Nightly Business Report – February 27, 2019

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



Pakistan clash over Kashmir.  Investors have a new global worry.  


(NYSE:BBY) is holding its own against the likes of Amazon (NASDAQ:AMZN), 

and shareholders are starting to reap the rewards.  

MATHISEN:  House hunters.  The spring selling season is here, but it may be 

one of the coolest in recent years for homeowners and investors.  

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, 

February 27th.  

Good evening, everyone.  I`m Tyler Mathisen, in tonight for Bill Griffeth.  

HERERA:  Good to have you with us, Ty.  

I`m Sue Herera.  

We begin our program tonight with one of the trickiest things for investors 

to manage, and that is geopolitics, in part because of the 

unpredictability.  That`s one of the issues Wall Street had to contend with 

today as hostilities between nuclear rivals India and Pakistan escalated.  

Pakistan said it downed two Indian fighter jets and captured a pilot.  And 

this comes one day after Indian warplanes struck inside Pakistani territory 

for the first time in about 50 years.  

And remember, this is a region of the world that has become a hot spot for 

corporate investment.  

MATHISEN:  Pepsi, Coke, General Electric (NYSE:GE), Pfizer (NYSE:PFE), P&G, 

Caterpillar (NYSE:CAT), they`re just some of the major U.S. companies that 

do business in Pakistan.  Tech companies like IBM, Oracle (NASDAQ:ORCL), 

Dell (NASDAQ:DELL), Cisco (NASDAQ:CSCO), Alphabet, and Microsoft 

(NASDAQ:MSFT), they have a big presence in India.  Many investors are also 

exposed to emerging market more generally and that`s why some view the 

heightened tensions as a new risk on Wall Street.  

Bob Pisani is at the New York Stock Exchange for us tonight.  



North Korea negotiations and multiple hearings in Washington, it`s easy to 

overlook the recent hostilities between India and Pakistan, but that would 

be a mistake, investors say.  Pakistan`s air force shot down two Indian 

warplanes that had crossed the disputed Kashmir border after a suicide 

bombing killed more than 40 soldiers in India`s section of that disputed 

territory.  Investment in Pakistan is relatively small but a global 

investment in India is large and growing.  Foreign direct investment or FDI 

in India was over $33 billion at the end of 2018, and the government there 

is working on a road map to achieve its goal of $100 billion worth of FDI 

inflows.  Singapore, Netherlands, the United States and Japan are the 

leading investors in India.  

UBS`s Art Cashin noted that the two countries had fought several bloody 

wars in the past and that there is a very real risk that events could 

quickly spin out of control.  

ART CASHIN, UBS FLOOR OPERATIONS DIRECTOR:  It`s two nuclear powers.  None 

of it is priced into the market because nobody knows what to make of it.  

But if, heaven forbid, this thing began to spin out of control, it would 

have a great deal of influence.  

PISANI:  Cashin also noted that the current belief that the two nuclear 

powers could never escalate a conflict into a conventional grounding war is 

still nothing but a theory.  

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


GRIFFETH:  President Trump and North Korean leader Kim Jong-un started 

their second high-stakes summit today with a handshake.  

And as Eamon Javers reports from Hanoi, the president quickly turned their 

attention to North Korea`s economic potential.  



capital of north Vietnam, a striking setting for the second summit between 

President Donald Trump and North Korean leader Kim Jong-un.  American 

officials hope the example of Vietnam`s reconciliation with the United 

States and subsequent economic growth shows a path that Kim Jong-un could 


Trump made the pitch directly to the North Korean leader in their first 

meeting of the day.  


has tremendous economic potential, unbelievable, unlimited.  I think that 

you will have a tremendous future with your country, a great leader.  And I 

look forward to watching it happen and helping it to happen.  And we will 

help it to happen.  

JAVERS:  And for a president who practices a brand of personal diplomacy —  

TRUMP:  I think it was very good.  

JAVERS:  — it all comes down to the relationship between the two leaders.  

TRUMP:  We`re going to have a very busy day tomorrow and we`ll probably 

have a pretty quick dinner and a lot of things are going to be solved, I 

hope.  I think it will lead to wonderful — it will lead to a wonderful 

situation long term.  And our relationship is a very special relationship.  

JAVERS:  As the two men headed back to their respective residences after an 

hour-plus social dinner with aides, no word from officials on any progress 

made or even a detailed schedule for day two.  

Many summit watchers say there are options here for a deal that`s short of 

full denuclearization of the Korean peninsula.  The two countries could 

agree to a formal ending end to the Korean War, which was frozen by an 

armistice back in 1953.  They could also agree to open liaison offices in 

each country, a step toward normalization of diplomatic relations between 

the two countries.

And, of course, the North Koreans hope that President Trump could offer 

some sanctions relief, which they feel is badly needed to help their 


For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Hanoi, Vietnam.  


HERERA:  So let`s turn now to Art Hogan to talk about the geopolitical 

situations and how it might affect the markets.  He joins us now from New 

York City.  

Art, welcome.  Nice to have you here.  I should mention, you are the chief 

market strategist with National Securities.  

So, Art, basically for those of us who are in the United States, invested 

domestically, you look at the geopolitical events, for example, between 

India and Pakistan.  Why should investors here at home be concerned about 



a great question.  That`s the thing we wrestle with all the time, whether 

it`s confrontations that are close to us or where we really don`t have a 

hand on the confrontation, or things that are far away.  

So, India and Pakistan have been fighting essentially since 1947.  Why 

should that matter to us now?  

Well, three reasons.  A, any geopolitical concerns can slow down economic 

activity globally, and that can work its way to our shores.  B, they have 

nuclear power, the nuclear weapons, and obviously, anything that escalated 

out of India and Pakistan, and that`s not what we`re calling for, would 

certainly become a larger situation in the global economy.  

I think the third thing and most important thing is this has been going on 

for a while.  This headline is very scary.  We haven`t seen this many 

planes shot down since 1971.  We worry about the escalation.  So, that`s 

why it takes the market a while to try to put a price on what this means.  

And right now, we`re just watching it very closely.  

But geopolitical events like Venezuela, for example, could get much larger 

than it is but right now, but right now, the market is saying, OK, let`s 

stay on the sidelines and see how this plays out.  

MATHISEN:  So you don`t think that today`s events with respect to India and 

Pakistan are priced in to the market at all?  

HOGAN:  No, not at all.  As a matter of fact, I would argue that perhaps 

Venezuela is not either, and that could be even larger and even sooner with 

the two different sides, the way that sets up.  As we look at this right 

now, if this were to start to price the market, that would manifest itself 

and people buying more gold, getting more defensive, raising more cash, we 

really haven`t seen that just yet, but that could happen easily.  

This is something that`s going on for a long time.  But remember, this can 

escalate quickly.  

HERERA:  So if that is indeed the case and we haven`t even broached the 

North Korea situation with you yet, Art, but should investors maybe put in 

a little bit of protection by buying some hard assets or different asset 

classes just in case we get an escalation in any one of those situations?  

HOGAN:  Yes.  So we`re talking about this the last time we were together.  

And one of the things that I said to you and it still holds true today, 

having gold in your portfolio and how much you should have is just exactly 

as much as makes you sleep at night.  And I think that`s one of the things 

investors should think about.  

You know, if you feel fine and you have a long-term investment horizon, you 

probably don`t need any.  But with the geopolitical activity that`s out 

there, get defensive.  And if you`re feeling nervous about what`s going on 

in the world, get defensive.  

You can do that three ways.  You can raise cash and have a higher level of 

cash than you normally would have.  You buy some gold or precious metals.  

Or think about other defensive sectors and health care is the one that 

comes to minding the quickest, you know, that something we need versus 

something we want.  

HERERA:  Right.

HOGAN:  But right now, it`s — you know, if you feel nervous about this, 

get defensive but don`t rush.  

HERERA:  On that note, Art Hogan, thanks so much.  

HOGAN:  Thank you, Sue.

HERERA:  Art is with National Securities.

The White House`s top trade negotiator told lawmakers that talks between 

the U.S. and China are progressing, but there`s still a lot of work to be 



ROBERT LIGHTHIZER, U.S. TRADE REPRESENTATIVE:  We are making real progress.  

If we can complete this effort, and again I say if, and can reach a 

satisfactory solution to all — to the all-important outstanding issue of 

enforceability as well as some other concerns, we might be able to have an 

agreement that helps us turn the corner in our economic relationship with 

China.  Let me be clear, much still needs to be done both before an 

agreement is reached and more importantly, after it is reached.  


HERERA:  Robert Lighthizer`s testimony comes days after the president 

delayed a deadline to impose more than double the tariffs on $200 billion 

in Chinese goods.  And today, the Commerce Department reported that the 

overall trade deficit in goods widened sharply, rising 12.8 percent in 

December due to an increase in imports and slowing global demand.  

MATHISEN:  Well, those comments from the trade representative as well as 

those new geopolitical issues pressured stocks and put a lid on gains 

today.  The Dow Industrials fell 72 points at 25,985, the Nasdaq was up a 

modest 5 1/5, and the S&P 500 fell 1-1/2.  

HERERA:  Federal Reserve Chairman Jerome Powell is back on Capitol Hill 

today for a second day of testimony.  And while not directly discussing the 

outlook for interest rates, he did allude to the plan to shrink the Fed`s 

$4 trillion balance sheet which is made up mostly of securities bought to 

stimulate the economy during the financial crisis.  


JEROME POWELL, FEDERAL RESERVE CHAIRMAN:  We`ve now had three consecutive 

meetings on the balance sheet and we`ve worked out, I think, the framework 

of a plan that we hope to be able to announce soon that will light the way 

all the way to the end of balance sheet normalization and that will result 

in the end of asset runoff sometime later this year.  


HERERA:  Mr. Powell also described the economic outlook as generally 

favorable, but one that faces challenges from abroad.  

MATHISEN:  There was another hearing on Capitol Hill that investors did 

keep an eye on.  President Trump`s former attorney, Michael Cohen, cast his 

former boss as a, quote, con man and a racist and accused the president of 

lying about his business interests in Russia.  But one congressman 

criticized Cohen for his own lies.  


REP. JIM JORDAN (R), OHIO:  His remorse is nonexistent.  He just debated a 

member of Congress saying I really didn`t do anything wrong with the false 

bank things I`m guilty of and going to prison for.  

MICHAEL COHEN, FORMER ATTORNEY:  You know that`s not what I said.  I pled 

guilty and I take responsibility for my actions.  


COHEN:  Shame on you, Mr. Jordan.  That`s not what I said.  


MATHISEN:  Cohen is set to begin a three-year prison term for pleading 

guilty to financial crimes and lying to Congress.  

HERERA:  It is time to take a look at some of today`s “Upgrades and 


Home Depot (NYSE:HD) was downgraded to market perform from outperform at 

Telsey Advisory Group.  The analyst cites concerns that the company`s 

guidance is too optimistic.  The price target is $192.  Shares fell more 

than 2 percent to $183.67.  

WW, the company formerly known as Weightwatchers, was downgraded by a 

number of firms and is now the top short idea at JPMorgan (NYSE:JPM) with 

an underweight.  The analyst cites the company`s disappointing earnings 

guidance which we told you about last night.  The price target is $14.  The 

stock fell 34 percent to $19.37.  

MATHISEN:  Meantime, Decker`s downgraded to neutral from positive at 

Susquehanna.  The analyst cites limited upside in the stock.  The price 

target now $161.  The stock fell a fraction to $148.54.  

And Philip Morris was upgraded to buy from neutral at UBS.  The analyst 

there sees an increase in organic revenue growth over the next three years.  

The price target now $101, and the stock rose a fraction to close at 


Still ahead, building gains.  As buyers head to those open houses, should 

investors stock up on the housing stocks?


MATHISEN:  While some brick and mortar retailers struggle, Best Buy 

(NYSE:BBY) is on a hot streak.  The consumer electronics retailer easily 

topped Wall Street earnings estimates, thanks in part to consumers who 

spent a lot on devices during the holiday period.  And that sent the stock 

up 14 percent.  

Courtney Reagan tells us what`s clicking at Best Buy (NYSE:BBY).  



long ago that many wondered if Best Buy (NYSE:BBY) would survive.  But yet 

again, Best Buy (NYSE:BBY) puts up a strong quarter across the board, with 

comparable U.S. sales up 3 percent.  The seventh straight quarter that 

metric grew at least 3 percent.  

Customers spent a lot on devices, appliances, smart home technology and 

gaming, though mobile phone sales were weak.  And Best Buy (NYSE:BBY) did 

something you don`t often hear a retailer doing, it hit it sales and profit 

targets two years ahead of schedule.  

JOE FELDMAN, TELSEY ADVISORY GROUP:  Quarter after quarter and year after 

year, you know, I think there were a lot of people that figured the gas had 

run out of the tank, but it looks like 2019 should be another decent year 

for them.  

REAGAN:  Part of Best Buy`s recent success has come from adding services, 

like total tech support, a subscription for unlimited tech support, and in-

home advisers that suggest ways for customers to add to their homes tech 


The retailer CEO Hubert Joly also sees opportunity for the company in 

existing categories like home theater as shoppers trade up to larger 

screens or technologies like 4K and OLED, innovations in mobile like 

foldable phones and 5G.  

Best Buy (NYSE:BBY) is also investing in smart home technology and health 

monitoring services.  Joly said the retailer is currently testing health 

monitoring for seniors with a number of unnamed managed care organizations, 

a business that has a potential to be a big opportunity in the future for 

Best Buy (NYSE:BBY).  

And while there is some concern about a slowing U.S. economy and weakening 

consumer, July says the concern is coming largely from international 

uncertainty.  And he`s happy with what he`s seeing with the U.S. consumer.  

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.  


HERERA:  Box gets boxed in, and that`s where we begin tonight`s “Market 


The cloud storage company reported weaker-than-expected revenue and issued 

soft guidance for the current quarter.  The CEO said the company`s billings 

were not as strong as hoped.  The stock fell sharply in initial after-hours 

trading.  It finished the regular session higher by 2 percent to $24.88.  

Campbell`s Soup beat earnings and revenue expectations, marking a positive 

start for a new CEO, Mark Clouse.  But organic sales were flat and profit 

margins fell as the company struggled to attract younger, health conscious 

consumers.  Shares were up 10 percent though to $36.21.  

TJX beat on quarterly same-store sales estimates helped by deep discounts 

during the holiday shopping season.  The retailer which owns Marshall`s and 

T.J.Maxx is also raising its dividend 18 percent to 23 cents a share.  TJX 

is also buying back up to $2.25 billion worth of its shares.  Today, the 

shares closed up more than 3.5 percent to $51.56.  

And the supplier Dean Foods (NYSE:DF) missed on quarterly earnings 

forecast, reporting a loss nearly twice what analysts were expecting.  The 

dairy product supplier also suspended its dividend.  Dean said it was 

exploring options, including selling itself or going private as it 

struggles with falling milk consumption.  The shares plunged almost 14 

percent, down to $3.92.  

MATHISEN:  Booking Holdings, which used to be known as Priceline, gave a 

profit outlook for the current quarter that came in below what Wall Street 

expected as the company will spend more on advertising an marketing.  The 

company also posted earnings that beat expectations as gross travel 

bookings rose 9 percent in the latest quarter.  That guidance initially 

sent shares sharply lower in after-hours trading.  During the regular 

session, Booking Holdings down just a fraction at $1,906.  

The payment company Square also issued weak first quarter guidance despite 

results that beat expectations.  Revenue in the fourth quarter grew more 

than 50 percent, but that was slower than the prior quarter.  Combine that 

with soft guidance and shares initially sold off in extended trading but 

finished the regular session up nearly 2 percent to $79.32.  

It was a mixed quarter for Lowe`s.  The home improvement retailer reported 

better-than-expected earnings but revenue was a little squishy.  The new 

CEO came in during a period of change and has overseen the closing of 

stores and executive changes.  And he has plans to modernize digital 

operations as well.  Lowe`s gained 2-1/2 percent to $107.62.

HERERA:  There`s hope that spring may have sprung for housing.  Today, we 

learned that pending home sales, the measure of signed contracts to buy 

existing homes, rose sharply in January.  

But as Diana Olick reports, expectations are tempered for this upcoming 

selling season.  



news in housing to start this year.  Buyers came back, signing more 

contracts to buy existing homes than in December, according to the 

realtors.  And the gains in home prices are shrinking to the smallest in 

three years.  

GLENN KELMAN, REDFIN CEO:  We`re seeing stronger buyer demand, but it`s not 

as if people are willing to pay any price to get a home, which is what we 

saw at the beginning of 2018 and the past four years before that.  

OLICK:  And buyers are being helped by lower interest rates.  The 30-year 

fixed is at the lowest in a year and that boosts mortgage demand this week.  

Applications jumped noticeably.  

But there was also bad news.  Home construction fell again in December and 

what builders are putting up is not in the entry level category.  Home 

affordability is now at the lowest in a decade.  

Even Warren Buffett, who has been bullish on housing, waved a warning flag 

in an interview on CNBC earlier this week.  

WARREN BUFFETT, BERKSHIRE HATHAWAY CEO:  Single family construction is 

really — I think it`s been quite weak compared to what you would expect 

after ten years of recovering with the stock market, quadrupling from the 

lows and unemployment at 3.7 percent.  People are just making different 


OLICK:  Or the choice is being made for them.  Today`s home buyers are 

facing one of the priciest markets in a decade.  And while the fundamentals 

behind them are strong, like job and wage growth, you can`t buy a home if 

you can`t find an affordable one.  


housing market will see some signs of a rebound.  But it will be slower 

than expectations, slower than what a home buyer demand would suggest, and 

that`s because housing has these structural headwinds.  They`re not going 

away, even when interest rates are going lower and even as wages are going 

up.  The structural issues are on the supply side.  

OLICK:  And those issues will not be solved by spring.  

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.  


MATHISEN:  So what would a weak spring selling season mean for the home 

builders and other related stocks?  

Joining us to discuss is Ken Leon.  He`s an equity analyst at CFRA 


And, Ken, I note that among the home builders, I don`t remember the last 

time I could say this about an analyst like you.  You do not have a single 

buy recommendation on any of the builders in your world.  Why?  

KEN LEON, CFRA RESEARCH EQUITY ANALYST:  So, the outlook is cautious.  It`s 

going to be very hard for any of these builders to put up positive year-

over-year growth.  

Orders are weak.  And even Toll Brothers (NYSE:TOL) today didn`t have the 

conviction to give guidance for the full year.  Their orders, which do 

include January, so that`s another month, are still weak.  There`s 

increased traffic coming to communities, but affordability is a big issue.  

And that affects demand.  

MATHISEN:  You actually have sell recommendations on Pulte, KB Homes and 

Meritage (NYSE:MTH).  That has some big implications for other parts of the 

housing sector, does it not?  

LEON:  Well, when we look at those sell recommendations, they are subpar in 

terms of their geographic profile or their ability to move.  And it`s 

actually going to be the low end, lower priced homes that will sell 

quicker.  Each of those have challenges with their profile in terms of what 

home communities they have.  

It essentially means a pivot.  Consumer is strong, home improvement should 

be one area that should do well, 126 million U.S. households are not 

moving.  They have increased home equity value, they have rising household 


So think of this.  It`s a lot easier to renovate, remodel or add a room 

than to take a mortgage at 4.5 percent for a higher priced home.  I think 

that`s the behavior happening in the U.S. economy today.  

MATHISEN:  So speaking as a guy who`s in the dead middle center of a 

complete kitchen demolition, Ken, which of the home repair and improvement 

chains do you like and why?  

LEON:  So we heard your preview before.  Home Depot (NYSE:HD) is a hold.  

We downgraded it from a buy yesterday.  

It`s the law of large numbers, it just can`t grow rapidly.  Lowe`s looks 

great.  We reiterated our buy, raised our target price up to $119.  They 

have the ability to enjoy the backdrop of the economy, but also, it`s a 

turnaround story with an entirely new management team, and bringing in 

fundamentals 101 for home improvement.  So that should increase the 

velocity of the earnings.  

MATHISEN:  All right, Ken.  I`d invite you over for dinner but I`ve got no 


Ken Leon with CFRA Research, see you again.  

All right.  Coming up, a semi conductor surprise after a deep sector slump.


HERERA:  Fidelity is reportedly facing a government probe over hidden fees.  

According to “The Wall Street Journal”, the fee was implemented in 2016 and 

is imposed on some mutual funds.  It is described as a, quote, 

infrastructure fee and is aimed at companies selling shares on Fidelity`s 

fund platform.  Those funds can either pay the fee or push the cost onto 

investors, which can lower returns for individuals.  

GRIFFETH:  Now, we`ve reported extensively on trade tensions and on the 

outlook for interest rates.  Tonight, we take a look at one sector that has 

been caught in the middle.  

Josh Lipton shines the sector spotlight on semi-conductors.  



been breathing a sigh of relief.  Trade tensions between the U.S. and China 

have eased, with new hope that President Donald Trump and Chinese President 

Xi Jinping will get a deal done, because many chip companies such as Nvidia 

and AMD have significant exposure to China.  

It`s an issue that Intel`s new CEO recently addressed.  

BOB SWAN, INTEL CEO:  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 — good for the industry in particular, so we think over 

time as the thawing out of the dynamics play out that it`s going to open up 


LIPTON:  Another reason for increasing enthusiasm, a friendlier Federal 

Reserve, which says it will take a pause from hiking interest rates, 

alleviating concerns that the Fed would slow the economy, which could 

impact demand for semiconductors.  

Then there`s the outlook for the sector`s earnings, which has been slashed.  

And that means it`s now possible for these companies to surprise investors 

with better-than-expected news.  

But questions remain about what demand will look like in the months ahead.  

Analysts say that`s not an easy call to make, given uncertainty about the 

health of the global economy.  But some believe demand could be stronger 

than expected in certain key markets like the data center and smartphones, 

and that`s providing an investment opportunity.  

MITCH STEVES, RBC CAPITAL MARKETS:  From a chip perspective the way you 

probably want to play this, you probably want to own AMD for the data 

center side, you want to own Synopsis which has exposure to all chips, and 

finally you probably want to buy the memory space.  

LIPTON: But most agree that the biggest risk to the group is that a deal 

doesn`t get done between the world`s two largest economies.  

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.


HERERA:  Here`s a look at the final numbers on Wall Street.  The Dow fell 

72 points, Nasdaq up 5, S&P 500 fell 1.  

And that does it for NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera, 

thanks for joining us.  

MATHISEN:  And I`m Tyler Mathisen.  Have a great evening, everybody, and 

we`ll see you back her tomorrow night.  

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