Transcript: Nightly Business Report – May 31, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Go away, May.  Stocks post their first monthly decline of the year after the White House threatens to impose new tariffs on one of our most important trading partners.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Hitting the brakes.  Why the auto industry could be a casualty of the Trump administration`s new trade fight with Mexico.  

GRIFFETH:  Looking for safety.  Our market monitor has some stock picks he says can weather this latest storm.  

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this Friday, May the 31st.  

HERERA:  Good evening, everyone, and welcome.  

Stocks fell sharply capping a brutal month for the market.  Today`s 
declines were driven by trade tensions not between the U.S. and China, but 
with Mexico and that`s where we begin tonight.  

President Trump rattled investors worldwide with a tweet threatening 
tariffs on Mexican imports beginning June 10th.  The tariffs would start at 
5 percent, potentially rising to 25 percent.  The president said they would 
be in place until illegal immigration across the southern border was 
stopped.  That surprise threat sent stocks sliding.  

The Dow Jones Industrial Average fell 324 points to fall below 25,000.  The 
Nasdaq was down 114 and the S&P 500 slid 36.  

Kayla Tausche reports tonight from the White House.  


KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A frustrated President Trump took to Twitter to announce new tariffs on Mexico as a tool to crack down on border crossings.  The president pushing forward with this strategy with a green light with the top White House attorney, despite what sources say were objections from his top trade officials, Ambassador Robert Lighthizer and Treasury Secretary Steven Mnuchin.  

White House trade adviser Peter Navarro suggested Mexico could step up 
before the tariffs go into effect on June 10th.  

PETER NAVARRO, WHITE HOUSE TRADE ADVISER:  I would suggest to investors to look at this calmly, look at what we`re trying to do.  This is actually a brilliant move by the president to get Mexico`s attention, to get them to help us.  

TAUSCHE:  Mexico`s President Lopez Obrador says the U.S. shouldn`t solve 
problems with taxes and Mexico`s foreign minister flew to D.C. for 
negotiations with U.S. officials.  But key lawmakers on Capitol Hill were 
critical of the move.  Senate Finance Committee Chairman Chuck Grassley 
called it a misuse of authority and one that would seriously jeopardize 
passage of the new trade agreement between the U.S., Canada and Mexico.  

It could also have broader consequences for U.S. trade relationships.  

JORGE GUAJARDO, FORMER MEXICAN AMBASSADOR:  Basically, Mexico and China compete.  When Mexico wins, China loses.  When China wins, Mexico loses. China won yesterday, and the one who won the most is President Xi Jinping.  

TAUSCHE:  President Trump`s February declaration of a national emergency at the southern border has been tied up in a protracted court battle and a similar challenge could await this order.  The U.S. Chamber of Commerce, one of the leading business groups here in the U.S. has said since finding out about these proposed tariffs, it has been working non-stop to explore potential legal options.  

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.  


HERERA:  And there is late word tonight that Secretary of State Mike Pompeo and Mexico`s foreign minister will meet in Washington on Wednesday.  

GRIFFETH:  Clearly, the U.S. and Mexico have strong economic ties and it 
has been one of our largest trading partners for years.  Imports from that 
country totaled $437 billion just last year alone and the major goods that 
come across the border include autos, computers, oil and vegetables.  

HERERA:  And that is why shares of Fiat Chrysler, General Motors and Ford 
all fell during today`s session.  Fifteen percent of the cars and trucks 
sold in the U.S. come from Mexico and if a tariff goes into effect, 
automakers will be faced with no good choices.  

Phil LeBeau has more.  


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  When GM decided to build the new Chevy Blazer in Mexico, it seemed like a no-brainer.  After all, Mexico has lower labor costs than the U.S., driving strong profit margins for in-demand models like SUVs.  But Blazers from south of the border will not be as profitable if GM has to pay 5 percent for every one 
it brings into the U.S.  

So what should the automaker do?  

President Trump tweeted: In order not to pay tariffs, if they start rising, 
companies will leave Mexico, which has taken 30 percent of the industry and come back to the USA.  

Don`t expect that to happen.  The number of Mexican-made autos imported to the U.S. hit almost 2.7 million last year and almost all coming from 
multibillion-dollar plants that have been locked in place for years.  

KRISTIN DZICZEK, CENTER FOR AUTOMOTIVE RESEARCH:  Largely, these decisions predate Donald Trump and that plant will be in place for 30 or 40 years, so it will long outlive him as well.  

LEBEAU:  So if as trains bring millions of cars into the U.S., should 
automakers simply pay the 5 percent tax which would kill profit margins or do they pass it along to the customer in the form of higher prices which 
would hurt sales?  And how would car buyers react if prices jump by hundred of dollars?

THASUNDA DUCKETT, JPMORGAN CHASE:  I think for consumers, it`s about what their monthly payment is when you think about their affordability.  And so, you know, what they can pass on and what they can`t — I mean, we`ll see.  

LEBEAU:  For now, the auto industry`s trade association says tariffs would 
not be good for business.  As for individual automakers, they`re not 
commenting specifically about the president`s tariff threat, but they`ve 
been down this road before with President Trump and they`re hoping that 
this time the president does not follow through and institute a tariff. 



GRIFFETH:  And it`s not just the automakers and the companies that 
transport goods across the border like the railroads and the truckers, they 
also had a rough day today and the concern there is that a heightened 
dispute with Mexico could further dampen volumes.  They`ve been already hit by the trade war with China.  

Frank Holland has that part of the story for us.  


FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Eighty-five percent of nearly $350 billion of goods imported from Mexico into the U.S. last year came in on trucks and on trains and those industries.  Expect to see a major impact if tariffs go into effect on June 10th.  

AMIT MEHROTRA, DEUTSCHE BANK:  Well, if they`re put into place, there are significant implications.  Mexico is about $350 billion of goods that come up north from Mexico into the U.S., most of that gets put into a rail or a truck.  And so, the implications for the transportation sector, vis-a-vis 
freight close, frankly are extremely negative.  

HOLLAND:  The biggest impact today, the rails that operate on the West 
Coast.  Kansas City Southern has a large operation in Mexico.  Citibank 
says about 16 percent of its revenues could be at risk.

Union Pacific says 5.5 percent of its overall volume goes from Mexico to 
the U.S. and trucking is expected to see the biggest impact.  

MEHROTRA:  Trucking rates are directly related to the supply and demand, 
the delay supply and demand indicators of the trucking industry and given 
cross-border Mexico volumes are a significant absorber of capacity to the 
extent that volumes are impacted by these tariffs, or escalating tariffs, 
that would be negative for trucking and trucking rates for sure.  

HOLLAND:  Those rates have fallen 18 percent since last April, and that`s 
largely because of the trade war with China and how it slashed U.S. exports 
cutting on the goods that truckers are hauling.  Analysts say, another set 
of tariffs could put smaller operators out of business.  



HERERA:  Following this new tariff threat, some of Wall Street`s major 
banks are reassessing their outlook for interest rates.  JPMorgan is 
calling for the Fed to cut rates twice by December.  Barclays sees the Fed 
cutting rates a total of 0.75 percent by the end of the year.  

GRIFFETH:  And Chinese leaders are watching closer to see how this terror 
threat tariff threat with Mexico plays out.  

Eunice Yoon explains why from Beijing.  


EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Today, the Chinese foreign ministry pointed out that President Trump`s latest tariff threat on Mexico merely shows that no country is safe from what it described as the U.S.`s bullying policies.  The ministry said China is not the only victim.  

President Trump`s latest threat against Mexico helps Beijing push its 
narrative that China is a stable leader compared to Washington and China is also likely pleased because they had been wary because of the USMCA, that the U.S. would use a clause to undermine Beijing`s own trade relations with Canada and Mexico.  The clause is aimed at limiting ties with the three 
countries` economies considered non-market.  

In addition, Mexico had been seen as a winner in the U.S.-China trade war.  
American companies have been talking about shifting production from here to there with tariffs on Chinese goods so high.  

As for the trade talks, President Trump`s announcement probably won`t 
instill confidence among China`s negotiators, but a trade deal with the 
U.S. would stick.  A former Central Bank chief who remained influential 
here told a seminar in Beijing today that he didn`t expect to see any major 
progress even if Presidents Trump and Xi meet at the G20.  Instead, 
President Trump`s threats against Mexico will only likely reaffirm what 
appears to be China`s current strategy, to wait things out.  

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.  


HERERA:  China may be getting ready to retaliate against the U.S.`s de 
facto Huawei ban.  The government is creating an unreliable entities list 
of foreign companies and people that it believes interfere with Chinese 
businesses.  The names were not revealed nor did China say how it would 
punish those on the list.  

As you know, tariffs on $60 billion in U.S. goods in retaliation for the 
higher duties on $200 billion worth of Chinese products will kick in 

GRIFFETH:  Well, the U.S.-China trade war may be a taking a toll on the 
Chinese economy.  Factory activity in that country has weakened more than expected.  The latest government report says that new orders fell in May 
for the first time in four months and export orders declined for the 12th 
straight month.  

HERERA:  A new report from Deutsche Bank says the trade war so far has cost the U.S. stock market $5 trillion in foregone equity returns.  The report 
explains that the tariff battle prevented a recovery in global growth and 
is keeping equities range-bound.  

GRIFFETH:  Time to take a look at some of today`s “Upgrades and 
Downgrades”.  Actually, a couple of downgrades to tell you about.  

Uber was upgraded to overweight from neutral at Atlantic Equities.  The 
analyst cited an improving, competitive landscape in that business.  Price 
target: $52.  That stock rose 1-1/2 percent to $40.41.  

And Kraft Heinz was upgraded to neutral from underweight at Piper Jaffray. The analyst says that many risks appear to be priced in the stock already and he does remain cautious on the company`s outlook overall.  The price target $31.  That stock rose fractionally today to $27.65.  

HERERA:  Still ahead, is it time to play defense when investing in this 


HERERA:  Despite concerns over the economy, consumer spending was solid in April.  According to the Commerce Department, personal consumption 
expenditures, a measure of household spending, increased 0.3 percent.  
Driving all of that spending was a 0.5 percent spending in income, the best 
gain of the year.  Both of these figures were bigger than what economist 
his been expecting.  

GRIFFETH:  And as we mentioned, the three major indexes posted their first monthly declines of 2019 even as volatility indicators spike.  Oil, by the 
way, fell by 16 percent in May.  That was its biggest monthly decline since 

Mike Santoli has been covering the markets for us from the New York Stock 

You know, how much of a surprise was this sell-off?  I mean, the old adage 
is, sell in May and go away.  

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  That`s exactly right, Bill, and I do think we had one of the strongest four-month starts in decades through April.  The S&P 500 up more than 17 percent.  So, I do think some kind of pullback was probably expected by many investors.  

I don`t think the intensity of the decline and the fact that there was no 
relief along the way and every week was down and of course, the tariff news made it about a little bit more than just giving back gains and having flat profits and it became about how the world is going to grow for the rest of this year and to me it reflected in the market as perhaps I expected the 
cut the trade issues.  

GRIFFETH:  Well, the trade issues are still with us.  So, what are you 
hearing with the trade war still in place.  Is the selling expected to 
continue or do you think we`re bottoming out a little bit and ready to 

SANTOLI:  Yes, there are some indicators that say just because it`s been so 
lopsided to the down side in the month of May, perhaps we should be in for 
some relief and what happens is when the market is under pressure, one out of every six stocks in the S&P 500 is below its December low, so there has been a lot of damage below the surface and it takes more bad news to keep the market going lower in that environment.  I do think the issue is 
seasonally, when you`ve had a weak may after a strong four-month start to a year, June tends to be better and seven out of the last nine years in that 
condition you did get a little bit of a bounce.

But I do think it`s important to remember, that the big picture issues are 
still with us and I think the market craved some kind of confirmation that 
the U.S. economy remains resilient to a lot of these threats.  

GRIFFETH:  Very quickly, Mike, what do you make on some of these analysts on Wall Street who are calling for rate cuts before the end of the year?  

SANTOLI:  It seems these economies are kind of capitulating to the message 
of the bond market.  We have not really heard from Fed voices themselves 
that they`re really moving very fast in the direction of considering rate 
cuts in the next few months, but it seems that the market reaction has been 
so relentless that a lot of these economists are saying maybe the bond 
market knows better than we do.  

GRIFFETH:  Mike Santoli at the New York Stock Exchange — have a good 
weekend, Mike.  Thanks.  

SANTOLI:  Thank you, Bill.  

HERERA:  After a day, a week and month like this, you might be thinking of 
investing in defensive sectors which are areas of the market that tend to 
perform better than the broader market during rough patches.  

Dominic Chu plays defense for us.  


DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  With the Trump administration`s decision to pursue a new round of tariffs targeted at Mexico, markets found another reason to move lower.  That has put sectors perceived as relatively more stable into the spotlight yet again.  Stocks and companies tied to things like utilities and household goods have long been seen as being less exposed to extreme bouts of stock market volatility and relative outperformers in times of market stress.  

BRIAN JACOBSEN, WELLS FARGO ASSET MANAGEMENT:  On the equity side, we do think we can experience some sort of rebound from these levels and we don`t have a very high conviction in that and as a result, there`s nothing wrong with defensives like consumer staples, low volatility, high quality equity. So, that`s what we`re advising our portfolios.

CHU:  It seems like a solid game plan in the events of more downside in the 
markets.  But this past week, the utility sector roughly matched the 
decline on the broader market and the consumer staple sector actually fell 
by more than the market.  One reason may lie in the valuation of these more defensive sectors.  Both utilities and consumer staples are valued at more than the overall market, meaning traders and investors have to make a decision about whether buying into defensive sectors is worth it given how much more expensive they are.  



GRIFFETH:  And it`s time for our weekly market monitor who says investors need to be more cautious than in any other time since the financial crisis and he has names for two stocks and an exchange traded fund that he says could help keep your portfolio safe in this environment.

We welcome back, Phil Blancato, who`s CEO of Ladenburg Thalmann`s Asset Management Division.  

Welcome back.  Good to see you.  


GRIFFETH:  At times like this, this is when investors want to buy treasury 
securities, want to buy those shorter dated maturities, and you`ve got an 
exchange-traded fund who does that for them, right?  

BLANCATO:  Yes, we`ve all made a lot of money in the last ten years.  This 
year, it`s still up 10 percent.  So, take some profits and raise your cash 
levels, or put in JPSD, JPMorgan product, paying over 2.3 percent yield 
with it and that means it gets your money back real fast, real high quality 
income, and it lets you wait around, in other words, be paid to wait 
around.  That`s what you want to do when volatilities spike like this.  

HERERA:  You also like Costco.  It has a membership fee scheduled and that 
gives it some recurring revenue, obviously.  But you also like it for other 
things, why?

BLANCATO:  Key reason.  You think about, we`ve talked about already on the show, right now, you kind of want to hunker down.  When you do that, you go focus on consumers.  Why?  Consumers are gainfully employed.  

You mentioned earlier, consumer spending has been pretty robust.

HERERA:  Right.

BLANCATO:  You see it`s up there, right?  So that means the consumer is 
still active.  In that sense, what do they need to buy?  Not what they want 
to buy, what do they need to buy?

Costco at the core of it, where will are we going to defend and keep 
earning money?  It`s in companies that where we`re going to need to buy 
things and that`s Costco.  

GRIFFETH:  And the other one is Walmart.  You like that one.  Is it immune, 
though, to the tariffs?  

BLANCATO:  This one is a little bit more volatile, but here`s what I like 
about Walmart.  They`re going through this massive transformation and I 
think you can get the company free to the liftoff that`s coming.  They`re 
the only company that`s going to directly compete with Amazon, and they 
have committed to go into a digital company and they`ve still got great 
brand recognition.  

So, you still have the need to go to Walmart, still got the strong 
consumer, but at the end, if you can catch this transformation and get it 
right, so a bit of a gamble.  In a long run, they pay a nice dividend and 
get upside to the stock.  

HERERA:  You say next week is going to be critical to the markets because 
we`re going to get some key economic data.  We`re going to get the jobs 
report, as well.  But why do you say that investors need to be as cautious 
since 2008?  What is it that is that worrisome for you?  

BLANCATO:  The first big worry I have is that can`t earnings get better 
than where we are?  Remember, we had last year double-digit earnings 
growth.  This year, they`re flat, up 1 percent and I`m really concerned 
that that`s going to be the continuation for the rest of the year.  

So, that means for the first time in a long time, we`re seeing a real 
erosion in earnings power.  Second, the consumer just may not be strong 
enough to blast through these tariff issues and they`re out there and 
they`re not going away anytime soon.  So, for that reason, raise some cash, 
get conservative, wait around and see how this all plays out.  

HERERA:  All right.  

GRIFFETH:  Phil Blancato with Ladenburg Thalmann Asset Management — always good to see you, Phil.  Thanks for joining us.  

BLANCATO:  Thank you.

GRIFFETH:  And for more on his picks, you can head to our website at  

HERERA:  A big quarter for Big Lots and that`s where we begin tonight`s 
“Market Focus”.  

The discount retailer exceeded analyst earnings expectations.  Sales at 
stores open at least a year rose and the company raised its full-year 
outlook.  The stock today jumped more than 6 percent to $27.60.  

Specialty retailer Genesco reported better than expected earnings and 
revenue.  The apparel and accessories retailer is focused on footwear.  It 
carried over into the New Year.  The stock was up 11 force $44.88.  

And Amazon is buying part of the ad tech company Seismic, including its ad server.  But the company helps personalized ads using data.  The deal comes as it takes an increasing share of the digital ad market.  Today, the stock dropped 2 percent to $1,775.07.  

GRIFFETH:  You may have noticed more CBD products available for sale these days.  You know, CBD is a cannabis extract that does not contain THC, 
that`s the psychoactive component of the cannabis plant, but CBD has 
quickly grown into a billion dollar business and the FDA is trying to get a 
better handle on it.  So, today the agency held its first public hearing on 
the matter.  

Aditi Roy was there in New York for us tonight.  


ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  When the farm bill passed late last year, hemp was legalized in the U.S.  The result was a 
flood of cannabis-derived products, the most popular of which is CBD, in 
the form of things like lotions and oils.  But today, the FDA`s acting 
commissioner made it clear many hemp-based CBD products must go through FDA approval before they can land on U.S. store shelves.  

Agency officials heard from company executives, advocacy groups and 
researchers.  Some retailers like Walgreen`s and CVS toe the regulatory 
line, stocking shelves with select stores with less controversial CBD 
products like topicals, and staying away from ingestibles like CBD-infused 
supplements, food and beverages, which clearly fall under FDA scrutiny.  

Others like Walmart and Target have shied away from carrying any CBD 
products.  Instead, waiting for the FDA to issue regulations, which could 
include testing requirements, dosage limits and packaging and labeling 

Former FDA Commissioner Scott Gottlieb says there are a lot to regulatory 
issues to consider.  

regulators to differentiate from CBD that`s derived from cannabis versus 
hemp, and what is derived from cannabis could have high levels of THC in 

ROY:  That`s not stopping cannabis companies from betting on the U.S. CBD 
market, which Piper Jaffray estimates could reach $15 billion in the next 
five years, two great plans to introduce CBD products in the U.S. by the 
end of the year.  And Canopy Growth will plant hemp in seven states, 
including California, Kentucky and New York.  

CEO Bruce Linton said there is a myriad of possibilities for future CBD 
products, including a sports drink.  

BRUCE LINTON, CO-CEO CANOPY GROWTH:  I`m talking about a beverage when you go to the gym and you drink it, it should have the intention of making it so after the gym the next day, you are less sore.  And if it can do that, then we`ll all be a bit more fit.  

ROY:  But, first, those companies are waiting to hear from the FDA on those 
regulations.  It is unclear how long that will take.  In the meantime, the 
U.S. Hemp Roundtable, an advocacy group, says it`s also working with 
lawmakers to create what it calls a more efficient pathway for CBD 

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, New York.  


GRIFFETH:  And coming up, improving your mood at, of all places, the 


HERERA:  Here`s a look at what to watch next week.  

On Monday, Apple hosts its developer`s conference which will focus on the 
company`s latest software for its phone, Macs and Apple watches.  

On Wednesday, the Fed releases its Beige Book, which is an anecdotal look 
at the economy across the country.  

On Friday, the job market will be in focus when the government releases its 
monthly employment report.  

That is what to watch for next week.  

GRIFFETH:  Well, on this tough market day, we thought we would end the show with something a little bit lighter here.  It`s a story about a business 
that cares how you feel and believe it or not it takes place at one of the 
nation`s busiest airports.  

Jane Wells takes us to LAX.  


International Airport, traditionally nobody`s favorite place.  The airport 
now lets you tell it how you really feel and more on that in a moment.  

LAX was a gem of commercial aviation a decade ago.  But with a record 87 
million plus people passing through here last year, traffic is a mess.  So, 
this place is leading a national wave of airport improvement projects with 
a $14 billion overhaul.  

DEBORAH FLINT, LOS ANGELES WORLD AIRPORTS CEO:  The United States is the first place of modern aviation, and our airport should be the ones that other airports around the world aspire to be.  

WELLS:  By 2023, LAX will have a people mover to reduce traffic and every 
terminal is being modernized.

So, how to pay for all these?  Well, the airport is going to take on some 
debt.  It also makes money off of its concessions it can use. And on every 
airplane ticket we buy, there`s a small fee for just this sort of thing.  
Right now, it`s about $4.50, that fee has not gone up in 19 years, and the 
airport would like it see it rise.  

FLINT:  It has been the same rate for 19 years, and you can imagine the 
cost of what it was 19 years ago and what it costs today.  

WELLS:  Meantime, have you seen these machines?  They`re popping up to 
register happiness in real time.  LAX is testing them outside bathrooms and 
we`re told the monitors are cleaned regularly.  

The leader of this industry is a company out of Finland called Happy or 
Not, with 30,000 terminals across the globe and more than a billion button 
pushes so far.  Its main investor is NorthZone, an original backer of 

MARTA SJORGEN, NORTHZONE PARTNER:  It really has the potential to create a global happiness index, not just airports but also retail, healthcare 
services, hospitality and many, many more.  

WELLS:  You think most responses would be negative, right?  Wrong.  

HEIKKI VAANANEN, HAPPY OR NOT FOUNDER:  What we have learned is out of roughly 80 percent of the people actually like leaving good feedback.  

WELLS:  And maybe more surprising, airport customer satisfaction is up and LAX has risen from 100th place to 69.  



HERERA:  Before we go, here`s a look at the day`s numbers on Wall Street.  

The Dow fell 354 points to fall below 25,000.  The Nasdaq was down 114.  
The S&P 500 slid 36, and May was the worst month for the market so far this year.  

That does it for NIGHTLY BUSINESS REPORT.  I`m Sue Herera.  Thanks for 
joining us.  

GRIFFETH:  I`m Bill Griffeth.  Push the happy button.  


GRIFFETH:  The weekend is here.  Have a great one.  We`ll see you Monday.  


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