ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Stocks are pummeled as trade tensions escalate.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Investors understand what`s going to happen here, it`s very difficult.
UNIDENTIFIED MALE: The markets obviously repricing the trade tensions between China and the United States.
UNIDENTIFIED MALE: The Dow off by 418 points.
UNIDENTIFIED MALE: It is a 2 percent day, let`s call it across the board.
UNIDENTIFIED FEMALE: All 30 Dow stocks are in the red right now.
UNIDENTIFIED MALE: We just hit a fresh session lows, 642 points, on the Dow.
UNIDENTIFIED FEMALE: The Dow closing lower at 472 points. Worst day for the Nasdaq and the S&P since March 22nd. Worst day for the Dow since back in January.
(END VIDEO CLIP)
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Tonight, what might happen next, and what it could mean for your money.
It`s NIGHTLY BUSINESS REPORT for Tuesday, May 7th.
Good evening, everyone, and welcome.
Uncertainty has gripped the stock market — uncertainty over tariffs, the risk of an all-out trade war with China and the potential impact on global growth. Stocks dropped at the opening bell and they kept drifting lower until the close. The selloff was broad. All 11 S&P sectors were down, all 30 Dow stocks finished in the red.
Here are the closing numbers. The Dow Jones Industrial Average fell 473 points to close below 26,000. The Nasdaq slid 159 and the S&P 500 was down 48.
Bob Pisani has more on today`s deep declines.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Trade tensions were once again top of mind for Wall Street today. Stocks came under pressure because U.S. Treasury Secretary Steve Mnuchin said the Chinese were reneging on key aspects of the trade negotiations. That`s woken up investors that the odds of a tariff increase this Friday are much real than the markets were expecting, even with the vice premier of China coming on Thursday.
Still, the market is still off its historic highs because sentiments still remain positive around four key factors.
First, the Federal Reserve`s policy pivot. They don`t expect rates to be raised by the Fed again at all this year. A trade deal is getting done, and they still will happen and that it could happen before the end of June. Finally, China`s stimulus program which is creating the perception that China`s economy is bottoming. We also have a strong U.S. economy.
So, if we have no trade deal, if one of those four goes away with the higher tariffs, that might force investors to lower their global growth estimates, to lower their earnings estimates for 2019 and 2020. Many are also starting to worry now about the knock-on effects of the trade war.
Just look at the consumer staples today. You have companies like Conagra and Kraft (NYSE:KFT) Heinz and Molson Coors. They all sold off. None of them have direct revenue exposure in China, so why are they down? Because the global growth picture is looking a little bleaker the longer that the U.S. China trade wars keep up.
So, the market might gain 100 points at the S&P if there is a trade deal. But if there is no deal at all with much higher tariffs, well, the markets could drop another 300 points very quickly.
My point is the risk is to the downside, not the upside.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: Meanwhile in China, officials have been walking a fine line. As they try to get a deal done, they are also very aware of how it may be perceived in Beijing, and that`s where we find Eunice Yoon tonight.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese commerce ministry confirmed today that Vice Premier Lie He will attend the trade talks in Washington on Thursday and Friday with Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. There have been some concerns that the Chinese vice premier, along with the delegation wouldn`t show to the trade talks after President Trump`s tariff threat.
Well, the talks are on, but in a strongly worded commentary, “The People`s Daily”, the official paper of the communist party, said the U.S. should not even think about concessions. The paper reads, when things are unfavorable to us, no matter how you ask, we will not take any step back. The hard line coincides with what the Chinese said repeatedly, that they are willing to negotiate, but not with a gun to their heads.
The Chinese want to have a trade deal, but they`re also mindful of the perception back home. They want to make sure that Beijing doesn`t appear as though it`s being cowed by Washington. So, that doesn`t necessarily bode well for the resolution this week.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
HERERA: Yesterday, we talked about trade tensions and what they could mean for stocks, bonds and commodities.
Tonight, we`re taking a look at a sector that potentially could get hit quite hard by increased tariffs and that is the retail sector.
Joining us tonight is Charlie O`Shea, vice president and retail analyst with Moody`s (NYSE:MCO) Investor Service.
Welcome back. Always great to see you.
CHARLIE O`SHEA, VICE PRESIDENT AND RETAIL ANALYST, MOODY`S INVESTOR SERVICE: Thank you.
HERERA: So, you know, we have seen supply disruptions before. The port of Los Angeles strike comes to mind. Given that background, how well- positioned do you think some of the retailers are if, indeed, this trade war escalates?
O`SHEA: I`m going to sound like a broken record, but those guys that are performing well and the bigger ones, this shouldn`t have an impact at all. They`ve already been dealing as you said, the port of L.A. strike, the Hanjin bankruptcy a few years ago, which disrupts its supply chains for smaller retailers. So, if you`re a big retailer, one of the advantages you have obviously is flexibility and money, you`ve adapted your supply chain to deal with almost any potential outcome like this one.
HERERA: So, who are we talking about?
O`SHEA: We`re talking Walmart, Costco (NASDAQ:COST), and Target (NYSE:TGT), you know, any of the big guys, the big investment grade companies that we cover are really well-insulated from this. The risk is at the lower end of the ratings scale where things are already acute for the smaller, highly leveraged retailers, this is the last thing they need is some sort of a trade issue.
HERERA: Well, let`s slice it another way. What about, say, apparel or furniture, you know, the things that you make that are made in China and brought back again? What about those sectors?
O`SHEA: A lot of that stuff has already moved into other markets. I mean, we`ve seen Vietnam with furniture. Just an anecdote, I was in a restoration hardware store a few weeks ago, a lot of their furniture has made in Vietnam labels on the back. So, a lot of the manufacturers been moving away from China for a variety of reasons, one potentially for tariffs, but the another one maybe is a lower cost market, they just want diversity and diversification. And that`s exactly what they need.
You cannot put all your eggs in one basket from a supply chain perspective and succeed anymore.
HERERA: What about the length, if indeed we don`t get a deal this week, these trade talks have been going for some time now. If we do come to that impasse come Friday and that 25 percent tariff goes in, how — now, the big retailers may be able to survive that for a while.
HERERA: But this has been a very long process. How long do they really have?
O`SHEA: It`s a really good question. The bigger guys can ride this out. I wouldn`t worry about them. One of the stories that ran on your network is potential ripple effects, do consumers have to pay a little bit more, what other sectors could get hit — that`s an open question.
But I think the timeframe is really important here. We`re in the midst of negotiations and I`m not going to presume to know what`s going on in that room, but this could be a very short-lived tariff for all we know. It could also last for an awfully long time. But that doesn`t get benefit to anybody.
So I think that the challenge for the retailers is we can`t overreact to this. We can`t all of a sudden say, oh, my gosh, we have to completely supply our supply chain —
O`SHEA: — and change it. We just have to kind of deal with it on the fly, and I think the better retailers are positioned to do that.
HERERA: I think we`re going to be seeing a lot of you, Charles. Thanks for joining us.
GRIFFETH: I think so.
O`SHEA: Thank you.
HERERA: Charlie O`Shea with Moody`s (NYSE:MCO) Investor Service.
GRIFFETH: And agriculture is another important sector of the economy watching the latest round of talks very closely. Farmers say that trade uncertainty is not helping them and some fear that they`re getting caught in the political crosshairs of Washington.
Ylan Mui has that tonight.
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s planting season on Greg Mims` farm in southwestern Georgia. The soybeans and corn are already in the ground, cotton is a work in progress, the seeds of a harvest that he hopes can redeem a rough year.
GREG MIMS, GEORGIA FARMER: We need a super harvest.
MUI: That`s because like farmers like mint have become collateral damage in political battles happening hundred of miles away in the nation`s capital.
First, there is a trade war with China. Talks have gone tense ahead of a meeting between top Chinese and U.S. officials here in Washington this week.
Farmers fear that means Beijing won`t lift tariffs on American soybeans. Grain prices tumbled this week to the lowest level in more than four decades.
MIMS: We really need to see some type of trade agreement worked out, all the depressed prices are not helping us at all.
MUI: On top of his trade troubles, Mims has also been waiting for months for federal disaster relief. His farm suffered a direct hit from Hurricane Michael back in October. His cotton harvest stock blown away, his equipment shed and farm shop are still in shambles, and there`s been little help from Uncle Sam.
Congress is proposing $3 billion in direct aid for farmers, but that money has gotten caught up in a partisan fight over relief for Puerto Rico.
SEN. JONI ERNST (R-IA): I want to say this political football just really put down, let`s get to that end zone and let`s get through this. No more political games here, folks. We`ve got people back home that need this package.
MUI: But down on the farm, Mims doesn`t expect answers any time soon.
MIMS: I think you get to the point where you`re thinking, you know, I don`t think we`re going to see anything out of it. So, it may be even past frustration and more — I guess, hopeless.
MUI: For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.
HERERA: Some of today`s market angst may have also come from the vice chair of the Federal Reserve. Richard Clarida said that some of the softness in inflation can be explained by temporary factors. That`s exactly what the Fed chief said last week and what the market didn`t seem to like. Clarida said he was comfortable with monetary policy as is and pushed back against speculation that the Fed would cut interest rates to boost inflation.
GRIFFETH: Here`s a bright spot, though. The number of job openings increased in March. According to a new labor market survey there are now 7.5 million job openings and 1.3 million more available jobs than unemployed people. Vacancies increased the most in the construction and transportation industries, as well as in the real estate sector.
HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.
Boeing (NYSE:BA) was downgraded to equal weight to overweight at Barclays. The analyst expects the recovery of the 737 MAX production to take longer than expected. The price target is $367. The stocks fell more than 3-1/2 percent to $357.23.
Lululemon was upgraded to neutral from underperform at Macquarie. The analyst cites the company`s new management team and international profitability. The price target is $159. Lululemon fell with the rest of the market. It was down 2 percent to $173.98.
Beyond Meat got its first buy rating. The stock was initiated with an outperform rating at Bernstein in new coverage. The analyst cited the growth of the alternative meat market to some $40 billion in the next decade. The price target is $81. The stock was up nearly 6 percent to $79.17.
GRIFFETH: Record price tag, a new drug is about to go on sale for $2 million. If it provides a cure, is it worth it?
HERERA: We often talk about the rising price of prescription drugs. Well, tonight, a new drug is expected to hit the market soon with the biggest price tag ever.
Meg Tirrell has more.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: The debate over the price of drugs puts mere constant pressure on pharmaceutical stocks, and it`s about to take on a whole new dimension with a drug expected to be approved by the FDA this month. It`s a medicine for a rare and devastating childhood disease called spinal muscular atrophy, and it could cost as much as $2 million. Many on Wall Street argue it`s a price that makes sense.
MICHAEL YEE, JEFFERIES MANAGING DIRECTOR: This new gene therapy drug which could cost $2 million or more is a life-saving therapy. These babies and these infants would be essentially nowhere in a year and now, they`re growing up to possibly be normal children living a normal life. It`s pretty impressive.
TIRRELL: The drug is made by Swiss pharma giant Novartis, and it`s one of the new group of medicines that aims to dramatically improve if not cure disease, with just one treatment. They`re called gene therapies because they deliver copies of functional genes to make up for ones that cause disease.
There`s one on the market in the U.S. — Spark Therapeutics` Luxturna which treats a rare form of blindness. It costs $850,000. But Jefferies analyst Michael Yee says many more are on the horizon.
YEE: I could see five or 10 new gene therapy drugs coming out over the next five years, and I think we`re going see a lot more.
TIRRELL: And though their price tags are large, he says gene therapies could actually be a bargain, compared with medicines patients have to take chronically.
YEE: The existing therapy could cause tens of million base they have to be paid and used every year for the rest of your life. The total sum of those payments could dwarf the cost of the gene therapy. So, you could argue, though, although it`s a one-time payment or a one-time price tag, that that`s actually cheaper over the life a patient.
TIRRELL: But as the price of drugs is already under scrutiny, such a hefty price tag would likely only dial up the debate.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
GRIFFETH: Let`s turn to Chris Meekins now to talk more about yet another instance of a high cost of drugs here in the U.S. He is research analyst at Raymond James.
Chris, thanks for joining us tonight.
CHRIS MEEKINS, RESEARCH ANALYST, RAYMOND JAMES: Thanks for having me.
GRIFFETH: You know, an industry — insurance industry analyst said the other day that if this drug, even if it`s effective, it`s useless if nobody can afford it. How do you read this situation?
MEEKINS: Yes, I think there`s no question that a drug that sits on the shelf behind the glass at a pharmacy is of no use to anyone. And in this instance where you have fewer than a thousand babies a year that pass away without this drug, you know, the upside is very encouraging for what we see. But there has to be a way to find a good balance. I think that most insurers are very likely to cover a drug like this because of the positive impact that you see. And I think it`s really difficult to see Novartis from a political standpoint ever allowing the inability of a parent to pay to result in the child to die.
So, I think from — whether it`s a PR perspective, and we hope just a good person perspective, and the company will step in to be that those that need it most will be able to have access to the drug because they don`t want Congress or the administration to step in, to try to lower this price and interfere in the market.
HERERA: Chris, what about the point that was made in Meg Tirrell`s report just moments ago, that, yes, that too — if it comes into $2 million, that $2 million price tag is eye-popping at first. But other therapies that are administered over the life of the patient could end up costing more, it`s just not the initial sticker shock.
MEEKINS: Yes, I think that`s fair. I think in this instance we know that the lifespan for 92 percent of the patients` ballpark is 18 months, so it doesn`t have a lifetime of taking drugs. This is a life or death product for these individuals. And what you`ve seen in D.C. is most politicians are not looking at the initial cost of the drug even if it`s really high with the exception of Bernie Sanders who`s critical of that. For most politicians and the debate in Washington, it`s really about whether or not prices are being increased after drugs are already on the market.
So, what`s the reason for those 6 percent, 7 percent, 10 percent increases we see every year, not what`s the reason for the initial cost. In this instance, it`s curing the disease for less than a thousand kids that die a year, and that`s a big deal.
GRIFFETH: Very quickly. What about the possibility of importing cheaper versions from overseas, even the president is talking about that now.
MEEKINS: Yes, we saw the president yesterday had an Oval Office meeting where he said that, you know, we wanted HHS to look at drug importation. This is a very big deal and I don`t think the market is fully appreciating is the idea that this administration could allow, at least on an limited basis, the importation of cheaper drugs from Canada, the U.K. or Europe, and it`s something that we definitely need to be watching in the weeks and months ahead.
GRIFFETH: Which we will do. Chris Meekins with Raymond James, again, thanks for joining us tonight.
HERERA: Mylan (NASDAQ:MYL) Investors keep waiting on the company`s turnaround plan and that`s where we begin tonight`s “Market Focus”.
The pharmaceutical company reported lower than expected quarterly revenue and the CEO failed to provide a clear view on the potential revamp of the company`s strategy which investors were hoping to hear. Shares lost nearly a quarter of their value, closing down about 24 percent to $21.53, its worst day in nearly two decades.
Allergan (NYSE:AGN) beat analysts` expectations on strong sales of Botox which is still its most profitable product. The company also raised its full year guidance. The positive results come as some investors have called for the drugmaker CEO and chairman roles to be split or for Allergan (NYSE:AGN) to sell some assets. But shares still fell 4 percent to $141.36.
Regeneron`s earnings fell short of expectations as results were hurt by a surge in expenses and the pressure to keep drug costs low. The company did cite new treatments in the pipeline as future growth drivers. Still, the shares were off 6 percent to $322.40.
Dean Foods (NYSE:DF) reported weak sales as it continues to struggle with lower consumer demand. Prices have fallen as fewer people are drinking milk and the big operations like Walmart have opened their own dairy operations. The nation`s biggest dairy producer also said it is cutting costs at exploring strategic alternatives. Investors may have liked that as they sent the shares higher by nearly 5 percent to $1.76.
GRIFFETH: NCR (NYSE:NCR), which makes ATMs, is reportedly exploring its options, including a possible sale of the company after receiving interest from unnamed buyer. Bloomberg said there is no indication of a potential sale price. Shares rose 9 percent to $31.08 and touched a 52-week high.
Then, after the bell, Electronic Arts (NASDAQ:ERTS) beat analyst estimates helped in part by the launch of its Apex Legends title, a competitor to the wildly popular game called Fortnite. EA also gave strong guidance for the whole year. Shares initially rose in after-hours trading tonight, but they did end the regular session down 1 percent to $92.73.
Also after the bell, highly anticipated Lyft released its earnings report, its first one since coming public about two months ago. The ride sharing company reported a huge loss, but it did make strides in growing its active ridership. Lyft also issued guidance above expectations for the current quarter. The stock which has been struggling since its IPO was volatile in the after-hours trading session but ended the regular session down 2 percent to $59.34.
HERERA: And with rival Uber IPO expected in just a few days, how do the ride-sharing business models differ?
Deirdre Bosa compares the two.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s focus versus ambition, pure play versus diversification. Lyft and Uber are battling each other for riders, drivers and market share.
MICHAEL GRAHAM, CANACCORD GENUITY: It`s very much a land grab here in the United States where Lyft operates right now. We think that only 2 percent of all passenger miles are currently being travelled on these sheer transportation networks like Lyft and we think that`s going to go a lot higher.
BOSA: But when it comes to the longer term, they look like very different companies. Lyft operates only in North America while Uber`s footprint is global, stretching from North America, to Latin America, Europe, Australia and the Middle East. Lyft is focused on ride-sharing. Uber`s portfolio spans ride sharing, food delivery, trucking and even flying cars.
But both have a few important things in common. One of them: huge losses.
BRIAN HAMILTON, SAGEWORKS CO-FOUNDER: They don`t even have fidelity around the idea of profits and they`re, you know, I don`t want to say I would — I actually do want to say, they`re sort of arrogant about it, like, hey, we never have to be profitable. So, you got to look long run.
But if these guys don`t have any fidelity to basic things like earning profits 20 years from now, we`ve got a problem.
BOSA: And it`s not clear which business model or any will lead either company to profitability, but both are also making big bets on self-driving cars which they see as the future of ride-sharing and the way to cut costs. The question is if and when that technology will be commercially available and how they deploy it.
NIGHTLY BUSINESS REPORT, Deirdre Bosa.
GRIFFETH: In other news, G.M. Cruise has raised $1.5 billion in new equity from a group of investors. The investment increases Cruises`s valuation to $19 billion. G.M. Cruise is pushing to launch a robo taxi service sometime this year.
HERERA: Coming up, what to do now? That`s the question investors are asking after two days of steep market declines. A game plan, next.
GRIFFETH: Amazon`s futuristic food store called Amazon (NASDAQ:AMZN) Go has now opened its first New York City location, but unlike earlier versions of the store where customers simply pick up an item and walk out, this store will accept cash. Critics have been saying that cashier-free stores discriminate against consumers who are unbanked, don`t have access to credit or debit cards. Philadelphia responded by becoming the first city to ban cashless stores earlier this year. New Jersey followed with a statewide ban and similar laws are being considered in New York and in San Francisco.
HERERA: After two days of steep declines in the stock market, some of you may be feeling a little bit nervous about what`s happening, and wondering what to do next.
So, Tim Maurer is with us. He`s here with some advice. He`s director of personal finance with BAM Alliance.
Welcome back, Tim. Nice to see you.
TIM MAURER, BAM ALLIANCE DIRECTOR OF PERSONAL FINANCE: Thank you very much.
HERERA: It`s great to have you here. You know, for our discussion, let`s assume that our investors have a game plan. How should they react to the two days of volatility that we`ve seen and maybe more to come?
MAURER: Let me say this first. If you`re invested in the market and you experience these downturns over the course of the past couple of days, it is absolutely normal and perhaps even natural to feel a sense of anxiety. In fact, we learn from the behavior of field economics, there is a name for this. It`s called the endowment effect.
And the bottom line is what we lose in the market hits us twice as hard as the joy we might feel when we gain from market ups. So, it`s perfectly normal for us to feel a sense of anxiety, it doesn`t mean we should be acting on that anxiety, of course. But it`s perfectly normal.
HERERA: But that`s the thing. It`s one thing to — I mean, nobody likes to see the balance in their portfolio go down? But acting on it is the other thing.
How do you keep yourself from acting especially if you fear that there`s more to come on the down side?
MAURER: Well, step down, Bill, is to acknowledge the anxiety. So, bring it to from the subconscious to the conscious. It`s a good first step, because then we can move to step two, and that`s a willingness to embrace volatility.
The truth is that volatility is the reason we have a justifiable reason to expect higher rates of return overtime, investing in the markets versus just investing in a FDIC-insured CD or savings account. Volatility is a natural part of the market. So, when you see that volatility, it`s a good sign that you should probably have higher expected rates of return longer term.
But that brings us to the third and final step. It`s not that inaction is the only course here. If we see enough movement on the upside or the downside, the perfectly responsible thing to do as an investor is to rebalance that portfolio like Sue said at the beginning, we`re presuming that somebody does have a plan, they do have a portfolio that`s designed to grow out into the future. And so, if you have that, when you see meaningful deviations based on market volatility, that`s the natural time to do the natural market adjustment and buy low and sell high.
HERERA: All right. On that note, Tim, appreciate it.
One of these days, we`ll have you on when the market`s going up. You always help us out.
MAURER: It sounds a plan. Sue, thank you.
HERERA: Tim Maurer with BAM Alliance.
GRIFFETH: I feel better already.
HERERA: There you go.
GRIFFETH: However, we did have this kind of a day today. A big sell-off on trade jitters.
The Dow was down 473 points. Now, we are back below 26,000. The Nasdaq was down 159. Technology, of course, one of the hardest hit groups in the situation involving the trade talks with China and the S&P 500 was down 48 points.
And, of course, we have the trade talks to begin on Thursday and the tariffs maybe ticking in on Friday.
HERERA: So, that means you have to tune in tomorrow night. That does it for NIGHTLY BUSINESS REPORT. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Sleep well tonight.
GRIFFETH: We`ll see you tomorrow.
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