Nightly Business Report – February 22, 2019

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


likely that a deal will happen.  


abounds that the U.S. and China will reach a deal and the market responds.  

Who pays more?  Calls to tax the rich are growing, but do the numbers match
the rhetoric?  

And value hunting.  This week`s market monitor says there are bargains to
be found, and he has three names he thinks belong in your portfolio.  

All that and much more tonight on NIGHTLY BUSINESS REPORT for this Friday,
February 22nd.  

And we do bid you a good evening, everybody, and welcome.  Sue has the
night off tonight.  

Optimism was all the rage today in Washington, as the U.S. and China agreed
to extend their trade talks for a few days, fueling sentiment that a deal
might be hammered out before next week`s tariff deadline.  President Trump
also confirmed that he will meet with his Chinese counterpart next month.  
Stocks responded to that news and we`ll have more on that in a moment.  

But first, Kayla Tausche has more on the trade talks.


cabinet-level negotiations and just one week before a critical trade
deadline, both President Trump and the Chinese vice premier say a deal is
more likely than not.  

TRUMP:  I would say that it`s more likely that a deal will happen.  The
fact that they`re staying — and this is a very high delegation.  This is a
man who is revered all throughout China, as the vice premier.  So the fact
that they`re willing to stay for quite a bit longer period, doubling up the
time, that means something.  I think there`s a good chance that it happens.  

TAUSCHE:  Despite that optimism, the deal is not done yet.  The Chinese
delegation will be staying in Washington for two more days, after which
point the president`s advisers will recommend whether to extend that March
1st deadline.  The president says there will be at least one more round of
talks and then a summit between him and the Chinese president at which the
biggest decisions will be made.  

So far, the U.S. team says there has been progress made on currency and on
the issue of Chinese companies stealing the technology of their U.S.
counterparts.  And President Trump even said he`d be willing to consider
dropping criminal charges against Chinese telecom Huawei in the coming

All of this movement coming nearly one year as this trade spat has
escalated, but potentially the end is in sight.  

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.  


GRIFFETH:  And coming up, we will look at how tariffs are impacting the
multibillion dollar home improvement sector.  

But, first, a look at today`s market rally fueled by this trade optimism.  
The Dow rose 181 points to close back above 26,000 for the first time since
early November.  The Nasdaq was up 67, the S&P 500 added 17.  

And for the week, the indexes were all up less than 1 percent.  But for the
Dow, this was its ninth straight week of gains.  Its longest win streak, by
the way, since May of 1995.  

One concern still hanging over the market, though, corporate earnings,
which are expected to slow this year.  And if they slow too much, there`s
even fear of an earnings recession.  But does that necessarily mean the
market will go lower?  

Bob Pisani takes a look.  


recession mean the stock market will drop in 2019?  No, it doesn`t.  We`re
still in the longest bull market on record, yet the entire trading
community seems convinced the bull is about to roll over.  Last year`s 6
percent decline in the S&P 500 is being hailed as proof that the market
sniffed out an earnings recession.  That`s where earnings drop at least two
consecutive quarters in a row.  

This news is being greeted with the usual round of hand wringing from the
analysts and strategists, many of whom are predicting little, if any upward
movement in stocks this year.  The truth is this, historically there is
very little evidence that a decline in stocks always indicate an earnings
recession, nor is the opposite true.  There is little evidence that an
earnings recession invariably leads to a decline in stocks.  

So, what does matter?  The two developments that historically have killed
bull markets, first is a sharp and sudden price hike by the Fed.  The
second is the recession.  

Now, the Fed for the moment seems out of the whole rate hike game, so
that`s not a major factor.  This leaves a recession, the classic killer of
bull markets.  That`s where the fault lines lie.  

If you believe a recession later this year or in 2020 is imminent and
unavoidable, then earnings growth will likely indeed decline, possibly by
double digits with similar declines in stock prices.  But if a recession is
avoidable, it`s quite likely the current flat earnings environment will not
really amount to much in the long term.  

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.


GRIFFETH:  There was a lot of Fed-related talk today.  First in the Fed`s
semiannual report to Congress, the central bank said that the U.S. economy
maintained solid growth through the end of last year, likely expanding just
under 3 percent for all of 2018.  The Fed also said the consumer and
business confidence remains favorable, but some measures have softened
since the fall, mainly global economic conditions.  In fact, Chairman Jay
Powell will elaborate on all of this when he testifies on Capitol Hill
coming up on Tuesday and Wednesday.  

In the meantime, Fed Vice Chair Richard Clarida said today that the Central
Bank will keep an open mind as it begins a broad review this year of its
monetary policy framework.  He said that the Fed will look at whether it
needs to let inflation run higher than its 2 percent target if it feels
that prices have grown too slowly, and also whether the Fed should expand
its tool kit to fend off future downturns.  

And finally, Fed officials say they will look at possibly tweaking their
communications strategies.  Clarida also said the Fed will make the results
of this review public in the first half of next year.  

Let`s turn now to Matt Maley to talk about all of this, the Fed, trade,
possibly earnings recession and what it means for the market.  Of course,
he`s equity strategist at Miller Tabak.  

Welcome back, Matt.  


GRIFFETH:  I`m fine.  Here we are the ninth straight week of gains for the
Dow.  It doesn`t feel like the market is concerned about an earnings
recession or trade and tariff issues or about the Fed.  What do you think?  

MALEY:  Well, I am a little worried about the earnings recession because
one of the things we have with the Fed is that, first, back in 2015, we had
the last earnings recession.  


MALEY:  The Fed was easing through their Q.E. programs.  This time, the Fed
is not easing.  In fact, they`re still involved in QTs, and just the
opposite.  In other words, they`re still shrinking their balance sheet.  

So even though they have changed their tone quite a bit, and they have
changed their actions to a degree too because they`re no longer raising
interest rates, they`re still tightening slightly here.  So, if earnings do
continue to move lower as we move through the year, it will be a concern
for me.  

Again, I`m not turning wildly bearish here.  I`m just saying after a huge
move that we`ve had.  I mean, nine weeks in a row is good, but usually
after nine weeks in a row of a rally, it falls off a little bit.  

GRIFFETH:  And the economy itself, you know, we`re subject to what`s going
on globally.  We`ve talked about this in the past here.  If we`re seeing a
global slowdown, inevitably, it eventually ends up here because of trade
concerns and things.  What about that and its impact on the stock market?  

MALEY:  Yes, that`s the same thing.  We have a combination of slowing
global growth.  Even though the U.S. economy is doing better than the rest
of the world or most of the rest of the world, it`s still slowing as well.  
So, if you get a combination of slower earnings growth and slower economic
growth, it`s just hard for the market to rally a lot more, especially after
its rallied 18 percent off its lows.  

GRIFFETH:  Yes.  And after the Fed minutes the other day, there were those
who felt like maybe the Fed is going to have to raise rates by the end of
this year.  I`m curious what your thoughts are on that.  

MALEY:  For that to happen, we definitely need to see things pick up quite
a bit more and turn around and move higher.  That`s not out of the question
if this trade deal is a substantive one.  I`m not sure we`ll get that, but
if we had a substantive one that eases business leaders to give them more
confidence to spend more money, that could certainly be something that
changes the Fed`s thinking.  

GRIFFETH:  So what does your portfolio in stocks look like now?  Are you
more defensive?  Are you going for growth?  Are you looking at value?  What
are you doing right now, Matt?  

MALEY:  Definitely a little bit more on the defensive side.  Mostly for the
reasons I`ve just cited.  But again, I don`t want to overstate it.  The one
thing that`s very positive, a lot of people talked about the negative thing
about how all these FAANG stocks have rolled over, but actually the rest of
the group has picked up the pace.  We`ve seen actually the broad tech group
is doing better rather than just a few concentrated names.  So, there`s
some area you can pick your spots and find some good value.  

GRIFFETH:  All right.  Matt Maley with Miller Tabak, always good to see
you.  Have a good weekend.  Thanks.  

MALEY:  You too, Bill.  Thank you.  

GRIFFETH:  Now back to trade.  And with that March 1st tariff deadline
still looming, the home improvement sector is getting ready for its spring

And as Courtney Reagan tells us now, tariffs have become part of their
conversation for this hot area of consumer spending.


continue between the U.S. and China, the trade show must go on.  True Value
holding its biannual Hardware Home and Garden Buyer Trade Show in Dallas,
as more than 400 vendors, who import goods from China, could see tariffs
increase from 10 percent to 25 percent as early as next Friday.  And that`s
on top of steel, aluminum and other tariffs instituted last year.  

JOHN HARTMANN, TRUE VALUE CEO:  As business people, we get that something
needs to be done to level the playing field.  None of us like price
increases.  The end consumer doesn`t want to pay more.  Our store owners
don`t want to pay more and then have to charge their customers more.  

REAGAN:  Americans spend $10 billion on home improvement products that are
now subject to tariffs.  Items like hammers, vinyl flooring and cabinets.  
A tariff of 25 percent could add $2.5 billion to the total price consumers

Rust-Oleum is the world`s biggest manufacturer of spray paint.  The company
is already facing rising freight and labor costs and tariffs on steel cans
and some raw materials are adding to cost woes.  

ED VOORHEES, RUST-OLEUM CEO:  We do a lot internally as a company first to
make sure we don`t have to give a price increase.  Then when we just are
pushed to the wall and have done everything we can, then we go out with a
price increase.  

REAGAN:  Only the fifth price increase in two decades, and the first as a
result of tariffs.  

Voorhees says there was initial margin pain, but the price increase helped
profitability recover.  

In a letter to the U.S. trade representative, the CEO of Sun Joe Snow Joe
says tariffs could make its products including pressure washers, leaf
blowers and hoses, quote, substantially more expensive for consumers.  But
in cases like lawn and garden giant Scott`s Miracle Grow, the grass is
greener on the other side.  The company says tariffs are having only a
really modest impact and the sprayers on one of its pesticides containers
initially subject to tariffs got an agricultural exemption.  

As the March 1st tariff deadline approaches, the home improvement sector
waits to see whether a deal can be hammered out as its busy spring season
takes off.  

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Dallas, Texas.


GRIFFETH:  Time to take a look now at some of today`s upgrades and

We begin with Morgan Stanley (NYSE:MS) upgrading shares of Intel
(NASDAQ:INTC) from equal weight to overweight.  It`s turning bullish on
that stock now for the first time in seven years.  The analyst said that
the chip maker can benefit from a new CEO and he feels it`s undervalued
compared to its peers.  Price target now raised from $55 to $64 a share.  
And the shares closed at $52.49.  That was up 2 percent today.  

Jefferies is upgrading Citi from hold to buy with the firm seeing improving
revenue growth in the U.S. as well as adding benefits from growth in Latin
America.  The price target $73.  Citi, though, fell a fraction today to

Jefferies also raised Planet Fitness from hold to buy.  The analyst sees
the company benefitting from the growing wellness trend.  Big price target,
though, hike from $49 all the way to $75 a share.  Today`s shares closed at
$58 even.  

And Wall Street hit the eject button today on Kraft (NYSE:KFT) Heinz as six
firms downgraded the shares and removed them from their buy lists.  Last
night, you recall the company reported poor earnings. It slashed its
dividend and revealed the SEC had issued a subpoena looking into some of
its accounting practices.  In its downgrade, Barclay said there is simply
too much uncertainty to continue recommending that stock.  Kraft (NYSE:KFT)
Heinz shares lost more than a quarter of their value in today`s trade at

Mobile World Congress, that is the massive conference for electronics and
telecom companies that gets under way next week in Barcelona, and the focus
this year will be on 5G technology.  Yesterday, President Trump weighed in
on that topic with this tweet.  He said: I want 5G and even 6G technology
in the United States as soon as possible.  It is far more powerful and
faster and smarter than the current standard.  American companies must step
up their efforts or get left behind.  

He continued: There is no reason that we should be lagging behind on
something that is so obviously the future.  I want the United States to win
through competition, not blocking out currently advanced technologies.  We
must always be the leader in everything that we do, especially when it
comes to the very exciting world of technology.  

And, in fact, today, FCC Commissioner Brendan Carr said the U.S. is
actually not that far behind.  


BRENDAN CARR, FCC COMMISSIONER:  We`re actually in really good shape right
now in the U.S. and that`s thanks to a lot of regulatory reforms we`ve been
engaged in the last two years and the White House has been helping to lead
the way by prioritizing 5G.  In fact, a report just out this week said that
the U.S. is projected to have twice the number of 5G connections as Asia by
a percentage basis.  So there`s more to do, but we`re heading very much in
the right direction.  


GRIFFETH:  So what exactly is 5G and what does it do?  

Jon Fortt explains.  



Well, 1G brought us phone calls; 2G, texting; 3G, web browsing; and 4G,
video streaming.  5G promises to make all of that faster, but maybe more
important, it should make room for a flood of new gadgets, like self-
driving cars, smart homes, weather sensors, traffic lights, security
cameras.  With 5g, all of them can be connected at the same time without
causing a traffic pile-up of data.  

It all works because three characteristics of 5G make it a potential game-

One, it`s fast.  How fast depends on how it`s set up.  For phones, top
speed should be not only a bit faster than 4G, but unlike 4G which can be
bursty, 5G phone speeds are more consistent.  

Two, it`s agile.  In the world of data, that`s low latency.  It means the
time between asking to play the video and the video starting to play, much
shorter.  That`s a big deal for things like driverless cars, which will be
reacting to traffic warnings and other alerts from the network.  

Three, it has endurance.  When it`s set up for communicating with sensors,
5G networks don`t make devices use as much power to communicate.  



GRIFFETH:  Up next, taxing situation.  How the income tax system relies
heavily on the very people many politicians want to pay more.  


GRIFFETH:  As part of their proposed tax plans, many Democrats claim the
wealthy get special breaks and pay lower rates than the rest of the
country, but a closer look shows that might not be the case.  

So, who really pays more?  

Robert Frank digs into the numbers for us.  


words that have become a rallying cry for Democratic candidates.  Fair

who have gained the most from our country to pay their fair share.  

FRANK:  But the share of taxes actually paid by the wealthy are near or at
an all-time high.  The Tax Policy Center projects that the top 1 percent
will pay 43 percent of all federal income taxes this year.  That would be

The bottom 60 percent of taxpayers pay 4 percent of income taxes.  Of
course, the reason that the wealthy are paying a higher share is that their
incomes have soared along with the share of the nation`s pay.  The top 1
percent will earn about 20 percent of total adjusted income as of 2016.  
That`s double what it was in the 1980s.  

Many say the wealthy can afford to pay even more, especially as inequality
grows, along with the calls for more social programs.  

WILLIAM GALE, BROOKINGS INSTITUTION:  We need to raise taxes on high-income
households for two reasons.  One is their income has skyrocketed.  The
reason their share is so high is because their income is so high.  

The other reason we need to raise taxes on the rich is that we have this
long-term budget issue where we`ll either need to raise taxes or cut

FRANK:  But the real battle is over the rates paid by the top earners.  
Despite claims the wealthy get special rates or lower rates than the rest,
the rates they actually pay, known as the effective tax rates, are still
the highest for the wealthy.  The 1 percent paid an average rate of 27
percent in 2016.  The middle to upper middle income earners paid only 11

Now, conservatives say rather than raising taxes on the wealthy,
governments should instead cut spending.  

taxes, which I don`t advocate, I think we primarily have a spending
problem, you`d have to raise taxes about 10 percent.  If you wanted to
balance the budget, you`d have to raise it 30 percent.  

FRANK:  As we head to the 2020 election, the taxes paid by the 1 percent
are sure to get a lot more attention.  



GRIFFETH:  A change at the top of AutoNation (NYSE:AN) and that`s where we
begin tonight`s “Market Focus”.  

Long-time CEO Mike Jackson said today he`s going to step down from the car
retailer March 11th and he`ll be replaced by Carl Liebert who is currently
the chief operating officer at financial services company USAA.  
Separately, the company reported earnings and revenue below estimates.  
Shares of AutoNation (NYSE:AN) fell 3 percent today to $37.23.  

Wayfair had a banner holiday season topping quarterly earnings and revenue
estimates.  The online furniture retailer also reported a 15 percent surge
in its active customer count.  Shares hit their highest level since
Wayfair`s IPO back in 2014.  It was up nearly 28 percent today to $149.95.  

Canadian mining company Barrick Gold (NYSE:ABX) is reportedly considering a
hostile bid for rival Newmont Mining (NYSE:NEM) for as much as $19 billion.  
That potential merger would be one of the largest mining deals ever and
would create making Barrick the largest gold producer in the world.  Late
today, Newmont responded to those reports saying its own $10 billion
acquisition of Gold Corp announced in January was in its view enough to
produce solid growth in the future.  

Barrick shares fell 2 percent and Newmont shares were up 3 percent.  

And, (NASDAQ:STMP) is ending its exclusive partnership with the
U.S. Postal Service.  The company says with Amazon (NASDAQ:AMZN) disrupting
the shipping business, it needs to be free to do deals with competitors
like FedEx (NYSE:FDX), UPS and even Amazon (NASDAQ:AMZN).  But it comes at
a cost. (NASDAQ:STMP) said ending its deal with the post office
means it will only earn roughly half what Wall Street was expecting for
this year, and that`s probably why shares plummeted almost 58 percent today
to $83.65.  

Time now for our weekly market monitor.  He`s a value investor.  He has
names of companies that he says are a bargain at the market right now.  
This is his first time on the program.  

Michael Liss is senior portfolio manager at American Century Investments.  

Good to see you, Michael.  Welcome tonight.  

Thanks, Bill.  It`s great to be here.  

GRIFFETH:  And we start with Zimmer Biomet, a medical device maker founded
in 1927.  I looked at a chart today and it`s been hovering the last few
years near an all-time high.  But you still feel it presents a value.  Why?  

LISS:  I do, Bill.  Zimmer Biomet is a manufacturer of artificial hips and
knees.  It`s a very consolidated industry.  The top four manufacturers have
roughly 90 percent of the market share.  Barriers to entry are high,
keeping out new competitors.  So, the returns on capital are high and
because demand for their products are stable, those returns on capital are
stable as well.  

And so, Zimmer has run into some issues with their integration of Biomet on
the manufacturing side, but they`re solvable and we think about a little
time and a little extra spending, we think they`ll be able to figure that

GRIFFETH:  All right.

LISS:  So, it`s good returns on capital, very stable returns on capital and
a very cheap valuation.  We think it`s a good risk/reward.  

GRIFFETH:  OK.  U.S. Bank, number five in the country, has recovered nicely
in the last ten years after the financial crisis.  But, again, you still
see value there.  

LISS:  It has.  You`re right, Bill, it has recovered nicely but we think
there`s still more to go of as you said, they`re the fifth largest
financial lender in the country.  They have industry-leading returns on
capital and those returns on capital are relatively stable compared to
peers.  They have a strong balance sheet and the highest credit rating
amongst their peers.  

We really like their diversified revenue stream, both made up of lending
business and very strong fee revenues.  


LISS:  So they had extra spending that they had to do in 2016 and 2017.  
It`s rolled over.  We think the margins will expand into 2019.  It`s a
cheap valuation, leading returns on capital in the industry, strong balance
sheet, 2.9 percent defensive yield.  


LISS:  Good valuation.  We think it`s a good risk/reward.  

GRIFFETH:  All right.  We have run out of time but I will just mention that
you had Devon Energy (NYSE:DVN) as number three of value there, and it has
been down for the last three years.  So, we do see maybe some value there
as well.  

Michael Liss with American Century Investments, thanks for joining us

LISS:  Thanks, Bill.  

GRIFFETH:  Up next, we head west to Hollywood`s biggest night of the year.


in Hollywood, where they`re getting the red carpet ready for the stars on
Sunday night.  I`ll tell you what to expect from an Oscar Awards show
that`s already been riddled by controversy.  That`s coming up on NIGHTLY



GRIFFETH:  The Academy Awards are Sunday night and this year, there`s more
pressure than ever for them to draw viewers.  Julia Boorstin is in
Hollywood for us tonight.  


BOORSTIN:  The Academy Awards isn`t just about movie stars strutting the
red carpet, it`s also the ultimate ad for Hollywood, appeared the pressure
is on to make this year`s Oscars more compelling after last year`s ratings
fell to an all-time low.  Movie going is under pressure with more films on
Netflix (NASDAQ:NFLX) and other services streaming at home.  The box office
is down 25 percent so far this year.  The Oscars can provide a valuable box
office boost.  

ERIC HANDLER, MKM PARTNERS:  You know, Oscar nominations or even Golden
Globe nominations, they provide really good free marketing for studios.  

BOORSTIN:  But this year`s show has been riddled with controversy.  Kevin
Hart dropped out as host in December, after the revelation he sent
homophobic tweets in the past, leaving the show with no host for the first
time since 1989.  

And the Academy did an about-face, reversing its decision to award four
statues during commercial breaks after widespread protest.  

Changes to the show could help retain viewers over the course of the three-
hour plus telecast, but the big question is after last year`s ratings
decline and with no host this year, will the Oscars be able to bring back

Working in the show`s favor and benefitting ABC, which airs it, “Black
Panther” was nominated for seven Academy Awards, including best picture.  
This is the first time a super hero movie has been nominated for the
Academy`s top honor.  

“Black Panther” which earned $700 million at the U.S. box office is the
highest grossing film to be nominated for Best Picture since “Avatar
(NASDAQ:AVTR)” back in 2009.  

HANDLER:  Very big for Disney (NYSE:DIS) from a prestige standpoint.  You
know, it`s not too often that we see the film that`s the highest grossing
film of the year also be perceived as the best film of the year.  

BOORSTIN:  Along with “Bohemian Rhapsody” and “A Star is Born” this year
three best picture nominees have earned more than $200 million at the
domestic box office.  We`ll see if the combination of commercial success
and critical appeal of this year`s nominees draws big numbers to watch the
big stars Sunday night.  

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.


GRIFFETH:  Before we go, one final look at the day on Wall Street.  A rally
with hopes about the U.S./China trade talks.  The Dow was up 181 points,
Nasdaq climbed by 67, the S&P added 17.  

That is NIGHTLY BUSINESS REPORT for a Friday.  I`m Bill Griffeth.  Thanks
so much for joining us.  Have a great weekend.  See you Monday.


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