ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: New risk. India and
Pakistan clash over Kashmir. Investors have a new global worry.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Fighting back. Best Buy
(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,
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
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.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: With trade talks and
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.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hanoi, the former
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.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I think that your country
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
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
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES: Sue, that`s such
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
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.
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
(BEGIN VIDEO CLIP)
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.
(END VIDEO CLIP)
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.
(BEGIN VIDEO CLIP)
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.
(END VIDEO CLIP)
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.
(BEGIN VIDEO CLIP)
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.
(END VIDEO CLIP)
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).
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It wasn`t all that
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
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
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: There was some good
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
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.
NELA RICHARDSON, EDWARD JONES INVESTMENT STRATEGIST: I think the spring
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-
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.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chip investors have
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.