Transcript: Nightly Business Report – April 24, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  What`s next?  Stocks are  sitting near new highs, but is the sharp rally since the start of the year  sustainable?

The big fix.  A CEO wants to fix the nation`s infrastructure, and he says  companies should pay, not taxpayers.  

Rising risks to real estate.  Why a Louisiana town literally moved itself  to higher ground.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this  Wednesday, April the 24th.  

And we do bid you a good evening, everybody, and welcome.  Sue is off  tonight.  

Well, the powerful stock market rally of 2019 took a breather today one day  after the S&P 500 and the Nasdaq composite closed at record levels,  earnings from some very big corporations were not enough to push stocks  higher in today`s session.  And by the close, the Dow Industrial Average  was down 59 points for a 26,597, the Nasdaq was down 18, the S&P slid by  six.

But look at how the market has come this year so far.  The Dow, the S&P,  the Nasdaq all up double digits.  And four sectors have gained 20 percent  or more led by information technology.
But is the rally sustainable?  
Bob Pisani takes a look.

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  We are not out of the  woods just yet.  Earnings season has been, for the most part, pretty  positive.  Companies are beating by much wider margins than they usually  do.  

Beyond the earnings beat, we see some signs of the slowdown in China  bottoming out.  Europe is showing at least some signs of stability.  It`s  not out of the woods either and it`s still a very patient Federal Reserve.  

Well, it`s pretty good news overall.  The question is what`s next?  
So, we`ve now heard from the banks.  They have been OK, not great in their  earnings.  Industrials have been pretty good overall, and the smattering of  consumer names like Kimberly-Clark (NYSE:KMB) and Procter & Gamble  (NYSE:PG), also have been better than expected.  So, to keep the momentum  going, we need to hear now from different sectors.  First off from  technology, that`s the main play on global growth, then second from energy  names like Chevron (NYSE:CVX) and Exxon on Friday.  

Oil prices are now above $65 a barrel.  That was $50 in the end of  December.

And especially, we need to hear from health care.  Remember, suddenly,  that`s become the market`s problem child.  Health care is the second sector  making up 16 percent of sector making up 16 percent of the S&P 500.  And  remember, this Medicare for all thing has thrown a monkey wrench into long- term earnings, but equally important is the Democrats promising hearings on  drug prices in general.  So, we definitely need to hear from Pfizer  (NYSE:PFE), and from Merck (NYSE:MRK) and from Eli Lilly (NYSE:LLY) and  what they`ve got to say about how that`s going to impact them.

And else is missing from this rally?  Volume and volatility, if you see  Wall Street celebrating try calling out on the trading desk and you will  not hear champagne corks popping about new highs.  The stock traders want  to see more serious section.  Nobody is scrambling to buy stocks, the  volume is still low, and overall, the volatility isn`t that high either.  

The rally also needs to broaden out a little bit.  It was a little better  today, but the market is being pushed up by a small group of super  performance.  We need new stocks at new highs.  
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.  

GRIFFETH:  Let`s turn to a market bull and a bear sort of for their  thoughts on where the market might be going from here.  
Our bull is Kevin Caron, senior portfolio manager at Washington Crossing  Advisers.  

And our bear in quotes, air quotes, that would be David Sowerby.  He`s  portfolio manager at Ancora Advisers.  He`s a bit more cautious is a better  way to put that.  

Hi, guys.  Good to see you.
Kevin, make the bull case for this market at these highs.  

KEVIN CARON, WASHINGTON CROSSING ADVISORS SENIOR PORTFOLIO MANAGER:  Well,  the bull case is that the U.S. continues to be very strong.  We`re looking  at 3 percent growth which is a big pickup over where we were a couple of  years ago and the data during the quarter has gotten much better.  So,  manufacturing is looking better here and in China and valuations seemed to  be relatively reasonable to us and with the bond market rally and the Fed  moving to more cautious or patient posture, to us, it looks like the  returns on stocks are relatively more attractive.  

GRIFFETH:  All right.  David, why are you cautious right now?  

DAVID SOWERBY, ANCORA ADVISERS PORTFOLIO MANAGER:  Sure, Bill.  Stocks we  know have rallied 25 percent from the December 24th lows.  At the same  time, you and I like to talk about investor sentiment, at year end, 50  percent of individual investors said they were bearish.  Only 21 percent  say they`re bearish today.  

I think that means that markets have gotten a bit ahead of themselves,  earlier small cap stocks were very much pacing this rally since early  March.  They`ve not kept pace both small cap and even the more cyclical  micro caps to the large cap siblings and, finally, valuation, valuations  have expanded by about 18 percentage points and they usually expand about  20 percentage points and 20 percent in a rally off the lows.  Having said  all that, on days like today, in portfolios I`ve been taking some profits  in in dialing back my stock exposure.  

GRIFFETH:  All right.  Kevin, what about some of those, especially when it  comes to sentiment, the volatility index, the fear indicators are very low  right now.  Is that complacency for this market?  

CARON:  Well, not really.  It`s been bouncing around, and I think Bob  Pisani just highlighted some ideas that the sentiment is kind of in the  middle ground as far as we can tell.  There is a better mood out there  today.  Certainly, you see it in the IPO market, for example.  You see it  in the rally in stocks and you see it, just broadly speaking.

But remember where we were six months ago it was a very different and more  pessimistic place.  So, when you average it all together, we think that the  typical investor is still somewhat cautious and not overly ebullient and  that`s a good thing for the market going forward.  

GRIFFETH:  And, David, the huge sell-off we saw in the first quarter of  last year, largely, was the fear was that we were seeing a slowing global  economy and that the Fed was raising interest rates, neither of those seems  to be happening right now.  Why isn`t that a green light for this market?  

SOWERBY:  Bill, from the Fed`s perspective, the fact that the Fed is at  least on hold, I think is a good thing for what`s transpired already in the  stock market and when people start to talk about will the Fed reduce  interest rates, I think that`s simply rubbish.  Inflation is still going to  be, I think more of an issue than not and that causes the Fed to still have  to embark on a tightening mode, if not this year, early next year.  That  begins to bring stocks into question again in a period of rising interest  rates and Fed tightening.  

GRIFFETH:  All right.

SOWERBY:  I think that`s why you want to take a little bit of profits here  knowing that so much the gains have already transpired.  

GRIFFETH:  Very good.  Thank you both.  Kevin Caron with Washington  Crossings Advisers, David Sowerby with Ancora Advisers, good to see you  both.  

SOWERBY:  Thanks, Bill.

CARON:  Thank you.  

GRIFFETH:  Now, to all of those earnings reports out today starting with  Microsoft (NASDAQ:MSFT) which traded near record highs and the extended  hours tonight after the Dow component reported better-than-expected  revenue, thanks to growth in its cloud business called Azure.  The stock  was up smartly in the after hours tonight.  
Josh Lipton has the one key takeaway from Microsoft`s results.  

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Microsoft  (NASDAQ:MSFT) doesn`t disclose revenue for Azure, its cloud computing  division, but it does break out how fast that division is growing.  In its  latest earnings report, Microsoft (NASDAQ:MSFT) said azure grew 73 percent.  
Dan Ives of Wedbush says that was a big number for him, showing that  Microsoft`s cloud story is really still in the early innings of playing out  he says, and it was better than what many on the street were looking for.   Microsoft`s commercial cloud business which include Azure grew more than 40  percent to $9.6 billion.  

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

GRIFFETH:  And there`s Facebook (NASDAQ:FB) which reported a rise in  revenue thanks to growth in its Instagram platform and an increase in ad  spending.  The company, though, also announced a multibillion legal expense  related to a privacy investigation being conducted by the Federal Trade  Commission.  The stocks rose in initial after-hours trading, though. 
Julia Boorstin has more on Facebook`s quarter.  

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A big headline out  of Facebook (NASDAQ:FB) that had nothing do with its user growth and  advertising, $3 billion.  That`s the size of the legal expense Facebook  (NASDAQ:FB) took related to the ongoing Federal Trade Commission inquiry  into Facebook`s data practices, estimating that the company could take a  loss between $3 billion and $5 billion.  

Facebook (NASDAQ:FB) warning that the matter remains unresolved and there  could no assurance as to the timing or the terms of a financial outcome.   The issue at hand, back in 2011, Facebook (NASDAQ:FB) settled with the FTC  over charges it deceived users by telling them they could keep their  information private.  This inquiry started after the Cambridge Analytica  scandal broke last year and it`s looking into whether the company violated  its commitment to the FTC. 

But investors seemed assured that excluding that charge, growth on the top  and bottom line exceeded expectations.  
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.  

GRIFFETH:  Visa (NYSE:V) reported a double rise in profit as more people  use their credit cards, increasing Visa`s swipe fees and processing  transactions.  The Dow component has benefitted from the tight labor market  and the increase in wages, but Visa`s revenue was just in line.  And that  created volatility, as you can see in the stock in the extended hour`s  session tonight.  

Investors were hoping that Boeing`s earnings would answer questions about  the financial impact about the grounding of the 737 MAX planes.  
Now, here`s what we learned today.  Quarterly results did meet  expectations, but the company is taking a billion dollar hit and suspending  guidance for the rest of the year.  Despite that, the stock did finish with  a fractional gain tonight.  
Phil LeBeau has more.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Boeing`s 737 MAX  grounded around the world following two crashes that killed more than 300  people is weighing on the company`s bottom line.  With MAXes being built,  but parked until deliveries can resume, cash flow is slowing down.  So,  Boeing (NYSE:BA) is suspending its share repurchase program.  

Boeing`s CEO won`t give a timeframe for when the MAX will fly again, but he  says the company is making progress fixing the plane.  

DENNIS MUILENBURG, BOEING CHAIRMAN & CEO:  We are taking a disciplined  approach, completed our technical flight testing last week and look forward  to completing near-term milestones leading to final certification.  We`re  committed to ensuring all who operate the MAX are fully prepared when the  grounding is lifted and the fleet returns to service.  

LEBEAU:  The MAX grounding and delaying of deliveries is adding another  billion dollars in costs for Boeing (NYSE:BA), an amount it will account  for over the life of the MAX program which will likely be well into the  next decade.  

GORDON BETHUNE, FORMER CONTINENTAL AIRLINES CEO:  They measure their  accounting and decades not in years.  So this airplane is going to get  fixed.  I think they`re on track with the schedules that I`ve seen and, of  course, they`ve got to get consensus with other regulatory agencies  throughout the world.  So, it`s a bigger program than just getting the FAA  to buy on it.  

LEBEAU:  The question for airlines is whether pass passengers will refuse  to get on the MAX when it`s clear to take off again.  The three U.S.  airlines flying the MAX are all confident they can reassure passengers the  plane is safe.  

OSCAR MUNOZ, UNITED AIRLINES CEO:  We are not letting our customers and our  employees on an aircraft that we don`t find safe and we`ll have to reassure  them.  If people do have concerns, we will always take care of our  customers in some way.  

LEBEAU:  United has pulled the 737 MAX from schedule at least until early  July.  By then, it hopes that it has been re-certified and cleared to take  off again, and then it will be gradually worked back into the schedule.  

GRIFFETH:  Caterpillar (NYSE:CAT) reported better than expected earnings  and it raised its forecasts, but higher costs dented margins in its  construction business.  And that, along with other issues, sent shares of  the Dow component lower.  
Morgan Brennan has details.  

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  An earnings beat  for economic bellwether Caterpillar (NYSE:CAT) as revenue jumps 5 percent  on higher demand for mining and construction equipment.  Mining was the  bright spot as revenue for that unit soared 18 percent, but the main focus  of investors, construction sales.  Cat`s biggest segment would climb just  three.  

In the U.S., infrastructure spending at the state and local level helped  fuel demand, but business in China was once again a source for weakness as  Caterpillar (NYSE:CAT) now grapples with more competition there.  

ANDREW BONFIELD, CATERPILLAR CEO:  Spring season, as you know is usually a  strong selling season in China and it was stronger than normal across the  whole of the sector.  Many due to Chinese New Year, but there`s been  competitive pricing and that`s had some impact on our road to market shares  and the expectation for the industry for the full year is for China to be  up.  We suspect our sales to be flattish for the year.  

BRENNAN:  China accounts for 10 percent of the Cat`s overall revenue, so  the comments worried investors.  The company also raising guidance, but do  largely to tax benefits while higher costs for labor, freight and some raw  materials pressured margin.  Take all together, shares of the Dow component  fell in trading today, but the bottom line in an uncertain earnings season,  based on Caterpillar`s results, at least some corners of the global economy  may be stabilizing after signs of slower growth earlier this year.  
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan at the New York Stock  Exchange.  

GRIFFETH:  Time to take a look at some of today`s upgrades and downgrades.  
We begin with shares of Best Buy (NYSE:BBY).  They were upgraded to buy  from hold at Jefferies.  The analysts cited the company`s plans to become  more of a service provider in addition to being an electronics retailer.   The price target $88 and today`s shares closed up at $74.69.  
Procter & Gamble (NYSE:PG) was upgraded from overweight to equal weight at  Barclays.  The analyst cited the company`s growing market share globally.   Price target $112.  P&G finished a fraction higher at $103.69.  
Still ahead, should companies foot the bill for fixing our nation`s  crumbling infrastructure and is it even possible?

GRIFFETH:  Ford is investing $500 million in electric vehicles start-up,  Rivian, which has plans to begin producing a pickup and an SUV by the end  of next year.  Ford is hoping this partnership will accelerate its own push  into the electric vehicle market.  

A bidding war may be brewing for Anadarko.  Occidental Petroleum (NYSE:OXY)  today offered $76 a share for the company topping Chevron`s recent offer.   Today, in a CNBC interview, the CEO of Occidental made her case.  

VICKI HOLLUB, OCCIDENTAL PETROLEUM CEO:  We are the right acquirer for  Anadarko Petroleum (NYSE:APC) because we can get the most out of the shale.   We have a lot more experience there and we are performing really, really  well, and what hasn`t been talked about very much is that the upside in  this deal is the shale play and the shale development.  Seventy-five  percent of the value of Anadarko is in the shale, and we`re the best  company to develop the shale.  

GRIFFETH:  Anadarko said it would review this new offer.  In the meantime,  analysts were speculating today that Chevron (NYSE:CVX) will sweeten its  bid.  Anadarko rose sharply today, as you can see, while Occidental and  Chevron (NYSE:CVX) fell.  

The CE of biotech company Regeneron has an idea on how to fix the nation  aging infrastructure.  In an op-ed piece in today`s “New York Times  (NYSE:NYT),” Dr. Leonard Schleifer proposed for the next three years every  American public company should issue 1 percent of its equity to a newly  formed infrastructure bank that would be used to fund construction  projects.  Dr. Schleifer said his idea would raise $1 trillion and he  explained his reasoning during an interview today.

DR. LEONARD SCHLEIFER, REGENERON CEO:  If you walk around our labs, we have  some of the most innovative people in the world and we as a company like to  provide them with great infrastructure so we can be maximally innovative.   I think our country is the same way, and we have great potential and the  infrastructure is holding us back.  And so, I`d like to see that improved.  

GRIFFETH:  Joining us to respond to Leonard Schleifer`s idea, we are  pleased to welcome, William George, himself a former CEO of a publicly  traded company Medtronic (NYSE:MDT).  He is now a senior fellow at Harvard  Business School.  
Bill, always good to see you.  Thanks for joining us tonight.  


GRIFFETH:  You`re not exactly enamored with this idea.  Why?  

GEORGE:  No.  I — first of all, I have great respect for Leonard Schleifer  and his partner Roy Vagelos and what they`ve done at Regeneron.  They`re  great medical scientists and they should stick to their knitting and do  medical science.  
Infrastructure is all the government.  Let`s now let the politicians off  the hook whether you`re talking federal, state or local government.  That`s  the job of government to build bridges, to create roads and make everything  run smoothly.  
And if the businesses start trying to fund their own infrastructure, we`re  going to have a mess on our hands.  And it`s going to be a game of chicken.   So, I`m not in favor of this idea and I don`t think we should tap into  corporate coffers to pay for it either.  

GRIFFETH:  All right.  Let me play devil`s advocate on a couple of areas  here.

The idea of using some of the cash that`s on the coffers in corporate  America.  I mean, there`s tremendous cash out there that they`re using to  buy back shares or pay dividends or whatever, and by some estimates, the  infrastructure bill would be about $4.5 trillion.  So, company — local  governments would have to either do deficit financing or raise taxes,  neither of them very popular.
Why not use some of that cash to rebuild the infrastructure?  

GEORGE:  It`s not theirs to use.  This corporate cash, say, Regeneron, they  have excess cash.  They ought to be spending it on research and  development.  They`re doing some breakthroughs and gene therapy.  That`s  where the money should be going and, frankly, everyone knows drug prices  are very, very high.  And most Americans can`t afford drug prices.

So, why don`t we use them to create sliding scales to create drugs to  people who can`t afford them?  Why don`t we use the cash to finance  people`s drugs and let them give them a loan program?  My former company  Medtronic (NYSE:MDT) has done that in countries like India.  It can be  done. 

So, I would much rather see them put their cash to work and stick to their  knitting, and areas where they`re successful.  

And let me give you an example, Bill, here in Minnesota, we have the same  problem.  We have an infrastructure problem.  Our new governor Tim Walls  has stepped up and said, we`re going to put on a 20 cent a gallon gas tax.   I think that`s a great idea because that will also deter too much use of  gas and will help the environment.  But more importantly, it will fund our  infrastructure and that`s exactly what we need to do, and I think the  businesses here locally will support that, and I would hope they would,  too, between New York and New Jersey.  

GRIFFETH:  I`d love to hear from the drivers paying an extra tax.  But what  about his contention, and it is well-beyond Regeneron or even the biotech  industry that the companies have a vested interest in improving the  infrastructure to attract talent and to have the facilities be more  amenable to their surroundings out there.  
What do you think?  

GEORGE:  They should put their money in their facilities.  They should re- skill their workforce.  I`m very concerned.  The biotech companies and all  of the drug companies and hospitals are going to go heavily into A.I.  We  need to re-skill the workforce at A.I. era.  That`s an area where they  don`t have to wait for the government to do it.  

I think we need to let the government do what it`s supposed to do, which is  infrastructure, national defense and help poorer people in our country  particularly with health care, and I think these people should focus on  what they can do well, in having a skilled workforce, up-to-date modern  facilities, very advanced technology and heavy investment.  And I think  they will continue to be leading the world with their drugs if they do  that.

GRIFFETH:  And there`s the other side of the story.  Bill, as I said,  always good to see you.  Thanks for joining us tonight.  

GEORGE:  Thank you.

GRIFFETH:  Bill George, Harvard Business School, former Medtronic  (NYSE:MDT) chairman and CEO.  

More AT&T (NYSE:T) subscribers pull the plug on DirecTV and that`s where we  begin tonight`s “Market Focus”.

With AT&T (NYSE:T) missing revenue estimates for the first quarter due to  in part a bigger-than-expected loss of DirecTV subscribers.  The company  did, however, report an increase in wireless customers and they also said  it would pay off three-quarters of the debt it incurred or took on in the  Time Warner (NYSE:TWX) acquisition.  They would pay that off by the end of  the year.  Today, the stock dropped 4 percent, though, to $30.79.  

Health insurer Anthem topped quarterly forecast with strong membership  growth and the expansion of its clinical and specialty services.  The  company also raised its full-year forecast, and the stock today was up a  fraction to $251.  

Northrop Grumman`s earnings topped analyst forecast, but revenue did miss.   The aerospace and defense giant saw stronger sales in its aerospace unit,  but a decline in technology services.  The company did raise full-year  guidance in the process, and the stock fell more than 4 percent today to  280 even.  

Then after the bell, Chipotle topped quarterly earnings and revenue  expectations.  The Mexican food chain has been focusing on driving sales  through online ordering, and already, digital is accounting for 15 percent  of the company`s sales.  The stock was volatile in after-hours tonight, but  closed the regular session up 1 percent to $709.95.  

Also after the bell tonight, Tesla reported a wider than expected loss.   Revenue was also light and the company reaffirmed its guidance for  deliveries for this year.  The stock was very volatile in initial after- hours trading tonight.  

Coming up, why residents in the small town of Louisiana are being referred  to as America`s first “climate refugees”.  

GRIFFETH:  Increasingly, extreme rainfall is causing chronic flooding in  parts of the United States making some neighborhoods just uninhabitable.   Well, the state of Louisiana has come up with an idea.  It is using federal  funds for an experiment that could turn into a blueprint for dealing with  what some are calling climate refugees.  
Diana Olick explains in our continuing series on the “Rising Risks” to real  estate.  

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  At a small church  meeting House, in a small Louisiana farm town, a small community is making  a very big decision.  

UNIDENTIFIED MALE:  The option to purchase has been signed.  It`s signed  today.  

OLICK:  The community, up to 40 homes, is moving together to higher ground.   The state of Louisiana is using federal funds to purchase land, build new  homes, demolish the old flood-damaged homes and turn this neighborhood into  wetlands.  
So, you`re going to knock down all of these houses and these, as well.  


OLICK:  Pat Forbes, who administers community development block grant for  disaster relief, is in charge. 

FORBES:  It is quite clear that we`re having more disasters and  consequently, we have to start doing things that are smarter.  One of the  easiest, smartest things you can do is get people out of harm`s way.  

OLICK:  The Pecan Acres was built in the 1970s, near a canal, but in the  last decade, it has seen more frequent and intense flooding.  Its levees no  longer adequate.  Back-to-back floods in 2016 and 2017 drew the governor`s  attention and a plan was hatched to buy out the homeowners and move them  here, barely two miles away, but 10 feet higher.  
Curnell Jackson was eager to hear the details.  She raised her children and  now her granddaughter in the home that recently flooded beyond her  financial ability to repair.  
The water came up to about here.  

CURNELL JACKSON, MOVING TO HIGHER GROUND:  Yes.  You`re losing everything  and you don`t have time to pick up anything and just, you know, you`ve got  to go back and just start all over again.  I mean, it`s just miserable.

OLICK:  The program will buy out each homeowner.  But since these damaged  homes have so little value now, homeowners will also get forgivable loans,  up to $200,000 to buy into the new community.  For each year, they live in  their new home, they get one-fifth of the loan forgiven.  In five years,  the home is theirs, debt-free.  The cost: roughly $8 million.  
In the past, the federal government has given flooded homeowners money to  simply relocate, but this is one of the first plans to move an entire  community on map here to higher ground and it could be a model for the  future.  

FORBES:  When we get done with this, we and everyone else will know more  about how to do this and more about the mistakes to avoid than we know  right now.  

JACKSON:  We are all in it together, and you know, I`m happy for myself,  but I`m happy for everybody else, because we`ve done been through a lot.  

OLICK:  And you`re ready to go.
JACKSON:  I`m ready to go.
OLICK:  For NIGHTLY BUSINESS REPORT, I`m Diana Olick in New Roads,  Louisiana.  

GRIFFETH:  And before we go, a final day at the look on Wall Street.  
No records today.  The Dow was down 59 points, Nasdaq down 18, the S&P down  six.  

That is NIGHTLY BUSINESS REPORT for tonight.  I`m Bill Griffeth.  Thanks  for watching.  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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