Nightly Business Report – April 15, 2019

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

Griffeth.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Nearing new highs.  The market sits close to a record and individual investor haven`t been this upbeat in awhile. 

Billions at stake.  Apple (NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM) meet in court as the two tech titans argue over a long simmering patent dispute.  Tax Day.  It is time to pay Uncle Sam.  But who owes the most and who got the biggest break?  

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Monday, April 15th.  

Good evening, everyone.  Bill Griffeth is off this evening.  

Don`t look now, but the major averages are sitting near all-time highs.
This despite today`s dip.  Earnings from Goldman Sachs (NYSE:GS) and 

Citigroup (NYSE:C) did little to inspire buying among investors, and we`ll have more on that in just a moment.  But, first, the closing numbers.  The Dow Jones Industrial Average was down 27 points to 26,384.  The Nasdaq fell eight and the S&P 500 was off one. 

But investors have been inspired this year.  The Dow is up 13 percent driven by a switch in the fed`s outlook, a drop in the likelihood of a recession, low unemployment, and healthy sentiment.  

And that sentiment is being seen among individual investors.  According to the American Association of Individual Investors survey, expectations that stock prices will rise over the next six months jumped to 40.3 percent, rising above its historical average for the first time in six weeks.  

A recent E*TRADE survey had similar findings, and joining us now to discuss all of this rising bullish sentiment is Nancy Tengler, a chief investment strategist with Butcher Joseph Asset Management. 

Welcome back, Nancy.  Nice to have you here.  

NANCY TENGLER, CHIEF INVESTMENT, BUTCHER JOSEPH ASSET MANAGEMENT:  Thank you, Sue.  It`s good to be here.  

HERERA:  So, what do you attribute the rise in sentiment and therefore the
rise in stock prices?  

TENGLER:  Well, I don`t want to be cynical, but oftentimes investors feel most bullish, particularly individual investors, after the market has gone up for an extended period of time.  And so, I think what you`re seeing is sort of the other side of the equation of what we saw in December, unfettered pessimism there and now maybe not unfettered but certainly optimism.  

So I don`t think it`s the right time for investors to be chasing stocks here, but I am bullish for the intermediate and long term, actually.  

HERERA:  One thing that caught my eye in one of these surveys is that bearish sentiment or expectations that stocks will fall over the next six months plunged almost eight points to 20.4.  That`s pretty low.  And so metimes, that means we`re in for a turn in the market. 

What do you think?  

TENGLER:  Like a contrary, you mean that investors turn negative, Sue, is that what you meant?  

HERERA:  Yes.  

TENGLER:  Yes.  Well, I actually speak at these AAII meetings around the country.  I love these folks because they`re very engaged in their own investments, but I do think it`s important for investors or everyone to look at these sentiment numbers as sort of backward looking.  I get more  concerned when the bullish sentiment is over 50 percent because that tells me there`s too many people chasing the market here.  

But the bearish sentiment, I mean, I guess you could say it argues the same response, I`m concerned that investors are going to chase here when they should be sitting back, and then when stocks do get the inevitable correction, as we will at some point this year, they`ll begin to panic and sell, and that`s exactly the wrong thing to do.  

HERERA:  On that note, Nancy, thanks so much.  

TENGLER:  Thank you.  

HERERA:  Nancy Tengler with Butcher Joseph Asset Management.  

More now on those bank earnings that we mentioned.  Dow component Goldman Sachs (NYSE:GS) reported better than expected earnings but revenue fell short.  The bank cited lower revenues in institutional client services and is investing and lending businesses.  But on the conference all, the CEO discussed an improvement in market activity.  

(BEGIN AUDIO CLIP)

DAVID SOLOMON, GOLDMAN SACHS CEO:  In terms of market activity and client engagement, we saw significant pickoff in the second half of the quarter and, you know, given the environment we`re in, you know, that pickup certainly continued.  Now, you know, I preface this only two weeks into the quarter so it`s hard to take any forward judgment on that, but I think that activity level certainly improved meaningfully in the second half of the quarter.  

(END AUDIO CLIP)

HERERA:  The stock fell more than 3.5 percent during trading today.
Citi also reported a mixed quarter.  Its earnings were helped by share buybacks while revenue fell amid a decline in equities trading.  Citi reported a drop in expenses and is counting on a turnaround in its consumer business, particularly credit cards and retail banking to increase its overall returns.  CEO Michael Corbat says the bank is making progress towards its financial targets.  Shares fell a fraction in today`s session. The president of the Chicago Fed said today that interest rates could stay where they are until the fall of next year.  Now, that would help insurers if inflation remains at healthy levels.  In an interview this morning, he added that the economy is doing just fine. 

(BEGIN VIDEO CLIP)

CHARLES EVANS, FEDERAL RESERVE BANK OF CHICAGO PRESIDENT:  Fundamentals continue to be quite good, and so, anybody who is overly concerned about a downturn, I was never really concerned about that.  I did think that inflation is a little weaker than I would like to see given strong labor markets, low unemployment rate, wage growth has picked up, three to three and a quarter percent.  And so, there are a lot of fundamentals that support continued strength in the consumer.  

I`m looking for growth in 2019 on the order of trend growth, which 1.75 percent to 2 percent, so that`s decelerating from last year`s 3 percent growth, but yes, the economy is doing fine.  

(END VIDEO CLIP)

HERERA:  Evans is a voting member of the Fed`s rate-setting committee.
Some mergers to tell you about.  Waste management is buying advanced disposal for about $3 billion in cash, bringing together the number one and the number four companies in that sector.  The move would expand waste management`s footprint in the eastern United States.  It is one of the biggest solid waste company acquisitions in more than a decade.  Both stocks rose in trading today.  Advanced disposal was up nearly 18 percent.
Drug manufacture Catalent is buying privately-held Paragon Bio Services for a little more than $1 billion.  The all-cash deal will help Catalent expand its gene therapy manufacturing operations, a fast growing area of health care.  Gene therapy is aimed to replace defective genes with healthy ones.  Shares of Catalent got a 13 percent boost today.  

Apple (NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM) are facing off in court.  The two companies began their massive multibillion-dollar patent trial today.  It is a long-simmering dispute that will now be on full display for all investors to see.  

Josh Lipton is at the courthouse in San Diego tonight.  

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Apple (NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM) have been fighting each other for more than two years with billions of dollars on the line.  They`re expected to be star witnesses from both sides.  The best known Apple (NASDAQ:AAPL) CEO Tim Cook and Qualcomm (NASDAQ:QCOM) founder Irwin Jacobs.  At the heart of this case, Apple (NASDAQ:AAPL) claims that Qualcomm (NASDAQ:QCOM) monopolizes the market for modem chips, a critical component in smartphones, extracting what it calls exorbitant royalties and that separately, Qualcomm (NASDAQ:QCOM) owes Apple (NASDAQ:AAPL) $1 billion.  

But more importantly, Apple (NASDAQ:AAPL) also challenges Qualcomm`s patent royalty rate.  Qualcomm (NASDAQ:QCOM) sells chips, but it also licenses patents for a royalty on the price of each phone.  For Apple (NASDAQ:AAPL), that meant paying Qualcomm (NASDAQ:QCOM) a royalty rate of $7.50 for each device. 

TIM COOK, APPLE CEO:  They have an obligation to offer their patent portfolio on a fair, reasonable, and nondiscriminatory basis, and they don`t do that.  They charge exorbitant prices and they have a lot of  different tactics they use to do that.  

LIPTON:  But the chipmaker says that Apple (NASDAQ:AAPL) contributed virtually nothing to the development of core cellular technology, built its
products on the back Qualcomm`s innovation, and is now just trying to pay far less than fair value for Qualcomm`s technology.  It`s seeking more than $15 billion in damages.  This case will decide how much apple gets to keep from each iPhone sold.  That`s especially important now with iPhone sales under pressure.  But analysts say this case is even more important for Qualcomm (NASDAQ:QCOM).  

PATRICK MOORHEAD, MOOR INSIGHTS & STRATEGY PRESIDENT:  It hits right at Qualcomm`s highest profit business, which is licensing.  So if on appeal, they end up losing, that could mean that customers would pay less for their intellectual property and that revenue and profits would go down.  Now, I think that Qualcomm (NASDAQ:QCOM) has been doing licensing for a long time and they`re very smart about it.  I do think that they would find a way to monetize it.  But we`re going to have to see.  

LIPTON:  Jury selection started today.  This trial could last until May 15th.  

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

(END VIDEOTAPE)

HERERA:  And to another story in the news, that Wall Street and just about everyone watched unfold today.  And that is the burning of Notre Dame.  A massive fire engulfed the Paris cathedral.  Video showed flames leaping through the roof.  The fire reached the spire, which eventually fell to the ground.  There was no immediate word on the cause of the blaze.  The structure was undergoing a $6.8 billion renovation project.  French President Emmanuel Macron said, quote, I am sad this evening to see this part of us burn.  The gothic structure dates back to the 13th century.  It was completed in the 15th.  

Time to take a look at some of today`s “Upgrades and Downgrades”.  

Wells Fargo (NYSE:WFC) was hit with a number of downgrades following its earnings report last week including one from Goldman Sachs (NYSE:GS), which lowered its rating to neutral from buy.  The analyst is less convinced that Wells Fargo (NYSE:WFC) will hit its financial targets for the rest of 2019.  The price target is $48.  The stock rose a fraction to $46.77.  

CVS (NYSE:CVS) Health was downgraded to perform from outperform at Oppenheimer.  The analyst cites drug pricing headwinds and unfavorable exposure to the managed care business.  The firm removed its $85 price target.  But despite the downgrade, the stock rose more than 2.5 percent to $54.22.  

Nokia (NYSE:NOK) was downgraded to sell from neutral at Goldman Sachs (NYSE:GS).  The analyst cites more muted growth in its patent business.
The price target is $5.50.  The stock closed just above that level at $5.64.  

And coverage of Levis Strauss was initiated at a few companies, including at JPMorgan (NYSE:JPM), with an overweight rating.  The analyst cites the company`s mature brand and gross drivers.  The price target is $26, the stock rose more than 6.5 percent to $23.97.  Still ahead, the infrastructure issue that few are talking about. 

(BEGIN VIDEO CLIP)

BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Two major industrial accidents, one man dead, both within 30 days around Houston, Texas, and a visit by President Trump.  What they may have in common coming up next on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC) 

HERERA:  American Airlines has canceled its Boeing (NYSE:BA) 737 MAX flights through mid-August.  United through early July.  The announcementsfollow a similar decision by Southwest that we told you about on Friday, as you know, countries around the world grounded Boeing (NYSE:BA) 737 MAX planes in mid-March after two deadly crashes.  One of those crashes involved a Lion airplane.  In an interview with “Reuters”, the co-founder of Lion Air lashed out at Boeing`s handling of the accident, saying Boeing (NYSE:BA) treated him as a, quote, piggy bank.  Lion Air has spent tens of  billions of dollars on plane orders with Boeing (NYSE:BA). 

If you`ve never heard of the chemical safety and hazard investigation board known as the CSB, you`re not alone.  It is a small group of people who investigate industrial accidents.  But President Trump has been trying to eliminate the CSB for three years, and inspectors have quit.  Some fear that`s helped to lead to an explosion, a fire, and a death.  

Brian Sullivan is in Crosby, Texas, tonight.  

(BEGIN VIDEOTAPE)

SULLIVAN:  Two terrible accidents in just a month, both involving dangerous chemicals, both in Texas, and both may have something in common.  On March 17th, a fire erupted at a facility near Houston.  That fire led to a leak and forced the coast guard to close part of the Houston ship channel, one of America`s most important economic arteries for nearly a week.  Two weeks later in early April, an explosion ripping through a chemical plant in Crosby, Texas.  One person was killed, two hurt, and schools were locked down to keep kids from inhaling fumes from the fire.  

MONICA MARTINEZ, CROSBY RESIDENT:  I live here for a couple of years, and you can always smell it in the air but never as like, never as strong.  So we kind of had an idea, but this happening right now, that terrified me.  

SULLIVAN:  What the two disasters have in common is a concern that the agency charged with investigating industrial accidents, the Chemical Safety and Hazard Investigation Board, hasn`t been able to do its job properly because it`s been under attack from the White House.  The president has tried for three years to kill the CSB by eliminating funding.  So far, Congress has kept the agency alive, but a number of inspectors have let and
a former executive says that`s making the chemical industry more dangerous.  

DANIEL HOROWITZ, FORMER U.S. CHEMICAL SAFETY BOARD DIRECTOR:  Eventually, there`s no question but that a weakened Chemical Safety Board will lead to more accidents happening in the future because we won`t have the investigations and recommendations that we need to prevent these accidents.  

SULLIVAN:  President Trump actually visited Crosby, Texas, on Wednesday.
He was there though to promote building on infrastructure for the oil and as industry like new pipelines.  No mention of the deadly fire.  For now, the investigations continue as we speak.  There are investigators from the CSB inside the chemical facility behind us here in Crosby, Texas, where one man, James Mangum, lost his life in a fire a couple weeks ago.  But it remains to be seen whether or not in an industry worth billions to the United States and it`s been in the headlines for all the wrong reasons,that increased morale toll at the agency, at the CSB, will take its toll on important investigations like the one behind us.  

For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan, Crosby, Texas.  

(END VIDEOTAPE)

HERERA:  There`s a new chief at Best Buy (NYSE:BBY) and that`s where we begin tonight`s “Market Focus”.  The company`s current chief financial officer and 20-year veteran will become CEO in June, when Hubert Joly steps down.  Joly was responsible for the electronic retailer`s turnaround.  He`ll stay on as executive chairman. Shares fell a fraction to $73.24.
Caesars Entertainment is also reportedly close to naming a new CEO, this amid takeover interest in the company.  The current head of privately held Affinity Gaming is expected to take the top job.  Shares were down nearly 1 percent to $9.38. 

Cannabis company Aphria reported a loss despite a 600 percent rise in revenue.  The firm reported a decrease in the amount sold but an increase in the average selling price.  The CEO says the industry is still young and it has a lot of growth ahead of it.

(BEGIN VIDEO CLIP) 

IRWIN SIMON, APHRIA CHAIRMAN & INTERIM CEO:  What`s important is it`s the industry where it`s going, it`s $150 billion industry growth.  You know, Aphria will grow to a billion dollars just in cannabis sales in Canada by the end of 2020.  So, it`s early on.  

(END VIDEO CLIP)

HERERA:  But the stock fell more than 14 percent to $8.60. The Match Group is restructuring its executive team to focus on operations in Asia.  The company is looking to capitalize on growth outside the United States and Europe.  Match owns dating apps like OkCupid and Tinder.  The stock rose 5 percent to $60.18. 

Mattel`s shares were lower after its Fisher-Price unit voluntarily recalled all of its Rock `N Play sleepers following reports of more than 30 infant deaths.  The Consumer Product Safety Commission said consumers should immediately stop using the product.  Analysts say the sleeper accounts for 1 percent of Mattel`s annual sales.  The shares fell 3 percent to $13.19.  Well, once a market leader, health care is stumbling this year.  According to “The Wall Street Journal,” the sector is lagging the broader market after being the best performing group in the S&P 500 last year.  So let`s shine the sector spotlight on health care.  We`re joined by Brian Tanquilut.  He`s the health care services analysts over at Jefferies.  

Brian, welcome.  Nice to have you here.  

BRIAN TANQUILUT, JEFFERIES HEALTHCARE SERVICES ANALYST:  Hey.  Thanks, Sue.  Good evening.  

HERERA:  So, what do you think is behind this?  I mean, frequently, we see when one sector has a good year, the next year it slows down a little bit.
But is there more to it than that?  

TANQUILUT:  Yes, that`s a very good question.  If you take a look at the performance of health care over the last five years, it`s actually outperformed pretty well over that period.  But I think this year, what we`re seeing is early signs or early entry of overhangs from the upcoming elections in 2020.  So, normally, we see, you know, the election discussion come up 12 months to 14 months before the elections.  Now, we`re seeing about 18 to 20 months, a little earlier than usual.  So I think that`s what`s weighing on most of the health care sector today.  

HERERA:  We`ve also had a lot of activity in the health care sector.  We had a lot of mergers and acquisitions.  We had insurance companies buying some of the pharmacy benefit managers.  How much of that has kind of kept investors a little off guard? 

TANQUILUT:  I think that`s a good point.  You know, on one hand, you`ve got like you said the pharmacy managers are now owned essentially by the insurance companies, right?  Cigna and Express (NYSE:EXPR) Scripts, Aetna (NYSE:AET) and CVS (NYSE:CVS), United and Optum. 

So, as we see more pressure on drug pricing or more scrutiny in Congress on drug pricing in general, always in the spotlight on that issue.  Now that target basically has shifted to the insurance companies.  But the other thing I would say is as we`ve seen some of these deals, you know, the question gets asked why are they doing these transformational transactions or why are they doing these big deals that are kind of out of left field?  But are they seeing something scaring these national teams?  So, I think investors are looking to these transactions as potential signs of trouble or concern from the industry itself.  

HERERA:  Are there parts of the industry, though, that you are more bullish on than others?  And if so, which ones?  

TANQUILUT:  Yes.  So, as we think about Medicare-for-All and elections and all these things, right, the areas that I`m really bullish on are home nursing, so you have names such as Amedisys (NASDAQ:AMED) and LUC (ph) group, and also the clinical lab space.  The reason I`m bullish on these two sectors is that we`re continuing to see a shift from expensive building-based settings to care delivery is moving more to the home and outside of hospitals.  And then on the lab side, the market is expanding, market share is moving to Quest and Lab Core, the two big names in the space, so I think you`re going to see a grow acceleration in those two names over the next few years.  

HERERA:  All right.  Brian, thanks so much as always.  

TANQUILUT:  Thank you, Sue.

HERERA:  Brian Tanquilut, he is with Jefferies.

Well, the next big test for the IPO market is Pinterest.  The digital pin board company plans to sell shares to investors and make its public market debut in the coming days.  Company is part of a wave of popular but unprofitable start-ups looking to sell shares.  But what is Pinterest and how does it make money?  The company is part of a wave of popular but unprofitable start-ups looking to sell shares.  

But what is Pinterest and how does it make money?  

Julia Boorstin explains.  

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Pinterest draws 265 million users every month, more than two-thirds of whom are female, to find inspiration for everything from recipes to planning weddings to home remodeling.  Users save ideas by pinning them to their boards, which can be shared either just with friends or with everyone on the platform.  To navigate all this content, pinners can follow friends, influencers or brands to see their pins or can search for ideas.  All of the revenue comes from advertising.  What the company calls “promoted pins”, bringing in more than $3 per user last year.

Businesses can share images and links for free to their followers or can pay a target users based on interests or keyword searchers, putting their promoted pins onto users` home screen or into search results.  Pinterest enables brands to share video ads and shopping ads, which invite users to click to buy.  And while Pinterest doesn`t take a cut of the sales, the more ads drive purchases, the more brands want to be on the platform.  

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin.

(END VIDEOTAPE)

HERERA:  Coming up, who got the biggest tax breaks this tax season?  And who got the biggest tax hike? 

(MUSIC)

HERERA:  Here`s a look at what to watch for tomorrow.  A handful of Dow components report earnings, including J&J, UnitedHealth and IBM.  

The major automakers show off their new high-tech and concept cars at the New York Auto Show.

And the home builders sentiment report will tell us how the industry feels about the state of its business.  And that`s what to watch for on Tuesday.  

The mayor of South Bend, Indiana, yesterday threw his hat into the very crowded 2020 presidential race.  Pete Buttigieg recently talked to John Harwood about his thoughts on taxes, something all Americans are talking about on this Tax Day. 

(BEGIN VIDEO CLIP)

MAYOR PETE BUTTIGIEG (D), SOUTH BEND, INDIANA:  We certainly need to consider a higher marginal tax rate for top income earners.  Maybe it doesn`t have to be as high as it was historically, but we should at least admit that when it was higher, the American economy was growing pretty well. 

We should consider a wealth tax.  It makes sense.  One of the things that`s appealing about it is it`s not very distorted compared to an income tax and that`s important.  The least distortionary tax probably is the estate tax, because it`s your death.  So, another thing we should think about is turning to a more equitable use of the estate tax for the biggest and wealthiest estates.  I`m interested also if we can find the right way to implement it, the devils on the details, on a financial transactions tax because you see preposterous levels of wealth sometimes being created around these millisecond differences in financial transactions that nobody can explain whether it adds any actual real value to the economy. 

(END VIDEO CLIP)

HERERA:  Buttigieg added that the downside of any tax is that it can disincentivize economic activity.

Well, this Tax Day is the first time millions of Americans are seeing on paper the impact of President Trump`s tax cut.  And White House economic adviser Larry Kudlow says the tax cuts have helped the economy. 

(BEGIN VIDEO CLIP)

LARRY KUDLOW, NATIONAL ECONOMIC COUNCIL DIRECTOR:  We got a very prosperous America with low unemployment, blue-collar workers are doing actually higher wages than we`ve had in years, and the blue collar workers are doing better than the white-collar workers, and everybody sharing in the prosperity.  

(END VIDEO CLIP)

HERERA:  So, who`s paying what this tax season?  

Robert Frank breaks down the numbers.  

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It`s the first tax day under the new tax code, and while most Americans got a tax cut, there is a big gap between the winners and the losers.  The average American got a tax cut of about $1,200 for 2018.  Generally the more you earn, the bigger your tax cut.  

The middle earners will see a 1.4 percent gain in after-tax income or about 800 bucks.  While those in the top 5 percent will see a 3 percent gain, averaging around $14,000.  Now, the top 20 percent of earners got 60 percent of the benefits.  

But the biggest losers will be the high earner if they live in high-tax states.  At least 8 percent of taxpayers in New York, New Jersey, Connecticut, and California will see tax increases because of the new limits on state and local tax deductions.  And the more your income, the more you paid in added taxes.  

More than half of all the tax increases and the new law will fall on the top 1 percent.  Those who earn their money from salaries rather than companies or investments also got hit the hardest.  So the biggest winners are wealthy business owners and investors in low tax states like Florida, Texas, or Washington state, especially if they hardest.  

So, the biggest winners are wealthy business owners and investors in low tax states like Florida, Texas, or Washington state, especially if they invested in the stock market and benefited from those corporate tax cuts that boosted stocks.  The biggest losers are top earners who make their money from salaries and high-tax states like New York or California.  Now, the new tax law was supposed to make filing your taxes simpler.  As of April, more than half of all filers used a tax professional, about the same as last year.  

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.  

(END VIDEOTAPE)

HERERA:  Here`s a good stat for Tax Day.  According to Bespoke, stock market returns in the one and two weeks following the tax deadline have historically been positive and better than average when compared to other periods.  That might help ease some of the sting if you owe the government money this year. 

Before we go, here`s a look at the final numbers on Wall Street, the Dow was down 27 points, the Nasdaq fell eight and the S&P 500 was off one. That is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks forjoining us.  We`ll see you tomorrow.  

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. 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.

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