Transcript: Nightly Business Report – May 29, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Portfolio protection.  Volatility is back.  Stocks sell off as investors grow concerned about the economy, so how can you keep your investments safe?  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Farm Belt flooded.  Delayed plantings are pushing up prices and now some wonder if food inflation could be just around the corner.  

GRIFFETH:  529 Day.  The myths and realities of saving for college which can be especially difficult in this type of market.  

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Wednesday, May 29th.  

HERERA:  Good evening, everyone, and welcome.  
The market was rocked again and the reason is a familiar one.  Investors are growing concerned that a drawn-out trade war between the U.S. and China will hurt a global economy that`s already slowing and that sent stocks lower around the world as money moves out of riskier assets and into safer ones.  The benchmark yield on the ten-year treasury hit a 20-month low and stocks fell though they finished off their lows of the session.  The Dow Jones Industrial Average fell 321 points to 25,126, but it had been down more than 400 points.  The Nasdaq dropped 60 and the S&P 500 was down 19.  
Seema Mody has more on today`s selling from the New York Stock Exchange.  

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Stocks tumbling on renewed concerns of an economic slowdown, with just three days left in the month, the Dow, S&P 500 and Nasdaq all on pace to post their first monthly losses of the year.  

Trade, key concern here on Wall Street.  It appears as if the deal between the U.S. and China is nowhere close to being reached.  The worry is that growth will slow worldwide, that the investors looking for safety in treasuries, and as bond yields fall, so did banking stocks.  Tariff concerns also pushing retailers lower, the selloff was broad.  Energy, health care and consumer discretionary stocks are getting hit.  The small cap Russell 2000 index and the Dow transport index pushing further into correction territory, meaning they are 10 percent or more below their most recent highs.  

Traders also watched the S&P 500 break below a key technical level and with the economy front and center, tomorrow`s revised first quarter U.S. GDP report and China`s manufacturing data on Friday will be closely watched by Wall Street.  

GRIFFETH:  So you have these concerns about the economy because of trade tensions, and the issues have created wild days on Wall Street this month.  Is there a way to protect your portfolio from all of the volatility?  
Joining us tonight, Jimmy Lee.  He`s CEO of the Wealth Consulting Group.  
Welcome back.  Good to see you again.  


GRIFFETH:  You know, clearly, owning treasury bonds would have been a good hedge over this past month.  The stocks went down, they`ve been going up, pushing rates down.  But is it too late to protect your portfolio in that way, do you think?  

LEE:  I don`t think it`s ever a good idea for the average investor to try to market time (ph), Bill.  That`s never really worked.  I think what`s most important is to be calm and not panic.  And actually, for long-term investors, it is probably a great buying opportunity because as you said most of the concern is about the trade issue and yes, it is causing some other economic potential data that looks like the economy might be slowing, but when the trade deal is done I think if the stock market could set new highs.  

HERERA:  You made the point, jimmy, that you can harness this volatility if you do what`s called dollar cost averaging.  So, you`re actually having the volatility of this market work with you if you`re consistent.  

LEE:  Yes, Sue.  Typically, there are two type of investors.  So, if you`re in wealth accumulation mode and saving for your retirement, then regular, systematic investing like people do in their 401ks that we call dollar cost averaging, volatility is your best friend.  Think about it as a discount or sell on things you want to buy at lower prices.  
So, dollar cost averaging works really well.  So, if you`re in wealth accumulation mode, that`s really well, good.  But if you`re a retiree, make sure you have one to two years of your living expenses in cash or cash equivalent type investments that do not go down in markets like this.  So, you don`t have to worry about selling your stocks at a discount to make your living expenses each month.  

GRIFFETH:  This has been a defensive market though, lately and areas that traditionally do well when the rates go down or when the economy slows down — utilities, health care, you know, areas like that, consumer staples.  They`ve been doing well, lately.  
Do you like those groups?  

LEE:  I do.  Our firm has been taking our profit from the growth sector even though we`re still overweight tech.  I think if you take a look at your portfolio and in times like today, it`s very important to have a globally diversified portfolio, and if you`re overweighted in a lot of the growth sectors that had been leading the market for the last couple of years, including this year, it`s a great time to make sure that you`re evenly balanced.  
So, look at value stocks.  Value stocks might hold up much better in a correction if you`re worried about that, as well.  

HERERA:  What about technology?  Do you feel that we`re nearer to a bottom in technology?  Some of those stocks have really been hit quite hard.  Would you step in at this point?  

LEE:  I think if they`re good names, I would be very wary of the high multiple still, too.  But I think technology has more room to run and even if we go further decline, let`s say that we end up in an official correction of 10 percent or more, we`ve been there before, you remember investors, if you started the year on January 1st, we`re still allowed double digits, even after this move down.  
I think most people would be happy if their portfolios are up over 10 percent in stocks to the first five months, and that`s where we`re at.  So, let`s take everything into perspective.  So, I think technology is still a good sector to have.  

GRIFFETH:  All right.  Very good.  Jimmy Lee with the Wealth Consulting Group — again, thanks for joining us tonight.  
LEE:  Thank you.  

HERERA:  Some strategists look at the bond market and look at potential signs that a recession is on the horizon, but recent economic reports have not been that bad.  So, what exactly is the data saying?  
Steve Liesman takes a look.  

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The bond market acting as if it`s certain a sharp weakening of the economy is on the way, even a recession, and the stock market acting as if the bond market is right.  

In one corner, an inverted yield curve where shorter term treasuries yield more than longer ones, the opposite of what it should be and a sign that bond investors believe the economy will weaken and the Fed will have to cut rates and stimulate the economy.  Most of the time when the yield curve averts, a recession is not far off.  

But that`s not obvious from looking at either the current economic data or economic forecasts.  Unemployment is running a low 3.6 percent, three month average job creation, 169,000, which comes with strong consumer confidence, inflation is running over the Fed`s 2 percent target but not that far.  At one point, 6 percent, and first quarter GDP was 3.2 percent well above trend.

And the estimates from the CNBC wrap it up data for 1.6 percent growth in the second quarter.  That will reverse some, but not all of the trade-distorted strength of the quarter.  It`s weaker, but again, still around trend and certainly not a recession.  

A weakening in growth was expected this year.  The question now is whether the escalating trade war between the U.S. and China makes it worse.  So, the Fed now has to cut rates in response.  That`s what the bond market is banking on.  It`s pricing in an 85 percent probability of a rate cut by year end.  

Where is the Fed?  They see trade as a risk, but have announced they`ll wait and see for the effects on the real economy before they act.  

GRIFFETH:  And as we`ve been reporting, the tech sector finds itself in the middle of the escalating tensions between Washington and Beijing and now, it appears that China is considering limiting exports of materials that are critical to the production of things like iPhones and electric vehicles.  
Eunice Yoon has more for us tonight from Beijing.  

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The Chinese media turned explicit about Beijing`s threat to use rare earth as a countermeasure today.  The authoritative dale columnist posted a column saying don`t say we didn`t warn you.  

The comment comes one day after the state economic planner said Beijing`s official threat via national TV and after President Xi Jinping visited a rare earth facility last week, rare earth is everything from consumer electronics to defense equipment, and China produces about 80 percent of it.  Analysts say China could restrict sales to the U.S. in the name of national security.  

Chinese are seeing “The People`s Daily`s” warning as serious because the last two times the paper made similar remarks, the country went to war against India and Vietnam.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.  

HERERA:  Trade tensions are also pressuring oil prices as investors grow concern that the tariff war could slow demand.  Domestic crude today settled at about $58 a barrel.  The oil market was also affected by unexpected pipeline outages and refinery shutdowns, in part because of the very bad weather we`ve had in the Midwest.  But there are reports tonight that a key pipeline that drains crude from the supply have in Cushing, Oklahoma, could restart tomorrow.  

GRIFFETH:  Meanwhile, most floods in the Midwest are hurting the U.S. Farm Belt.  The extensive rains have kept farmers out of their fields so plantings are being delayed.  In fact, this is turning out to be the slowest corn planting season on record and that, in turn, is lifting the price of various agricultural commodities.  For this month alone, corn futures are up 15 percent, wheat feature is up about 13 percent, soybean futures have gained about 2 percent.  But there`s less concern about that crop because it can be planted later.  

HERERA:  Scott Nations joins us now to talk more about the impact of those Midwest floods on crop prices and what potentially it means to you.  He`s president and chief investment officer at NationsShares.  
Good to see you, Scott.  Welcome back.  


HERERA:  You know, farmers have been on a wild ride just in the past few months.  In May, we saw soybean prices hit a 42-year low on the trade worries and now as Bill just mentioned, in one month, we see a 21 percent increase.  Where do these prices go from here?  

NATIONS:  Well, Sue, given the fact that the Department of Agriculture has told us that only about 58 percent of corn acreage is planted this time of year, we would expect 90 percent, I think you`d have to expect some more inflation in commodity prices, not only does the corn acreage number mean that less corn is going to be planted.  It also means that the yield from the acreage that do get planted is going to be disappointing.  
So, corn right now is just over 20 percent off its recent low, we have to expect additional price increases.  Also, the floods are going to have a perverse impact on shipping.  


NATIONS:  So much corn is shipped via the Mississippi River and the floods are going to mean that there`s less capacity for that.  So, it`s going to hurt farmers on a couple of different levels.  

GRIFFETH:  Now, on soybeans, we were talking about — you know, we`ve already had an oversupply of sorts because China has not been buying as much soybeans in the past year because of the trade concerns and the tariffs.  So, are we expecting that much planting to occur this year anyway?  

NATIONS:  A lot of farmers have scaled back their plans for planting soybeans, but to your point, soybean prices are also up more than 20 percent from their highs largely because of the news.  So, to a certain degree, corn and soybeans for many farmers in the Midwest are fungible.  That is they can plant one or the other, so you would expect some price increases from corn to bleed over into what we see in the soybean market.  

HERERA:  How much of this trickles down to the consumer?  

NATIONS:  So, yes, a great question.  Everybody wonders about that.  Farmers do a wonderful job and so, unfortunately, for them, and fortunately for us to a certain degree, the food inflation will probably be muted because the price of the actual commodity makes up a relatively small portion of the price that you pay at the supermarket.  
In addition, energy is a very big portion of the input cost and we`ve seen both crude oil and gasoline prices fall quite a bit this month.  In May, we`ve seen crude oil prices drop about 7 percent, gasoline not quite as much.  So, lower energy inputs are going to keep a rein on some of the food inflation you might see otherwise.  

HERERA:  Scott, always a pleasure to have you with us.  Thanks so much.

NATIONS:  Thanks, Sue.

HERERA:  Scott Nations with NationsShares.  

GRIFFETH:  Time to take a look now at some of today`s “Upgrades and Downgrades”.  
We begin with shares of Allstate (NYSE:ALL).  They were upgraded to buy from neutral at Goldman Sachs (NYSE:GS).  The analyst cited the potential for improving margins in Allstate`s home and auto insurance businesses.  The price target now $110.  That stock was up more than 1 percent to $96.23.  

Also at Goldman Sachs (NYSE:GS), General Mills (NYSE:GIS) was downgraded to sell from neutral.  The analyst there expects the company`s fundamentals to weaken next year.  Price target, $41, and that stock fell more than 5-1/2 percent today to $48.25.  
Costco (NASDAQ:COST) was downgraded to hold from accumulated at Gordon Haskett.  The analyst cited the stock`s valuation after an 80 percent gain percent so far this year.  The price target is $255.  Shares fell 2 percent to $240.69.  

HERERA:  Still ahead, planes are packed and the airports are crowded.  So why are flyers so happy?  

GRIFFETH:  The airline industry`s main trade group said today that the grounded Boeing (NYSE:BA) 737 MAX jet is not expected to return to the skies for at least another two months, but the International Air Transport Association added that it has no control over that timeline and the decision is in the hands of regulators.  

HERERA:  The CEO of Boeing (NYSE:BA) today said he is working to regain the public`s trust.  Speaking at a conference in New York, Dennis Muilenburg said that the company is looking closely at its production plant.  

DENNIS MUILENBURG, BOEING CHAIRMAN & CEO:  Once we get the airplane back up and flying, we get the grounded fleet back up and flying for our customers, and then we will, in a very disciplined way, get back to our rate increase plan.  I`m not going to put a specific time line on that because we want to very much focus on getting the MAX back up to plane safety first.  But we do, for the long term standpoint still expect it to ramp back up it a 57 a month rate and our long-term demand profile still says that rates above 57 a month could make sense.  

HERERA:  Shares of Boeing (NYSE:BA) fell in trading today.  They are down about 17 percent since the March 10th crash that triggered the worldwide grounding.  

GRIFFETH:  A new survey, though, shows airline satisfaction has soared to a record and that may be a little surprising given that the record number of people flying means more crowded planes than airports.  
Phil LeBeau explains why convenience is making travelers happier.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  There are more flights, more travelers and more congestion than ever before when it comes to taking a flight.  There`s also more satisfaction with the experience.  In fact, when J.D. Power asked almost 6,000 travelers to rate airline service, they gave the industry a score of 773 on a 1,000-point scale, the highest score ever.  

Travelers say new technology used by airlines like apps to check in for a flight make flying easier and more enjoyable.  By comparison, services offered on-planes like Wi-Fi or in-flight entertainment systems are falling short of expectations.  And unlike the same survey in previous years, the biggest improvement and satisfaction is with legacy, full-service airlines.  

Topping the list?  Alaska Airlines.  But overall, travelers are still happier with low-cost carriers.  They say Southwest and JetBlue do the best job.  All of this comes as the number of people flying continues to climb, hitting almost a billion travelers this year.

And many deciding to book a trip because airfares remain relatively low.  
Right now, the average domestic round-trip ticket is just under $240, according to the airfare website Hopper, and it`s not expected to go much higher.  A huge factor in many travelers saying they are happier than ever to take a flight.  

HERERA:  And start-ups are using artificial intelligence to see if that technology can improve baggage screening at airports and as Aditi Roy reports, it`s catching the attention of the innovation task force at San Jose International Airport.  

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A bag is flagged by airport security machines for containing a threat.  It turns out to be a knife, but this isn`t just a regular bag and this isn`t an airport.  The space is a lab and the bag and knife are among the dozens of props used by Synapse, a venture capital-backed company started by Stanford University business student Ian Cinnamon.
The company has produced software to make traditional X-ray machines smarter by incorporating artificial intelligence or A.I. into the scanners.  

IAN CINNAMON, SYNAPSE TECHNOLOGY CORP. PRESIDENT:  The beautiful thing about artificial intelligence is it`s modeled after the human brain.  
ROY:  Cinnamon says an extra machine outfitted with A.I. to catch threats has advantages over human operators.  

CINNAMON:  The difference, though, is the A.I. algorithms, they don`t get tired.  They don`t fatigue and they don`t have any biases, and they continue to learn time and time again.  
ROY:  We decided to see for ourselves.  Cinnamon and its co-founder ran bags through their machines, and I looked at the scan to see if I noticed anything suspicious.  I did.  
Is that something in there?  
And time and time again —  

CINNAMON:  So, that looks like it`s a component of the laptop itself.  
ROY:  I was wrong.  

CINNAMON:  There was actually a knife in this bag.  
ROY:  Oh, I missed that.  

But each time, the Synapse-powered machines caught the threats.  
The A.I. beat me again.
Cinnamon believes that the company`s machines when used in conjunction with human operators are twice as accurate as traditional TSA X-ray machines.  He adds that the A.I. powered machines are better at detecting bullets more accurately, which is key to curbing 3D printed guns, which are made of plastic and are often overlooked by scanners.  Since last fall, the TSA has been using Synapse technology in a demonstration at Silicon Valley San Jose International Airport as part of its innovation task force.  

LORIE DANKERS, TSA PUBLIC AFFAIRS:  We like bringing these other partners into this equation because they have solutions that maybe we hadn`t thought of that we can test and we can bring those into a live environment.  

ROY:  Synapse is also working with two airports in Japan and eyeing other venues which use X-ray scanners from stadiums to schools.  

CINNAMON:  We see our system already at the point where we can automate the detection of firearms, when we could be installing one of these boxes with having to worry about the cost to actually operate it and run it.  

ROY:  When we asked Cinnamon about whether the technology takes up human jobs, he says it frees up security officers to perform higher-level tasks like interacting with people to preempt threats.
For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Jose, California.  

GRIFFETH:  Abercrombie & Fitch (NYSE:ANF) is closing more stores and that`s where we begin tonight`s “Market Focus”, with the apparel retailer planning to shut three of its largest stores and instead open smaller format locations.  The company also reported weaker than expected same-store sales and it issued soft guidance and shares plunged more than 26 percent as a result today to $18.39.  

Capri, that company formerly known as Michael Kors, reported better than expected earnings and revenue.  But the luxury retailer did trim its full-year sales forecasts, thanks to costs linked to its $2 billion acquisition of Versace.  The stock fell about 10 percent today to $35.06.  

Then, there`s Canada Goose.  They got plucked as the apparel company missed revenue expectations.  The luxury coat retailer expects slower sales growth in the coming years.  Canada Goose has been shifting its strategy in sales and it historically sold its products through wholesalers, but it`s now opening its own shops.  Today`s news, though, was not well-received, down more than 30 percent to $33.89.  

HERERA:  Dick`s Sporting Goods (NYSE:DKS) stores surpassed Wall Street`s expectations and beat revenue forecasts, as well.  The company saw an increase in their online sales and plans to invest in its digital platform for customers.  It also raised its full-year outlook that the stock got caught up on the bad news from other retailers to finish the day down nearly 6 -percent at $33.67.  

Cypress Semiconductor (NASDAQ:CY) is reportedly considering a potential sale.  According to Bloomberg, the chipmaker received takeover interest and is working with advisers.  No financial decision has been made and the company could opt to remain independent.  Shares jump 12 percent to $17.25.  

After the bell, PVH Corporation reported mixed results, beating earnings expectations but falling short of revenue estimates.  The apparel maker saw its Tommy Hilfiger and Calvin Klein brands miss their sales targets.  The company also gave weak guidance.  The stock initially dropped in after-hours trading, it closed the regular session down more than 6 percent to $99.25. 

GRIFFETH:  Coming up, getting the most out of your 529 college savings plan, especially as the market crumbles.  

GRIFFETH:  Here`s what we`re watching for tomorrow. 
Facebook (NASDAQ:FB) hosts its shareholder meeting, which includes proposals to rein in CEO Mark Zuckerberg`s power.  Pending home sales for the month of April will give investors more information on the spring housing season, and Uber is scheduled to report its first quarterly results as a publicly traded company.  That should be interesting.  That`s coming up tomorrow, Thursday.  

HERERA:  Lower mortgage rates are not necessarily enticing homebuyers.  According to the Mortgage Bankers Association, total mortgage application volume fell more than 3 percent last week.  Applications have now fallen for three straight weeks.  The average rate on the 30-year fix is now 4.3 percent.  

GRIFFETH:  Well, here it is, May 29th.  You know, 5/29, a day that has come to be devoted to understanding and encouraging savings for college using those 529 plans.  And today, Vermont said it`s making one step further, it`s giving every baby born today $100 in a 529 account, because it says the ideal time to start saving is between birth and age five.  

HERERA:  But saving for college remains a struggle for many and it can be intimidating in a volatile market like the one we`re in right now.  
So, we asked senior personal finance correspondent Sharon Epperson to join us once again tonight.  
Great to see you, Sharon.  


HERERA:  So, how are parents doing in handling the 529 and how well do they understand them?  

EPPERSON:  Well, it`s interesting on this special 529 day, how few people actually even know what a 529 plan is.  In fact, Edward Jones did a study and said seven out of ten Americans could not correctly find it as an education savings tool, and more than a third of parents who have children under age 18 are not doing anything to pay for their college education.  


EPPERSON:  Those who are, about 11 percent, are saving about $5,000 a year or less.  


GRIFFETH:  How about some benefits and drawbacks for those 529s?  

EPPERSON:  Well, the benefits are that you put that money in and it grows tax-free.  You are putting in after-tax money and it grows tax-free.  When you take it out, you don`t pay taxes on it, to pay for your child`s education, as long as it`s for those qualified expenses.  Also, many of the funds that are in the 529 plan are target day funds, based on a child`s age, and they will get more conservative as you get closer to them going to college.  
So, in a volatile market like this, if your child is about to go to college in an age-based plan, you shouldn`t have to worry as much.  

HERERA:  You know, one of the issues is that so many of these plants are different depending on which state you design to invest in and you don`t have to invest in your own state.  So, are there common misconceptions about 529s?  

EPPERSON:  Well, there`s a lot of confusion.  That`s one of them.  A lot of people, you know, in terms of the drawbacks, a lot of people are concerned about the fees and stuff associated with these plans, not sure of the right thing to do.  

But also, some believe you just have to use it for college.  That`s all you can use it for.  Of course, now, in the last year, we`ve been able to use 529 plans for private school education for K-through-12, for certain expenses.  You may not get the tax breaks that many 529 plans offer, with paying for the private education, you have to check with your state to make sure you get that break, but that`s something to consider.  

And then people think, if I don`t use this money, I`m going to lose.  But if my child doesn`t go to college or gets a full scholarship which we all dream for, right?  
But you can change it to another friend, family member or yourself.  So, you want to go to graduate school?  Use a 529 plan.  

HERERA:  That is why we have you here.  Thank you, Sharon.

GRIFFETH:  Thanks, Sharon.

HERERA:  Sharon Epperson.  

GRIFETH:  Before we go, one final look at the day on Wall Street.  Yes, it was another of those days.  The Dow fell 221 points, had been down more than 400.  The Nasdaq was down 60.  The S&P was down 19.  

HERERA:  And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks for joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have a great evening.  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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