlog that should reassure investors who wonder if Boeing
(NYSE:BA) could continue to fly high.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
(END VIDEOTAPE)
HERERA: Fellow Dow component McDonald`s (NYSE:MCD) reported strong global
sales but it struggled to attract more U.S. diners and that is a critical
market for the fast food chain. McDonald`s (NYSE:MCD) raised menu prices,
but that did not resonate with customers, especially when it comes to
breakfast. The company says the chain has been losing breakfast traffic at
a greater rate than it would like. That sent the stock slightly lower in
trading today.
GRIFFETH: And the parade of big cap earnings continued late today with
results from Microsoft (NASDAQ:MSFT) which said that sales from its cloud
computing business rose. That offset a slowdown in demand in other units.
These are numbers from the world`s largest software company. They earned
$1.10 a share, one cent better than expectations, but revenue was a little
short of estimates at about $32 billion. And the stock fell in initial
after-hours trading.
Josh Lipton has the one key takeaway on Microsoft`s quarter.
(BEGIN VIDEOTAPE)
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: $9 billion, that was a
big number in Microsoft`s latest results, referring to the company`s
commercial cloud revenue in the quarter, up 48 percent year over year.
Evercore`s Kirk Materne, a Microsoft (NASDAQ:MSFT) bull, says that`s
important because that`s really the growth driver for Microsoft
(NASDAQ:MSFT) long term. It`s all about the commercial business and that`s
firing on all cylinders, he says. Materne also says there may have been
some disappointment in other areas, notably Windows OEM revenue declined 5
percent. That`s what device makers pay Microsoft (NASDAQ:MSFT) for license
the Windows operating system.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.
(END VIDEOTAPE)
HERERA: And Visa (NYSE:V) reported a double-digit rise in quarterly
profit. The payments network processed more transactions, thanks to strong
consumer spending and a robust economy. Both earnings and revenue came in
better than expected. Visa (NYSE:V) also reaffirmed its guidance for the
full year, and the stock moved higher and then fell in initial after-hours
trading.
GRIFFETH: Jack Ablin joins us to talk about the market day, the earnings,
the Fed. He`s chief investment officer at Cresset Wealth Advisers.
What a day, Jack, welcome. Thanks for joining us.
JACK ABLIN, CRESSET WEALTH ADVISORS CHIEF INVESTMENT OFFICER: My pleasure.
GRIFFETH: Let`s start with the earnings. Wall Street liked these
corporate earnings that beat expectations. But let`s be clear, a lot of
those expectations had been sharply reduced ahead of time, hadn`t they?
ABLIN: Yes, especially Apple (NASDAQ:AAPL). And remember Tim Cook came
out in December with some very disappointing outlook news, talking down
profits, talking down revenues. So when the news finally hit, it was
actually not as bad as investors had thought. The company did come back
with plans to improve their service business, expand some other revenue
sources, and I think certainly investors took a liking to that.
HERERA: So what do these earnings tell you, jack, overall about the
economy and the health of it?
ABLIN: Sure. So we`re tracking roughly between 11.5 percent and 12
percent earnings growth, which sounds great in isolation. That`s down over
the last several weeks, as analysts have brought their forecasts down.
But I think we have to look later into 2019 and know that earnings growth
is expected to rise roughly low single digits in Q2, Q3, likely Q4 because
we`ve got, you know, massive comparisons. Remember, Q2 of 2018, we were up
26 percent year over year. So those are tough numbers to beat.
Now, keep in mind that slower growth does not necessarily mean contraction.
And I think that`s what investors are trying to reconcile now.
GRIFFETH: And that brings us to the Fed, which, as we said, was very
dovish with its comments today. No rate increase maybe for the next six
months, maybe for the rest of the year. Is that a green light necessarily
for Wall Street just to continue higher then?
ABLIN: Yes. I mean, it`s really, you know, an interesting conundrum
between what interest rates should be, given the economic environment, and
what the market can handle. And what it sounds like, that accommodation is
the new neutral. As long as we don`t see inflation, which we haven`t, then
perhaps the natural rate of interest is lower — it is now than it has been
in history.
So, if I were to take a snapshot back, you know, 20 some odd years, 30
years, and say where should the 10-year treasury be, I`m looking at a rate
of probably 4 percent to 4.5 percent. We`re at 2.75, and anything pushing
it higher is really making market participants upset, so we`ll have to see.
I think as long as we have no inflation, rates can stay where they are and
everyone is happy.
GRIFFETH: All right. Jack Ablin with Cresset Wealth Advisors, thanks
again, Jack. We`ll see you again.
ABLIN: Thank you, Bill.
HERERA: It is time to take a look at some of today`s “Upgrades and
Downgrades”.
Coverage of United Continental was initiated with a buy rating at Argus
Research. The analyst cites improved operating efficiency and strong cost
controls. The price target is $101. The stock rose 2 percent to $87.47.
Allergan (NYSE:AGN) was downgraded to equal weight from overweight at
Morgan Stanley (NYSE:MS). The analyst cites emerging Botox competition and
less confidence in the company`s pipeline. The price target is $156. The
stock fell a fraction to $143.89.
GRIFFETH: Whirlpool (NYSE:WHR) was downgraded to underperform from sector
perform at RBC Capital with the analyst citing industry uncertainty. And
that stock`s recent rally made it a little too expensive. The price target
is $111. The stock fell 3 percent today to $132.15.
Juniper was downgraded to underperform from buy at Bank of America
(NYSE:BAC) Merrill Lynch. The call follows the company`s disappointing
fourth quarter results and guidance which pointed to weak demand and
pricing trends. Price target $25. And that stock fell 7-1/2 percent today
on this big rally day to $25.83.
HERERA: Coming up, Facebook (NASDAQ:FB) shares take off. We`ll tell you
why.
(MUSIC)
GRIFFETH: The labor market started 2019 where it left off in 2018, on a
strong note. Private payrolls have grown at a much faster pace than
expected in January. According to ADP, employers added 213,000 jobs as
businesses continue to aggressively expand their ranks where they can. Big
companies added 66,000 of those jobs. Midsize firms added 84,000. While
small businesses gained 63,000.
And the government releases its own monthly employment report Friday
morning.
HERERA: Investors are watching closely those trade talks between the U.S.
and China, which got under way today. The stakes are high, since both
sides have just over a month to reach an agreement or risk escalating the
trade war.
We have two reports tonight. Eunice Yoon is in Beijing, but we begin with
Kayla Tausche in Washington.
(BEGIN VIDEOTAPE)
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: For the third time
in two months, teams from the U.S. and China are meeting to hash out a
trade deal as higher tariffs loom on March 1st if sufficient progress is
not made. The talks have lasted all day today and throughout Thursday
afternoon, with President Trump sitting down with the Vice Premier Liu He.
The White House has laid out its case. It`s open to China`s offer to buy
more natural gas and soybeans, but China must stop stealing U.S.
intellectual property and technology and allow U.S. companies freer access
to its markets.
White House economic official Larry Kudlow said the talks themselves are
positive.
LARRY KUDLOW, NATIONAL ECONOMIC COUNCIL DIRECTOR: We`ve never had anything
this comprehensive. And I regard that as a big plus. How these are worked
out, we`ll have to wait and see. The president has expressed some — I
would say — guarded optimism about the talks.
TAUSCHE: Treasury Secretary Steven Mnuchin has been trying to manage
expectations.
STEVEN MNUCHIN, U.S. TREASURY SECRETARY: Now, let me just remind people,
we do have another 30 days after this, so my expectation is that we`ll make
significant progress at these meetings. But I would just emphasize, these
are complicated issues. We have a timeline of how we`ve mapped out the 90
days.
TAUSCHE: Overshadowing the meetings are criminal charges of the U.S. filed
on Monday against China`s Huawei and a push to extradite its CFO. The
Commerce and Justice Department said that situation is separate from trade,
but the president has said he`s willing to intervene in the Huawei case if
it means a better trade deal.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
(END VIDEOTAPE)
GRIFFETH: Now to Eunice Yoon in Beijing for a look at how China is
approaching the talks.
(BEGIN VIDEOTAPE)
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: U.S. and Chinese
negotiators are hoping to reach an agreement to avoid greater tariffs by
the March deadline. The Chinese led by Vice Premier Liu He will reportedly
offer a major increase in purchases of U.S. agriculture and energy
products, a crackdown on I.T. theft and will likely play up a new draft
foreign investment law. The new law which is expected to be passed in
March is meant to address U.S. concerns about unfair trade practices by,
for example, banning forced technology transfers.
However, the wording is vague enough that most foreign executives are
skeptical this is more than a cosmetic move. In fact, many expect the
Chinese negotiators to push back hard against U.S. demands for deeper
fundamental changes to the way the economy runs here.
The Chinese will also be likely less than enthusiastic about the U.S.`s
proposal for an enforcement mechanism that would allow the U.S. to ensure
that Beijing is accountable. The talks will also be overshadowed by the
Justice Department`s indictments against Chinese tech titan Huawei. U.S.
Treasury Secretary Steven Mnuchin attempted to separate the talks from the
indictment. The Chinese see the targeting of Huawei as political.
The CFO`s extradition hearing has been postponed to March 6th. The Vice
Premier Liu He is set to meet with President Trump on Thursday. That`s an
important meeting, where the vice premier will directly send a message from
President Xi to President Trump and could potentially influence the outcome
of any deal on trade or Huawei.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
(END VIDEOTAPE)
HERERA: Customer growth slows at AT&T (NYSE:T) and that`s where we begin
tonight`s “Market Focus”.
The company added far fewer wireless subscribers than expected as it tries
to keep pace with Verizon (NYSE:VZ) and T-Mobile. It also lost more pay TV
customers in the fourth quarter. AT&T (NYSE:T) has pulled back on
promotional pricing for phone and television plans, as it focuses on paying
down debt following its $85 billion purchase of Time Warner (NYSE:TWX).
The shares fell 4 percent to $29.37.
Anthem is speeding up the launch of its pharmacy benefits management
business. The company said that move will allow Anthem to accelerate its
whole person health strategy which it believes will reduce the total cost
of care. Anthem easily beat fourth quarter earnings estimates and said
profit for 2019 will be stronger than expected. Shares rose 9 percent to
$297.56 and touched a 52-week high.
Royal Caribbean reported a rise in profit in the fourth quarter and issued
upbeat guidance. The company cites strong consumer demand, even in China,
as that economy slows.
(BEGIN VIDEO CLIP)
RICHARD FAIN, ROYAL CARIBBEAN CHAIRMAN & CEO: Even though the economy may
not be doing as well as people hoped, the middle class continues to grow.
And one hypothesis is that it`s just growing faster than the economy
slowdown. And so, that, of course, helps our business.
(END VIDEO CLIP)
HERERA: Royal Caribbean was up 8 percent today to $120.98.
GRIFFETH: Oshkosh reported first quarter earnings that topped expectations
and it raised its sales guidance for the year as well. The defense
contractor said that its bottom line has helped by higher sales in its fire
and emergency unit. Oshkosh sales closed 2.5 percent higher today to
$72.78.
General Dynamics (NYSE:GD) is forecasting disappointing profit for the year
and said that it does not expect margins on its business jets to improve
until 2020. That overshadowed a strong performance in the information
technology services unit and earnings that topped analysts` forecasts.
General Dynamics (NYSE:GD) fell 3 percent today to $170.91.
And Avon is cutting 10 percent of its global workforce. The direct seller
of beauty products said the layoffs are part of a strategy to streamline
its business and reduce product line complexity. Shares of Avon, which is
now a small cap stock, were volatile in the after-hours session, down 2
cents to the regular day at $1.89.
And it was a mixed quarter for Tesla. The electric carmaker posted
stronger than expected sales, along with its second consecutive quarterly
profit, but that profit did miss estimates. As a result, shares initially
fell afterhours, biting into a nearly 4 percent gain that we saw during the
regular session where it closed to $308.77.
HERERA: Facebook (NASDAQ:FB) out with strong fourth quarter numbers. The
social media company posting earnings of $2.38 a share. That was nearly 20
cents above estimates. Revenue came in just under $17 billion for the
quarter, and that too was ahead of estimates.
And investors liked what they saw, sending shares initially higher in
after-hours trading, adding to a better than 4 percent gain during the
regular session.
Julia Boorstin has more on Facebook`s quarter from its headquarters in
Menlo Park, California.
(BEGIN VIDEOTAPE)
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Facebook
(NASDAQ:FB) is earning a lot more revenue from its users. The company
delivering much stronger top and bottom line results than expected. The
company`s earnings per share soaring 65 percent and revenue gaining 30
percent from the year ago quarter. This despite the fact that Facebook`s
monthly and daily active user numbers just inched up, coming in right in
line with expectations.
But both with consumers and advertisers, the company seems to have shaken
off concerns about a slew of negative headlines about data privacy and
manipulation on the platform. Mark Zuckerberg saying, quote, we
fundamentally changed how we run our company to focus on the biggest social
issues and we`re investing more to build new and inspiring ways for people
to connect.
Facebook (NASDAQ:FB) has increased its headcount by 42 percent in the last
year in part to improve security.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Menlo Park, California.
(END VIDEOTAPE)
GRIFFETH: And coming up, the big chill in the housing market.
(MUSIC)
HERERA: Here`s a look at what to watch tomorrow. A handful of key
companies are out with earnings, including Amazon (NASDAQ:AMZN), General
Electric (NYSE:GE) and UPS. As we reported, the second day of trade talks
between the U.S. and China will be taking place, and a judge has scheduled
a bankruptcy hearing for PG&E, California`s largest utility. That`s what
to watch for on Thursday.
GRIFFETH: Meantime, Foxconn is now reconsidering its plan to make a type
of TV display at a plant in Wisconsin. You may recall that the company`s
$10 billion campus was supposed to be a manufacturing center that created
13,000 jobs, but the new plan now calls for it to be a research hub.
Foxconn does say it remains committed to that facility and its long-term
investment in Wisconsin.
Foxconn, as you probably know, is a major supplier to Apple (NASDAQ:AAPL)
and is the world`s largest contract maker of electronics.
HERERA: The U.S. Postal Service is making the rare decision to suspend
mail delivery in parts of the country. Regions within ten states are
affected because of the extreme cold that`s bringing record low
temperatures to the Midwest. The Postal Service says the decision was made
for the safety of its employees.
GRIFFETH: And that winter chill may be settling over the housing market.
After a very slow fall, most analysts were expected to see a little bump in
December sales.
But as Diana Olick reports, that`s not what happened.
(BEGIN VIDEOTAPE)
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: There was good news
for home buyers out shopping in December, a big drop in mortgage rates.
But that did not help sales at all. Signed contracts to buy existing homes
dropped nearly 10 percent compared with a year ago, marking 12 straight
months of annual declines, according to the National Association of
Realtors.
It was also the lowest December sales reading since 2013. This, even as
the average rate on the 30-year fixed, fell from just over 5 percent in
mid-November to 4.61 percent by the end of December.
DOUG DUNCAN, FANNIE MAE CHIEF ECONOMIST: I think consumers were impacted
by all the discussion of shutdowns, of the volatility in markets, whether
it was interest rates, which were actually falling at that time. Partly,
it`s a recognition thing that the realtors or the builders or whoever is
talking to the consumers about buying a house, it probably takes them a
little time to get consumers to recognize that there`s an opportunity.
OLICK: Realtors blamed the big drop in the stock market, hitting consumer
confidence. But affordability continues to be a problem. The median price
of a home sold in December hit the highest level ever. Even though the
gains in prices are slowing, it`s mostly happening on the higher end, not
at the entry level where demand from younger buyers is strongest. Even
slightly lower interest rates are apparently not impressing millennials.
DUNCAN: Recent millennial buyers have been very conservative. The
percentage of them spending more than 30 percent of their disposable income
on buying a house is very low compared to, say, ten years ago.
OLICK: If mortgage rates do stay this low for a while, it could help bring
more buyers back to the market this spring. But for now anyway, it looks
like a long, cold winter ahead for housing.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
(END VIDEOTAPE)
HERERA: Before we go, let`s take a final look at the day on Wall Street.
The Dow gained 434 points to close back above 25,000. The Nasdaq added 154
and the S&P 500 was up 41.
That does it for us tonight on NIGHTLY BUSINESS REPORT. I`m Sue Herera.
Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. Rest up, it`s a busy
day tomorrow.
HERERA: And stay warm.
GRIFFETH: Yes. See you tomorrow.
END
