ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
Griffeth.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Moving higher. Stocks start
the week on an upbeat note after the president says he does not plan to
raise tariffs on Chinese goods at the end of the month.
Paid too much. Warren Buffett admits that Berkshire Hathaway (NYSE:BRK.A)
overpaid for Kraft (NYSE:KFT), a company that`s accounting is now the
subject of an SEC investigation.
Riding into the future, and it`s not on gas-powered bike. But are electric
motorcycles enough to win over young consumers?
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday,
February 25th.
Good evening, everyone, and welcome. Bill Griffeth is off tonight.
Investors started the week with news that they had been hoping for.
President Trump is stepping back from his hard-line stance on a trade
deadline with China. Following two weeks of high-level talks with the
world`s second largest economy, the president postponed the date for
raising tariffs on $200 billion worth of Chinese imports. And while
investors are cheering the news, many are also asking, what`s next?
Kayla Tausche is in Washington tonight.
(BEGIN VIDEOTAPE)
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: As President Trump
heads to Vietnam to defuse nuclear tensions with North Korea, he`s touting
another area of de-escalation, trade with China, telling U.S. governors
he`s close to a deal.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We`re going to have another
summit. We`re going to have a signing summit, which is even better. So,
hopefully, we can get that completed, but we`re getting very, very close.
TAUSCHE: Talks with China have intensified over the last week. China`s
president, Xi Jinping, touting significant progress and a delegation
negotiating on his behalf stayed an extra two days.
The results, according to tweets from the president, a deal in the advanced
stages. Progress on intellectual property protection, technology
transfers, agriculture, services, and currency. And a potential deal
announced at his Florida resort, Mar-a-Lago, in late March.
President Trump credits tariffs for getting talks this far.
TRUMP: Tariffs are hurting China very badly.
TAUSCHE: But investors and business leaders are breathing a sigh of relief
that tariffs could be rolled back. Here`s Warren Buffett.
WARREN BUFFETT, BERKSHIRE HATHAWAY CEO: I`m relieved at the idea that
there`s still some chance that sense will prevail. The — it is bad for
China, it`s bad for us if we get into some kind of a trade war.
TAUSCHE: Sources say the U.S. and China still disagree over how to enforce
a deal, and within the White House too, President Trump and his top trade
official clash on what form the deal would take.
TRUMP: By the way, I disagree. I think that a memorandum of understanding
is not a contract to the extent that we want.
UNIDENTIFIED MALE: From now on, we`re not using the word memorandum of
understanding anymore. We`re going to use the term trade agreement, all
right?
TAUSCHE: The substance of any trade agreement or how long it would be
effective are still a work in progress. China has proposed some
concessions that would go through 2024, the end of President Trump`s
potential second term.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
(END VIDEOTAPE)
HERERA: The easing of trade tensions sparked a rally overnight in China
which saw stocks rise the most since 2015. Here in the U.S., stocks
followed suit, touching almost four months high midday. They were also
helped by some deal-making activity which we`ll get to in just a moment.
Today, the Dow Jones Industrial Average rose 60 points to 26,091. The
Nasdaq was up 26 and the S&P 500 added 3. Today`s stock gains add to the
strong move higher this year.
But how sustainable is the rally?
Mike Santoli looks into that.
(BEGIN VIDEOTAPE)
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stock market in
2019 is off to its best in three decades, taking the S&P 500 ride up to the
level where rallies failed three separate times last fall. Now that the
losses of the worst December since the 1930s have been recovered, Wall
Street is asking whether this rally could continue higher from here.
Well, the market itself is encouraging to the bulls. The advance has been
unusually broad with the vast majority of stocks up dramatically from the
December lows, pullbacks have been shallow and brief on the way to a nearly
12 percent climb in the S&P year to date.
Another point for the bulls, investor sentiment is generally muted.
Surveys show only modest optimism and investors have pulled more money from
stock funds this year than they`ve contributed to them. From a contrary
opinion angle, that`s a net positive.
And with the Federal Reserve emphasizing patience toward any further
interest rate hikes, bond yields have stayed low and corporate debt prices
have firmed up. That helps to support equity valuations which are now
right around their five-year average compared to forecast earnings.
But those earnings estimates are a possible stumbling block. Projected
earnings for the S&P 500 companies have declined steadily in recent months
with a drop in profits now expected for the first quarter and total growth
for the year down to about 5 percent. Investors seem to be betting that an
expected trade deal with China might coincide with stabilizing earnings
forecasts and a boost to corporate confidence. If so, that could help
validate the rebound and sustain this rally, but as stock prices go higher,
so does the need for economic news to improve rather than just seeming less
bad than expected.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
(END VIDEOTAPE)
HERERA: Jason Draho joins us now to talk more about the market and what
might drive stocks from here. He is head of America`s asset allocation at
UBS Global Wealth Management.
Jason, welcome. Nice to have you here this evening.
JASON DRAHO, UBS GLOBAL WEALTH MANAGEMENT: It`s good to be here.
HERERA: You say that you are still positive but prudent. What do you mean
by that?
DRAHO: Well, what we think is that, you know, the economic outlook is
still attractive and the markets have rallied a lot on both the good
developments on trade and also the Federal Reserve turning patient and
providing tail with some markets. But the markets moved up a lot this year
without actual data really getting better both in the U.S. and globally,
we`ve seen kind of weakness over the past few months.
So, right now, the markets kind of move ahead of the actual economic data
which we think will get better in the U.S., for example, some of the
weakness we`ve seen is a result of the government shutdown, the December
selloff clearly spooked both consumer and investor sentiment. That`s going
to have a sort of near term impact. But looking ahead, three, six months,
we still feel comfortable at the outlook and that`s going to provide
further tail winds on the upside, but prudent because a lot of good news
has already been priced in.
HERERA: So, does that mean that you`ve changed your exposure to stocks?
And if so, how?
DRAHO: So, just last week, we did our latest update. We were already kind
of overweight stocks relative to our benchmark. We dialed that back a
little bit. And we`re kind of 3 percent overweight compared to our
benchmark, we`re down to 2 percent.
We`ve also made some other changes on a regional style and sector basis to
try and maybe make the portfolio a little less risk on, acknowledging that,
you know, the cycle may turn a little bit, the economic data may not
support us as much we`d like, so we thought let`s keep risk on but take
more prudent action of how we allocate the portfolio.
HERERA: You say you still like the U.S. but you also like the emerging
markets. If so, what part of the globe?
DRAHO: Well, particularly Asia, because 70 percent of the market is based
in Asia so you can generally like emerging markets. I think the reaction
this morning in China with Chinese equities up 6 percent on this news kind
of speaks to the fact that — well, U.S. markets have kind of priced in
some good news on the Fed and on trade. There`s definitely hasn`t been the
case as much overseas, particularly in Asia.
So, that`s an area where we still think is attractive as you get kind of
better news on trade. We`re also seeing some of the data in China showing
to the signs of kind of green shoots after a lot of stimulus. If that
plays out, there`s definitely more upside in emerging markets.
HERERA: OK. So, you know, for so long, this market was obsessed with
trade, and to a certain extent, still is. But with progress apparently
being made, according to the president and others, what else is going to
drive this market forward now that that at least is out of the way?
DRAHO: Well, I think the biggest thing that the market will focus on from
here on is the growth outlook. And the U.S. and overseas, and what does it
mean for corporate earnings. We know we`re going to see some soft data in
the first quarter, what would people want to see and where the real market
debate will be from here on out is, is the slowdown we`ve seen over the
past few months of a mini-cycle slowdown and we`re going reaccelerate
through the middle of the year, or is this actually a more ominous sign
that growth is going to continue to be weak and risk a recession if not
this year than next year is rising.
I think that`s what the market will need to see is get comfort that it`s
sort of a temporary blip.
HERERA: On that note, Jason, thank you.
DRAHO: My pleasure.
HERERA: Jason Draho with UBS Global Wealth Management.
And now to those deals that we mentioned earlier. Let`s start with General
Electric (NYSE:GE) which agreed to sell its biotech business to Danaher
(NYSE:DHR) for $21 billion. The move is a strategy reversal for GE, which
rejected an approach by Danaher (NYSE:DHR) for that business about a year
ago. The proceeds of the deal will be used to trim debt, which stood at
$121 billion at the end of December.
Shares of GE were up more than 6 percent. Danaher (NYSE:DHR) shares gained
8.5 percent.
And now to Barrick Gold (NYSE:ABX), which made an unsolicited $18 billion
bid for Newmont Mining (NYSE:NEM). Barrick Gold (NYSE:ABX) says the deal
is logical for an industry battling high costs. Newmont had previously
announced a $10 billion takeover of Gold Corp. And today, Barrick, Newmont
and Gold Corp. all finished lower.
And, finally, Roche is buying gene therapy specialist Spark Therapeutics
for $4.3 billion. Spark`s portfolio includes treatments for blindness and
Huntington disease. This deal follows a recent push among other drug
makers into the gene therapy space. Shares of Sparks soared 120 percent
while Roche fell a fraction.
Warren Buffett released his annual letter to shareholders over the weekend.
It`s an annual event that many investors follow. And this year, it took on
added significance given last week`s warning by Kraft (NYSE:KFT) Heinz, a
stock that is one of Berkshire`s major holdings.
Becky Quick spoke with the Oracle (NASDAQ:ORCL) of Omaha and filed this
report.
(BEGIN VIDEOTAPE)
BECKY QUICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This past weekend,
Berkshire Hathaway (NYSE:BRK.A) chairman and CEO, Warren Buffett, put out
his annual letter to shareholders which has become a bit of a must-read
among the investment community. He talked about all kinds of issues and we
sat down with him in a wide-ranging interview, covered everything from the
markets to the economy to Berkshire`s businesses, but we started with the
news of the day, and that`s Berkshire Hathaway`s 26.7 percent investment in
Kraft (NYSE:KFT) Heinz, and the hard times that the consumer products
company has fallen on.
WARREN BUFFETT, BERKSHIRE HATHAWAY CEO: I was wrong in a couple ways on
Kraft (NYSE:KFT) Heinz. I think we talked, the Glide luncheon time, about
the packaged goods, brands losing some ground against the retailers. The
packaged goods companies are always in a struggle with retailers. Our
family had a grocery store for a hundred years and we were always — then,
we didn`t have much bargaining power.
But the really strong brands, they can go toe to toe with Walmart or Costco
(NASDAQ:COST) or whomever it may be, but the weaker brands tend to lose
out.
QUICK: There was a Federal Reserve out on Friday that suggested that GDP
for 2018 is probably going to come in slightly below 3 percent. What do
you think the economy is doing right now, just based on your businesses,
based on the receipts you`re seeing, the companies that you track that you
have major shares in?
BUFFETT: Right now, just based on the monthly statements I get and in some
cases, I get other data in between, but overall, things are a little
better. I mean, the rate of improvement has tapered, but it certainly
hasn`t flattened. Now that can change next month.
QUICK: For NIGHTLY BUSINESS REPORT, I`m Becky Quick in Omaha, Nebraska.
(END VIDEOTAPE)
HERERA: Now when it comes to Apple (NASDAQ:AAPL), Mr. Buffett says he`s
not buying more of the stock at these levels, but he`s not selling them
either. And he told Becky that he would add to his position if the shares
got cheaper. Today, the stock hit a 12-week high, closing up a fraction to
$174.23.
It is time to take a look at some of today`s upgrades and downgrades.
PayPal was downgraded to neutral from buy at Buckingham Research. The
analyst cites short-term challenges, including concerns around its Venmo
business, and the lost of eBay (NASDAQ:EBAY) as a partner. The price
target is $99. The shares closed at $96.70, up a fraction, and touched a
52-week high during the trading session.
Norwegian Cruise Line was upgraded to outperform from neutral at Macquarie.
The analyst cites strong advance ticket sales as well as the potential for
a dividend in the second half of the year. The price target is $65.
Norwegian closed up 1 percent to $55.94.
Microsoft (NASDAQ:MSFT) was added to the best ideas list over at Wedbush.
The analyst cites major cloud opportunities in the future based on recent
field checks. The price target is $140 and the firm has an outperform
rating on the stock. Shares today closed up a bit to $111.59.
Cronos Group was initiated with an underperform rating and new coverage at
Jefferies. The analyst says there`s little to get excited about the stock
other than Altria`s investment. The firm adds that the market has gotten
ahead of itself. Cronos closed down today more than 7.5 percent at $20.25.
Still ahead: the futuristic technologies that are almost realities.
(MUSIC)
HERERA: Hotel inventories increase by the most in more than five years in
December. That increase suggests that goods are piling up, which could
represent a slowdown in demand. According to the Commerce Department,
inventories rose 1.1 percent, which was above forecast. This was a delayed
release due to the partial government shutdown.
Federal Reserve chairman Jerome Powell is scheduled to deliver the central
bank`s semiannual monetary report to Congress tomorrow. But he`s no
stranger to the halls of Congress.
Ylan Mui reports on what`s been happening behind the scenes.
(BEGIN VIDEOTAPE)
JEROME POWELL, CHAIRMAN OF THE FEDERAL RESERVE: Thank you very much, Mr.
Chairman.
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The chairman of the
Federal Reserve is only required to appear before Congress four times a
year, but since taking office a year ago, Powell has been on a Capitol Hill
charm offensive.
REP. PATRICK MCHENRY (R), RANKING MEMBER, HOUSE FINANCIAL SERVICES
COMMITTEE: He`s much more direct in answering questions, much more
regularly engaged in the Hill conversations.
MUI: Ninety-eight personal phone calls or meetings with lawmakers, four
times the amount of Janet Yellen in her first year. He`s reached out to
rank-and-file members and to party leaders, but not as many Democrats as
Republicans who controlled both chambers of Congress at the time.
The heads of the committees that oversee the Fed got special attention,
more than 20 individual contacts with those lawmakers.
REP. JEB HENSARLING (R), FORMER HOUSE FINANCIAL SERVICES COMMITTEE
CHAIRMAN: I have Chairman Powell knows that his job is going to be easier
the more that Congress understands what he is doing to fulfill his remit of
price stability and full employment.
MUI: The Fed could certainly use some friends in Washington.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Unfortunately, they just
raised interest rates a little bit because we are doing so well. I`m not
happy about that.
MUI: So unhappy that the president considered firing Powell.
POWELL: Thank you very much, Mr. President, for the faith that you have
shown in me.
MUI: Even though Trump nominated him for the job.
But getting rid of Powell might not be so simple, especially when he`s
built up a bank of goodwill on Capitol Hill.
UNIDENTIFIED MALE: Thank you for a phone call the other day.
SEN. BOB CORKER (R), TENNESSEE: We appreciate some of the transparency
efforts that you have put forth.
REP. STEVE STIVERS (R), OHIO: I know you were in my office. You`ve been
to a lot of our offices.
MUI: His record is six meetings in just one day, a Democrat and five
Republicans, including some of the very same lawmakers who will question
him this week.
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.
(END VIDEOTAPE)
HERERA: A big quarter for Etsy. That`s where we begin tonight`s “Market
Focus”.
The online marketplace for handmade and custom goods reported better than
expected earnings and revenue. The CEO says the company benefitted from
improvements to its search function and expanded marketing. The number of
active sellers at the end of the fourth quarter was up about 10 percent
from the prior year and the number of active buyers increased 20 percent.
Shares were volatile in initial afterhours trading. They ended the regular
session up 4 percent.
Also after the bell, Shake Shack beat on its results but said full year
revenue would be below expectations. Along with earnings, the company also
detailed its expansion plans. The burger chain said it plans to open up to
40 new restaurants this year in the U.S.
And with that, shares were all over the place in after hours. They closed
the regular session down more than 1 percent to $52.25.
Goodyear director Werner Geissler bought more than $600,000 worth of the
company`s stock earlier this month. According to Barrons, it`s the largest
open market purchase by a Goodyear insider in 15 years. The shares rose
almost 4 percent to $20.08.
California utility PG&E scrapped plans to give $130 million in proposed
bonuses to its employees. This comes after victims of the California
wildfires protested, saying the workers don`t deserve to be rewarded for
good performance. PG&E filed for bankruptcy in January. The shares were
down a fraction to $18.65.
Qualcomm (NASDAQ:QCOM), the world`s biggest supplier of mobile phone chips,
is telling investors that it expects to benefit from the rollout of 5G
networks. Its chips will supply the 5G connectivity for cars, PCs, and
home broadband. 5G as we have explained will feature higher speeds than
the current 4G networks, and that was just one of the topics at the Mobile
World Congress, an annual conference that attracts heavy hitters from the
wireless industry.
Jon Fortt is covering the event for us from Barcelona, Spain.
(BEGIN VIDEOTAPE)
JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: 5G, geopolitics and
foldable phones, all grabbing attention at Mobile World Congress in
Barcelona. Some of tech`s power players are positioning themselves for a
surge in spending on faster, more power efficient networks, hoping for a
once in a decade opportunity to pull ahead of rivals. With U.S. carriers
lighting up the first citywide mobile 5G networks this year, the business
opportunity for tech heavy weights like VMware is finally real.
PATRICK GELSINGER, VMWARE CEO: I really see to 2020 as where it`s going to
happen. Right now, the national anthem is playing. Next year, the game
gets started.
FORTT: VMware is offering technology to help service providers transition
to 5G. Meanwhile, device makers like Huawei and Samsung are already
rolling out 5G phones.
Geopolitics looming in the background of this year`s show. Intel`s Bob
Swan said the sooner those clouds clear, the better.
BOB SWAN, INTEL CEO: Well, I think we`re all excited by the progress that
seems to be made in the discussions between the U.S. and China, because we
think global trade is good for the industry in particular.
FORTT: But for so many companies gathering here in Spain, those
opportunities depend on the 5G networks actually getting built — tower by
tower, as quickly as possible.
Ericsson CEO said in the U.S., a tight labor market is making that a
challenge.
BORJE EKHOLM, ERICSSON CEO: We`re probably one of the largest trainers of
tower crews in North America, actually. But what we see now is that the
tower crews are the limiting capacity to actually modernize faster.
FORTT: A good economy will help consumers afford gadgets like those
foldable phones, both more than $1,900, when 5G is ready. But until then,
it`s a potential head wind.
For NIGHTLY BUSINESS REPORT, I`m Jon Fortt, in Barcelona.
(END VIDEOTAPE)
HERERA: Coming up, the motorcycle industry enters the electric era.
(MUSIC)
HERERA: Here`s a look at what to watch for tomorrow. As we reported, the
Fed chair, Jerome Powell, will be on Capitol Hill to testify on the state
of the economy. Housing will be in focus with the release of housing
starts, the S&P Case Shiller home price index and earnings from Home Depot
(NYSE:HD). And the Senate Finance Committee hosts a hearing on drug
prices. That`s what to watch for on Tuesday.
Bank of America (NYSE:BAC) says it will no longer use the Merrill Lynch
Brand for its investment banking group. It also plans to gradually retire
the U.S. trust name to become Bank of America (NYSE:BAC) private bank. The
move is part of CEO Brian Moynihan`s one company strategy. Bank of America
(NYSE:BAC) acquired Merrill Lynch a decade ago during the financial crisis.
It purchased U.S. trust from Charles Schwab in 2006.
The head of the European Union is urging British Prime Minister Theresa May
to delay the U.K.`s exit from the E.U., which is scheduled for the end of
March. Donald Tusk said that would be a, quote, rational solution given
the political situation and the lack of a Brexit strategy. But May says
the delay will not solve the impasse in parliament and that a timely exit
is within reach.
(BEGIN VIDEO CLIP)
THERESA MAY, BRITISH PRIME MINISTER: We have it within our grasp, as I
just said, I`ve had a real sense from the meetings I`ve had here,
conversations I`ve had with E.U. leaders in recent days, a real sense that
we can achieve that deal. It`s within our grasp to leave with a deal on
the 29th of March and that`s where all my energies are going to be focused.
(END VIDEO CLIP)
HERERA: Meantime, the head of Britain`s opposition labor party said he
could back a second referendum if his party won power.
The Treasury Department has announced new sanctions against Venezuela. The
sanctions target the governors of four Venezuelan states who are connected
to embattled President Nicolas Maduro`s government. In a statement, the
Secretary Treasury Mnuchin said these individuals are standing in a way of
severely n humanitarian assistance and are prolonging the suffering of the
Venezuelan people.
The energy markets are watching, of course, the situation in Venezuela very
closely since it is a member of OPEC. But today, the focus was on a tweet
from the president who urged the cartel to lower the cost of crude, saying,
quote, the world cannot take a price hike — fragile, end quote.
The team comes after OPEC nations recently embarked on a fresh round of
production cuts designed to support prices and today, the price of domestic
crude settled 3 percent lower. As oil prices fall, gasoline prices are on
the rise nationwide. According to the latest Lundberg survey, prices are
up 10 cents over the past two weeks to $2.44 a gallon.
But you wouldn`t need gas if you rode an electric motorcycle. It`s a
segment that motorcycle makers are focused on, especially as sales for gas-
powered ones decline. And that means the competition in this relatively
new market is heating up.
Frank Holland is in New York tonight.
(BEGIN VIDEOTAPE)
FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: Motorcycle makers
are revving up in 2019, racing towards the future of the industry, electric
bikes. Gas-powered motorcycle sales have been slumping the last three
years as the age of the average rider has increased and their income
decreased.
Harley Davidson, the iconic and best-selling gas powered bike maker in the
U.S., is offering an electric option in August. It`s all part of an effort
to attract millennials who just don`t want the hogs and choppers that baby
boomers enjoy.
SAM PASCHEL, ZERO MOTORCYCLES CEO: This is the new bike.
HOLLAND: Today, Zero Motorcycles, the best-selling electric motorcycle
maker, launching their newest model, the SRF.
CEO Sam Paschel says the goal is to get millennials to see these bikes as
electric vehicles.
PASCHEL: The concept of owning a two-wheel Tesla is really enticing to
that group. The millennials also tend to be the most comfortable with
technology and innovation and change, and they`re the early adopters. We
have consumers that will stay with us as we continue to innovate and grow
and adapt as a brand.
HOLLAND: A recent study by UBS found the top reasons people between 21 and
34 years old would buy a motorcycle is for ease of transportation and
environmental reasons. Electric bikes are considered much easier to
operate and don`t have emissions.
PASCHEL: We`re going to inspire a new generation of riders and we are
really going to appeal to millennials.
HOLLAND: Price and performance are the two major metrics for motorcycles.
The SRF will sell for about $19,000. The Strike for Lightning Motorcycles
will sell for about $13,000. Harley`s LiveWire will sell for about
$30,000.
PASCHEL: The electric vehicle space has been on a tear. We`re seeing
double digit compound annual growth rates and this feeling of momentum and
inevitability in the electric vehicle space.
HOLLAND: That momentum building while the interest in motorcycles is down
shifting.
And manufacturers are hoping that electric bikes like this one will be the
spark that reverses that trend.
For NIGHTLY BUSINESS REPORT, I`m Frank Holland in New York City.
(END VIDEOTAPE)
HERERA: Before we go, here`s a look at the final numbers on Wall Street
today. The Dow Jones Industrial Average rose 60 points to 26,091.
However, that is well off the highs of the trading session. We were up
almost 200 points at one point in the day. The Nasdaq was up 26 points,
and the S&P 500 added about three.
And that is the NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks for joining us. We`ll see you tomorrow.
END
