ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Wall Street cheers.
Lawmakers reach a tentative deal on border security that would avert a
government shutdown, and stocks take off.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Financial hardship. Not all
parts of the country are experiencing an economic boom. And today, the Fed
chair went to a town in Mississippi where even ATMs are relatively new.
GRIFFETH: Time is money. And all of that time you spend sitting in
traffic is costing the economy tens of billions of dollars.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
February 12th.
HERERA: And good evening, everyone, and welcome.
Wall Street was in rally mode, extending the strong gains the market has
seen this year. Investor sentiment was lifted by the two issues that we`ve
been reporting on — optimism on trade and talks in Washington to avert a
government shutdown. When reports first surfaced that a tentative
agreement had been reached, stocks took off and never looked back.
The Dow Jones Industrial Average rose 372 points to 25,425. The Nasdaq
added 106 and the S&P 500 was up 34.
Seema Mody was in the middle of all the action at the New York Stock
Exchange.
(BEGIN VIDEOTAPE)
SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Encouraging headlines
from Washington fueling a big rally on Wall Street. First, the stocks
jumping on news that U.S. lawmakers had secured a tentative deal on border
security funding, which could prevent another partial government shutdown
due to begin Saturday.
Markets keeping a close eye on trade developments out of Beijing, where a
U.S. delegation is continuing talks with China this week in hopes of
reaching a trade deal before the March 1st deadline. Optimism pushing
China-related names like Caterpillar (NYSE:CAT), Deere and Boeing (NYSE:BA)
higher by around 2 percent.
The question is if the rally can last. A lot of that will depend on the
commentary from Beijing later this week.
For NIGHTLY BUSINESS REPORT, Seema Mody, the New York Stock Exchange.
(END VIDEO CLIP)
GRIFFETH: Boy, just 24 hours ago, it appeared lawmakers were still far
apart on reaching any deal that would prevent parts of the government from
shutting down again. But 24 hours later, there`s a tentative agreement in
place, but questions still remain.
Ylan Mui has details.
(BEGIN VIDEOTAPE)
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Capitol Hill racing
against the clock to finalize a deal to fund the government. Lawmakers
have reached an agreement in principle that includes compromises on two key
priorities. On border funding, the deal includes almost $1.4 billion for
physical barriers, less than what Trump had asked for but more than what
Democrats initially offered.
On immigration, Democrats backed off their demand to cap the number of
detention beds for illegal immigrants captured inside the U.S., but the
total number of beds would be reduced.
Today, Republican leadership called it a bipartisan, bicameral agreement
that includes a down payment on the president`s priorities.
SEN. MITCH MCCONNELL (R-KY), SENATE MAJORITY LEADER: First of all, I hope
he signs the bill. And second, I think he ought to feel free to use
whatever tools he can legally use to enhance his effort to secure the
border. So, no, I would not be troubled by that.
MUI: But it remained unclear if the president would sign this deal.
Speaking with reporters today, Trump said he wasn`t comfortable with this
compromise.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: It`s always nice to
negotiate a little bit, so you know, whatever you get. But I would hope
that there won`t be a shutdown. I am extremely unhappy with what the
Democrats have given us. It`s sad. It`s sad.
They`re doing the country no favor. They are hurting our country very
badly. But we certainly don`t want to see a shutdown.
MUI: Conservatives have come out against this. Senator Lindsey Graham
says that he needs to see more detail on immigration. The House Freedom
Caucus says this isn`t a serious effort to secure the border. But with
just days to go before Friday`s deadline, lawmakers from both parties are
urging the president to get behind this agreement because there is no plan
B.
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.
(END VIDEOTAPE)
HERERA: President Trump today also commented on the trade negotiations
between the U.S. and China, saying there may be some flexibility the self-
imposed March 1st deadline if the two countries are close to a deal. As of
now, if no deal is reached, March 1st is the date that additional tariffs
will be put on Chinese imports to the U.S.
And while there is some optimism, there are also obstacles ahead of the
high-stakes talks this week.
Eunice Yoon is in Beijing.
(BEGIN VIDEOTAPE)
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The USTR`s Robert
Lighthizer has arrived in Beijing to join the ongoing trade talks. Both
sides officially remain optimistic. The Chinese foreign ministry made a
statement yesterday that China hoped for a good result.
But I spoke to a source who`s familiar with the negotiators on the Chinese
side, and he painted a picture of frustration among the negotiators.
There`s a feeling that the negotiations are about the U.S. making demands
on China but not getting anything in return. For instance, he said the
Americans had been unwilling to budge on restrictions of high-tech exports
to China, which the Chinese believe can reduce the trade deficit and has
been a longstanding complaint by Beijing.
Generally, there`s a sense that the Americans are being very harsh and not
giving the Chinese faith. And it appears to them sometimes that certain
negotiators want to push the Chinese to the point that talks fail.
Also this afternoon, we got a rather testy response from the Chinese
government about what they see as a continued U.S. campaign against Huawei.
Secretary of State Mike Pompeo is in Central Europe and has cautioned U.S.
allies against using Huawei equipment on their soil.
The Chinese foreign ministry responded today, saying the U.S. has
threatened and provoked relations between China and other countries and
discredited the legitimate development and cooperation of Chinese
companies. The actions of the United States are neither fair nor moral.
This highlights how difficult the negotiations are between the U.S. and
China.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
(END VIDEOTAPE)
GRIFFETH: Back here in the U.S., oil prices rose along with stocks today
after Saudi Arabia said it now plans to reduce oil production in March.
The crude market is brushing off concerns, at least for today that world
oil demand could decline because of slowing global growth. Domestic crude
sits around $53 a barrel right now.
HERERA: Senator Marco Rubio is the latest politician to target stock
repurchase programs. The plan would tax buybacks as dividends, which are
subject to a wide range of rates. Buybacks are currently taxed at the
lower capital gains rate. The senator expects the plan would likely result
in fewer companies pursuing buybacks and instead would encourage more
capital investment.
Just yesterday, as we reported, hedge fund manager Paul Tudor Jones called
buybacks a mania and said companies should focus more on what he calls
ethical investing.
(BEGIN VIDEO CLIP)
PAUL TUDOR JONES, TUDOR INVESTMENT CORPORATION: I think we`ve got a mania
going on in buybacks and a mania going on in terms of shareholder primacy.
It wasn`t always this way, right? If we just go back to when I was a
youngster, corporate pay, CEOs made 20 times that of the average line
worker.
So, things have been different and can be different again. And if they`re
not, I`m really nervous about what the ultimate social consequences are in
this country.
I don`t know if I want to see a legislative outcome for this. I`d love to
see this happen organically.
(END VIDEO CLIP)
GRIFFETH: Well, joining us now to talk about the impact that limiting
stock buybacks would have on the markets, Eric Marshall joins us tonight.
He`s portfolio manager with the Hodges Funds.
Eric, welcome back. Good to see you.
ERIC MARSHALL, HODGES FUNDS PORTFOLIO MANAGER: Good to be here.
GRIFFETH: Politics aside, what impact do you think limiting buybacks would
have on the stock market? Let me ask it a different way. What impact do
buybacks have on stock market performance, do you think?
MARSHALL: Well, we see buybacks is actually a healthy mechanism to keep
capital markets efficient. Oftentimes, if a company has excess capital and
they don`t have opportunities to reinvest that capital in projects that
earn high returns above their cost to capital, sometimes the best thing to
do is to return that capital to the shareholders through buybacks from the
capital markets so that capital can be reinvested maybe in smaller
companies who need that capital to grow their businesses and take advantage
of higher return projects.
So, we actually think buybacks actually keep the market efficient, which
ends up creating economic growth in jobs and benefits all of society.
GRIFFETH: What happens as the stock market continues to move higher, Eric,
to the thought by companies that they want to do more buybacks, or do they
do less buybacks in a strong market?
MARSHALL: Well, that`s a good point. If we have a situation where as the
market goes up, the cost of capital becomes — of equity capital becomes
less expensive. Then it doesn`t make as much sense to continue to buy back
stock. But I think over the recent phenomenon of all these companies
buying back stock in recent years, it`s really been a function of higher
earnings yield on stocks relative to really low interest rates.
GRIFFETH: Right.
MARSHALL: As long as we`re in that environment, it makes sense in a lot of
cases for companies to return extra capital to the shareholders through
these buybacks so that they can be reinvested elsewhere.
GRIFFETH: By same token, though, while we are still in a relatively low
interest rate environment, there are those who say that that capital that
they use to buy back their shares could also be used to build factories and
create even more jobs. In other words, it`s a better use of the capital
than just buying their shares back.
What do you think?
MARSHALL: Well, that`s a good point. Not all buyback programs are created
equal. If a company can earn a return on capital by reinvesting in their
business, as a shareholder, you`d want them to do that because that`s going
to create even greater value in the future. But if they`re going to invest
in subpar opportunities in a stagnant business, oftentimes the best thing
to do is put that money back into the capital markets and let other
companies that may be smaller, may be more innovative, that maybe need that
capital reinvest it in other places in the economy that are growing faster.
GRIFFETH: Eric Marshall with the Hodges Funds — again, thanks for joining
us tonight.
MARSHALL: Thank you.
HERERA: Time to take a look at some of today`s “Upgrades and Downgrades”.
Cisco (NASDAQ:CSCO) was downgraded to equal weight from overweight at
Morgan Stanley (NYSE:MS). The analyst cites slowing growth in Cisco`s
networking security business. The price target is $49. Cisco
(NASDAQ:CSCO) reports its earnings tomorrow. Their shares rose a fraction
to $47.89.
Take Two was downgraded to underperform from market perform at BMO Capital
Markets. The analyst cites a decline in buzz around one of its most
popular video games. The price target is $80. The stock fell about 4.5
percent to $89.25.
GRIFFETH: Gilead Sciences (NASDAQ:GILD) was downgraded to market perform
from outperform at Wells Fargo (NYSE:WFC). The analyst cited a lack of
growth catalyst following a recent drug trial failure for the company.
Price target now is $68. That stock fell 3 percent today to $65.40.
And surgical equipment maker Nuvasive was downgraded to hold from buy at
Jefferies. The analyst there says he`s skeptical of the reports that Smith
& Nephew is ready to make an offer for Nuvasive, and even if it does, the
analyst thinks a bid above $60 a share is not likely. And so, the firm cut
its price target to $60, but the stock still rose on that takeover chatter.
It was up 3.5 percent today to $58.08.
HERERA: There are a record number of job openings. The Labor Department
today reported 7.3 million open positions, which is the most since the
government started tracking that data in December of 2000. Economists say
the report shows that employers expect demand to remain strong. The number
of job openings is also much greater than the number of unemployed, which
totaled 6.3 million last month.
GRIFFETH: And while the labor market remains strong, economic growth is
still uneven. That`s especially the case in the Mississippi Delta and
other low-income parts of the country where many residents still don`t even
have a bank account and where ATMs are relatively recent arrivals. Fed
Chair Jerome Powell traveled to that region today to address that very
issue.
Steve Liesman has the story for us tonight from Moorhead, Mississippi.
(BEGIN VIDEOTAPE)
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Two fires in their
homes in the Mississippi Delta left Farrah Appleberry and her two girls in
destitute and in bankruptcy.
FARRAH APPLEBERRY, HOPE CREDIT UNION CUSTOMER: We have to pray. We prayed
in unison because I didn`t want to lose another home. And one of my girls
said, mama, it`s going to be all right. God got us, that this too shall
pass.
LIESMAN: And along, literally, came Hope, a credit union focused on
economically distressed areas in the South that brings basic banking
services to the nation`s poorest.
BILL BYNUM, HOPE CEO: The rate of poverty here is three times what you see
in the nation as a whole, even greater for the region`s African-American
residents. If you look at level of banking services, three times the level
of people who don`t have a banking account. And when you add the number of
people who use check cashers and pay their lenders, almost between 60
percent and 70 percent of the members who joined our credit union were
outside the banking system or on the edge of the financial system, paying
high rates or did not have basic tools to support their families and
stabilize their financial lives.
LIESMAN: You can see the assets of banking services in poor towns like
this throughout the Mississippi Delta. Nationally, one in four Americans
is known to be unbanked or underbanked, meaning they don`t have access to
basic banking services. Some live in banking deserts where there aren`t
banks, some people don`t trust banks and some people think they`re just too
poor to open an account.
But there is also more focus on the issue. Tuesday, Fed Chairman Jerome
Powell made a historic trip to the delta, speaking to students and
attending a conference along with investment bankers and community
activists to shine a national spotlight on the problem of the unbanked.
JEROME POWELL, FEDERAL RESERVE CHAIRMAN: Access to safe and affordable
financial services is vital, especially among families with limited wealth,
whether they`re looking to invest in education, start a business, or simply
manage the ups and downs of life.
LIESMAN: Access to banking is such a problem down here that it was only in
2015 that Hope opened the town`s first bank ATM.
GEORGE HOLLAND, MOORHEAD MAYOR: When Hope came in, that was first thing
they did. They knock a hole in the wall and put an ATM machine there.
There was very little business that you could conduct here in Moorhead at
that branch.
LIESMAN: For Ms. Appleberry, the financial counseling provided by Hope
means she should be out of bankruptcy by November.
APPLEBERY: Once I get out of bankruptcy, I know that it may not be the
fattest account, but I`m looking to have enough money in hope that if I
have a dry day, me and my girls will still make it.
UNIDENTIFIED FEMALE: Yes.
APPLEBERY: So, I have to learn to stay small to get to big.
(END VIDEOTAPE)
HERERA: Coming up, did you know all that time you sit in traffic isn`t
only taking a toll on you, but taking a bite out of the economy? We`ll
have more on that a little later.
(MUSIC)
GRIFFETH: It has been a tough stretch for some of the video game makers
recently, and it`s been no different for Activision Blizzard (NASDAQ:ATVI),
which late today reported revenue that missed estimates. The company
issued weak guidance as well and said it plans to cut 8 percent of its
workforce. Activision earned $1.29, that was a penny better than
expectations, but it was the revenue of $2.8 billion that was considered
disappointing, and so was the outlook that it provided for the first half
of the year, and that sent the stock initially lower in after-hours trading
tonight.
Josh Lipton has more on Activision`s results.
(BEGIN VIDEOTAPE)
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: $6.3 billion, that was
one big number in Activision`s report referring to net bookings. That`s
the measure of both digital and physical game sales. Oppenheimer`s Andrew
Uerkwitz says that`s important because that metric captures all revenue the
company`s generating, and it was down $1 billion year over year.
On the other hand, Uerkwitz notes a potential positive. He says the
company is increasing head count in development to accelerate the pace of
new content from its leading franchises. But others at Activision will be
losing their jobs. The company did announce a workforce reduction of 8
percent from its total workforce of 9,800 employees.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.
(END VIDEOTAPE)
HERERA: Under Armour (NYSE:UA) powers past estimates. That`s where we
begin tonight`s “Market Focus.”
The sports apparel retailer reported better-than-expected earnings and
revenue, thanks to strong sales and growth overseas. Analysts say the
company was able to cut excess inventory and generate excitement around new
product launches, and that helped send the stock up nearly 7 percent to
$22.21.
Quarterly profits topped expectations at international brewer Molson Coors,
but sales fell due to weak demand in the U.S. and Canada and rising
transportation and aluminum costs. Molson, which makes Coors and Blue Moon
beer, is also restating two years of financial results after finding
accounting errors. Sales plunged more than 9 percent to $59.19.
The private equity firm Thoma Bravo is buying mortgage software company
Ellie Mae for more than $3.5 billion. Ellie Mae shareholders will receive
$99 in cash for each share that they own. That is a 21 percent premium
over yesterday`s closing price. Today, Ellie Mae surged that much, up 21
percent at $98.95.
GRIFFETH: And here`s another private equity play. JAB Holdings says that
it plans to raise its stake in cosmetics conglomerate Coty from 40 percent
to 60 percent, a bump of nearly $2 billion in shares of Coty, whose brands
include CoverGirl and Sally Hansen. Coty stock today rose about 12-1/2
percent to $10.87.
And a group of Democratic senators who`s urging the Justice Department and
the FCC to reject the proposed merger between Sprint and T-Mobile. The
senators say that the $26 billion combination would raise prices for
consumers and stifle competition. A House panel is set to hold a hearing
on this deal tomorrow. Sprint rose about 3 percent today to $6.14, while
T-Mobile added more than 1-1/2 percent to $69.60.
HERERA: A new report from analytics company INRIX found that Americans
spend a lot of time and money sitting in traffic every day. According to
the data, American drivers lose about 97 hours a year sitting in traffic
and that congestion costs the economy nearly $87 billion in 2018.
Trevor Reed, transportation analyst at that company, joins us to talk more
about the findings.
Nice to have you with us, Trevor. Welcome.
TREVOR REED, INRIX TRANSPORTATION ANALYST: Thank you for having me.
HERERA: And you collected this data from all of these new connected cars
that we`re all driving in, correct?
REED: Yes, and we collected it from a lot of traditional sources, too.
So, GPS, cell phone data, street coils, traffic cameras. You name it, we
probably collect something from it.
GRIFFETH: Clearly, sitting in a car for hours a day is not being
productive. Are there things that cities can do? I know some cities have
staggered starting times for companies so that you`re not all rushing to
get to town by 8:00 or 9:00 in the morning. What else can cities do to
help companies?
REED: There`s a lot of different ways. One of them that`s been very
popular in Seattle is promoting the use of public transit amongst employers
into the most dense portions of the city. And, you know, for every car
you`re able to get off the road in the most dense part of the city, it
really pays big benefits as far as reducing traffic.
HERERA: Now, you ranked some of these cities. Boston, Washington, D.C.,
and where you are, Seattle, they did not fare well in this particular
study, but I`m struck by the fact that Boston and Washington, D.C., are
very old cities, so do they need to commit more to infrastructure and that
other type of transportation that you just mentioned in order to maybe try
and reverse this, or at least mitigate some of the issues?
REED: Yes. So, I`m really glad you brought up the age of the cities,
because what we found in our study is that age is the best predictor of
congestion in a city. And when you think about it, it makes a lot of
sense, because a city like Boston, it developed around walking, horses,
even in the oldest parts of the city. And so, it`s really ill suited to
using an automobile, which is 20th-century technology in a 17th-century,
16th-century city.
So, especially in these old cities, the discussion should be much more
about how do we use these streets most efficiently to serve these very
dense populations.
HERERA: OK. And on that note, Trevor Reed with INRIX, thanks so much for
joining us tonight.
GRIFFETH: By the way, California`s governor is abandoning that state`s $77
billion high-speed rail plan to connect Los Angeles and San Francisco.
According to the “Associated Press,” cost was cited as the reason. During
his state of the state, Governor Gavin Newsom also proposed a digital
dividend that would allow consumers to share in the profits made by the
tech firms in that state. He did not have details on how the dividend
would work, but he did say something bold has to be done.
Coming up, the box office got off to a slow start this year, but just wait.
(MUSIC)
HERERA: Amazon (NASDAQ:AMZN) and General Motors (NYSE:GM) are reportedly
in talks to invest in electric carmaker Rivian, which specializes in
electric pickup trucks and could be a Tesla rival. According to “Reuters”,
the investment would give Amazon (NASDAQ:AMZN) and GM minority stakes in
the start-up and would value Rivian at between $1 billion and $2 billion.
“Reuters” adds that the deal isn`t final, it could fall through.
GRIFFETH: Meanwhile, Nissan has cut its forecast for its profit and
vehicle sales. It also took an $84 million charge related to deferred
compensation it says was promised to former chairman Carlos Ghosn.
As you know, Tokyo prosecutors have charged Mr. Ghosn with underreporting
his pay. The automaker said that it`s facing a decline in global vehicle
sales, especially in the U.S. and in Europe, and it will reconsider its
plan to deepen its alliance with France`s Renault.
HERERA: Everybody loves buying something on sale, of course, but according
to a new report, all of those markdowns cost retailers $300 billion in
revenue last year. That equals about 12 percent of sales. This report
does not include grocery retailers.
GRIFFETH: Well, we are just a few weeks in to 2019, but already it`s
apparent that the year is not starting the way Hollywood like. But are
things about to change. Julia Boorstin takes a look at the box office
challenges and why things may be about to heat up.
(BEGIN VIDEOTAPE)
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The “Lego Movie 2”
the second part has failed to turn around a struggling 2019 box office. It
grossed $34 million at the domestic box office, as much as $20 million less
than some estimates for the film.
A disappointing weekend bringing the year-to-date U.S. box office down 14.5
percent from last year, which is bolstered by a “Star Wars” film, and this
winter, films such as “Bird Box” on Netflix (NASDAQ:NFLX) have been making
headlines and drawing attention.
PAUL DERGARABEDIAN, COMSCORE: The bar is definitely higher in terms of
getting people to go to the movie theater because there`s so much
compelling content at home on the small screen. So now it comes down to
the marketing, the strength of that marketing for movies in theater, those
big tent pole films, the exciting Marvel movies, the horror movies. All
those big franchises are going to be the films that get people off their
couch and into the movie theater.
BOORSTIN: One issue — once people stop going to the movies and get used
to streaming movies on Netflix (NASDAQ:NFLX) instead, that means they stop
seeing trailers and getting those reminders about why to come back. A box
office decline can start a vicious cycle.
Analysts warning first-quarter box office revenue could fall further on
tough comparisons to last year`s blockbuster “Black Panther,” but Disney`s
“Captain Marvel” coming on March 8th should start to turn things around.
DERGARABEDIAN: The comparisons are going to be tough up until “Captain
Marvel,” which thankfully is required viewing for “Avengers: Endgame,”
which is going to kick off really this summer, at the end of April.
So, the good news is help is on the way. The bad news is it`s going to
take a little while to get here, but it`s coming.
BOORSTIN: Expected to bolster the box office, a slew of sequels in the
works, such as Marvel`s “Avengers: Endgame,” Warner Brothers` “Godzilla:
King of the Monsters,” Disney`s “Toy Story 4” and Sony`s “Spiderman: Far
From Home.” Plus, Disney (NYSE:DIS) is debuting three live-action remakes
of popular family films, “Dumbo”, “Aladdin” and “The Lion King”, brands big
enough to cut through the clutter and likely get crowds back to theaters.
But there`s no question with so much content streaming at home, consumers
need more reasons to pay up for the more expensive trip to the theater.
For “NIGHTLY BUSINESS REPORT,” I`m Julia Boorstin in Los Angeles.
(END VIDEOTAPE)
HERERA: Here`s a look at the final numbers from Wall Street today. The
Dow rose 372 points. The Nasdaq added 106. S&P 500 was up 34.
That does it for us tonight. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.
