Transcript: Nightly Business Report – May 2, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Something`s missing.  The  rally takes a breather as investors evaluate some major issues facing the  market.  

Millennial migration.  Smaller cities are attracting a big wave of younger  Americans and those local economies are benefiting.  
Time is money.  The high-tech way law enforcement is fighting crime.  
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for  Thursday, May 2nd.  

Good evening, everyone, and welcome.  Bill is off this evening.  
Stocks lost their footing a bit today.  The S&P 500 and the Nasdaq pulled  further back from their all-time highs, a decline in oil prices weighed on  the broader market, as did those comments yesterday from Federal Reserve  Chair Jerome Powell which we told you about last night.  

Powell referred to inflation pressures as being transitory, and the market  interpreted that to mean an interest rate cut may not be on the horizon.   The Dow Jones Industrial Average fell 122 points to 26,307.  The Nasdaq was  down 12.  The S&P 500 slipped six.  
So what will it take for the market to move higher?
Bob Pisani takes a look.  

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  There were a few  headwinds that drove the action today.  Crude oil prices plunged, to suffer  their worst day from going back to December.  Oil went from $65 to $61 a  barrel.  

The Trump administration has stopped issuing waivers that allow several  countries to buy Iranian crude, so that sparked uncertainty about prices.   But beyond that, there are bigger issues than just the oil market.  We have  moved up so much, above 50 points in the S&P, that`s nearly 500 points in  the Dow, just in the last nine days or so, to the new highs that we hit.   The path of least resistance right now is sideways to down.  The risk of  the rally right now include no trade deal.  Indeed, there was debate today  about just how well the trade talks are going right now.  

And with the Federal Reserve, the market wants a rate cut, but Fed Chair  Jay Powell seems unwilling to provide it.  Elsewhere, we need China to keep  recovering and we need earnings to keep staying in positive territory.  The  biggest problem is the market is just expensive right now.  Earnings are  expected to be up only in the low single digits for the next few quarters.  
Also missing from the rally are the retail investors and short-term traders  have been bullish, but long-term retail investors have not been big  participants in the run-up so far.  Small cap stocks and emerging markets  have also not been as strong as the big cap stocks recently.  
Elsewhere, China stocks have been soaring this year because China`s central  bank has been stimulating the economy, but we need to see consistent  improvement in the economic data over in China for the next few months.  

So here`s the bottom line: with earnings season winding down, a lot has to  go right for the markets now for stocks to just keep going up.  
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.  

HERERA:  And now to the economy and the release of some key reports today.   New orders for U.S.-made goods rose by the most in seven months in March  driven by strong demand for transportation equipment.  Separately, the  number of Americans filing applications for unemployment benefits held  steady at the end of April.  Jobless claims are considered a proxy for  layoffs.  And first-quarter productivity grew 3.6 percent, the fastest pace  since 2014, the acceleration depressed labor cost suggesting that inflation  could remain benign for a while.

And all of this talk about inflation got us thinking about those comments  from the Fed chief yesterday and his explanation for the current rate of  soft inflation.  

JEROME POWELL, FEDERAL RESERVE CHAIRMAN:  As we look at these readings in  the first quarter for core, we do see good reasons to think that some or  all of the unexpected decrease may wind up being transient.  

HERERA:  Let`s turn to Vincent Reinhart to talk more about inflation and  why we`re not seeing it in the U.S. economy right now.  He`s the chief  economist and macro strategist at Mellon.  
Welcome.  Nice to have you here.  


HERERA:  You know, we haven`t had inflation, meaningful inflation in this  economy for quite a few years now, despite expectations that after the 2008  financial crisis and when the Fed started to exit its support package, we  would see rampant inflation.  Why have we not seen it?  

REINHART:  Two parts.  One is when the Fed created a lot of reserves, banks  didn`t use those reserves at first because they were capital constrained,  they were under a lot of pressure.  And then as the Fed started raising  rates, it also increased the rate it pays on reserves so banks didn`t have  any reason to use the reserves.  

And the second part is we had a tough financial crisis, but most of our  trading partners had worst ones and the dollar has been appreciating.  When  the dollar appreciates, it means that foreign goods coming into the U.S.  are cheaper and that`s been pulling down our inflation.  

HERERA:  You know, also, the economy has changed so dramatically in, say,  the last 10 to 15 years, but we`re still measuring inflation by a kind of  old metrics.  Are we looking at inflation and how to measure it in an  antiquated way?  

REINHART:  Answer to the question, data mismeasured is always yes, and  you`re right.  You know, 40 years ago manufacturing was closer to a third  of what we do.  Now, it`s much, much less, more like not 8 percent or 9  percent.  A lot of our — the stuff we consume are services and those  things don`t move all that fast and they also don`t get set — reset very  often.  
So, yes, we`ve had some problems in measurement.  We also had a terrible  problem in understanding the quality of what we consume.  The same price  you pay for a better good actually means inflation`s gone down.  

HERERA:  But you are under the expectation that we will see a slight  resurgence in inflation, correct?  

REINHART:  I think Fed Chair Jay Powell is right.  Some of it is  idiosyncratic, one-off things that you observe when inflation is so low,  but we also think that the unemployment rate is putting pressure on  resources and so costs will go up and when costs go up, they`ll get passed  through to domestic prices.  And if the dollar doesn`t appreciate, we won`t  get that foreign drag on our domestic inflation.  

HERERA:  All right.  On that note, Vincent Reinhart with Mellon, thank you  so much for joining us.  

REINHART:  Thank you.  

HERERA:  President Trump today said that Stephen Moore withdrew his name  from consideration for a position on the Federal Reserve board.  That  decision comes after some Republican senators raised concerns about Moore`s  comments on women and his views on the Central Bank, making his support in  the Senate uncertain.  

The federal government and Facebook (NASDAQ:FB) are negotiating a  settlement over privacy breaches, and it could result in new oversight of  the company.  
Julia Boorstin has the details.  

MARK ZUCKERBERG, FACEBOOK CHAIRMAN & CEO:  I know that we don`t exactly  have the strongest reputation on privacy right now, to put it lightly.  But  I`m committed to doing this well.  

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  And that commitment  to privacy that Zuckerberg made earlier this week may extend to bringing  federally approved regulators into Facebook`s most senior ranks, that`s  according to a new report by “Politico”, about the social media giant`s  pending settlement with the Federal Trade Commission over its 2011  commitment to protect users` privacy.  
After Facebook (NASDAQ:FB) disclosed it expects to pay the FTC between $3  billion and $5 billion, now, “Politico” is reporting that they`re  negotiating about a number of changes to guarantee the protection of its  user`s data including creating an independent privacy oversight committee.  

ED LEE, THE NEW YORK TIMES:  If there is an idea that there should be a  data regulator the way that there`s, like, monetary and currency  regulators, that`s something maybe and we would cut across not just  Facebook (NASDAQ:FB) but Google (NASDAQ:GOOG) and Snapchat and everything  else on the Internet.  I actually think that could be a more sweeping and  interesting way of going about it.  

BOORSTIN:  Zuckerberg himself could also be appointed designated compliance  officer according to “Politico” which would make him personally accountable  for how Facebook (NASDAQ:FB) handles the issue.  This comes amid growing  demands for both sides of the aisle for federal privacy regulation ahead of  stringent California privacy laws going into effect next year.  European  privacy regulations have already been in place.  

KARA SWISHER, RECODE EXECUTIVE EDITOR:  This is impacting society in a way  that we have to think really hard about and it doesn`t mean that regulators  can`t do good regulations.  Regulators have regulated chemicals, banks, all  kinds — everything — automobiles, and it works out over time.  It`s just  it`s got to be done in a very thoughtful way and it`s coming whether they  like it or not.  

BOORSTIN:  Both Facebook (NASDAQ:FB) and the FTC saying no comment on this  report.  

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.  

HERERA:  The IPOs keep on coming.  Today, Beyond Meat made its Wall Street  debut.  The company makes plant-based burgers and it`s the first vegan  company to indicate to go public, an indication of growing consumer  interest in the alternative meat market.  Shares sizzled on their first  day, rising 160 percent.  But what comes next?  
Aditi Roy takes a look.  

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Beyond meat is hot.  At  the end of the trading day, the company was worth just under $4 billion,  but it`s not the only player in fake meat.  Competitor, impossible foods is  valued at just under $1 billion.  Soon, you will find the Impossible Burger  at all restaurants and it is already in 7,000 stores worldwide, including  Red Robin and White Castle chains.  

Beyond Meat is available at retailers including Kroger (NYSE:KR), Whole  Foods, Carl`s Jr. and Del Taco.  Both companies are going after the $1.4  trillion global meat industry.  Beyond Meat`s IPO comes as U.S. sales of  plant-based meat jumped 42 percent between March of 2016 to March of 2019,  according to Nielsen.  

Beyond Meat`s investors say they`re tapping into America`s changing taste?  

BRETT THOMAS, BEYOND MEAT INVESTOR:  Obviously, there`s been a secular  shift in health and wellness.  People want to feel better about themselves.  

ROY:  Traditional meat companies are taking notice.  In fact, Tyson Foods  (NYSE:TSN) recently sold its stake in Beyond Meat after announcing it`s  developing its own plant-based protein products.  But Tyson is still  invested in another potential competitor, Memphis Meats, which is also  backed by Cargill.  

The company has developed protein products using starter animal cells in a  lab, but those products have yet to come to market.  And while Beyond Meat  is still losing money and could keep losing money for a while, its CEO says  investors have a strong appetite for the long game.  

ETHAN BROWN, BEYOND MEAT FOUNDER & CEO:  It makes sense to make people do  it now and reap the benefits later.  

ROY:  In response to Beyond Meat`s IPO, Impossible Foods COO David Lee  tells me there have been a lot of high fives at his office, despite the  fact they`re a competitor, Lee says Beyond`s IPO is part of a rising tide  in the alternative protein industry.  

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.  

HERERA:  It`s time to take a look at some of today`s “Upgrades and  Downgrades”.  

Qualcomm (NASDAQ:QCOM) was upgraded to buy from neutral at Bank of America  (NYSE:BAC) Merrill Lynch.  The analyst cites the rollout of 5G, among other  things.  The price target is $105, the shares rose a fraction to $87.14.  

Estee Lauder was downgraded to sector from outperform at RBC Capital.  The  analyst questions whether some of the momentum is sustainable.  The price  target is $178.  The stock closed just below that level at $170.25.  
Still ahead, the bizarro world of taxes and politics.  

HERERA:  Some positive news for homebuyers.  Mortgage rates fell in the  most recent weeks, snapping a four-week of increases.  According to Freddie  Mac, the average rate on the 30-year fix is 4.14 percent.  A year ago, it  stood at 4.5 percent.  

High home prices along with strong demand have today`s young homebuyers  moving to cities you might not expect and that could mean a boom for local  economies and home values in those markets.  
Diana Olick has more.  

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Madison Wisconsin is  suddenly teaming with millennials.

Garrick Rohm just bought a house there.  

GARRICK ROHM, RECENT HOMEBUYER:  When you`re walking around Madison  downtown and going to coffee shops, you see young people all over the  place.  

OLICK:  Madison ranks among the top markets for millennials, based on its  high share of current young residents and of millennials moving in  according to the new survey by the National Association of Realtors.  Three  out of four recent transplants to Madison were millennials and they`ve  mostly stayed in the area thanks to a new tech economy.  

ROHM:  I think one of the principal industries is technology.  We have epic  systems in Verona and I work in a tech company in the square and it`s  really cool to be able to be involved in the tech sector while still living  in the heartland of Wisconsin.  

OLICK:  Other surprising new millennial metros, Oklahoma City, Grand  Rapids, Omaha, Durham, North Carolina, El Paso (NYSE:EP) and Salt Lake  City.  

In the majority of the top ten markets, the unemployment rate is lower than  the national average and home prices are also generally lower.  Based on  average income, millennials in these markets can afford to buy one out of  every four homes listed for sale.  In Oklahoma City, they can afford 30  percent.  By comparison, millennials can afford just 10 percent of the  homes in Dallas, 13 percent in Boston and 2 percent in San Diego.  
While young people tend to move first to bigger cities like here in D.C.,  today`s higher prices are pushing them out.  That may be now why they`re  not just moving to, but staying in these smaller cities, buying homes and  changing the local economies.  

CHRISTOPHER ZIEGLER, REDFIN REALTOR:  I`ve had an influx of millennials  moving into the area in the past year or so.  
OLICK:  Real estate agent Christopher Ziegler has lived in Madison all his  life.  

ZIEGLER:  It is surprising to see the city grow into what it has become,  but it`s starting to make more and more sense just because of all of the  tech jobs that we`re offering, the U.W. campus that we have and just the  amazing culture.  

OLICK:  And all those affordable homes.  Of course, the millennials that  move there, the pricier the homes will become.  
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.  

HERERA:  Tesla looks to raise some cash and that`s where we begin tonight`s  “Market Focus”.  

After posting weak quarterly result, the company said it would seek to  raise about $2 billion in capital through new equity and debt.  Elon Musk  also intends to buy $10 million worth of Tesla`s stock in that new  offering.  Today, shares were up more than 4 percent to $244.10.  

Caterpillar (NYSE:CAT) is raising its quarterly dividend 20 percent to  $1.03 a share.  The company said it would hike the dividend every year for  the next four by at least a high single-digit percentage.  Cat will also  increase stock buybacks on a consistent basis.  But the shares slipped more  than 2 percent to $135.17.  

Dow Chemical (NYSE:DOW) posted a decline in first-quarter profits.  Even  with the Dow numbers, the CEO feels his company has been resilient since  the break up of DowDuPont.  

JIM FITTERLING, DOW CHEMICAL CEO:  We delivered $125 million of cost  savings in the quarter and the first 40 million of the cost savings of the  DowDuPont separation.  So, we`re off to a good stock there.  So, I think,  all in all, the portfolio performed well and in most cases better than our  peers.  

HERERA:  Shares fell more than 6 percent to $52.70.  
Strong sales overseas helped Under Armour (NYSE:UA) post better than  expected results.  The athletic apparel retailer saw its international  sales grow 12 percent, but North American sales slipped as it battles from  heavy competition from the likes of Nike (NYSE:NKE) and Adidas.  The  company raised its profit outlook for the year and the shares rose more  than 3.5 percent to $22.82.  

The CEO of engineering and construction firm Fluor (NYSE:FLR) is out.  The  resignation comes as the company posted a surprise quarterly loss and weak  full-year earnings guidance.  The stock lost almost a quarter of its value  closing at $29.72.  

Tax Day may have come and gone, but people are still talking about the  impact of the new tax law, especially in some high-tax states.  As you  probably know, those payers are not able to deduct as much as their state  and local taxes as they once were.  And now, some democratic lawmakers are  looking to change that.  But as Robert Frank reports, their proposals are  putting them in an unusual position.  

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, you could call  it the bizarro world of tax policy.  A wrinkle in a new tax law has led  Democrats to fight for lower taxes on the wealthy and Republicans pushing  to preserve a tax hike.  

Democrats in the House and Senate are rolling back the limits on state and  local tax deductions.  The cap now at $10,000 has led to big tax increases  for top earners in high-tax states like New York, New Jersey, California  and Illinois.  

Representatives Lauren Underwood and Sean Casten of Illinois have a bill  that would increase the SALT limits from $10,000 to $15,000 for single  filers and 30K for joint filers.  It would also index the cap to inflation.  

Now, Underwood says, quote: My legislation would alleviate the burden for  middle class families in our community.  But an analysis from the Tax  Foundation found that middle earners would see zero benefits from the  change and the biggest change would go to the top 5 percent.  The reason,  the top earners will take the biggest deductions.  

A separate bill from Representative Bill Pascrell and Senator Bob Menendez,  both of New Jersey, would eliminate the cap entirely, but it would raise  the top federal tax rate back to 39.6 percent from the current 37 percent.   The Tax Foundation saying the plan would reduce revenue by $532 billion  over 10 years, and those in the top 10 percent would see the biggest gains.  

Now, some Democrats admit the bills would mainly help the wealthy and said  the caps unfairly targeted blue states.  

SETH HANLON, CENTER FOR AMERICAN PROGRESS:  Parts of the tax bill was  politically motivated and when they were looking for ways to pay for the  corporate tax cuts and the estate cuts and the other tax cuts benefiting  extremely rich people, they singled out blue states or they hunted offsets  that disproportionately affected people in blue states.  

FRANK:  Of course, none of them have much of a chance of passing a  Republican Senate or the president, but one choice for Democrats, they can  just wait since the cap expires in 2026.  

HERERA:  And when it comes to taxes, many in the Democratic Party are  calling for increasing rates on the wealthy.  But 2020 presidential  candidate Amy Klobuchar has a different take on tax fairness and she  explained it to John Harwood.  

SEN. AMY KLOBUCHAR (D-MN), PRESIDENTIAL CANDIDATE:  The first one is to  make sure that we have fairness for workers so that they can afford things.   That means say the tax code.  I think the Republican tax bill went way too  far.  

You look at the corporate tax rate.  I supported bringing it down some, but  it went way too far, down to 21 percent.  If you just go up to 25 percent,  you get $100 billion for every point that could be used to pay for people`s  roads and bridges and those kinds of things and transit?  

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT:  You want to take it  to 25 for your infrastructure bill, I believe, right?  
KLOBUCHAR:  Yes, right.  

HARWOOD:  And then two more points for your retirement bill?  

KLOBUCHAR:  You could also look at part of that for that, and you can also  look at doing it with things like the Buffett rule, closing — the carried  interest loophole of being a $14 billion, capital gains changes would bring  in hundreds of billions of dollars.  

HARWOOD:  What would you do, tax it like ordinary income?

KLOBUCHAR:  You could, yes, and you might want to make some dispensation  that people hold it for a longer period of time so it helps.  You`ve got to  do something with that, because that`s hundreds of billions right there  when you do something about the monopoly if you bring money in.  

HARWOOD:  Your retirement bill I believe takes the top rate from 37 to  39.6.  Is that high enough?  Do you think that`s where it should stay?  

KLOBUCHAR:  I would look at what the rate is, but that is an example.   Obviously, I would want to go back to where we were, at least where we were  before Trump came in, yes.  

HERERA:  Senator Klobuchar also commented on capitalism more broadly, and  while she supports the system, she says the American economy needs a  rebalancing, that includes checks and balances.  
Coming up, a new way to help fight crime that saves time and money.  

RAHEL SOLOMON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  For law enforcement  in Kentucky, this box is a game changer.  I`m Rahel Solomon in Frankfort,  Kentucky.  Coming up, what it is and why it could revolutionize police  investigations.  

HERERA:  A jury today convicted Insys Therapeutics founder John Kapoor and  four former executives of racketeering and other crimes.  Federal  prosecutors accused them of bribing doctors to unnecessarily prescribe  their painkiller, something they alleged helped fuel the opioid epidemic.   Kapoor is highest ranking pharmaceutical executive to be tried in a case  related to opioid abuse.  
Crime fighting is being modernized and like most, everything else  technology is playing a big role, and it`s getting its start in Frankfort,  Kentucky.  
Rahel Solomon has our story.  

SOLOMON:  For more than 30 years, police labs have been using DNA to help  solve cases, but the technology is time consuming and expensive.  Now, law  enforcement across the nation is testing out a new technology that could  completely change crime solving as we know it.  

TROOPER BILLY GREGORY, KENTUCKY STATE POLICE:  Let`s be clear.  This is a  game changer.  

SOLOMON:  The traditional process begins here in this lab, but there are  four more steps after it, all of which happen in different parts of the  building.  

With this new device, everything happens inside this box.  
DR. RICHARD SELDEN, ANDE RAPID DNA FOUNDER:  We`re not doing some kind of  magical chemistry inside a magical box.  We`re using the same chemical  approach in the labs, we just automate it, we`ve made it faster and we`ve  made it so that humans don`t have to handle it.  
SOLOMON:  Kentucky just announced it`s using the device to test all sexual  assault kits and it`s already hearing from interested department all around  country.  

LAURA SUDKAMP, KENTUCKY STATE POLICE FORENSIC LAB DIRECTOR:  We have got to  east coast to west coast.
SOLOMON:  Twenty-seven states in just the last few weeks.  Supporters have  called the device revolutionary but it`s not without its limitations.  
SUDKAMP:  You have to have a very good sample in order to run it through  the system and get a good profile.  If it`s just a trace amount of blood or  semen, you`re not going to get that.  

SOLOMON:  Critics question the collection, storage and usage of the DNA,  but Dr. Selden says it`s essentially no different than a finger print.  

SELDEN:  It says nothing about somebody`s appearance, nothing about  somebody`s clinical status, nothing about somebody`s behavioral status.   It`s about as impersonal as you could get.  

SOLOMON:  Kentucky`s lab director says it costs about $2,100 per sexual  assault case for the conventional testing.  It costs about $2,450 for rapid  DNA, though she expects to come down over time to eventually be cheaper  than the traditional method.  So, to roll this out on the larger scale for  all types of crimes in Kentucky, that would be expensive, up to $7 million  a year.  

SUDKAMP:  The time is money and the time that it saves us will actually  balance out with the cost of the agents because the hours I have to pay  people versus what it costs to burn it.  

GREGORY:  No longer are we faced with six-month, nine-month, 18-month  delays on processing an assault kit just to come up with a potential  suspect.  Now, we have technology in front of us that literally produces  that within 90 minutes.  And that turnaround time for us is within five  days, we may get the opportunity to put a name to a potential suspect —  yes, that`s exciting.  That is groundbreaking stuff.  

SOLOMON:  While it is growing around the country, a spokeswoman for the FBI  says they`re taking a slow and measured approach as they roll out a rapid  DNA pilot program.  Meanwhile, in Kentucky, they are still verifying all  rapid DNA cases with the existing traditional DNA testing, but Sudkamp and  others tell us, there`s no turning back now.  

GREGORY:  We can attack 21st century problems with 21st century technology.  

SOLOMON:  For NIGHTLY BUSINESS REPORT, I`m Rahel Solomon, Frankfort,  Kentucky.  

HERERA:  Here`s a look at the final numbers from Wall Street.  The Dow fell  122 points, Nasdaq was down 12, S&P 500 slipped six.  

That`s it for us tonight.  I`m Sue Herera.  Thanks for joining us.  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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