Transcript: Nightly Business Report – May 30, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Slide snapped.  Stocks rise  after a deep rout, living some investors to wonder if the market is due for  a bounce.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Housing hope.  Mortgage  rates fall below 4 percent for the first time since last year.  But is it  enough to spark a revival in real estate.

HERERA:  Walk in the park.  But will the force be with Disney`s billion  dollar investment?
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, May  30th.

GRIFFETH:  And we do bid you a good evening, everybody, and welcome.  
A relative calm fell over Wall Street today after several volatile  sessions.  Bond yields stabilized following a recent decline sparked by  fears of global growth slowdown.  But those concerns while still there took  a backseat today at least during the trading session.  The result was very  modest gains for the major averages, the Dow Industrials rose just 43  points for 25,169, the Nasdaq was up 20, the S&P added five.  
Now while these gains were small, some investors are wondering if they are  poised to turn into bigger ones?  
Mike Santoli starts us off tonight.  

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  After a messy may  market pullback, a more than 5 percent, investors are now watching for  signs of relief in the form of a bounce and the beleaguered stock indexes.   The makings of such a bounce are starting to appear along the technical  sentiment and seasonal front.  The market has begun flashing signals that  it is, quote, oversold, which simply means the indexes and the vast  majority of individual stocks have fallen far below their recent trend and  appears somewhat stretched to the downside.  Though not the severe extremes  of December when the S&P 500 sank 20 percent over three months, the current  readings are in the range of where balances have tended to occur.  

The actions in treasury bonds have been crucial to equities as well, but  the latest rushed lower to a 10-year treasury yield of a 20-month low,  beneath 2.3 percent, raising fears about a global growth and inflation  outlooks, sapping enthusiasm for stocks.  In the same way that stocks have  appeared oversold, treasuries are looking overbought, suggesting any backup  in yields would offer some relief to equities.  

On the sentiment front, surveys of both individual and professional  investors also show increasing pessimism, another ingredient for the reflex  bounce in those indexes.  On the seasonal side, stocks have a very strong  four-month gain to start the year, with the S&P 500 peaking on April 30th  and in such years, May has been often been weak as this one has, but in the  five years when the S&P gained at least 8 percent through April and then  pulled back in May as we have this year, June was up seven of those times  and the average return of a month was less than 2 percent.  

Now, none of this suggests the headwinds that halted the rally a month ago  are about to calm down.  The remains of trade stalemate with China, global  growth appears fragile and the corporate earnings forecast continue to slip  for the coming quarters.  And back in December, the market simply ignored  many similar indicators that are now evident today of a coming bounce, and  they kept falling into a scary selling crescendo on Christmas Eve.  

Still, the rhythms of the market often allow for a short-term relief in the  form of a bounce, even in a heavily stress tape, whether that leads to a  full recovery or just a temporary reprieve.  

HERERA:  Corporations bought a record $1 trillion of their own shares last  year and buybacks have been a driver of the bull market for the past  decade, with both stocks and buybacks trending higher.  But a new report  from Net Davis Research says buybacks have been slowing down.  In fact,  some companies have been selling their shares.  
So, what does that mean for the broader market?  
Joining us tonight is Eric Marshall, portfolio manager at the Hodges Funds.  
Nice to have you here, Eric.  Welcome.  


HERERA:  You have a few reasons why you think this is going on, but  uncertainty is one of the main reasons.  What type of uncertainty?  

MARSHALL:  Well, I think as companies become more uncertain about the  economy and interest rates, what`s going on with global trade, they`re more  likely to take their cash flow and use it to pay down debt or stockpile it  because they don`t know what the certainty of that cash flow is going to  look like in the future.  When they`re more certain, they`re more likely to  return it to shareholders in the form of dividends or buyback programs or  re-invest in the business.  

GRIFFETH:  Now, as we showed, there`s been a correlation for the last  decade of the buybacks increasing and the market going up at the same time.   If this slowdown continues of buybacks, what do you think happens to the  stock market?  

MARSHALL:  Well, I think that buybacks have really provided an incremental  buying of stocks at a time when there are fewer and fewer fundamental value  investors out there because more and more money is going into passive ETFs.   So, in the event that they slow down, it would be a negative.  However, I  think what we`ve seen in the last couple of months has been a slowdown, but  I wouldn`t be too worried about it unless it really continues for an  extended period of time.  I think last year buybacks were up about 50  percent.  

GRIFFETH:  Right.  

MARSHALL:  From the previous year.  It`s probably not going to increase 50  percent this year, but we could buy back as much as we did in 2018, and  it`s still relatively early in the year.  

HERERA:  All right.  On that note, Eric Marshall with the Hodges Funds,  thanks so much.  

MARSHALL:  Thank you.  

GRIFFETH:  It turns out the economy grew slightly more than expected to  start the year.  According to the Commerce Department, gross domestic  product which is the broadest measure of economic activity, that rose by  3.1 percent in the first quarter, alleviating some concerns of a potential  recession.  But the Fed`s vice chair said today that if the growth outlook  weakens, the central bank would consider an interest rate cut.  

Richard Clarida added that the economy is in a good place and that the  level of interest rates is appropriate.  

HERERA:  Most economists agree that a prolonged trade war between the U.S.  and China is a risk to economic growth, but today, President Trump said  China wants to make a deal.  

DONALD TRUMP, PRESIDENT OF THE UNITED STATES:  The tariffs are having a  devastating effect on China.  People are fleeing the country with their  companies.  These companies are leaving for Vietnam, other parts of Asia,  and they`re even coming to the United States because then there are no  tariffs.  I think we`re doing very well with China.  We`ll see what  happens.  

HERERA:  Those comments follow reports that China has halted purchases of  American soybeans.  Earlier this year, the agricultural secretary said  China pledged to buy an additional 10 million tons of the crop.  

GRIFFETH:  And a new front has opened in the trade war, rare earth  minerals.  China has now threatened to restrict them which could have big  implications for corporate America and for our national security.  
So, what are these minerals and why are they so important?  

GRIFFETH:  Rare earth minerals power most electronic devices.  They`re used  in smartphone, computer, flat screen TVs, even hybrid cars, but they`re  also important to our national defense.  They`re in military equipment,  satellites, jet engines and radar and sonar systems.  
Despite the name, rare earth minerals are actually quite common, even here  in the United States, but the mining process is not environmentally- friendly.  Stringent environmental regulations forced the closure of rare  earth mines here in the U.S., which is why China now accounts for roughly  90 percent of the global supply and that is its most powerful bargaining  chip in this trade war.  

The only U.S. mine is in Mountain Pass, California, but the mineral`s mine  there must still be refined and right now, the only refineries in the world  are in, you guessed it, China.  And starting June 1st, the mine shipments  to China for refining will be hit with a 25 percent tariff which will mean  higher costs for U.S. companies and higher prices for their customers.  

GRIFFETH:  By the way, that mine in California is building its own refining  operation, and hopes to have it in operation by next year which would  sharply reduce its dependence on China.  
And there is a new development this evening in another trade story tonight.   The White House is taking a formal step to kick-start the approval of the  USMCA, setting up for a vote over the summer.  
HERERA:  And now to housing and another disappointing read on the spring  market, but there could be some unexpected hope.  
Diana Olick explains.  

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Potential homebuyers  out shopping in April should have had a lot of incentive to sign deals.   Low mortgage rates and cooling prices, but they didn`t.  Signed contracts  to buy existing homes fell unexpectedly compared to March and were lower  than April of last year.  That`s the 16th straight month of annual  declines.  

While they were shopping, the average rate on the 30-year fixed was  relatively unchanged, in the low 4 percent range, down from over 5 percent  last fall.  Home prices were still higher than a year ago, but the gains  were smaller.  Both are a double-edged sword.  

DOUG DUNCAN, FANNIE MAE CHIEF ECONOMIST:  House prices have been slowing so  they don`t want to step in if they think there might be an outright  decline.  They don`t want to catch a falling knife, so to speak, but if  they think rates are going to be down for a while, they may say, well, I`m  just going to wait until a house that actually fits my profile is available  because rates don`t seem to be going anywhere.  

OLICK:  Rates actually went even lower in May and this week fell to the  lowest level in a year and a half, 3.99 percent, according to Freddie Mac.  
The trouble is there are too few lower priced homes for sale.  Supply is  plentiful on the high end and tight on the low end.  

DUNCAN:  Even if you can get credit on a low interest rate, if you can`t  find a house that fits your financial profile, there`s not much you can do.  

OLICK:  Even a move up market is tight as more baby boomers age in place  and don`t put their homes up for sale, and high end homes are now sitting  on the market longer, as sellers come to grips with the new realities that  is new expectations for prices.  

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.  

HERERA:  And later in the program, with mortgage rates below 4 percent, are  rates on other loans falling, as well?  And is now a good time to borrow?   We`ll explore that just ahead.  

GRIFFETH:  In the meantime, time to take a look at some of today`s  “Upgrades and Downgrades”.

Verizon (NYSE:VZ) was downgraded today to neutral from buy at UBS.  The  analyst says that he`s skeptical of the new 5G technology will lift that  stock in the near term given the rather slow rollout.  Price target: $59.   The stock fell 2 percent today to $56.83.  

Teva was downgraded from underperform to buy from Bank of America  (NYSE:BAC) Merrill Lynch.  The analyst there cited the generic drugmaker`s  exposure to all of the opioid litigation currently under way.  The price  target $9, and shares finished just under that level at $8.84.  

HERERA:  Citigroup (NYSE:C) was upgraded to buy from neutral at Goldman  Sachs (NYSE:GS).  The analyst says city can grow revenues and increase  returns without interest rate hikes.  The price target is $77, but the  stock fell a fraction to $63.61.  

Comcast (NASDAQ:CMCSA) (NYSE:CCS) was upgraded to buy from neutral at  Guggenheim.  The analyst says broadband subscriber gains will help margins  improve.  The price target is $52.  The stock fell a fraction to $49.47.   As you probably know, Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent  company of CNBC which produces this program.  

GRIFFETH:  Still ahead, are you covered?  As hurricane season approaches,  insurance rates are climbing.  

HERERA:  Uber lost more than a billion dollars in its first report since  going public, but that lost was right in line with expectations,  underscoring the challenges the ride-hailing company faces to one day turn  a profit.  The good news: revenues rose 20 percent.  The stock was volatile  in after-hours trading.
Deirdre Bosa has more on Uber`s results.  

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Uber is so far from  being profitable.  The company continues to lose money as it spends big to  battle competitors around the world in both ride-sharing and food delivery.   It lost a billion dollars in the first three months of the year.  
Now, this call also marks CEO Dara Khosrowshahi`s first analyst call with  shares still trading below their initial public offering price.  He has to  reassure investors of Uber`s long-term vision and its path to  profitability.  
Uber`s cash burn is unlikely to end any time soon.  CFO Nelson Chai says  that Uber will not hesitate to defend its market position.  But on the  bright side, he has noticed less aggressive pricing by competitors.  
For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa, San Francisco.  

GRIFFETH:  United Airlines CEO today stressed that the Boeing (NYSE:BA) 737  MAX plane will be put back into the air when it`s safe to do so, and that`s  — there`s no exact timetable either.  

OSCAR MUNOZ, UNITED AIRLINES CEO:  We from an operational perspective  staying a couple of months out.  So, we pushed it to August — August 4th I  believe specifically.  So, we`ll continue to monitor, see what the process  goes through and when we think it`s safe to fly, we will be incredibly  communicative to our customers and transparent when the flight comes back  and those aircraft, I think you`ve heard I pledge to be on the first one.   It`s just one of many things that we`ll make sure that we reassure our  customers that it`s safe to fly.  

GRIFFETH:  And United Airlines has said it will not charge passengers for  switching flights if they`re willing to fly on that 737 MAX jet.  

HERERA:  Hurricane season officially kicks off this weekend and given the  pickup in wild weather across the country, businesses and residents who are  looking for insurance may have to brace for some tough news.  
Contessa Brewer reports.  

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A massive tornado  swept through Linwood, Kansas, this week.  

SHARON LESEMAN, RESIDENT:  We heard there was a deck out there and the deck  went and you could hear the bricks falling.  
BREWER:  It`s one of more than 1,000 tornados to hit the nation this year  according to the national weather service.  30 percent more than a typical  spring.  

RICK ATTEBERY, RESIDENT:  We contacted the insurance companies this  morning.  You know, they`re overwhelmed and we`re at their mercy right now  before we can do too much.  

BREWER:  Big insurers, State Farm, Chubb (NYSE:CB), Progressive (NYSE:PGR),  AIG, MetLife (NYSE:MET) and others all have exposure to the catastrophe  losses from this spring`s severe weather.  Late-season snowstorms and  massive snowmelts, hail, wind, and the flooding.  
So much water across farm fields and historic towns, flooding even closed  locks on the Mississippi River and shut them to commercial barge traffic.   And now, the start of hurricane season.  

The National Oceanic and Atmospheric Association or NOAA, predicts as many  as 15 named storms this year, two to four of which could be major  hurricanes.  If the forecasts are accurate, that would be a near-normal  season.  The Insurance Information Institute says homeowners who live in  areas that have been hit by hurricanes in the last couple of years are  likely to see their insurance rates go up, and specialty wind storm  insurance rates are rising by 10 percent to 20 percent according to  industry experts.  

Businesses and homeowners who don`t already have insurance may find  themselves in a tough spot.  The National Flood Insurance Program is  scheduled to expire tomorrow.  A disaster bill continues to have language  to extend it and that bill has been stuck in Congress.  Regardless, trade  group American Property Casual Insurance says it`s crucial, Congress tackle  long-term re-authorization, rather than face frequent lapses.  
CEO David Sampson says thousands of living in flood zone properties are at  risk for either not being able to buy or sell a home.  Thousands more will  be prevented for purchasing or renewing flood insurance through the  National Flood Insurance Program.

All of that makes a challenge protecting what for most Americans are their  most valuable asset, their homes, very difficult, right before hurricane  season starts Saturday.  
For NIGHTLY BUSINESS REPORT, I`m Contessa Brewer.  

HERERA:  And late word tonight, the House just passed a two-week extension  of the National Flood Insurance Program, but Republicans blocked the vote  on a disaster aid bill which would provide a longer extension.  

GRIFFETH:  More folks are shopping at Dollar General (NYSE:DG) and that`s  where we begin tonight`s “Market Focus”, with the discount retail chain  reporting earnings and revenue that surpassed analyst expectations.  The  company said customers spent more on groceries, on seasonal products and  home goods.  The stock today rose more than 7 percent to $127 even.  That  is a new all-time high.  

Another discount retail store, Dollar Tree (NASDAQ:DLTR), reported better  than expected revenue.  The company is also testing an expanded pricing  strategy that includes selling products that cost more than $1.  But  tariffs are clouding the company`s outlook.  Dollar Tree (NASDAQ:DLTR) cut  its earnings forecast for the year and shares were up more than 3 percent  today to $98.31.  

Gannett (NYSE:GCI) is reportedly in merger talks with Gatehouse Media.   According to “The Wall Street Journal,” the tie up would help both  companies trim costs and bring together the two largest newspaper groups in  the country.  Shares of Gannett (NYSE:GCI) were up more than 1.5 percent to  $7.75.  

HERERA:  FedEx (NYSE:FDX) will now deliver packages seven days a week  starting next year.  The company`s president says he believes that this  will help the company serve the fast-growing e-commerce market.  

RAJ SUBRAMANIAM, FEDEX PRESIDENT:  Customers are increasingly ordering  online seven days a week and our online e-commerce merchants are demanding  a seven-day service.  So, we are now leveraging our existing infrastructure  to now turn on this new service starting in January.  Now, combine that  with the fact that we are improving our delivery density by bringing in  more packages in-house.  

HERERA:  The stock fell nearly 1 percent to $158.01.
Occidental Petroleum (NYSE:OXY) is being sued by billionaire investor Carl  Icahn.  Icahn alleges that Occidental paid too much money for Anadarko  petroleum and calls the $38 billion deal, quote, fundamentally misguided.   Icahn may call a special shareholders meeting to remove and replace  directors.  Shares today were down a fraction to $51.91.  

After the bell, Costco (NASDAQ:COST) reported better than expected earnings  and revenue.  The wholesale store saw a growth in its online business and  rise in membership fees.  The stock was volatile in after-hours trading.   It closed the regular session up a fraction to $241.54.  

Also after the bell, the Gap (NYSE:GPS) cut its full-year earnings forecast  and reported weak same-store sales.  Sales at Gap`s namesake stores fell 10  percent in the quarter and even Old Navy which had been a bright spot  posted a surprise drop in same-store sales.  The stocks fell sharply in  after-hours trading.  It closed the regular session down 1 percent to  $20.60.  

GRIFFETH:  As we have been reporting, the yield on the 10-year Treasury  note has fallen to levels we have not seen since September of 2017.  Now,  that means lower mortgage and auto loan rates and a renewed interest in  personal loans.  

Joining us to talk about all of that tonight is Greg McBride, chief  financial analyst at Bankrate.  

Greg, good to see you.  And thanks for joining us tonight.  


GRIFFETH:  Personal loans, they`ve become more popular in part because of  the lower rates, but also tax changes have made them more attractive as  well, right?  

MCBRIDE:  Yes, on a relative basis.  You know, the tax law really changed  the deductability of interest on home equity loans and so, people that are  looking at, you know, having to put a new roof on, they need $10,000,  $20,000, $30,000 and they need it quick.  Personal loans have become an  attractive way to do that because you can apply online and have the money  deposited in your account within 48 hours, that the people with good  credit, they`re finding rates that are comparable to what they would  otherwise get on a home equity loan and without the appraisal waiting 30  days and have your closing and then a three-day rescission period before  the funds are disbursed.  On relative basis, the personal loans really  stand out.  

HERERA:  But this is a low interest rate environment.  What if that starts  to change?  

MCBRIDE:  Yes, I think the real risk here, Sue, is that, you know, when the  economy slows, we are going to see delinquencies and defaults really  surging on unsecured debt, credit cards and personal loans, particularly  those that were made to consumers with marginal or weak credit.  You know,  for now, there`s a lot of competition among lenders primarily for the  consumer who has really strong credits.  Those are the borrowers that can  get rates in the mid and single digits.  For borrowers that are riskier,  we`re already seeing lenders pull back a little bit. 

GRIFFETH:  Who are the lenders?  I mean, if I want to get a home equity  loan, I go back to the mortgage company.  Where do I get the personal loan?   Do you go to a bank or where do I go?  

MCBRIDE:  You know, this is a product that banks have long offered, but  they really didn`t focus on.  You know, some banks that even own finance  companies long ago shuttered those.  And so, what we`re seeing is a lot of  what you might call fintechs that have come into the space, you know,  people like SoFi and Avant, you know, entities like that they`re not  necessarily banks, but with the advent of technology, they`ve developed a  way to get money in people`s hands very quickly and very easily.  

HERERA:  And these are generally shorter term loans than, say, a typical  home equity, correct?  

MCBRIDE:  Yes.  A lot of this is going to depend on now much you borrow.   But, you know, generally, these are three to five year loans, maybe a  little bit more if you`re borrowing more money.  But that`s also why we`re  not seeing the rate comes down like we are, say, with mortgage rates over  the last few weeks, the long-term rates plunging.  That`s brought mortgage  rates down to the lowest levels since 2017, not the case with the personal  loans because they`re more closely tied to short-term rates.  

GRIFFETH:  Greg McBride with Bankrate — again, thanks for joining us  tonight, Greg.  

MCBRIDE:  Thanks for having me.  

HERERA:  Coming up, will the force be with Disney (NYSE:DIS) and its big  theme park investment?  

GRIFFETH:  Disney (NYSE:DIS), of course, has long dominated the theme park  business and now the company is expanding its footprint with Star Wars- themed attractions in California, representing the largest single expansion  in that park`s history.  But it comes at a time of increasing competition.  

Julia Boorstin takes us to a land not so far away in Anaheim.  

UNIDENTIFIED MALE:  Let`s see some identification.  

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Star Wars: Galaxy`s  Edge is Disney`s $1 billion 14-acre theme land, expanding its California  park.  It opens to the public Friday with another similar land opening in  Orlando at the end of August.  

BOB IGER, DISNEY CHAIRMAN & CEO:  Star Wars is an immensely popular party  and giving people who visited our parks, who have thought about visiting  our parks a chance to immerse themselves in Star Wars on a grand scale, in  a much richer, deeper way is a big deal, and I think it will be extremely  positive for the division of the company, and for Star Wars, too.  I think  it will lift the entire franchise of Star Wars.  

BOORSTIN:  Technology is incorporated throughout the land, including the  ability for visitors to program droids around the park on a smartphone,  with an app that unlocks extra content, and a mobile game you can play  throughout the space.  

This is the main hold of the Millennium Falcon.  It`s the centerpiece of  the main attraction here at Star Wars: Galaxy Edge, a ride called  Smuggler`s Run, and even this space here is entirely high tech and  interactive, so there will be special effects like this one — inspiring  visitors to come and play along.  

Disney (NYSE:DIS) raising prices ahead of the debut of this new expansion.   Parks chief Bob Chapeck saying they haven`t seen anything negative impact  on attendance.  

BOB CHAPECK, DISNEY PARKS CHAIRMAN:  Bookings are very, very strong.  We  are trying to manage our demand, if you will.  We are in a fortunate  position that we probably have a lot more demand than we have supply, even  in a brand new land which is expected to be to capacity.  

BOORSTIN:  This is just one of a range of new attractions based on  established franchises opening this year at other parks, Lego Movie World  open in Florida in March, Nickelodeon Universe is opening in New Jersey in  the fall, and Lionsgate Entertainment World is set to launch this summer in  China.  

Perhaps the best comparison to Disney`s big bet on Star Wars, Universal  (NYSE:UVV) Studio`s Wizarding World of Harry Potter Land which has  bolstered NBC Universal`s park division.  The six-acre one in Hollywood  which opened in 2016 with two rides costs a reported $500 million to  create, and universal is adding another Harry Potter-themed ride this  summer to the three it already has at its Orlando Parks.  

All of these companies are looking to get a bigger piece of the growing  theme park business, with the industry projected to hit $20 billion in  revenue in the U.S. alone this year.  
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Anaheim, California.  

HERERA:  And before we go, here`s a look at the final numbers from Wall  Street.  The Dow rose 43 points, the Nasdaq was up 20, and the S&P 500  added five.  

And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera, thanks  for joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have a good 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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