ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Bad news is good news. Fewer jobs were created last month than expected, but stocks took off despite the surprisingly low number.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Setting the tone. China`s president changes his language when talking about trade, a reversal from all of the recent, harsh rhetoric.
HERERA: House hunters. Flippers are getting help from an unexpected source — Uber drivers.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Friday, June 7th.
GRIFFETH: And we do bid you a good evening, everybody, and welcome.
The stock market soared again today ending a week-long rebound rally that was fueled by hopes that the Federal Reserve is going cut interest rates sooner rather than later. Also lifting the market was hope that tariffs on all those Mexican imports into the U.S. scheduled to go into effect on Monday can be averted.
Mix it together, stocks had their best week of the year this week. Today, the Dow was up 263 points, up to 25,983. The Nasdaq added 126, the S&P was up 29. And for the week, all of the major averages saw solid gains.
HERERA: That big lift in the stock market, believe it or not, was driven by a lousy jobs report. Employers tapped the brakes on hiring last month potentially signaling a slowdown in the 10-year economic expansion which could, in turn, prompt the Federal Reserve to cut interest rates.
And as we all know, low interest rates have been a pillar of support for the bull market.
Steve Liesman has the details.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The May jobs report missing the mark by a long way and raising concerns about the economic outlook and one of the trade wars hurting the jobs market already. Just 75,000 jobs created in May, Wall Street had been forecasting 180,000. The unemployment rate remained low and unchanged at 3.6 percent, but wage growth grows a lukewarm 0.2 percent and downward revisions to the job growth in the prior two months reduced it by 75,000 and that equaled all of the jobs created in May.
On Wall Street, all of the talk focused on whether the trade war was dragging down the job market.
Morgan Stanley (NYSE:MS) wrote: This report will add to evidence gathered ahead of the June Fed meeting showing that economic policy uncertainty may be increasingly weighing on growth prospects.
JAN HATZIUS, GOLDMAN SACHS CHIEF ECONOMIST: I think it raises the question about whether the trade uncertainty was already having some impact on the economy, you know, prior to the latest escalation as far as Mexico is concerned. This, you know, came after the original tweets about China, and I do think it raises that question.
LIESMAN: The details of the report show government shed 15,000 jobs and these were mostly state and local education workers. Retail, which has been losing lots of jobs every month, lost another 8,000, and manufacturing which had been strong, grew a tepid 4,000.
The weak reports raising the prospect that the Federal Reserve will be cutting interest rates and cutting them soon. The chance of a Fed rate cut for July now around 80 percent in the Fed funds futures market, and the market is now banking on multiple Fed rate cuts this year.
It`s an aggressive call, one that may only hit the mark if the jobs report keeps missing the mark.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
GRIFFETH: And joining us to talk more about the jobs report today and what it may mean for the Fed, Satyam Panday is senior U.S. economist at S&P.
Good to see you again. Welcome back.
SATYAM PANDAY, S&P SENIOR U.S. ECONOMIST: Thank you for having me.
GRIFFETH: I`ll cut to the chase. Do you think the Fed is going to cut rates maybe as early as July?
PANDAY: Well, was there a report out today. It didn`t really help establishing any confidence into raising rates. So the odds of cutting rates have moved up, but I wouldn`t go so far as calling it in July, though — maybe perhaps in September or for a later date in September. But yes, the odds of a rate cut has moved up.
HERERA: The manufacturing number was especially weak and the Fed has said in the past that they are watching manufacturing and the impact from all of these global trade tensions and weaker global growth.
How closely are they going to be scrutinizing the details of that?
PANDAY: I think this is the key point here. How much of a spill over effect from the industrial sector is going to seep into the much bigger service sector of the economy. We have seen manufacturing being — you know, decelerating over the year and it seems like from the labor report that came out today, we haven`t really added as many jobs as we had last year.
So, the Fed will be looking through it very carefully, both the activity numbers and the labor markets in manufacturing. And the new tariffs, the escalation, and the potential of it certainly doesn`t help in the outlook of manufacturing.
GRIFFETH: The Mexican tariffs aside, we still have Chinese tariffs in place, and there`s no sign that they`re going to end any time soon. That can be inflationary. Do you see much in the way of inflation coming our way?
PANDAY: Well, there are two ways to look at it. You know, you may see a one-time bump up in the inflation numbers if these tariffs were to go through at a 25 percent rate, that, you know, they have been talking about. But at the same time if it really affects the disposable income of a regular consumer, then the demand side effect might actually hold back the inflationary pressure.
So, net-net, it seems like inflation is really not moving up as fast to the 2 percent growth rate that the Fed had anticipated earlier in the year.
GRIFFETH: Very good.
Satyam Panday, again, with the S&P — thanks for joining us tonight.
PANDAY: Thank you.
HERERA: Chinese President Xi and Russian President Putin presented a unified economic front during a conference in St. Petersburg. As we reported yesterday, the two countries have been coming together to sign deals and today, another twist. And it had to do with President Xi`s tone when it comes to trade with the U.S.
Geoff Cutmore is there.
GEOFF CUTMORE, NIGHTLY BUSINESS REPORT CORRESPONDENT: This was an opportunity to deepen ties and look stronger together, the building of an alliance in the face of tension with the United States.
President Putin used his keynote address here to criticize the United States` position on Huawei, suggesting that`s the beginning of a tech war. He also felt that the U.S. had overextended its legal authority and it`s important to note that one of the deals done here among the $20 billion worth signed was with Huawei to bring 5G technology to the Russian market.
President Xi also spoke while on the stage here at St. Petersburg, but I would say his language on trade was very measured, perhaps an indication that he doesn`t want to use a venue like this to upset the delicate, ongoing trade negotiations.
And the reality is, of course, that of all of the talk in St. Petersburg, the size of trade between Russia and China is significantly smaller than that done between the U.S. and China, perhaps the reason why President Xi`s language was cautious and ultimately he described both President Putin and President Trump as his friend.
This is Jeff Cutmore in St. Petersburg, for the NIGHTLY BUSINESS REPORT.
GRIFFETH: And now to another issue that affects investors, that would be the capital gains tax. Billionaire hedge fund manager Stanley Druckenmiller said today he doesn`t have a problem with the higher capital gains and he explained why.
(BEGIN VIDEO CLIP)
STANLEY DRUCKENMILLER, DUQUESNE FAMILY OFFICE: I don`t really think capital gains promote investment as much as advertised out there and it`s hard for me to believe that Larry Page and Mark Zuckerberg and Jeff Bezos would have said, oh, my god, the capital gains is going to be 35 percent, I`m not going to try to fund Amazon (NASDAQ:AMZN) or Google (NASDAQ:GOOG). So, I don`t have a problem with it.
(END VIDEO CLIP)
GRIFFETH: Druckenmiller also said that ongoing trade tensions could potentially kill the market`s animal spirits.
HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.
Exelon (NYSE:EXC) was upgraded to buy from neutral at Goldman Sachs (NYSE:GS). The analyst cites the company`s free cash flow and calls the stock a top utility idea. The price target is $52. Despite, though, the stock fell a fraction to $49.95.
Schlumberger (NYSE:SLB) was upgraded to buy from hold at Stifel Nicolaus. The analyst says Schlumberger (NYSE:SLB) will benefit as business activity increases outside of North America. The price target is $50. The stock was up 1.5 percent to $35.60.
And the arts and crafts retailer Michael`s was downgraded to neutral from outperform at Credit Suisse. The analyst cites a softer outlook and uncertainty regarding the impact of tariffs. The price target is $11. The stock fell slightly to $8.17.
GRIFFETH: As we have been reporting, big tech`s power and influence is facing scrutiny in Washington these days, with some calling for breakups, others calling for more regulation. Well, tonight, we take a closer look at Google (NASDAQ:GOOG) and what officials may be eyeing in that company.
Aditi Roy is in San Francisco for us.
ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the two decades Google (NASDAQ:GOOG) has been in existence, it`s climbed up the ranks of top U.S. companies, raking in more than $130 billion worth of revenue last year. Now, its dominance could be threatened as the company faces a government antitrust probe.
RICHARD HAMILTON, FORMER DOJ ANTITRUST ATTORNEY: The United States Department of Justice and particularly the Antitrust Division, they don`t deal with argument. They deal with evidence.
ROY: In order to prove an antitrust case against Google (NASDAQ:GOOG), the company would have to prove that Google (NASDAQ:GOOG) owns at least 30 percent or 40 percent of the relevant market. Google (NASDAQ:GOOG) owns nearly 90 percent of the search market, according to Satistica, and about three quarters of search ad sales according to eMarketer.
The DOJ would also have to show that Google (NASDAQ:GOOG) preempts the competition by optimizing platforms like search. That`s precisely what some third party competitors of Google (NASDAQ:GOOG) assert. For years, Yelp CEO Jeremy Stoppelman has been particularly vigilant against the company, saying Google (NASDAQ:GOOG) squeezes out the competition by favoring its own web offerings by placing them at the top of search results.
Trip Adviser CEO Stephen Kaufer also says in a statement that the company remains concerned about Google`s practices in the U.S., the E.U., and the world. Adding: We welcome any renewed interest by U.S. regulators into Google`s anti-competitive behavior.
And Expedia (NASDAQ:EXPE) Group Chair Barry Diller also spoke out about Google (NASDAQ:GOOG) last fall.
BARRY DILLER, EXPEDIA GROUP CHAIRMAN: Whenever you have that kind of control over the world that can`t go any place else, to get their stuff to a consumer, you also have to — you — inevitably, all monopolies behave the same and you`ve got to have regulation of what they do once they get to that stage.
ROY: Legal experts say the arguments the third parties are making could carry a great deal of weight if they could prove them in testimony or contracts.
HAMILTON: They`re going to look at what the contracts show. Do the contracts limit? Do they prohibit? Do they foreclose opportunities in the markets for either customers that Google (NASDAQ:GOOG) is dealing with, or for other market participants? And the devil is in the contracts themselves.
ROY: Insiders also say the European Union`s investigation into Alphabet could also help U.S. investigators by providing a framework for their arguments.
For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.
HERERA: Still ahead, our market monitor goes bargain hunting.
GRIFFETH: Walmart wants to take home delivery a step further. The world`s largest retailer is rolling out a new program where employees deliver fresh groceries right to your refrigerator. Shares got a lift today along with the broader market.
We should point out, though, that when Walmart announces new initiatives like this, many of them don`t last very long or they don`t go very far.
Courtney Reagan has our story in Fayetteville, Arkansas, tonight.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Walmart Shareholders Week is an annual tradition in northwest Arkansas. Executives, board members, employers and media from around the world, and this year, even presidential candidate Bernie Sanders come to the retailer`s home turf to vote on shareholder business, give the latest corporate updates, and celebrate the year`s accomplishments.
In recent years, Walmart has also used the event to announce new e-commerce test programs. This year, it`s Walmart in-home delivery where store employees will deliver online grocery sword orders directly into shoppers` fridges, available for 1 million shoppers in St. Louis, Pittsburgh, and Vero Beach, Florida, this fall.
MARC LORE, WALMART U.S. E-COMMERCE CEO: We`ll come in and install the lock and give you a four-digit unique code only used during certain specified times that you allow. We have our associates, the W-2 employees that have been with Walmart for more than a year. We have a camera that`s on their vest when they walk in and customers can actually watch on their app and come into their home, put the stuff into their fridge, and then leave.
REAGAN: The in-home delivery announcement is grabbing a lot of attention, just like the other past Walmart Shareholders Weeks` announcement, but they haven`t all ended up making a material difference to the business.
At the 2016 shareholder event, the retailer announced a partnership with Uber and Lyft, testing grocery delivery in Denver and Phoenix. Two years later, Postmates and DoorDash were added.
By May 2018, Walmart ended its partnership with Uber and Lyft, though it still uses other crowdsource delivery partners. At shareholders 2017, Walmart said it was testing store employees delivering online orders on their way home from work in New Jersey and Arkansas, through the use of a proprietary app. Around six months later, it quietly ended that program.
Last year, Walmart launched text message shopping concierge service JetBlack in New York City. It is ongoing and there`s a wait list, but still only in New York City.
LORE: We`ve been trying a lot of new things lately. Our goal isn`t to have a perfect track record. It`s to make sure we`re moving fast, taking smart risks. We want to continually learn, adapt and push the limit of what`s possible. At the end of the day, everything we`re doing adds up to something really special.
REAGAN: So while in-home delivery is Walmart`s latest risk, it remains to be seen if it will pay a material reward.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Fayetteville, Arkansas.
HERERA: A new chapter for Barnes & Noble (NYSE:NE) (NYSE:BKS), and that`s where we begin tonight`s “Market Focus”.
The company has been acquired by hedge fund Elliott Advisers for $683 million. The nation`s largest bookstore chain has been struggling for the past five years, losing more than $1 billion in market value. Elliott recently bought Britain`s largest bookseller Waterstones as well. The shares rose more than 11 percent to $6.62.
Norwegian Cruise Line said it would be cutting its full-year earnings outlook due to the impact of the Trump administration`s ban on cruises visiting Cuba. Cruise operators are modifying their itineraries and would offer substantial discounts to guests to remain on their booked cruises despite the ban, but the shares were up more than 1 percent today to $52.59.
GRIFFETH: Online fashion retailer revolve group soared in its trading debut today. This company focuses on millennial customers and attracts many of them through social media. Priced at shares of $18 and they closed at $34. That would be up nearly 89 percent in today`s debut.
Pharmaceutical giant Sanofi has hired Novartis executive Paul Hudson as its new CEO. Sanofi`s current CEO Olivier Brandicourt is retiring in September. Shares rose more than 5 percent today to $44.21.
HERERA: It is time now for our weekly market monitor who likes stocks with dividend yields. He has names that he says are severely undervalued in this low interest rate environment.
Joining us now is Jordan Posner. He`s senior portfolio manager at Matrix Asset Advisers.
Jordan, welcome back. Nice to have you here.
JORDAN POSNER, MATRIX ASSET ADVISORS SR. PORTFOLIO MANAGER: Great to be back.
HERERA: You`re a value investor, bottoms up process and you like value dividends.
So, let`s start with your first pick which is CVS (NYSE:CVS) Health and, of course, their acquisition of Aetna (NYSE:AET), you say, is kind of a game changer.
POSNER: Well, it really has reconfigured business to be a much broader player. Just earlier this week, on Wednesday, they had an investor day when they rolled out a lot of the strategy and the financial guidance for that business overall, and I think it was pretty well-received and they`re transforming the healthcare business with a concept called health hubs which is really taking space in many of their stores and converting them to an urgent care type of clinic, but with more services than they can use. We think the stock is modestly valued at less than eight times earnings and has the yield of over 3.5 percent.
GRIFFETH: Home Depot (NYSE:HD), I was looking at a longer term chart of this company. Now, you`re looking for value, but a few years ago, this was a $75 stock. Today, it`s a $200 stock. There`s still value in there?
POSNER: There certainly is. The stock is actually down from its high within the last year, and what`s happened there is that the housings market pressure from last year depressed some of their results, drove the stock down and management there is very focused on shareholders at the lower interest rate environment and we expect that demand for housing and home improvement should do much better.
The stock is certainly more expensive than some. It trades above a market multiple under 18 times, but still pays the 2.8 percent yield. They`re repurchasing stock and we`ll increase that dividend going forward.
HERERA: Your next pick a really nice dividend, 6.4 percent in terms of its yield, and that is AT&T (NYSE:T). You`re saying basically that they are a key player with 5G coming up, but also the street is not really appreciating that Time Warner (NYSE:TWX) deal that they did.
POSNER: Right. Now, of course, was a big marquee deal that got a lot of attention and people kind of thought of it as, what could they do with it other than destroy the franchise? And actually, although there`s been some management change there, the business seems to be operating quite well and generating a lot of free cash and contribution to the company.
Now, with that and the HBO business and the Turner businesses together, they`re going to be launching an over-the-top service. We think that that actually has the potential to be valuable. The stock trades at a very low valuation under nine times and the core wireless business is a terrific franchise and we think they can continue to operate very well.
HERERA: On that note, Jordan, thank you so much. Jordan Posner with Matrix Asset Advisers.
GRIFFETH: And coming up, they`re called drive-by flippers. They`re part of America`s changing workforce.
GRIFFETH: In today`s tight and pricey housing market, home flipping has been fizzling. The business is no longer as lucrative as it once was, but for those who are still in the game, a new strategy is taking shape and it relies on the shared economy. You`re going to love this.
Diana Olick explains.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: David Amanzur (ph) is a part-time Uber driver in D.C., and part of the time he`s driving, he`s scouting homes for an investor.
UNIDENTIFIED MALE: Of course, you have somewhat of a tree or a limb that may have fallen or something growing up there.
OLICK: So, this says to you, this could be an opportunity.
UNIDENTIFIED MALE: This could be an opportunity.
OLICK: An opportunity for Daniel Digiacomo, an investor who hired him to scout properties. Digiacomo has been flipping homes for a decade but has never seen the market this tough.
DANIEL DIGIACOMO, INVESTOR: As the prices are as high as they are now, the margins on our flips are pretty slim.
OLICK: Nationwide, flippers saw an average return on their investment of about 39 percent in the first quarter of this year, down from 42.5 percent in the previous quarter and nearly 49 percent a year ago, the lowest return in eight years, according to Atom Data Solutions.
The number of flips are down 8 percent annually so the stakes are up, precisely why Digiacomo has 150 drivers scouring the streets for opportunities.
DIGIACOMO: The best deals are always the deal that we put our eyes on and I can`t put miles on every single deal. So, Uber drivers are out there, they`re looking at kinds of neighborhoods. They`re putting their eyes on many houses.
OLICK: Digiacomo used to go to options, but he says there are too many bidders there, driving prices even higher. As for listings, low mortgage rates have too many regular buyers competing with him, that`s why he`ll pay a driver $500 for a lead that turns into a seal.
DIGIACOMO: This, that 150 group has put about 2,200 leads and we normally close a deal one per 100, or 150 leads.
OLICK: Amanzur who dabbles in real estate himself sees it as easy money because he knows what to look for.
UNIDENTIFIED MALE: Windows are broken. It`s not updated. You may see some exterior outside AC unit sticking out of the window. There`s tons of mail, overgrown grass.
OLICK: And when he finds one —
UNIDENTIFIED MALE: The property next door is a corner lot which is a great opportunity for investors.
OLICK: He just takes a picture on the special app that pin points the property and sends it to Digiacomo.
If it sells —
UNIDENTIFIED MALE: It`s 500 bucks and I just drove around.
OLICK: For NIGHTLY BUSINESS REPORT, I`m Diana Olick driving around Washington.
HERERA: And before we go, let`s take a look at the final day`s numbers on Wall Street. The Dow rose 263 points to 25,983, the Nasdaq added 126, and the S&P 500 was up 29. It was a good week.
For the week, all of the major averages saw solid gains.
And that does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera, thanks for watching.
We like to remind, this is the time of year your public television seeks your support.
GRIFFETH: I`m Bill Griffeth and we thank you for your support. Have a great weekend, everybody. We`ll see you Monday.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by ASC Services II Media, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2019 CNBC, Inc.
<Copy: Content and programming copyright 2019 CNBC, Inc. Copyright 2019 ASC Services II Media, LLC. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of ASC Services II Media, LLC. You may not alter or remove any trademark, copyright or other notice from copies of the content.>