ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
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LETITIA JAMES (D), NEW YORK ATTORNEY GENERAL: It`s time to say enough is enough. We need to re-think our approach to antitrust and to merger approval.
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SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Mergers in trouble? Attorneys general sue to block T-Mobile from merging with Sprint, and that`s not the only deal being questioned.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Taking charge. Best Buy (NYSE:BBY) has a new CEO and she`s determined to pick up where the last chief executive left off.
HERERA: Anytime, anywhere. The future of gaming and the technology powering it.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, June 11th.
GRIFFETH: And we do bid you a good evening, everybody, and welcome.
We begin tonight with big corporate mergers and a push to stop some of them. Today, 10 state attorneys general sued to block the combination of T-Mobile and Sprint which would be reducing the number of major U.S. wireless telecom providers from four to three. The mergers have been in the works for years, but the New York A.G. said today that bigger is not always better and that such a deal would be bad for consumers, innovation and workers.
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JAMES: The T-Mobile and Sprint merger would not only cause irreparable harm to mobile subscribers nationwide by cutting access it affordable, reliable wireless service for millions of Americans, but would particularly affect lower income and minority communities here in New York and urban areas across the country.
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GRIFFETH: The FCC has yet to formally rule on the deal and the Justice Department is still reviewing it, as well. Today`s news sent shares of both Sprint and T-Mobile lower.
HERERA: And CVS` $69 billion acquisition of Aetna (NYSE:AET) is facing a potential legal challenge. In an unusual case, the federal judge could reportedly block the deal even though it already closed late last year. Shares of CVS (NYSE:CVS) fell about 2 percent in today`s session.
Bertha Coombs has more.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: CVS (NYSE:CVS) and Aetna`s merger closed last November, but U.S. District Court Judge Richard Leon still has not signed off on the Justice Department`s approval of the deal, holding hearings on concerns from consumer groups who said the DOJ did not go far enough to protect seniors. The DOJ required the company for the Aetna (NYSE:AET) 2 million member Medicare Part D drug plan business, selling it to rival insurer WellCare. “The New York Post” claims the judge appears poised to block the merger citing an anonymous source close to CVS (NYSE:CVS).
CVS (NYSE:CVS) shot back, telling NIGHTLY BUSINESS REPORT that we, quote, will not be distracted by rumors.
David Balto, an attorney for consumer groups opposing the deal, says that judge could ask further conditions on the divestitures. He notes last year, Judge Leon ruled against the Trump administration to block the AT&T (NYSE:T)-Time Warner (NYSE:TWX) merger and that decision prevailed on appeal.
But in this case, some antitrust analyst say the judge cannot reverse the CVS (NYSE:CVS) merger under legal statute known as the Tunney Act because it goes beyond the scope of the settlement approval itself and such a ruling would likely be reversed on appeal. Final arguments in the case are scheduled for mid-July.
For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.
GRIFFETH: Meanwhile, hedge fund manager Bill Ackman, who is a large United Technology shareholder, today urged that company to call off its planned merger with Raytheon (NYSE:RTN). He says it makes no strategic sense and as we reported yesterday, President Trump expressed concern that that deal could kill competition.
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DONALD TRUMP, PRESIDENT OF THE UNITED STATES: When I hear United and I hear Raytheon (NYSE:RTN), which is another incredible company, the missile systems they make are incredible. When I hear they`re merging, does that take away more competition? It becomes one big, fat, beautiful company, but I have to negotiate, meaning the United States has to buy things, and does that make it less competitive? Because it`s already non-competitive.
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GRIFFETH: Shares of both Raytheon (NYSE:RTN) and United Tech came under pressure in today`s session.
HERERA: In Washington, Congress opened its antitrust investigation into big tech. The House Judiciary Committee planned several hearings and interviews as part of its probe into whether the dominance of companies like Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) have decreased competition.
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REP. DAVID CICILLINE (D-RI): I strongly believe that this investigation is long overdue. This subcommittee has a constitutional responsibility to conduct oversight of our antitrust laws and competition system to ensure that they`re probably working.
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HERERA: The committee plans to explore a number of issues related to the industry. Today, the focus was on the big impact big tech has had on publishers and also the news industry.
GRIFFETH: To the markets now. On Wall Street, the Dow snapped its six-day win streak. The stocks had opened strong on reports of stimulus measures taken by the Chinese government to juice its economy, but that rally fizzled and the industrial average by the close was down 14 points to 26,048, the Nasdaq fell a fraction and the S&P was down one point.
Today`s pullback has some investors wondering whether the recent rally can be trusted.
Mike Santoli is at the New York Stock Exchange tonight.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks have recovered most of the ground they lost with the S&P 500 now less than 3 percent from the record high, and investors seemed not ready to embrace this rebound rally just yet. Bank of America (NYSE:BAC) Merrill Lynch said its clients sent a trickle of new cash each if the market is 4 percent. An indicator of investor sentiment calls the free gear index remains in the fearful zone at 35 on a zero to 100 scale, and the so-called volatility index has not declined in recent days as it usually does in a rising market, a sign that traders continue to pay up for options that give protection against the market drop over the next month.
This persistent caution among investors likely has a lot to do with the confusing economic crosscurrent and the series of crucial events that could swing markets around in coming weeks. Friday`s employment report solidified expectations for a Federal Reserve rate cut in coming months and with the Fed set to meet next week, plenty of suspense remains over its intentions and whether a rate cut can support the economy and lift inflation should be welcome.
The G-20 meeting of world leaders in the end of June could be the site of a meeting between President Trump and China`s President Xi to hammer out a trade deal, but no firm plans are set, and the U.S. stands to ready to extend tariffs to another $300 billion in Chinese imports around that time.
Meantime, the S&P itself is near levels where it peaked three times since January 2018, explaining some hesitation among investors to buy aggressively right now today`s prices, sometimes a backdrop of caution and skepticism is a positive for market performance looking forward, but only if investors` worse fears are not realized.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock Exchange.
HERERA: And a new report shows inflation ticked higher last month. The producer price index, which measures the wholesale prices businesses received for their goods and services raised 5 percent compared to the previous month. That was in line with expectations. Prices for consumer services rose, led by an unusually large increase in hotel room rentals and costs for medical care were also higher.
GRIFFETH: Jason Ware joins us now to talk about the inflation data, what it means for the Fed and the economy. He`s chief investment officer with Albion Financial Group.
Good to see you again. Welcome back.
JASON WARE, CHIEF INVESTMENT OFFICER, ALBION FINANCIAL GROUP: Thanks for having me. Good to be here.
GRIFFETH: As you well know, there is a wide spectrum of forecasts on Wall Street about what the Fed`s going to do with interest rates this year. Barclays, for example, says three cuts before the end of the year, totaling 75 bases points. Yesterday, Goldman Sachs (NYSE:GS) said no cuts at all this year.
Where do you fall on this, bearing in mind what we`re seeing about inflation right now?
WARE: Right. So, I think a lot of those targets and predictions are reactionary to what the federal funds future market is saying that there`s an expectation among market participants that the Fed is going to cut twice this year.
Our view is that while it`s certainly possible that they could cut once or twice this year, that the likelihood of that happening is fairly low. I think odds on is that they continue to being patient with the economic data. I don`t think there`s any push for them to cut rates given the fact that inflation while certainly slowing to some degree still continues to bounce around within a range that we`ve seen for the better part of this economic expansion, the 1.5 to 2 percent core.
So, it`s certainly possible and I think if they were to make any move, it`s probably a cut, more than a hike, but we`ll see what happens over the next six, seven months.
HERERA: Do you see — as you mentioned, inflation is kind of all over the board depending on which commodity or which measure you choose to look at, but do you see inflation ticking up in your work?
WARE: So, the Fed prefers to look at core PCE. We think that`s the right measure to try to evaluate where inflation is. There`s not much that we`re seeing out there that suggests that we have any kind of hot inflation. Certainly, having 2 percent is a reasonable inflation level, if economy is well-balanced which it seems to be.
The Fed seems to have — at least under Yellen — seemed to have a bit of a tolerance to let it run hotter than that, but it`s consistently been under- target for the better part of the last ten years and I think it`s likely to remain there given the body of evidence that we`ve seen.
GRIFFETH: And then you have the trade tensions with China. The president has certainly called for the Fed to cut rates to help in the trade war with China. It makes our goods cheaper, maybe the demand remains strong even as the tariffs go up.
Do you think that becomes a factor for the Fed at all?
WARE: I certainly think if the trade war were to be protracted and indeed take up — pick up to another level, we might start to see a little bit of inflation coming from the trade war and goods. But I think it`s also worth noting that if there`s any economic slowdown as a result of the trade war, then that certainly runs counter to that and may provide inflation inertia. What we`re seeing is rising wages when we look at the jobs reports, we are still north of 3 percent, have been for 10 straight months. I think that`s probably more of an indicator to watch, where inflation could go from here.
But there are so many secular disinflationary forces out there that it`s keeping a lid on inflation, but it`s hard for us to make a strong case to make anything run, you know, 2-1/2, 3 percent anytime soon. So, as long as we stay sub 2 percent on core, I think the Fed is going to be fairly patient and see where things go.
GRIFFETH: Jason Ware with Albion Financial Group, again, thanks for joining us tonight.
WARE: Thank you.
HERERA: Well, you would think with all of the information online that today`s potential homebuyers would be more informed about the mortgage process than ever before, but that apparently is not the case.
Diana Olick has the results of a new report.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: After the foreclosure crisis a decade ago, mortgage lending tightened up and new regulations were put in place. But consumers today apparently think it`s a lot harder to get a home loan than it really is, a growing number of consumers said they had seen their credit score recently, thanks to a myriad of credit monitoring sites, but nearly half couldn`t remember what this core was according to a recent Fannie Mae survey.
The survey also found that consumers either didn`t know or overestimated the minimum credit score needed to qualify for a loan. Half of those asked were unsure and the third thought it needed to be higher than 620, but the minimum is actually 550. Both current home owners and renters were equally uninformed.
Consumers also overestimated the required down payment. Most either didn`t know or thought it had to be 10 percent or higher.
UNIDENTIFIED FEMALE: Maybe about 30 percent.
UNIDENTIFIED FEMALE: About 20 percent. I`m assuming, but no, I don`t know the details. It`s very overwhelming.
OLICK: In reality, the FHA-backed loans with a minimum down payment of 3- 1/2 percent and there are other programs through the U.S. Department of Agriculture and the Department of Veterans Affairs that offer zero down payment option. Consumers can qualify for a mortgage with as much as half their income going toward debt payments, but the majority of consumers said they didn`t know what the level was and most others said the limit was 40 percent.
Fannie Mae`s chief economist said it`s impossible to know how many renters don`t even consider buying because of these misperceptions, but he said it had to be some.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: Time that take a look at some of today`s “Upgrades and Downgrades”.
We begin with shares of Facebook (NASDAQ:FB), which was downgraded to buy from neutral at MoffettNathanson. The analyst there cited the health of Facebook`s core business and potential for growth. The price target now $210, that stock rose more than 1.5 percent today to $178.10.
JetBlue was upgraded to buy from neutral at Citi. The analyst cited positive pricing trends right now and the price target $26. That stock was up 4 percent today to $19.09.
HERERA: Dollar Tree (NASDAQ:DLTR) was upgraded to overweight from neutral at J.P. Morgan. The analyst cites the potential for net income growth and the generation for free cash flow. The price target is $122. The stock gained more than 2 percent to $106.63.
Wells Fargo (NYSE:WFC) was downgraded to underweight from neutral at Atlantic Equities. The analyst cites the deteriorating outlook for interest rates. The price target is $42. The stock fell a fraction to $46.26.
GRIFFETH: Still ahead, stocks that soared in a short period of time may look like something you want to own, but should you?
GRIFFETH: There was a changing of guard at Best Buy (NYSE:BBY) today. Corie Barry officially took over as CEO and she has some big shoes to fill. The retailer has come back from the brink and has caused the stock to outperform the broader market over the past five years, rising by 125 percent. So, who is Corie Barry and what`s her plan to keep the streak alive.
Rahel Solomon takes a look for us.
RAHEL SOLOMON, NIGHTLY BUSINESS REPORT CORRESPONDENT: At 44, Corie Barry is among the youngest CEOs to run a major public company. She`s also one of 33 women.
CORIE BARRY, BEST BUY CEO: I am deeply grateful to Hubert and the rest of the board of directors for their confidence in me and their clear belief that this leadership evolution is in the best interest of Best Buy (NYSE:BBY) and all its stakeholders.
SOLOMON: She said almost her entire career as Best Buy (NYSE:BBY) starting in 1999 as financial analyst and most recently chief financial officer. It`s an investment that`s paid off with the Minnesota native. She`s been with the retailer in darker days. Seven years ago amid slumping sales and management scandals, there were questions about its survival. The company brought an outsider Hubert Jolly.
MICHAEL LASSER, UBS: They`ve cut $2 billion of costs both on the operating side and on the product side by being more efficient and doing more with less. Two, they partnered with their vendors to do more shop-in-shop, so making the stores more inviting, more focused on products, more focused on the reason for why consumers come in your consumer electronic store.
SOLOMON: They also invested heavily in tech services like geek squad, total tech support and in-home advisers.
And for those who are long time investors and have stuck with the company, that`s an investment that`s paid off. The stock has quadrupled since Jolly took over in August 2012.
LASSER: Corie`s going to continue everything that they`ve been doing thus far, because she was instrumental in helping to formulate the strategy and execute the strategy. So, I expect to see more focused on services, more focused on smartphone, more focused on new populations like the baby boomers and those are all going to be key tenants of Corie`s strategy moving forward.
SOLOMON: That`s why headquarters are in Minnesota, so Barry will remain close where she grew up and attended college, St. Benedict.
She has said that she wants her market CEO to be increased employee engagement, customer service that can`t be matched elsewhere, think Amazon (NASDAQ:AMZN), and solution-oriented products.
For NIGHTLY BUSINESS REPORT, I`m Rahel Solomon.
HERERA: H&R Block (NYSE:HRB) posts an earnings beat and buys a Canadian financial services firm and that`s where we begin tonight`s “Market Focus”.
The tax preparation company topped analyst expectations and raised its dividend, as well. H&R block is also buying financial solutions platform company Wave Financial for $405 million. Shares of H&R block were up more than 3 percent to $27.78.
Chico`s FAS (NYSE:CHS (NASDAQ:CHSCP)) reported better than expected earnings and revenue. But the woman`s apparel retailer did see a drop in comp store sales and it lowered its full-year guidance. But the company said it sees stronger sales trends in the second half of the year. That helped send the stock up more than 8 percent to $3.69.
HD Supply beat expectations while revenue was in line. The industrial distributor had an increase in organic sales, but it did give some weak guidance. That sent the shares down more than 5 percent to $40.06.
GRIFFETH: Morgan Stanley (NYSE:MS) CEO said today that the bank`s second quarter trading revenue is unlikely to beat its previous quarter. Citi, J.P. Morgan and Bank of America (NYSE:BAC) have already warned of a possible trading slowdown for that second quarter, as well, but Morgan Stanley (NYSE:MS) did rise a fraction in today`s trade at $43.67.
After the bell, Dave & Buster`s (NASDAQ:PLAY) missed both earnings and revenue expectations. The entertainment company also fell short with comp store sales and it lowered its full-year revenue guidance in the process. Shares initially plummeted in the after-hours trading tonight, but did close in the regular session up nearly 2 percent to $51.53.
J.P. Morgan downgraded Beyond Meat`s stock to neutral from overweight, saying that its price had exceeded Wall Street`s estimates. The stock has surged more than 600 percent from its $25 per share IPO price. As a result, a research firm report said that short sellers have lost more than $400 million betting against that stock. After today`s downgrade, though, shares tumbled by 25 percent to $126.04.
HERERA: And Beyond Meat is not the first stock to skyrocket to levels that make analysts and investors uncomfortable and it won`t be the last, either. More recent high-profile examples include Netflix (NASDAQ:NFLX) and Tesla, but what is an investor to do if you are tempted to buy a stock that has risen 600 percent or what do you do if you already own it?
Joining us now is David Sowerby, portfolio manager at Ancora Advisers.
Welcome, Dave. Nice to have you here.
DAVID SOWERBY, ANCORA ADVISERS PORTFOLIO MANAGER: My pleasure.
FOLIO MANAGER: My pleasure.
HERERA: I mean, Beyond Meat is the story really of the last couple of months. Do you view it as what they call a bubble stock? And how would you assess stocks that have gone too far, too fast?
SOWERBY: Well, first, I don`t own it because I can own stocks that have a price to sales of almost 90 times sales negative cash flow, negative profit margins, and I don`t think that there`s enough barriers to entry that make that kind of valuation that`s priced for sainthood, frankly, something you want to be long in your portfolio. And it all comes back to when stocks have excessive valuations, fundamentals don`t allow you to analyze and put a true value on the stock when there`s what we`ll call FOMO, which is fear of missing out, becomes — supersedes the desire to own a stock.
All those lead me to the conclusion, whether it`s Beyond Meat or a Tesla or a bit coin in January of 2018, those are all bubbles.
GRIFFETH: What do you do, though, David? I mean, there is a definite interest in plant-based foods right now. You know, fake meat, if you will.
GRIFFETH: A lot of fast food chains are starting to offer it. The health issues that people face. Right now, Beyond Meat is the pure play in that category, but it`s too expensive for a lot of analysts out there.
What do you do if want to invest in what you see as a growing trend right now?
SOWERBY: Bill, I think it`s — I think in investing in general, investing 101 is always about discipline and patience and in this case, it`s even more so which is simply wait a little while for the market to allow more competition to enter and then find a company that has a better valuation and fundamentals that I think are better to analyze and patience becomes the virtue. If you can`t be patient, then have the right size of this which is small in your portfolio, and don`t be that person that leveraged their own portfolio to own bit coin in January 2018, or Beyond Meat, even after a great big run-up of the IPO, of June 2019.
HERERA: Are there areas of the market or sectors, if you will, where you see too much enthusiasm and valuations that are out of line?
SOWERBY: Well, Sue, I think the FANG stocks still trade for the four FANG stocks, A being Alphabet, the average P/E collectively is 65 times trailing earnings, that`s still pretty expensive to me when the average stock in the S&P is trading at 17, 18 times earnings and even less expensive than that.
I think too many of those names are still expensive today, they`re priced for perfection and priced for sainthood.
SOWERBY: And those are names like it.
Even on the debt side, quickly, the WeWorks, the Teslas, to own the company debt, I think there are bubbles there, too.
SOWERBY: Overall, there aren`t many bubbles in the market, but there are sure some in these pockets of the market.
HERERA: David Sowerby with Ancora Advisors, thank you so much for joining us tonight.
SOWERBY: My pleasure.
GRIFFETH: We do have some sad news tonight in the world of economics and finance. Economist martin Feldstein has passed away. His accomplishments were numerous. He first came to prominence as chairman of the Council of Economic Advisers under Ronald Reagan. He was also on President Obama`s Economic Recovery Advisory Board. He was president emeritus of the National Bureau of Economic Research, and a longtime professor of economics at Harvard University. Martin Feldstein was 79 years old.
HERERA: The premiere event for the fast-growing videogame industry is under way, and that`s where cutting-edge new technology is on display and innovative new games are show cased and this year, a few new trends are e merging.
Josh Lipton is in Los Angeles tonight.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: This year at E3, the $166 billion video game industry is imagining a world where fans can play games anytime anywhere. No need for a PC or game console.
Microsoft (NASDAQ:MSFT) talked about new technology called Project X Cloud which will allow fans to stream complex and graphics-rich games over the Internet and right to their mobile devices. Other tech giants are pursuing this same opportunity like Google (NASDAQ:GOOG) and reportedly Amazon (NASDAQ:AMZN).
Industry executives says the streaming technology sounds exciting, but there are still a lot of questions.
STRAUSS ZELNICK, TAKE-TWO INTERACTIVE CEO: What is the experience like? What is the business model like? But anything that broadens the market, and anything that brings more opportunities to consumers will be a good thing for the industry.
LIPTON: There are also changes coming to the business model of video games. Fortnite proved that free to play games can be moneymakers. Epic Games, the private company that owns Fortnite, raked in $2.5 billion last year, and Fortnite rival Apex Legend attracted more than 50 million unique players in its first month.
For all its success, though, the industry also faces real potential challenges.
Senator Josh Hawley of Missouri introduced legislation that would prohibit video games played by minors from offering certain in-game purchases that he says encouraged addictive behavior.
If this bill were to pass, analysts say it could be financially devastating for the industry because companies generate billions of dollars for these features. Hawley`s bill is moving forward with support from co-sponsors, Senators Blumenthal and Markey.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, Los Angeles, California.
GRIFFETH: And finally tonight, the world`s most valuable brands, advertising giant WPP (NASDAQ:WPPGY) and research agency Kantar released their list today, and there`s a new company at the number one spot. It`s Amazon (NASDAQ:AMZN) which topped the list to do a variety of services it offers right now. Apple (NASDAQ:AAPL) came in second. Google (NASDAQ:GOOG) rounded out the top three.
Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) had spent a combined 12 years at the top of that list. In fact, Google (NASDAQ:GOOG) was in the top spot last year.
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.
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