ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Safety questions. Concerns mount over Boeing`s newest plane following a deadly crash over the weekend and the FAA weighs in.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Budget battle. The White House tells Congress how it wants to spend your tax dollars.
HERERA: Energy boom. Why the U.S. is now a force to be reckoned with in the global oil market and it`s reshaping the industry as we know it.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, March 11th.
GRIFFETH: And we do bid you a good evening, everybody. And welcome.
We saw an epic tug of war on Wall Street today. The Dow was down 242 points at its low when its highest priced and therefore most influential component Boeing (NYSE:BA) fell as much as 12 percent in response to that Ethiopian flight crash yesterday.
It involved the aerospace company`s newest model, and we`ll have more on that in just a moment. But the Dow did stage a strong reversal because of a gain in Apple (NASDAQ:AAPL) shares after that company received a buy recommendation from an influential analyst. Other stocks then followed suit and the Dow`s big decline became a big gain.
And at the close, the industrial average was up 200 points. It closed at 25,650. The Nasdaq was up 149, its best day in six weeks. And the S&P 500 added 40.
HERERA: And now to Boeing (NYSE:BA) which fell more than 5 percent in trading today, though it was down as much as 12 percent during the trading session. That is because of the plane crash over the weekend that involved Boeing`s 737 Max 8. The FAA says the plane is still airworthy. Investigators are on the scene looking to see if there`s a problem with the aircraft that many consider to be an important part of Boeing`s future.
Phil LeBeau has more.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: One day after the crash of an Ethiopian airline 737 Max 8, investigators have recovered the black boxes that could explain what went wrong. Shortly after takeoff, the pilot said there was a problem and struggled to control the plane before it crashed. Eerily similar to what happened before a Lion Air 737 Max 8 crashed in the Java Sea last October.
JOHN GOGLIA, FORMER NTSB BOARD MEMBER: It certainly is too early to rush to judgment. The accidents may be similar. There`s two different accidents in two different countries, but until we get a little more facts, we can`t compare them.
LEBEAU: Boeing (NYSE:BA) says the Max 8 is safe, despite concerns the plane`s design could create certain situations where faulty data might force the Max 8`s automatic anti-stall technology to kick in. When that happens, it pushes the plane`s nose lower. Some pilots have complained they didn`t know about that technology or how to deal with it.
Late last year, the FAA ordered Boeing (NYSE:BA) to tell airlines more explicitly exactly how crews should respond in those situations. Both the FAA and the NTSB are probing the crash in Ethiopia. It may be too early to know what caused the accident, but China, Indonesia, as well as some airlines are worried enough to ground their 737 Max 8s, raising concerns about Boeing`s most popular plane.
With monthly production steadily rising, the 737 generates billions in cash for Boeing (NYSE:BA).
SHEILA KAHYAOGLU, JEFFERIES: Given the magnitude of how big the 737 is for growth drivers, that`s what`s driving the fear factor.
LEBEAU: Here in the United States, American and Southwest are the two airlines that fly the Boeing (NYSE:BA) 737 max 8. While there were plenty of people on social media saying I`m not sure I want to get on this plane, both Southwest and American say the plane is solid and they stand by it and will continue flying it.
Guys, back to you.
HERERA: Phil, tell us more about the FAA`s directive late this afternoon and the agency`s decision not to ground the plane.
LEBEAU: Well, essentially what they`re saying, I`m looking at it right here, they just issued it. It basically is them, the FAA, saying, look, we haven`t seen enough here that tells us this plane is unsafe and it should be grounded immediately. In addition, as part of this airworthiness continuation from the FAA, they are saying that Boeing (NYSE:BA) will be making some design changes to the 737 Max 8 by no later than next month.
So, it`s partly them saying to the world, it`s safe. It`s also partly the FAA saying, Boeing (NYSE:BA) understands some of the changes that need to be made to this plane and they will be making those changes, at least by next month.
GRIFFETH: By the way, we should point out 350 of these Max 8s are in service around the world. There are about 54 airlines so, you know, there are other airlines that are going to have to make a decision, not just American and Southwest on this, right?
LEBEAU: Correct. Correct. And as the FAA goes, they pretty much set the table in terms of how the rest of the world views whether or not to use a particular aircraft.
GRIFFETH: Phil LeBeau in Chicago, as always, thanks, Phil.
LEBEAU: You bet.
HERERA: The bull market turned ten over the weekend and inevitably investors want to know if it can continue. Well, the chairman of the Federal Reserve was asked that very question during an interview last night on “60 Minutes.”
(BEGIN VIDEO CLIP)
JEROME POWELL, FEDERAL RESERVE CHAIRMAN: I would just say there`s no reason why it can`t continue.
INTERVIEWER: For years?
POWELL: Eventually, expansions come to an end. The business cycle has not been repealed, but I would say there`s no reason why this economy cannot continue to expand.
(END VIDEO CLIP)
GRIFFETH: But just last week, the man who is credited for calling the 2008 financial crisis said he feels long-term investors should get used to lower real returns.
(BEGIN VIDEO CLIP)
JEREMY GRANTHAM, GRANTHAM, MAYO, & VAN OTTERLOO CO-FOUNDER: Over a long horizon, like 20 years, U.S. market will be delivering 2 or 3 percent real, and for the last 100 years, we`re used to it delivering perhaps 6 percent real. This is very painful — it`s not the end of the world, but it`s going to break a lot of hearts when we`re right.
(END VIDEO CLIP)
GRIFFETH: So, what should investors make of those comments from two very influential figures?
Joining us from Boston tonight, Art Hogan, who`s chief market strategist at National Securities.
Welcome back, Arthur.
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES: Thanks for having me.
GRIFFETH: Just last week, there were those who were saying we should get used to lower interest rates down the road with the Fed on hold at least for now. So, lower rates, lower returns. Do you agree?
HOGAN: Well, you know, I think you have to put things in context and talk about what time frame both of these speakers were talking about. Jay Powell was asked a question about them both continuing and he said, yes, he might have said for a couple of years. I think he`s talking short term.
Jimmy Grantham has been talking about this for a long time. And he`s certainly talking about what are real returns going to be like for the next 10 or 20 years. I think looking at this right now and saying the last ten years we had 17 1/2 percent average annual returns, we`re not going to see that for the next 10 years. We were coming out of a big hole with the S&P 500 off 55 percent at its low point.
So, yes, obviously we bounced back significantly, but I think if you look at the natural history of the market, for us to expect normal returns over the next 10 years I think probably makes sense. Normal returns would be anywhere between 6 and 8 percent, which should be — which is probably going to outpace fixed income. So, in my mind, the time horizon has to be set such as we look at this at a normal fashion. What does it mean to you and I, the investor? Would we make any changes to our investment plans because Jeremy Grantham thinks the total returns might be less than average?
HERERA: Right. You`ve always advocated, and I assume you still do, a balanced portfolio, take a look at it every once in a while, rebalance if you have to when we get those inflection points.
HOGAN: Sue, that`s the most important, to have a plan, right? And then to stick to that plan and try to tune out some of the noise. And part of sticking to that plan is knowing exactly you`re your risk tolerance is, setting that up so that you feel comfortable at night. You`re able to sleep with the portfolio that you have and then setting a calendar item such that you know that you have to look at this.
You know, has the movement in the market had me overweight in the market and not enough exposure to fixed income? So, that rebalancing on a regular basis certainly helps that. But you have to have a plan and want to stick to it.
GRIFFETH: Indeed. Art Hogan, words of wisdom as always, of National Securities. Good to see you again. Thanks, Art.
HOGAN: Good to see you. Thanks.
HERERA: Across the Atlantic, a critical Brexit vote will take place tomorrow. The country is scheduled to leave the European Union on March 29th. But as of now, there is no deal outlining exactly how that will happen.
And as Willem Marx explains, the political fighting has become a parliamentary game of Brexit chutes and ladders.
WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT: Several months ago, British Prime Minister Theresa May negotiated an agreement for the U.K. to leave the European Union. In January, a majority in the British parliament voted against it. Since then, May and members of her cabinet have shuttled between Brussels and Westminster, trying to make tweaks to the deal so the House of Commons can finally approve it.
March 29 is the current deadline for Brexit. That`s less than three weeks away. So, how can May get from here to there? Well, by March 12th she must offer parliament another up or down vote on her divorce agreement with or without revisions? If lawmakers approve it, she could still try to make Brexit happen by March 29th.
But it`s possible she might need more time to rush through all the necessary legislation in which case she could ask for a brief extension to the deadline with an uncertain end date. If her deal loses that first vote, May`s promised a separate second vote on March 13th. That could allow parliament to decide whether it wants the U.K. to exit the E.U. with a deal, just not May`s deal, or with no deal.
Now, if no deal wins the majority, then without any comprehensive arrangements over trade, customs or citizens` rights, Britain would still leave the E.U. on March 29th. But if enough lawmakers dislike that option, May`s guaranteed a third vote on March 14th to consider a possible extension. If that idea wins parliamentary support, the U.K. would ask Europe for more time to consider its options.
Theresa May wants to limit any extension to three months but it`s not clear whether the E.U. will suggest more time than that, demand less time than that, or offer no time at all. If that third vote fails on March 14th, the U.K. could be back to square one.
For NIGHTLY BUSINESS REPORT, I`m Willem Marx in London.
GRIFFETH: Time to take a look now at some of today`s upgrades and downgrades.
We begin with Apple (NASDAQ:AAPL). We mentioned this earlier, they were upgraded to buy from neutral at Bank of America (NYSE:BAC), Merrill Lynch. That analyst cites stability in its supply chain and the likely boost from the rollout of the 5G networks later this year. Price target now: $210. That stock rose about 3 1/2 percent to boost the Dow today to 178.90.
Meanwhile, Facebook (NASDAQ:FB) was upgraded to buy from neutral at Nomura. The analyst cited its new focus on messaging and faster than expected transition to Facebook (NASDAQ:FB) stories. Price target now $215 and that stock rose about 1 1/2 percent to $172.07.
HERERA: Oracle (NASDAQ:ORCL) was downgraded to reduce from buy at Nomura. The analyst says Oracle (NASDAQ:ORCL) is under investing in research and development and that Oracle`s pace of buy backs can`t last forever. The price target is $42. The stock fell a fraction to $52.66.
FireEye was upgraded to overweight from neutral at JPMorgan (NYSE:JPM). The analyst cites the potential for billings to accelerate through the year. The price target is $20. The stock rose more than 5 percent to $16.97.
GRIFFETH: And still ahead, the budget battle taking shape in Washington.
GRIFFETH: Retail sales rebounded in January. Only a month after their biggest decline in ten years, Commerce Department reported this morning that sales were up 0.2 percent. That was better than expected thanks to strong demand for building materials. But December`s number was actually revised even lower to a decline of 1.6 percent compared to the originally reported decline of 1.2 percent.
HERERA: Business inventories rose in December as sales dropped. Economists say that could potentially lead to a pileup of unsold goods. Inventories are closely watched because they are a key component of gross domestic product. This release of this report was delayed because of the partial government shutdown.
GRIFFETH: The White House said its $4.7 trillion budget proposal to Capitol Hill today laying out its priorities for the next fiscal year.
And as Ylan Mui reports now, it is expected to spark a lot of debate.
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump`s budget calls for a record $2.7 trillion in cuts to federal spending over the next decade. Most of that amount, $1.9 trillion, comes from changes to mandatory spending programs. Among them, new restrictions on Medicare`s prescription drug benefits and work requirements to qualify for Medicaid and food stamps.
But there are also new costs like making all of the current tax cuts permanent and a big increase in defense spending to $750 billion for next fiscal year alone.
RUSSELL VOUGHT, ACTING WHITE HOUSE BUDGET DIRECTOR: This budget is yet another physician responsible spending plan from President Trump. The president has continually called for fiscal restraint and will persist in his efforts to end the wasteful spending.
MUI: The president`s budget also relies on optimistic economic forecast, 3 percent growth over the next 10 years. That is way above the projections of the nonpartisan Congressional Budget Office which expects growth to come in under 2 percent.
Even so, the White House anticipates the deficit will still hit a trillion dollars this year and the budget won`t balance until 2034. On Capitol Hill, Democrats say Trump`s budget is dead on arrival, especially since it includes $8.6 billion for the border wall.
REP. JOHN YARMUTH (D), KENTUCKY: I think this is actually a recipe for the decline of America. It`s very disappointing, and unfortunately, it`s the same type of budget that Republicans have been proposing for several years now, one that decimates important investments in human resources in the country and basically says the federal government has no role in making sure that we have an opportunity-based society.
MUI: Congress ultimately has the power of the purse, but the president has the power of the veto. These are just the opening salvos in what promises to be a bitter battle over the budget.
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.
HERERA: Nvidia goes shopping for more chips and that`s where we begin tonight`s “Market Focus”.
Nvidia is buying fellow chip maker Mellanox for just about $7 billion in what is Nvidia`s largest acquisition ever. The combination of the two chip makers is designed to reduce Nvidia`s dependence on the video game industry and increase its presence in the data center market. Shares of both companies were up 7 percent. Nvidia closed at $161.14 and Mellanox at $117.89.
Barrick Gold (NYSE:ABX) is dropping its $18 billion hostile bid to take over Newmont Mining (NYSE:NEM) which would have created the world`s largest gold producer. Instead, the two have entered into a joint venture for their operations in Nevada. “The Wall Street Journal” says Newmont gets about a third of its revenue from Nevada while Barrick generates more than 40 percent from its operations in that state. Barrick shares rose 2 percent to $13.18, but Newmont fell a fraction to $33.45.
Deutsche Bank has reportedly agreed to hold talks with rival Commerce Bank to explore strategic options, including a possible merger between Germany`s two largest banks. Multiple reports suggest the talks were agreed to after the German government increase pressure to address Deutsche`s sagging performance. Deutsche Bank rose 5-1/2 percent to $9.12.
GRIFFETH: Helen of Troy (NASDAQ:HELE) is reportedly putting its beauty unit up for sale. “The Wall Street Journal” says the division which makes products like Pert shampoo and Revlon (NYSE:REV) hair dryers is expected to bring in about $300 million if sold. Shares rose more than 1 percent today to $111.97.
Tesla is now planning to raise prices on its high end vehicles by about 3 percent but the electric automaker will keep the most basic version of its Model 3 at $35,000. The company also said it`s going to keep more of its retail sales open — locations open than it had originally planned. Shares were up more than 2 percent today to $290.92.
And Transocean (NYSE:RIG) has signed two new contracts for offshore oil rigs with Brazil`s Petrobras. The two deals combined are worth nearly a quarter of a billion dollars. And that is more than was expected. That`s why the stock was up about 6-1/2 percent today to $8.63.
America`s growing influence in the energy market was on display at one of the world`s biggest oil and energy conferences.
Brian Sullivan traveled to Texas where the talk at CERAWeek focused on the shale oil boom, geo politics and the future of OPEC.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: More than 5,000 people from over 70 countries drilling into Houston, attended by the CEOs of nearly every major oil and gas company, heads of state and two members of the Trump cabinet. Secretary of State Michael Pompeo and Secretary of Energy Rick Perry. CNBC spoke with Secretary Perry and we asked him how energy and national security come together right now.
RICK PERRY, SECRETARY OF STATE: So the United States with the shale boom, with this revolution that`s occurred in this country, and I might add with the development and the growth that we`re seeing in our renewables in the nuclear side of things, all of this basically says to the United States, you do not have to worry about being held hostage by any country in the world with any type of fuel. You can do it yourself right here.
SULLIVAN: American energy independence has been talked about by every president dating back to Richard Nixon. And while it is unlikely that all imports of crude oil will be replaced by U.S. production, Perry, a Texas native, believes that the energy boom will continue to reshape global markets, particularly with liquefied natural gas, a huge and growing market and a commodity that China desperately needs.
In fact, gas is so vital to Asia, it`s playing a big role in the trade talks. We asked Secretary Perry how important.
PERRY: It`s part of the mix. May not be the driver, but it`s always hanging out there as part of the matrix, if you will. So very important, and America now has the ability to use that in a very positive way when it comes to trade negotiations.
SULLIVAN: In fact, as we produce more oil and gas, we will need to sell more of both around the world. The International Energy Agency says that not only will crude exports keep growing, but we will soon pass Russia and even close in on Saudi Arabia on shipping oil around the world.
Energy expert Dan Yergin, a founder of this conference, says the United States is now the force to be reckoned with in oil and energy.
DAN YERGIN, IHS (NYSE:IHS) MARKIT VICE CHAIRMAN: The U.S. has a big impact. You see the kind of growth at the end of this year the U.S. will be producing around 13 million barrels a day, 2 1/2 times what it produced in 2008. What a big change, and I think the other producers around the world are really having to react to the amount of U.S. oil coming to the market.
SULLIVAN: Even just ten years ago, the women and men here would have barely talked about sending our oil and gas outside the country. All the conversation would have been about imports not exports. But America`s shale oil boom and energy renaissance has changed all of that. Just as it is changing energy policy both here and abroad. And made Texas and in many ways this conference the center of the energy world.
For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan, Houston, Texas.
HERERA: Coming up, building a brand. Wait until you see what some companies are doing to get noticed.
GRIFFETH: The South by Southwest Conference actually started 32 years ago as a music festival, but today it`s much more than that. Among other things, it has become a place where companies go to draw attention to their brand, and this year the marketing is very high tech and extreme.
Julia Boorstin takes us to Austin, Texas, tonight.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: South by Southwest draws innovative tech companies from around the world. The demos, conversations and technologies here set the stage for trends to watch. Robots, electric scooters crowding the streets, virtual reality to enter new immersive worlds and augmented reality to make trying on earrings and glasses virtually possible.
And what would a tech conference be without drones? One company is here showcasing its personal drone aircraft set to take flight later this year.
MATT CHASEN, LIFT AIRCRAFT FOUNDER & CEO: This is not the future of personal aviation. It`s the present of personal aviation. We`re starting now.
BOORSTIN: This conference in Austin is also a key battleground for media companies to reach the consumers who are here and encourage them to spread the word to their social media following. The most dramatic experiential marketing in Austin, HBO`s creation of the world of Westeros, drawing some 3,000 visitors and hoping to reach millions of fans.
HBO investing millions of dollars to bring fans into this world of “Game of Thrones”, shipping in not just the iron throne but also costumes from Ireland, to outfit the 80 actors who have a script over 100 pages long. The goal: to make the experience as authentic and immersive as possible.
BOORSTIN: HBO spent six months working on this experience, including bringing in a dialect coach and creating original score for a choir. With this experience kicking off a nationwide partnership with the Red Cross.
STEVE CARDWEL, HBO DIRECTOR OF PROGRAM MARKETING: The Red Cross saw over 40 percent uplift in new donors. And that`s really the goal because it becomes a lifetime value proposition for these people.
BOORSTIN: Amazon (NASDAQ:AMZN) promoting its upcoming show “Good Omens.” The story of the demon and an angel with this garden of earthly delights, Vice creating a roller rink to promote it shows, and Netflix (NASDAQ:NFLX) creating a 1930-style speakeasy to promote its upcoming film the “The Highwaymen”.
But it`s not just Hollywood here. High profile names from Washington making the trip to Austin to talk to this crowd about the future of regulation.
SEN. ELIZABETH WARREN (D), MASSACHUSETTS: We want to keep that marketplace competitive.
BOORSTIN: Senator Elizabeth Warren doubled down to break up big tech companies, while senator Amy Klobuchar advocated for taxing big tech companies` use of data.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Austin, Texas.
HERERA: Before we go, here`s a look at the final numbers on Wall Street. The Dow gained 200 points. The Nasdaq was up 149, its best day in six weeks, and the S&P 500 added 40.
GRIFFETH: So, are you planning to take a drone down the West Side Highway now that the future is here?
HERERA: I think it could be. I really do. I won`t be in it but that`s OK.
GRIFFETH: Me either.
HERERA: That does it for us tonight. I`m Sue Herera. Thanks for joining us.
We`d like to remind you, this is the time of year your public television station seeks your support.
GRIFFETH: I`m Bill Griffeth. Thank you very much for that support. Have a great evening. We`ll see you tomorrow.