ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: February gains. Two
months into 2019 and the stock market is heating up, making this one of the
best starts to a year in decades.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Delinquencies rise. Cars are
getting more expensive. And a new report shows a growing number of
borrowers are failing to make their monthly payments.
MATHISEN: Fake review crackdown. A ground-breaking settlement for the
FTC. But do companies need to get a better grip on what`s posted on their
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
HERERA: Good evening, everyone, and welcome. I`m Sue Herera.
MATHISEN: And I`m Tyler Mathisen, in tonight for Bill Griffeth.
And we begin tonight with that hot market. February is in the books, the
month that brings us Valentine`s Day, saw investors fall in love with
stocks. Just look at the numbers. The three major indexes all posted
solid gains. Look at those numbers, extending the rally that has taken
over Wall Street for much of 2019.
That came — that rise came despite a pullback in today`s session. That
one saw the Dow Jones industrial average fall 69 points to 25,916, Nasdaq
down 21 and the S&P 500 was off seven.
Mike Santoli has more on the February rally and what March might bring.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street`s rebound
rally slowed in February, but it didn`t stop, giving stocks one of their
strongest ever two-month starts to a year. February`s gain in the S&P 500
leads the index up by about 11 percent so far in 2019, only the fifth time
in 70 years that the market was up double digits for the first two months.
In past years when stocks have been up in both January and February,
further gains have been typical over the remainder of the year, though
there have been some jarring exceptions such as 1987 when stocks continued
to soar into the summer, coming to a dramatic crash that October.
The strength in 2019 has largely been a sharp snapback from profound
weakness late in 2018, which saw the worst December since the 1930s on a
mix of severe U.S. slowdown fears and worries that the Federal Reserve
would keep raising rates, and hasten a recession. A new message of
patients from Fed officials helped a beaten market recovered to within 5
percent of its September record highs. This despite continued expectations
for a U.S. economic slowdown and sharp cuts to corporate earnings forecasts
for the first half of the year. The Fed`s gentler tone and lack of
worrisome inflation have helped treasury yields remain near one-year lows
making dividend-yielding stocks appear more attractive to investors.
Entering March, a big question is whether a trade deal with China will be
reached and whether one has already been largely priced into stocks. A
deal that allowed industrial companies to raise profit outlook to help
support stocks after their recent rally, which had appeared to tire a bit
over the last couple of weeks.
Today, stronger-than-expected fourth quarter report on U.S. GDP further
calmed recession fears but raised the prospects of a give-back in growth
this quarter which might not be the worst thing for a Wall Street that has
made a fragile peace with the current slower growth, and lower backdrop.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
HERERA: The economy continues to hum along at a healthy clip. Fourth
quarter gross domestic product came in better than expected and growth for
all of 2018 was the strongest in years.
Steve Liesman is in Washington tonight.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The U.S. economy
registering strong growth in the fourth quarter, stronger than expected by
economists and stronger than potential growth. It came in at 2.6 percent
and Wall Street was looking for around 2 percent. How did we get there?
Well, the consumer ended up being stronger than had been forecast, and
business investment was pretty strong at 6.2 percent.
Residential investment, that is the housing market, did subtract from
growth and federal spending only ended a bit, up 0.4 percent. The number
was a sequential weakening from the third quarter and especially from the
4.2 percent a number of registered in the second quarter. Economists
surveyed by CNBC expect the first quarter to be weaker still at 1.9 percent
which is just around potential growth. One of the reasons weakening is
expected is inventories were very strong in the fourth quarter, perhaps
built up by companies trying to get ahead of the tariffs and those goods
landing on American shores in December. That`s supposed to run off perhaps
in the first quarter.
JPMorgan (NYSE:JPM) in fact says inventory data had surprised to the
upside. This development also may pose a headwind for GDP growth this
quarter. The year-over-year growth rate was 3.1 percent. And the
administration took that as a victory. Larry Kudlow, the director of
President Trump`s National Economic Council, expects the strong growth to
continue in 2019.
LARRY KUDLOW, NEC DIRECTOR: So people are saying, well, there`s a sugar
high one year, that`s it. They`re just plain wrong. These policies are
working, so I`m going to say 3 percent 2018 and I`m going to say 3 percent
2019 and 3 percent as far as the eye can see.
LIESMAN: As for the Federal Reserve, this number probably changes their
outlook very little. They expect the economy to weaken this year and are
concerned about risks like global economic weakness and trade tensions.
They`ll wait to see how those issues play out before making any changes to
their policy either way.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.
MATHISEN: Let`s turn now to Brian Nick to talk about the economy, the
market and some areas where you might want to put some money to work. He`s
the chief investment strategist at Nuveen.
Brian, welcome. Good to have you with us.
BRIAN NICK, NUVEEN CHIEF INVESTMENT STRATEGIST: Nice to be here. Thank
MATHISEN: You know, two months do not a year make, but it`s been a pretty
good year in two months. Eleven percent gains for the S&P 500 so far this
year. Does that argue that maybe the best gains of the year have already
been booked and that I might get a little more cautious?
NICK: Yes, we think so. We came into the year relatively cautious with
respect to our expectations. I think it`s fair to say that January and
February have exceeded those expectations. But we don`t think we`ve
necessarily hit highs for the year, but we do think most of the returns for
the year, at least in the United States, are likely behind us and that`s
caused us not to get out of stocks but to become somewhat more selective
and defensive in terms of where we`re putting money to work
HERERA: What about around the globe we`re seeing slowing economies and
eventually that does impact us here at home. How big a factor is that in
your forecast, if at all?
NICK: Yes. One of the reasons we think growth will slow in the U.S. in
the first quarter is that growth overseas has slowed. So, that export that
is pretty strong in the fourth quarter GDP report is probably not going to
be as strong in the first quarter.
We spent a lot of time looking for signs of a bottom or of a soft landing
in the economies like China and the eurozone where the data has continued
to get worse in most cases. If you look at factory output in China, it
just hit a two or three year low. In the eurozone, we have German factory
output, again, plunging month after month.
So, we are anxiously looking for a bottom in those economies before we
become more optimistic about a balance in U.S. growth, economic growth and
MATHISEN: Let me take you back to that comment you just made a moment ago
and that was the idea that maybe you don`t want to go to cash and get out
of stocks but be a little more selective, maybe a little more defensive in
the equities that you put in your portfolio. What does that mean in
practical terms? Does it mean less tech and more health care and consumer
And in health care, what kind of stocks are you talking about, because
that`s a big, broad specter se?
NICK: Sure. So, that`s exactly where we`re positioned. I think if you
rate all these sectors by what`s the most cyclical, what`s going to do well
when growth is accelerating to most defensive, which is what`s most likely
to do well in a recession, we`re somewhere in the middle, because we think
growth is going to be around that 2 percent, 2.5 percent level this year.
Not a high chance of a recession. So we`re not in utilities which is the
most defensive but we`re not in industrials which have been the most
cyclical and the best performers.
Health care tends to be a relatively solid area of defensive growth.
That`s been kind of our mantra this year. Within health care, you
obviously have some kind of more highly valued stocks that are tied to
biotech and you have the insurers and the medical device companies. We`re
more conservatively positioned within there, as we are within tech too.
So less cyclical and somewhat more kind of structurally secular higher
growth rates in terms of earnings but not going for those stocks that were
extraordinarily highly valued and that have been such outperformers for the
last several years.
MATHISEN: Thank you very much, Brian. Great to see you. Brian Nick is
NICK: Thank you.
HERERA: And as Brian Nick just mentioned, new reports out of China do
indeed point to some economic challenges. Factory activity in that country
fell to its lowest level in three years in February due to weak global
demand and the lunar New Year holiday. A separate report showed growth in
disposable income slowed in China as well last year. This as the cost of
living rose. And that`s resulting in fewer sales of cars, electronics and
MATHISEN: And in Vietnam, the summit between President Trump and North
Korean leader Kim Jong-un came to an abrupt end.
Eamon Javers reports tonight from Hanoi.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The table was
literally set for lunch in Hanoi on Thursday, but talks between President
Trump and North Korean leader Kim Jong-un broke down before the two men
could break bread.
Staffers scrambled to cancel the lunch as well as a planned signing
ceremony in Hanoi as the president explained why he walked away from the
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Basically, they wanted the
sanctions lifted in their entirety, and we couldn`t do that. They were
willing to denuke a large portion of the areas that we wanted, but we
couldn`t give up all of the sanctions for that, so we continue to work and
we`ll see. But we had to walk away from that particular suggestion. We
had to walk away from it.
JAVERS: President Trump insisted that relations between the two countries
remain good, despite the failed summit.
TRUMP: This wasn`t a walk away like you get up and walk out. This was
very friendly. We shook hands. We — you know, there`s a warmth that we
have, and I hope that you get up and walk out. This was very friendly. We
We — you know, there`s a warmth that we have, and I hope that stays. I
think it will. But we are — you know, we`re positioned to do something
very special. This has been going on for many decades. This isn`t me.
JAVERS: The president indicated the North Koreans offered to take steps to
shut down the Yongbyon enrichment facility where much of the country`s
nuclear effort is centered, but he said American intelligence is aware of
other facilities that the North Koreans were not offering to dismantle, and
that`s why he couldn`t agree to lift sanctions. For their part, North
Korean officials insisted they only asked for partial sanctions relief and
called their proposal realistic.
As Air Force One lifted off early from Hanoi on Thursday, the future of the
nuclear talks remained unclear. The president said it could be a long time
before the two men see each other again.
For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Hanoi.
HERERA: It is time to take a look at some of today`s upgrades and
Toll Brothers (NYSE:TOL) was downgraded to in line from outperform at
Evercore ISI. The analyst cites a slow start to the spring selling season.
The price target is $38. The stock fell 2 percent to $35.60.
The firm also downgraded rival home builders D.R. Horton (NYSE:DHI), KB
Home (NYSE:KBH) and Pulte Group for primarily the same reason.
HP was downgraded to underperform from buy at Bank of America (NYSE:BAC)
Merrill Lynch. The analyst cites cash flow headwinds and a risk of an
incremental PC slowdown. HP reported a revenue miss last night. The price
target is $19. The stock fell 17 percent to $19.73.
MATHISEN: And still ahead, revving up risk. Cars are getting bigger and
more expensive, and so are all those auto loans.
MATHISEN: Uber and Lyft will reportedly offer cash bonuses to some drivers
with the option to use that cash to buy IPO shares when the companies go
public. According to “The Wall Street Journal”, the longest serving or
most active drivers would be eligible for the programs. It`s a rare move
that lets individual investors access some of the most anticipated IPOs in
HERERA: Some disturbing news today. Pedestrian deaths have hit a 28-year
high. The governors Highway Safety Association said distracted drivers and
distracted pedestrians are contributing to the rise. Another factor is the
growing number of SUVs on the road, and they are bigger and heavier than
MATHISEN: We also got new data on auto loans that today is renewing
concerns the American consumer may be struggling financially. The
percentage of buyers behind on car payments by a couple of months ticked
higher in the fourth quarter.
Phil LeBeau has the details.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s getting a little
tougher for some car buyers to make their monthly payment. The credit firm
Experian which tracks millions of auto loans says the percentage of
borrowers missing payments for more than two months edged higher at the end
of last year.
Just under 1 percent of all auto loans were 60 days delinquent, still well
below the rates seen in the last recession. But with average amount
borrowed climbing to a record high above $31,000 and the average loan
amounting hitting $545 a month, there`s concern Americans may be getting
overextended, taking out bigger auto loans than they can afford.
TORSTEN SLOK, DEUTSCHE BANK SECURITIES: We don`t want to paint too dark a
picture here, but the bottom line is the trend is not our friend when you
think about the economy is really strong. Why are people falling
delinquent on their loans when we`re creating 300,000 jobs? That`s the
question everyone should be asking themselves.
LEBEAU: After the best four-year stretch of auto sales the U.S. has ever
seen, there`s still a healthy appetite for newer models, especially trucks
and SUVs. And that`s the reason consumers are borrowing more money. Those
bigger vehicles come with bigger price tags that keep climbing as
automakers add more technology and features.
In fact, the average amount paid for a new vehicle has jumped 41 percent
since 2010. The news is not much better when it comes to used cars. Late
last year, the average loan for a used model topped $20,000 for the first
Higher prices are not slowing down demand for pre-owned models. Last year
an estimated 40 million used cars were sold in the United States, and that
number is expected to move slightly higher this year.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
HERERA: The world`s largest brewer is focused on drinks with less alcohol.
That`s where we begin tonight`s “Market Focus”.
Anheuser-Busch InBev says sales with beers with lower or no alcohol grew 8
percent. The company plans to grow that figure to 20 percent by 2025.
That demand helps offset a decline in sales of its flagship Bud and Bud
Light beers in its most recent quarter. Shares of Bud rose 5 percent to
Struggling retailer J.C. Penney reported better-than-expected earnings and
revenue. The company was able to reduce the glut of unsold inventory. As
part of its turnaround plan, it will close 18 stores this year and it will
shut 9 of its home and furniture locations. JCPenney surged more than 22
percent to $1.52.
Horizon Pharma said that it had positive test results for a drug designed
to treat thyroid eye disease. Eighty-three percent of patients in the late
stage trial showed improvement compared to less than 10 percent with a
placebo. If approved by the FDA, the drug will be one of the first on the
market to treat the disease. And Horizon`s CEO said the results are
(BEGIN VIDEO CLIP)
TIMOTHY WALBERT, HORIZON PHARMA CEO: This is a great day for patients with
thyroid eye disease. If you look at this disease, it typically occurs
where patients` eyes begin to bulge due to inflammation causing it
difficult for them to close their eyelids, they get dry eyes. If you ask
them, they say closing their eyes is like rubbing sand paper over their
(END VIDEO CLIP)
HERERA: The news sent shares soaring, up nearly 33 percent to $29.01.
The drug maker Bristol Myers Squib is coming under increasing opposition to
its proposed $74 billion takeover of the biotech company Celgene
(NASDAQ:CELG). Activist investor Starboard Value called the potential
deal, quote, poorly conceived and ill-advised, end quote. Just a day after
investment firm Wellington Management criticized it as too risky and
But Bristol defended the deal saying it would create significant benefits
for shareholders. Shares were up more than 1 percent to $51.66. Celgene
(NASDAQ:CELG) was down nearly 9 percent at $83.12.
MATHISEN: Well, California`s largest utility, PG&E, took a $10.5 billion
charge linked to last year`s deadly camp fire and says there is, quote,
substantial doubt over its prospects as a going concern in a filing. It
said it wouldn`t be able to provide operating earnings guidance for the
year given the uncertainty over its liabilities. The company filed for
bankruptcy last month. PG&E fell more than 4 percent to $17.03.
Nordstrom (NYSE:JWN) reported better-than-expected earnings but revenue was
a little light. The retailer noted a double-digit rise in digital sales
and said it plans to open new stores this year. Investors did like what
they heard, sending the stock up in initial after-hours trading.
And the gap plans to split itself into two independent publicly traded
companies with Old Navy becoming a stand-alone firm. The other company,
which is yet to be named, will consist of the Gap (NYSE:GPS) Brand, Athleta
and the Banana Republic brand. The retailer says the split will allow the
companies to have separate strategies. And that sent the stock sharply
higher in initial after-hours trading, as you see there.
HERERA: YouTube is disabling comments on videos with minors following
reports of an active pedophile network in the comments section. YouTube
outlined its strategy to combat the issue in a blog post. The company will
also launch a new tool that it believes will be more effective at
identifying and removing predatory comments.
MATHISEN: A federal trade commission investigation has led to its first-
ever settlement related to fake online reviews. The agency alleges that a
third party was paid to post false reviews of a supplement product on
Amazon (NASDAQ:AMZN). The FTC says that when a company buys fake reviews
to inflate its Amazon (NASDAQ:AMZN) ratings, it hurts both shoppers and
companies that play by the rules. Amazon (NASDAQ:AMZN) said that it is
pleased the FTC is taking action. But a recent study shows that the
practice is widespread. 30 percent of Amazon (NASDAQ:AMZN) reviews are
fake or unreliable, according to the study. Fifty-two percent of reviews
posted on walmart.com are, quote, inauthentic and unreliable. Other
studies show the problem could be even worse.
HERERA: So, what can companies do, like Amazon (NASDAQ:AMZN), to crack
down on fake reviews on their websites?
Joining us to talk about that is Erik Gordon, a professor with the
University of Michigan`s Ross School of Business.
Welcome. Welcome back, Erik. Good to see you as always.
What can companies —
ERIK GORDON, UNIVERSITY OF MICHIGAN`S ROSS SCHOOL OF BUSINESS: Hi, Sue.
HERERA: What can companies do to combat this? They obviously need to do
something given the percentages that we just cited here. What can they do?
GORDON: So, companies like Amazon (NASDAQ:AMZN) have amazing data analytic
capabilities. So far they used it mostly to generate data to convince
companies to buy ads on Amazon (NASDAQ:AMZN). They need to divert some of
that money and turn more of their attention to real-time data analytics to
spot the patterns, the predictable patterns that indicate that these
reviews are fake.
For example, typical fake review. It`s great, five stars. That`s with no
explanation about why it`s great. So the amazons, the Walmarts, they have
to invest more of their expertise into cleaning this up.
MATHISEN: So, is what`s going on here, Professor, the idea that the
company that has a product, a diet supplement or something else, is
actually paying individuals to post these reviews and write them up and
submit them, thereby inflating their rating, which drives in more business,
which helps not only the seller of the product, but it also helps the
online company, be it Walmart or Amazon (NASDAQ:AMZN)?
GORDON: Yes. That`s exactly what`s going on. Much to the surprise of
most of us. So, the whole premise for most of us is if we read a review,
we think it`s from somebody like us. We think it`s not an ad and,
therefore, we trust it.
So it`s sneaky, but it`s very powerful. It influences how high up a
product is in the first screen that you see so you don`t have to scroll
down and influences us to think, wow, this must be really good. These
folks really liked it.
HERERA: So the company, say Amazon (NASDAQ:AMZN) or Walmart, should they
be held responsible for those reviews, especially when it concerns make a
diet supplement or something else that could affect people`s health?
GORDON: You know, that`s a tricky thing, sue, because if we hold them
responsible for everything there, I don`t know how anybody could humanly do
this. But I think they have to rise to a higher standard. They have to
say, well, it`s just as important to clean up these fake ads as it is to go
out and sell the ads.
HERERA: Nice to see you again. Erik Gordon with the University of
Michigan`s Ross School of Business. Thanks.
And coming up, why some are in for a surprise when they file their taxes.
HERERA: There has been a lot of talk recently about smaller refunds this
tax filing season, but today, the treasury secretary said they are starting
STEVEN MNUCHIN, TREASURY SECRETARY: Tax refunds are up 17 percent week
over week. That basically gets us to the same level as last year. And I
would just emphasize, even if people had perfectly done their withholding,
and I think withholding is complicated, we encourage people to go to the
withholding calculator, people really should be focused on they`re paying
lower taxes. Those lower taxes is money back into the economy and that`s
why we have the economic growth we do.
(END VIDEO CLIP)
HERERA: And it was that issue of not changing paycheck withholdings that
caught many by surprise when they went to file their taxes.
Sharon Epperson has more from Harrington Park, New Jersey.
UNIDENTIFIED FEMALE: Eat a little something because we`re going out
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sixty-three-year-
old Joe Carley and his wife, Cheryl (ph), were always happy to break even
on their tax return. They rarely got a refund, but also never had to write
a big check. After the tax overhaul, Joe sought the help of his financial
UNIDENTIFIED MALE: This is the section that`s changing the most.
EPPERSON: — who delivered some bad news.
JOE CARLEY, TAXPAYER: We are going to owe more this year than prior years.
EPPERSON: Nearly $4,000 more. His reaction?
CARLEY: Dismayed, to say the least.
EPPERSON: The Tax Foundation estimates 80 percent of filers paid less
because of the Tax Cuts and Jobs Act. Only 5 percent saw their taxes go
Still, many people are surprised when they do their taxes. Finding out
they`re getting smaller refunds or they owe. One reason that`s happening,
under the new tax code, withholding tables changed. Companies lowered the
amount of federal taxes taken out of employees` paychecks, giving them more
take-home pay — maybe too much more.
KIM DULA, FRIEDMAN LLP MANAGING PARTNER: Unless you went that extra step
and said, OK, but what are all the other changes going to do to me as a
taxpayer, what deductions am I going to lose, what is my tax situation
going to look like, maybe that decrease in withholding shouldn`t have
EPPERSON: Last year the IRS urged taxpayers to check federal withholding
amounts on their paychecks. One study found only 16 percent did. Meaning
many weren`t paying enough in federal taxes all year long, which is now
impacting the amount of their refund.
The new tax law also capped the deduction for state and local taxes.
That`s had a big impact on residents in high-tax states, including many
clients of New Jersey financial planner Michael Gibney.
MICHAEL GIBNEY, MODERA WEALTH MANAGEMENT: That entire section is limited
now to $10,000, where in the past that could have been $20,000, $30,000,
$40,000, $50,000 for some people.
EPPERSON: With other tax breaks limited or eliminated, millions of
taxpayers are finding themselves in an unfamiliar situation, taking the
standard deduction instead of itemizing, which may raise their tax bill.
It did for the Carleys, so now they`re planning how to manage their 2019
CARLEY: One thing we have done is try to put more into a 401(k) to have a
positive tax impact.
EPPERSON: Making more retirement plan contributions may reduce their
taxable income and lower their next tax bill.
For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson, Harrington Park, New
HERERA: And that is NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
Thanks for joining us.
HERERA: And thanks from me as well. I`m Tyler Mathisen. Have a great
evening, everybody, and we`ll see you tomorrow.