Nightly Business Report – April 8, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  At a crossroads.  One of the most contentious earnings seasons in years gets underway this week, and it could determine whether the rally takes a rest or rips higher. 

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Tax tips.  With a week left to file, there are still some things you can do to lower your tax bill.  
GRIFFETH:  Flying colors.  Airline quality is up, and passengers couldn`t be happier.  

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this Monday, April the 8th.  

HERERA:  And good evening, everyone, and welcome.
The focus has shifted to earnings.  Corporate America will start reporting quarterly results this week, providing investors with a look at the financial health of potential investment.  And it comes at an interesting time, stocks have rallied this year and optimism is taking hold.  The major indexes sit near all time highs, even despite today`s mixed.  
The Dow Jones fell 83 points, dragged lower by a drop in Boeing (NYSE:BA) shares.  The Nasdaq added 15 and the S&P 500 was up 3, extending its win streak to 8.  
Mike Santoli takes a look at where the market stands as earnings season gets underway.  


MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Stocks have made a dramatic six-month round trip to reach the doorstep of a record high, just in time for a corporate earnings season that will help determine whether the rally has been justified.  The S&P 500 is almost at its exact level of early October, that was before a swirl of recession fears and oil crash and the specter of more Federal Reserve rate hikes drove the index down by nearly 20 percent.  The ensuing rally has come as those recession worries appeared overblown, oil has recovered and the fed has backed away from its rate hike plans.  

The rally itself has been resilient, avoiding anything more than a 3 percent dip since December, helped by low bond yields and the sturdiness of large cap tech stocks.  The S&P 500 is now just 2 percent below its September record peak, though it first traded near its current price in January of 2018, some 14 months ago.  Bulls argue this means the market has formed a base for further upside and note that strong starts to a year tend to lead to more gains in the months to come.  

Skeptics are arguing the rally has become uneven and less impressive below the surface.  Fewer stocks are making new highs and cyclical areas such as small stocks and transportation had lagged badly.  The index upside has come even as profit forecasts for the first quarter have slid to a drop of about 4 percent from a year.  The debate now is whether stocks are correct in looking past this early year weakness, toward an anticipated revival of profits in the second half.  Stocks historically have been able to withstand a lull in corporate profit growth so long as investors have confidence it will be short line.  For this reason, the companies say about their outlook for coming quarters might be the most crucial factor in determining the market`s path through the spring.  

GRIFFETH:  And joining us now to handicap this coming earning season is Jack Ablin, chief investment officer at Cresset Wealth Advisers.  
Jack, always good to see you.  Welcome back.  

GRIFFETH:  So, here we sit, close to all time highs and we`re expecting a pretty lousy earnings season.  Is that not in the market or what`s going on here?  

ABLIN:  Yes, I think it is in the market, but it is a disappointment, the fact is, this will be the first quarter in three years where we had negative earnings growth, meaning that this quarter`s earnings results will be about — expected to be 4 1/2 percent lower than the first quarter and a lot of it is really related to margin compression.  The fact is, interest rates, even though they are low, short term interest rates are three quarters of a percentage point higher now than they were a year ago.  
And wages are up.  It`s great that we have a tight labor market and those strong growth and jobs, but that does come with about a 3.3 percent year over year wage gain.  That`s something that companies have a difficult time passing along.  

HERERA:  So, Jack, which sectors do you think will perform better this season?  This earnings season, and which ones do you think will lag?  
ABLIN:  Well, it`s the financials and the materials are the ones that are going to bear the brunt of this earnings decline.  Financials, yes, short term rates are up, but long term rates have come down.  And that`s just the wrong formula for banks that try to borrow the short end and put money out longer term.  Materials, the same thing, commodities just haven`t really delivered the gains in this kind of low inflation environment.  

Where the growth has been has been in communications, so the telecom sector, finally, the end of those price wars, they`re seeing some stabilization there.  Those earnings will likely go higher.  And consumer discretionary, the fact is, with those higher paychecks is some higher spending, and some of the discretionary companies are going to benefit from that.  

GRIFFETH:  So, the bottom line may not be that strong, but as usual, we will listen for what the CEOs have to say about the next quarter.  What`s — and Mike Santoli suggested maybe the market`s anticipating we`ll hear better news down the road, what do you think?  

ABLIN:  You know, it`s hard to say.  I mean, the fact is, that this earnings decline could be Trump`s Fed (ph), right?  This could be the scapegoat that a lot of CEOs are using to say, things aren`t going to be quite as rosy as investors have expected.  So, I`m not so sure it`s a lock own good news going-forward.  I was particularly disturbed with of the Federal Express (NYSE:EXPR) news, and some of the underpinnings of what`s going on.  We`ll have to see.

GRIFFETH:  We will see.  Jack as always, thanks.  

ABLIN:  Thank you.

GRIFFETH:  Jack Ablin with Cresset Wealth Management for us.  

HERERA:  To the economy now, on a fresh read on the manufacturing sector.  Factory orders fell 0.5 percent in February, marking the fourth drop in five months.  Orders were pulled down by a weaker demand for machinery, transportation equipment and electronic products.  Economists say the manufacturing sector which accounts for about 12 percent of the economy appears to be slowing amid rising inventories.  

GRIFFETH:  The Senate Finance Committee takes up the issue of rising prescription drug prices tomorrow.  The focus of that hearing will be on pharmacy benefit managers who operate as middle men.  They negotiate the prices paid by consumers at the pharmacy counter, and you will likely hear about the cost of insulin, a life saving drug that`s been used as a proxy for rising prices across the prescription drug market.  
Bertha Coombs has more for us tonight.  


BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Teacher Kathy Sego joggles a lot, like Friday night bingo to help fund her choir`s weekend concert.  At home, she joggles bills to pay for her son`s insulin.  

KATHY SEGO, PARENT:  We`ve had our electricity cut off because I have to decide, OK, I need to get his insulin and his test strips, so I didn`t pay the electricity bill.  

COOMBS:  It costs her family $1,200 a month for insulin before they hit their deductible.  It was sticker shock for son Hunter when he went away to school.  He wound up in a hospital after rationing, trying to save his parents money.

SEGO:  He got into this dangerous game of not eating and then — or eating and then not giving enough insulin, and we were in a dangerous spot.

COOMBS:  The Indiana teacher testified about it in the Senate, with the Finance Committee poised to hold its third hearing on drug prices this week, and House Energy and Commerce its second hearing on insulin, she`s feeling hopeful.  

SEGO:  I believe that there`s going to be some movement.  

COOMBS:  Insulin list prices have doubled since 2012.  Drugmakers says it`s in part because insurers and pharmacy benefit plans have demanded big prices from them.  The Trump administration is expected to ban those confidential rebates on Medicare drug plans this spring.  That could result in lower drug prices for some seniors at the pharmacy, but it will take bipartisan action in Congress to wish require those changes for commercial plans.

LANHEE CHAN, HOOVER INSTITUTION:  I`m still skeptical that we`ll see congressional action beyond hearings and beyond a call for legislation.  If they were to agree, I think it`s going to be in the field of transparency.  Of course, the big question is, what form that legislation will take.  

COOMBS:  But critics argued transparency rules aren`t enough.  Those discounts from drug makers are now used by insurers to lower drug premium costs.  Getting rid of them will cost the government an extra $20 billion a year over the next decade due to higher premiums, according to government actuaries.  

DR. PETER BACH, MEMORIAL SLOAN-KETTERING CANCER CENTER:  Every other western country has solved this problem, and they do it with a variety of government-led entry agreements, and negotiated reimbursement prices into their private markets.  And we can certainly do that for something like insulin.  

COOMBS:  All Kathy Sego knows is that families like hers need relief.  

SEGO:  I`m not against people making a profit, but at what cost?  

COOMBS:  She thinks it`s time to hold Congress and the health industry`s feet to the fire to lower costs.  

HERERA: An experimental cancer vaccine showed promise in a small clinical trial of patients with lymphoma.  Researchers at Mount Sinai and New York tested the treatment in 11 patients with the cancer.  They say another clinical trial is warranted on lymphoma patients as well as breast, head and neck cancers.  The treatment teaches the body to recognize tumors and attack them.  It`s not a vaccine in the traditional sense but it`s been called that because it causes a person`s immune system to fight the disease.  

GRIFFETH:  Time to take a look at some of today`s “Upgrades and Downgrades”.  They were all downgrades that we`re dealing in tonight.  

Boeing (NYSE:BA) downgraded to neutral from buy at Bank of America (NYSE:BAC).  The analyst expects longer delays with the 737 MAX.  Price target now $420.  Shares closed at 374.52.  That`s down more than 4 percent, which was the reason for today`s dip in the Dow.  
Southwest Airlines (NYSE:LUV) was downgraded to market perform from outperform by Raymond James.  The analyst cited uncertainty surrounding the timing of the fix for the Boeing (NYSE:BA) 737 MAX planes.  The firm maintained its long term confidence in that airline.  Southwest closed 2-1/2 percent lower on the day.  

And General Electric (NYSE:GE) was downgraded to underweight from neutral at J.P. Morgan.  The analyst says that the severity of the challenges facing the company are being underestimated.  Price target now, $5.  G.E. lost 5 percent to $9.49.  

HERERA:  Starbucks (NASDAQ:SBUX) was downgraded to neutral from buy at UBS.  The analyst cites that stocks valuation after a big run-up since last June.  The price target is $78.  The shares ended this session at $75.20 today.  And they did hit a 52-week high.  

Harley-Davidson (NYSE:HOG) downgraded to market perform from outperform at Wells Fargo (NYSE:WFC).  The analyst cites tariffs uncertainty there.  The price target is 41, Harley`s shares closed at $40.29.  
We did find one upgrade, Procter & Gamble (NYSE:PG) was upgraded to outperform from market perform over at Wells Fargo (NYSE:WFC).  The analyst cites organizational changes that have created a sense of urgency to accountability into the company.  The price target is $115.  P&G shares hit a 52-week high ending at $104.97.  

GRIFFETH:  And still ahead, Disney`s ambitious plans to push into the highly competitive video streaming business.

HERERA:  Pinterest has filed for an IPO that could be worth $9 million.  But that number is less than some private valuations of the company.  A Pinterest IPO would follow the recent offering by Lyft which stumbled a bit after its recent review.  Pinterest has 250 million users, but for comparison, Facebook (NASDAQ:FB) and Instagram have users in the billions.  

GRIFFETH:  Chuck E. Cheese is returning to Wall Street.  In a complex structure, Chuck E. Cheese`s parent is merging with a special purpose company, making it the first restaurant company to enter the public market in the last four years.  And the CEO says the time is right.  

TOM LEVERTON, CHUCK E. CHEESE CEO:  This is the perfect time for Chuck E. Cheese to return to the public markets.  We took our time as a private company to invest heavily in the business.  We launched brand new food, we revitalized our entertainment and our guests have rewarded us with that for with great sustained sales growth.  

GRIFFETH:  Chuck E. Cheese has more than 600 locations in 47 states.  

HERERA:  Teenagers have money to spend.  And a new survey shows just how much.  According to Piper Jaffray, the group spends on average $2,600 annually on food and clothes.  Their favorite retailers include Lululemon, Ulta, Amazon (NASDAQ:AMZN), and Vans, along with Chick-fil-A and Chipotle.  The survey comes as the industry tries to figure out the shopping behavior of teens who are often referred to as Gen Z.  By some estimates, teenagers had more than $75 billion in spending power at the end of last year.

GRIFFETH:  And Disney`s hosting an analyst day later this week, the company expected to offer details about its new streaming video service to be called Disney (NYSE:DIS) Plus.
Julia Boorstin takes a look now at the company`s push into an already crowded industry.  

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Disney`s Bob Iger has said Disney (NYSE:DIS) Plus is the center of his strategy, to take Disney`s content direct to consumers.  Now, we`re hoping to find out key details, including how much the service will cost.  Iger said it will be less than Netflix (NASDAQ:NFLX), and when it will launch.  After Iger said late 2019.  

One thing`s for sure, to differentiate from other streaming services, such as Netflix (NASDAQ:NFLX), we expect Iger to focus on Disney`s unique brands, including Marvel and Star Wars, creating new exclusive content which will live on the platform, with the same production value of movies that debut in theaters.  And Disney (NYSE:DIS) is likely to showcase the deep vault of its libraries, some 7,000 TV episodes and about 500 movies, plus new plans from its FOX acquisition.  

BERNIE MCTERNAN, ROSENBLATT SECURITIES:  This is exciting time for the company because fox acquisition, that`s a whole lot of content that Disney (NYSE:DIS) will be able to add to its service.  You have Avatar (NASDAQ:AVTR).  You have Deadpool.  You have Titanic.  Make Titanic shows having pretty short, but it`s exciting, that`s the reason why they did the Fox acquisition.  

BOORSTIN:  With so much content we also expect Disney (NYSE:DIS) to show what tools it will offer to navigate all those options.  
So, how many subscribers will Disney (NYSE:DIS) be able to attract?  A lot of that depends on how much the service costs, and how much the exclusive content is must have for families.  But analysts are bullish that Disney (NYSE:DIS) will be able to quickly grow its subscriber base.  
Disney (NYSE:DIS) already has direct contact with millions of consumers around the world every year, thanks to its theme parks and consumer products.  

MCTERNAN:  Given that there`s such a great fan base, so we actually target that there`s 50 million homes that we view as the low hanging fruit for the company, and these are households that have already engaged with Star Wars, Marvel and Pixar.  

BOORSTIN:  Other analysts are equally optimistic.  UBS saying, quote, Disney (NYSE:DIS) is the only traditional media company with a scale, brand recognition and intellectual property to join Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) as the leader in the retail marketplace for subscription video.  How fast the app grows depends both on its price and the must-have appeal of the app`s new content.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

HERERA:  Sony (NYSE:SNE) may be the target of an activist investor.  That`s where we begin tonight`s “Market Focus”.
There are reports tonight that Daniel Loeb`s Third Point hedge fund is building a stake in the electronics company.  This would be Third Point`s second stake in the company in six years.  Third Point reportedly believes that Sony`s movie studio could be a takeover target.  Sony (NYSE:SNE) rose eight percent to $46.60.
Wells Fargo`s next CEO should not come from Wall Street or from inside the bank.  That is according to Berkshire Hathaway`s Warren Buffett who is also Wells Fargo`s biggest individual shareholder.  Tim Sloan announced last month that he was stepping down.  The shares added a dime to $48.88.

GRIFFETH:  Lyft is threatening to sue Morgan Stanley (NYSE:MS).  The ride hailing firm that recently went public is accusing the bank of market certain products that would help pre-IPO investors bet against the stock and profit if the shares went down.  Morgan Stanley (NYSE:MS) has denied those allegations, though.  Shares of Lyft fell 5.5 percent to $70.23, while Morgan Stanley (NYSE:MS) rose a fraction to 444.98.  
And shares of Zogenix (NASDAQ:ZGNX) lost a quarter of their value late today after the FDA rejected a marketing application for one of its drugs that treats a specific type of seizure.  They make rare disease therapies and will work to respond to the issues raised by the agency.  As we mentioned, the stock fell sharply in initial after-hours trading tonight.  It finished the regular session slightly lower at $51.85.  

HERERA:  It is crunch time for those who have waited to file their taxes.  Just one week to make a few last minute moves that could trim your tax bill and save you some money.  
So, we called in as usual our senior personal finance correspondent Sharon Epperson with some tips.
So, Sharon, what can people do at this last minute to just maybe save that little bit more?  

SHARON EPPERSON, NIGHTLY BUSINESS REPORT PERSONAL FINANCE CORRESPONDENT:  Well, let`s talk about how you can boost your savings and trim your taxes at the same time.  And one way to do that is with an IRA, with individual retirement account, a deductible one.  If you have no company workplace plan for retirement, you can put the full amount into an IRA as of April 15th.  You have to do it by that deadline, $5,500 or $6,500 if you`re 50 or older.

Now, if you do have a 401(k) plan at work, then you`re going to have some income limits there.  In terms of how much you can deduct, but it is a place to start.  The next place is to look at a health savings account.  If you have a high deductible health insurance plan, you`re eligible to put money into a health savings account as much $3,450, if you`re an individual, $6,900 for a family, and can you add another $1,000 if you`re 55 or older.  So, those are two places you can save money, and then also save on your taxes.  

GRIFFETH:  In a strong market, you can often see freelancers, you know, people take those extra jobs.  I have a lot of friends who are retired who are freelancers in various industries.  Are there special tax benefits for that as well?  

EPPERSON:  You`re an independent contractor, so you get some special tax breaks.  You got to fill out a special tax form, a schedule C, but on that form, you`re able to put in some expenses that could save you money.  Your business meals, your office supplies, your required equipment, the new laptop you had to get for that job.  Those are possible deductions on your taxes as long as you have the right documentation and you put that on the correct form.  

HERERA:  Now to parents, we both are parents, but yours are a little older, my dear.

GRIFFETH:  Just a little.

HERERA:  Are there things that parents can do — 

EPPERSON:  Well, for this great tax credit which means a dollar for dollar savings on your taxes, that`s a difference between a credit and a deduction, getting the child care tax credit is wonderful, but your kids do have to be younger.  They have to have baby-sitters or being in day care.  But summer day camp also counts, and a lot of parents forget about that.  If you spent money to put your kid in day camp, or you`re looking into it and they`re younger kids, this is something you definitely want to look into.  

Overnight camp, unfortunately, does not qualify, but what you can save and what you can claim is 35 percent of qualifying expenses for one child, up to $3,000, for 2 children or more, up to $6,000.  That could be significant particularly as camp costs, as we know — 

HERERA:  Yes, we do.
EPPERSON:  — have been climbing.
HERERA:  They sure have.  
EPPERSON:  Exactly.
HERERA:  Sharon, thanks so much.  
HERERA:  Sharon Epperson.
GRIFFETH:  Appreciate it.
EPPERSON:  My pleasure.
HERERA:  Coming up, all aboard for vacationers.

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  With competition on the rise, major cruise lines are pouring billions into modernizing their fleet and upgrading the experience on board.  The question is, will it pay off?  That story next on the NIGHTLY BUSINESS REPORT.

GRIFFETH:  We have an update now on the college admissions scandal.  One coach and 13 parents, including actress Felicity Huffman, today pleaded guilty to one felony count of conspiracy to commit mail fraud and honest services mail fraud.  The Justice Department as you know, says all defendants have agreed with the IRS now to pay back taxes.  In total, 50 people were charged last month in what prosecutors say is the largest college admissions fraud case ever.  

HERERA:  A new report shows the quality of airline service in the U.S. is at a record, with a substantial drop in the number of complaints filed with the Department of Transportation.  So, which airline soared to the top spot and which struggled?  
Phil LeBeau has the answers.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Here`s one you may not believe, especially if you travel a lot.  Airlines are doing a better job.  Wichita State University and Embry-Riddle Aeronautical University measured on time arrivals, how often people were bumped from a flight, the percentage of mishandled bags, and the number of complaints sent to the Department of Transportation.  And last year, airline service improved.  

DEAN HEADLEY, WICHITA STATE UNIVERSITY:  It`s the best year I`ve ever had as far as the airline quality rating numbers are concerned.  Three out of the four things we track got better again this year, so I`d have to say it`s doing well.  

LEBEAU:  One improvement for the airline stands out.  The number of people bumped from flights which was cult in half.  Not surprising, since airline CEOs told lawmakers in 2017 they would eliminate or curb the practice of overselling flights.  

HEADLEY:  They have part of `17 to fix it and all of `18.  And it looks like they did, and it`s encouraging for the flying public.  

LEBEAU:  Tops in the airline quality rankings this year, Delta, just ahead of JetBlue and Southwest.  Meanwhile, Spirit, American and Frontier had the lowest scores in the report.
While this report is encouraging, it failed to track how often people complain about airline service on social media, which is increasingly how travelers tell airlines something went wrong on a trip.  

GRIFFETH:  And from the sky to the sea now, the cruise ship industry is undergoing some big changes these days.  And that includes expanding their fleets and upgrading their existing ones.  
Seema Mody set sale for us tonight in Miami.  

MODY:  Despite recent dramatic events, vacationers still seem to love cruising.  

FRANK DEL RIO, NORWEGIAN CRUISE LINE HOLDINGS CEO:  The cruise lines are full.  Our three brands are booked better than any other time in the history of the company.  And on board revenue continues to be records.

MODY:  An estimated 30 million are expected to board ships across the world.  A 6 percent increase from last year.  New players like Virgin Voyages setting sale in 2020 are pushing the industry leaders to not only build new ships but operate their current fleet.  

UNIDENTIFIED FEMALE:  It`s my happy place.  I`ve been cruising since I was in my teens.  

UNIDENTIFIED MALE:  I love being at sea, it`s a great vacation.  Everything`s included.  It`s a fun vacation.  

UNIDENTIFIED FEMALE:  I can party, I can relax.  I can enjoy the sea, and all at one costs.  

MODY:  Aboard the Norwegian sky, this ship was originally built in 1999.  Just earlier this year, it underwent a three-week complete gut renovation.  In total, Norwegian Cruise Line has spent nearly a billion dollars over the past four years on modernizing its fleet.  And it`s part of a larger industry-wide effort.  

Royal Caribbean expected to spend $1.5 billion over the course of five years on upgrades and renovations.  And Carnival (NYSE:CCL), the largest of the three cruise lines, is already spending billions on updates and refurbishments.  

The goal is to keep their loyal passengers happy, while also appealing to younger customers.  Like millennials who are spending more on travel.  
DEL RIO:  Today, people communicate through photos and experiences, and we want to make sure that when our guests — on any given day, there`s 50,000 guests on board our ships.  We want to make sure they experience and share those experiences with their friends and family, and make Norwegian and Oceania and Regent part of that sharing.  

MODY:  Experts do caution that the cruising sector is highly dependent on a strong economy to keep ships full.  Cruise lines may be forced to cut prices if consumers pull back on how much they spend on travel.  
For NIGHTLY BUSINESS REPORT, I`m Seema Mody in Miami.  

HERERA:  Before we go, here`s a look at the final numbers from Wall Street.  The Dow fell 83 points to 26,341, dragged lower by a drop in Boeing`s shares.  The Nasdaq added 15 and the S&P 500 was up three, extending its winning streak to eight.  

And that is NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera.  Thanks for joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have a great evening.  We`ll see you tomorrow.

Nightly Business Report transcripts and video are available on-line post broadcast at The program is transcribed by ASC Services II Media, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2019 CNBC, Inc.

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