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.
(BEGIN VIDEO CLIP)
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.
(END VIDEO CLIP)
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.
VINCENT REINHART, MELLON CHIEF ECONOMIST & MACRO STRATEGIST: Thanks for having me.
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.
(BEGIN VIDEO CLIP)
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.
(END VIDEO CLIP)
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.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
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.
(BEGIN VIDEO CLIP)
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.
(END VIDEO CLIP)
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.
(BEGIN VIDEO CLIP)
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.
(END VIDEO CLIP)
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 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. (c) 2019 CNBC, Inc.
Copy: Content and programming copyright 2019 CNBC, Inc. Copyright 2019 ASC Services II Media, LLC. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of ASC Services II Media, LLC. You may not alter or remove any trademark, copyright or other notice from copies of the content.