ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
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JEROME POWELL, FEDERAL RESERVE CHAIRMAN: The committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.
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BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: The door is open. The Fed holds interest rates steady today but signals that one could still be coming.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Top heavy market. A quarter of the gains this year are concentrated in four stocks. Is that cause for concern among investors?
GRIFFETH: Quality control. Why car buyers are finding plenty of problems with the new technology designed to keep them safe.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Wednesday, June 19th.
HERERA: And good evening, everyone, and welcome.
The Federal Reserve appears close to cutting interest rates. The chairman of the world`s most powerful central bank said what the market wanted to hear, that the case for more accommodating policy has strengthened. Today, the Fed held rates steady but it raised the prospect of lowering them in the future and stocks rose.
The Dow Jones rose 38 points, 26,504. The Nasdaq was up 33. The S&P added eight. It is now less than 1 percent away from a record.
Steve Liesman starts us off tonight in Washington.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Reserve left interest rates unchanged at the June meeting but made a major change in its outlook that`s just in. It could cut interest rates in the months ahead, maybe even at the next meeting in July. The big changes the Federal Reserve effectively ended its policy of patience where saying it wouldn`t do anything for many months. That word came out of the policy statement.
Instead, it emphasized uncertainties in the economic outlook and said it would, quote, act as appropriate to sustain the economic expansion. As recently as March, no Fed official forecast a rate cut this year. Now, eight Fed officials forecast at least one in 2019 and seven of them forecast two.
Fed Chair Jay Powell said even those who are not forecasting cuts in the survey are leaning that way.
POWELL: A number of those who wrote down a flat rate pass agree that the case for additional accommodation has strengthened since our May meeting. This added on accommodation would support economic activity and inflation`s return to our objective. Uncertainties surrounding the baseline outlook have clearly risen since our last meeting. It is important however that monetary policy not overreact to any individual data point or short-term swing in sentiment. Doing so would risk adding even more uncertainty to the jot look.
LIESMAN: So, what will it take for the fed to actually cut rates? Powell made clear the committee wants more clarity in the outlook and how much the economy is really going to weaken. And he wants to see how trade talks with China work out.
If those concerns about the economy are proven right in the data, it seems clear the fed would respond with rate cuts and it could happen as soon as July.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.
GRIFFETH: And let`s turn now to Diane Swonk for more analysis of today`s Fed meeting. She`s chief economist at Grant Thornton.
Always good to see you.
And we should point out, you were among those who were pointing out we could get what you called an insurance cut today. But what did you make of what we got today?
DIANE SWONK, GRANT THORNTON CHIEF ECONOMIST: Well, we didn`t get an insurance cut today but we sure got Powell punted to July, but I think they`re gearing up for take cut in July. Steve is absolutely right. They`ve got a little more data they would like to see.
They`re really worried now that inflation — I know many of your viewers say, hey, I`m paying too much for things, but they would like to see a much warmer economy given how long the expansion is. They would like to see a bit of a heat wave and we`re not getting it. And that`s something they`re concerned about. They really miss that.
Something else important for viewers to understand is in the statement itself, Steve read that part of the statement, they said they want to extend, actually do whatever necessary to extend the length of the expansion. I think that`s something that`s really unusual for the Fed. We really don`t usually hear the Fed talking about sustaining expansions.
We hear all of this other stuff that is, you know, more abstract like full employment, price stability. But the idea they want to sustain the expansion, and I was at the meeting that Jay Powell was at and he was talking to people getting a second chance in the economy. He only sees the method he has for opening up the economy to more people participating in the marathon (ph) of expansion is to extend the length of the expansion.
HERERA: So, Diane, how important is the upcoming G20 meeting in all of this, and, you know, rather, the flat talks between the U.S. and China? We haven`t really seen any progress on that front.
SWONK: Exactly. And that`s — we really need to see progress on that front and some backing off of tariffs as well. That`s something that the Fed is concerned about, that already the tariffs we have — because the Mexican situation did flare up and that scared the Fed. That settled down, with the idea we would tear up everything from Mexico, but now, we`re going to see another round of tariffs with China or at least a backing off of tariffs with China.
That is going to be one of the many factors they take into account. The trade situation is something they`re very concerned about. The issue on uncertainty, too, and in sentiment, this is something — they really got spooked last December because not only did businesses pull back when we had the huge market swoon, but we also saw consumers pull back, and there are in better economic situation and the overall economic data showing more momentum in it than there is today, and that`s something they are really worried about.
So, they are still talking about a preemptive cut.
SWONK: They`re talking about cutting before the economy falls apart and insurance.
GRIFFETH: Diane Swonk with Grant Thornton, always good to see you. Thanks, Diane.
SWONK: Thank you.
HERERA: And now to trade and that changing tone out of China. The rhetoric used to be defiant but not anymore.
Eunice Yoon is in Beijing.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese Foreign Ministry struck a warmer tone today, saying that the history of U.S.-China relations shows that positive outcomes are possible. State media was quoting President Xi Jinping as saying that the world wants a U.S.-China trade deal and that he is willing to meet with President Trump to exchange views on fundamental issues.
However, President Xi also laid out some parameters that the two should talk as equals, accommodate each other`s legitimate concerns, and that the U.S. should treat Chinese companies fairly — a possible hint at what China sees as a U.S. is unfair treatment of Chinese tech giant Huawei.
And I spoke with people on the Chinese side who followed the talks closely and they say that China is cautious. There`s concern that President Trump could decide to hit Beijing with tariffs on issues of the Chinese see as unrelated to trade and economics, such as the Hong Kong protests. He did it with Mexico and the flow of migrants over the border.
So, the way he was explained to me is what would stop President Trump from doing that again with China, in which case a trade deal would be meaningless and it might be better to wait things out.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
GRIFFETH: Meanwhile, China`s Huawei as Eunice just mentioned, has become one of the most controversial companies in the world. The U.S. has barred suppliers from doing business with a telecom giant, citing national security issues. The concern is that Huawei`s cozy relationship with the Chinese government leads to fears that it could use its devices to spy on other countries and companies. And the ban has clearly had an impact on its business.
Deirdre Bosa spoke today with Huawei`s founder and CEO in Shenzhen, China.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Currently blacklisted by the Trump administration and possibly a key pawn in the U.S.-China trade war, China`s biggest tech company Huawei is in the midst of a public relations battle, and a costly one at that.
But for a company trying to prove to the world that it`s embracing transparency and trying to earn the trust of governments, Huawei CEO and founder Ren Zhengfei was very unforthcoming. He downplayed the company`s importance and denied its role in the trade war.
REN ZHENGFEI, HUAWEI CEO AND FOUNDER (through translator): Huawei is a very small issue. And on the table of the U.S. side, it is not even as big as a sesame. So, it is not worthwhile to talk about our issues and we will counter ourselves to address the issue. We still do trust the judicial system in the U.S. and we believe the judicial system will address the issue.
BOSA: Mr. Ren, how can you say this? You have 180,000 employees. You are one of the biggest companies not only in China but in the world. Why would it be strange to talk to Chinese government officials when you are such an important company to China and in the world?
REN: Because we are fully capable to deal with those issues on our own.
BOSA: Earlier this week, the world`s number two cell phone maker said it could take a $30 billion hit to revenue on those U.S. sanctions, but that massive number doesn`t scare Ren. He told me that $30 billion is a very small thing, and that the company does not attach importance to high numbers, rather they focus on performance.
For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa in Shenzhen, China.
HERERA: Apple (NASDAQ:AAPL) is reportedly looking to move 15 to 30 percent of its production capacity out of China and to Southeast Asia. Such a move would reduce its reliance on Chinese manufacturing.
Separately, Harley-Davidson (NYSE:HOG) inked a deal to build smaller motorcycles in China. The bike will be sold in China and likely in other Asian markets as well. It is expected to go on sale at the end of 2020.
GRIFFETH: Back here, White House officials were on Capitol Hill today to talk about another looming issue that would be the debt ceiling, certainly something that lawmakers have to increase so the government can pay its bills and avoid defaulting on its obligations.
Ylan Mui joins us from Washington tonight.
Here we go again. Where do things stand right now?
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, we`re certainly closer to a deal than we were hours ago. Treasury Secretary Steven Mnuchin, along with acting White House chief of staff Mick Mulvaney, they met with congressional leaders today and they`re really trying to do three things, not just raise the debt ceiling but also make sure they can fund the government and avoid a sequester, very painful steep cuts to government spending that would take effect by the end of the year if they can`t reach this deal.
So, these negotiations are ongoing and House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer put out a statement saying that they feel today`s discussions advanced those bipartisan negotiations.
HERERA: So, Ylan, you hinted at this a minute ago but what happens if they don`t or can`t reach a compromise?
MUI: Well, particularly when we`re talking about the debt ceiling, it could be devastating for investors. That`s something that could shake the faith that investors have in the United States credit. However, Treasury Secretary Mnuchin said that if they can`t reach a broader deal, the White House is prepared to offer a one-year increase in the debt ceiling as well as a one-year continuing resolution that would keep the government funded at its current levels. He said that President Trump wants to keep the government open and does not want to play around with the debt ceiling.
GRIFFETH: All right. But what is their deadline right now to reach an agreement?
MUI: So they do have some time here to continue those negotiations. The deadline for raising the debt ceiling is sometime in the fall, likely late September or early October they need to keep the government funded however by the end of the fiscal year which ends on September the 30th.
GRIFFETH: A little bit of time.
Ylan Mui in Washington, thanks, Ylan, for staying late for us tonight.
HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.
U.S. Steel was upgraded to buy from sell at Vertical Group. The analyst cites the company`s decision to idle two of its U.S. plants. The price target is $17. The shares rose 4 percent to $15.17.
TripAdvisor was upgraded to buy from hold at SunTrust. The analyst cites the company`s growth outlook and potential revenue acceleration. The price target is $60. The shares were up nearly 2 percent to $47.19.
Six Flags was upgraded to outperform from neutral at Wedbush Securities. The analyst cites spending improvements and the development of its parks in China. The price target is $62. The shares rose 2 percent to $57.67.
GRIFFETH: Still ahead, a growing concern for advertisers.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Julia Boorstin in Cannes, France, at the Annual Advertising Festival here, and Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) are out in force, but so is talk of tech lash. We`ll look at what potential regulatory scrutiny could mean for the other players in the space. That`s coming up on NIGHTLY BUSINESS REPORT.
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GRIFFETH: As we mentioned earlier, the stock markets` major averages are nearing new highs and the biggest gains have been concentrated in just a handful of stocks.
Bob Pisani explains.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: We`re just about halfway through the year and stocks have enjoyed a strong first half. All three major averages are up double-digit so far in 2019, but the gains have been concentrated in one sector in particular, technology.
Tech is the best performing sector in the S&P 500. It`s up 25 percent and we should point out that almost a quarter of the gains this year have come from four big names alone: Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB). Why? The investors have been searching for growth and protection from the trade tensions. Microsoft (NASDAQ:MSFT) in particular has been rallying to all-time high several days in a row and now it`s firmly above the trillion dollar mark in market capitalization.
The S&P, remember, is a market cap weighted index. Those four stocks, they comprised about 15 percent of the S&P`s overall weighting, four stocks. Remember, May was a very bumpy month for big tech as a whirlwind of privacy and regulatory concerns hit the sector primarily around lawmakers looking into putting tech titans on a tighter leash, and trade sensitive semiconductors have been at the mercy of these U.S.-China trade talks but they stopped believe it or not more than 20 percent on the year.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: So with most of the stock market gains concentrated in four of the biggest names in tech, what are the risks and should investors be concerned?
Joining us now to discuss this is Erin Gibbs. She`s a portfolio manager at S&P Global Market Intelligence.
Welcome. Nice to have you here, Erin.
ERIN GIBBS, PORTFOLIO MANAGER, S&P GLOBAL MARKET INTELLIGENCE: Thank you.
HERERA: So are you concerned about this top-heavy market or not?
GIBBS: So I am concerned that they are concentrated in really what we consider two different sectors. I know — I know you call them technology, but when you actually look at them, two of the top five are in pure technology, Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL), and the other two are communications, so the Facebooks, the Googles. And then the last one, Amazon (NASDAQ:AMZN), is actually consumer discretionary, remember, it`s all about buying stuff. It`s not a tech company.
But even so, those are very concentrated and that is somewhat unusual that we have so few sectors representative. When you look at the overall weightings and you say, oh these top five, these top four stocks are such a big way to the index, it`s actually not that different from the past 20 years, and it has been a bit of a gradual increased over the past five years.
GIBBS: But when you look back 20 years, it`s actually very much in line and much like what we kind of saw the average weights in the early aughts. So I`m not as concerned about them being big and having these mega cap stocks. I am concerned that investors are too focused in very much more volatile sectors and they may not be getting the diversification that they really need.
GRIFFETH: I mean, if there is a concentration you`re concerned about, it`s that all five could be considered growth stocks, right?
GIBBS: And that`s —
GRIFFETH: You don`t have a value stock per se in this group, right?
GIBBS: Exactly and all you have to do is just go down to sort of the top ten stocks and you start getting some value stocks and some financials. But that`s another problem is that you are very much in these growth stocks and growth stocks are the ones that have by far the highest prices, and not just higher than value even historically when you`re looking at the past ten to fifteen years, growth stocks are priced at about 50 percent higher for every dollar that they earn versus what a dollar of value stock earns.
So, you`re paying 50 percent more for every dollar that they earn. And so, that`s concerning that you`re paying so much more for growth stocks versus of value, and it is something that we definitely want to recommend to investors to be diversified and have some value as well as growth in your portfolio.
HERERA: I was just going to ask you if the average investor should take a look at that and maybe say you know I need to diversify in some other sectors.
GIBBS: Certainly, if you have all of these very low growth stocks have been doing well and it is healthy to have an overweight in growth stocks when the economy is growing is well, but we`re actually expecting a bit of a slowdown over the next 12 months and particularly when we`re seeing just increased volatility over the past 12 months, where you see these big huge up days and down days, concerns about Chinese tariff wars, whether we`re going to have a rate cut, there`s some big unknowns out there.
And so, a little diversification at this point in the economic cycle is not a bad thing.
HERERA: On that note, Erin, thanks so much for joining us. Erin Gibbs with S&P Global Market Intelligence.
GRIFFETH: Southwest pilots want reimbursement from Boeing (NYSE:BA), and that`s where we begin tonight`s “Market Focus”, with the pilots union for the airline asking Boeing (NYSE:BA) for compensation to cover legal costs and lost income due to the grounding of the 737 MAX planes and the canceled flights that that has caused. Southwest, by the way, also said it has extended those cancellations through early September, but the airline did raise its full-year revenue even though its overall fuel efficiency was reduced by the groundings. Shares were down a fraction today to $51.51.
Meanwhile, American Airlines agreed to buy 50 of Airbus`s new a 321 XLR planes, the aircraft maker`s longest range single aisle plane. American becomes the first major U.S. carrier to purchase the new narrow-body jet since it was unveiled at the Paris Air Show earlier in the week. Shares of American rose more than 2 percent today to $33.21.
Target`s CEO today publicly apologized to customers after cash registers at its stores went down for a couple of hours on Saturday and then a credit card glitch prevented sales on Sunday.
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BRIAN CORNELL, TARGET CEO: I need to start out by apologizing to the thousands of guests who were shopping our stores on Saturday and again on Sunday. And unfortunately, we had issues both days. On Saturday, we had an internal issue, just tied to standard maintenance that knocked us down for a couple of hours. And on Sunday, we had an issue with our partner NCR (NYSE:NCR), one of their upstream data centers. So, a disappointing weekend for us.
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GRIFFETH: Target (NYSE:TGT) shares fell another fraction today to $86.16.
HERERA: Winnebago posted better than expected earnings due to lower costs and a more favorable tax rate. But the recreational vehicle maker did miss revenue estimates because of what it called a challenging R.V. wholesale market. The stock was up more than three and a half percent to $40 even.
MGA Entertainment says it is no longer interested in trying to merge with Mattel (NASDAQ:MAT) after the rival toy maker rejected MGA`s second merger attempt. MGA CEO said it was in the best interest for his company not to move forward with an offer and that Mattel (NASDAQ:MAT), quote, cannot be salvaged, end quote. Mattel (NASDAQ:MAT) shares were off more than 5 percent to $11.41.
And after the bell, Oracle (NASDAQ:ORCL) reported better than expected earnings. The software maker also topped revenue estimates, thanks to an increase in cloud services and license support. Shares initially rose in the after-hours trading, but closed the regular session down a fraction to $52.68.
GRIFFETH: Hundreds of billions of dollars will be spent on digital ads this year and much of that money will likely go to companies like Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB). But before making spending decisions, advertisers are taking in consideration the regulatory backlash against these tech giants sometimes referred to as tech lash.
Julia Boorstin reports once again tonight from the Cannes Lions Conference in France.
BOORSTIN: The annual gathering of advertising giants discussing where to put the $600 billion that would be spent on ads worldwide this year comes amid growing tech lash, criticism of Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB), that digital duopoly that together controlled the majority of all digital ad spending. With the CEO of the largest ad conglomerate WPP`s Mark Read says breaking up those two giants would not help consumers.
MARK READ, WPP (NASDAQ:WPPGY) CEO: Clearly, you know, with the shift online, these two companies are ever more powerful. But I didn`t have to ask ourselves, you know, what are we really trying to achieve by and if you would have call for them to be broken up? And is that really going to make, you know, the world a better place?
The great benefit of these platforms for consumers is most of their products are free. The advertisers fund it, advertisers support it, and I think in balance that`s a good thing.
BOORSTIN: And with so many other options out in force here in Cannes, from Snap to Twitter, the CEO of another conglomerate, IPG`s Michael Roth, says advertisers will start to move their dollars if Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) don`t make meaningful changes around issues of brand safety, not having ads placed next to offensive content and privacy protections.
MICHAEL ROTH, IPG CEO: You know, everyone talks about government regulation and breaking them up. But what really will happen is our clients will not start spending with them, and that will be the biggest effect eventually if it doesn`t get corrected.
BOORSTIN: And there are a range of companies here that are positioning themselves as alternatives to Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG), by focusing on professionally created content which doesn`t have the risks around a brand safety. One of those is AT&T`s ad tech division Xandr.
BRIAN LESSER, XANDR CEO: That`s a big opportunity for us because frankly I think that Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) have had a hard time managing the content on their platforms and assuring advertisers that they`re not going to end up advertising in a place that is inconsistent with the brand.
BOORSTIN: Others such as Pinterest and videogames streaming service Twitch are ramping up their presence here to explain to advertisers the depth of their devoted audiences, while magazine publisher Conde Nast positions itself as a premium filter for YouTube.
ROGER LYNCH, CONDE NAST CEO: Advertisers who may not want to advertise just broadly on YouTube will advertise through us on YouTube because their content maybe they want endemic content for their advertising, or they`re concerned about brand safety.
BOORSTIN: And as the tech companies here host parties and panels for advertisers, those brands have more options than ever.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Cannes, France.
HERERA: Coming up, why car quality is stalling out.
GRIFFETH: A new report says car buyers are finding plenty of problems with the latest models and showrooms. In particular, they`re seeing issues with the technology design to make driving cars safer.
Here`s Phil LeBeau.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you`re looking to buy a new car or truck, you know one of the big selling points — technology that makes driving easier and safer. Take lane departure warnings, the goal is to keep cars from colliding during lane changes. But a new report by J.D. Power says driver assist technology is not always intuitive or easy to use.
DAVE SARGENT, J.D. POWER: One of the dangers is that automakers overcomplicate the technology and engineers need to remember that they are designing for normal people and not for other automotive engineers.
LEBEAU: While automakers may be struggling with driver assist technology, J.D. Power says buyers are seeing fewer problems with connectivity and infotainment systems. And this year`s report shows Korean brands continue to have the most problem-free new vehicles with Genesis, Kia and Hyundai leading the way.
SARGENT: They deliver as much technology as most other brands but they are very, very good at keeping it simple and giving consumers exactly what they want.
LEBEAU: By comparison, the luxury brands Jaguar and Land Rover both owned by the same company are rated as among the newest models with the most issues. Jaguar, Land Rover, along with Mitsubishi, are rated the worst in initial quality.
J.D. Power says new car reliability is still at a record high, but his automakers add new features especially technology to help us drive safer, the challenge is making sure not only that that technology works but that it`s easy to use.
Phil LeBeau, NIGHTLY BUSINESS REPORT Chicago.
HERERA: The billionaire founder of Blackstone is giving the University of Oxford $188 million dollars to research the ethics of artificial intelligence. It is believed to be the largest single gift to oxford since the Renaissance. Steve Schwarzman said he hopes that gift will help the rollout of the technology and limit the disorder to society.
GRIFFETH: And finally tonight, an exclusive club has a new member. Bernard Arnault is now worth $100 billion, joining the ranks of Amazon (NASDAQ:AMZN) founder Jeff Bezos and Microsoft (NASDAQ:MSFT) founder Bill Gates. Mr. Arnault is chairman of luxury goods maker LVMH. He is also the richest person in Europe and owns a 97 percent stake in the fashion house Christian Dior.
HERERA: Here`s a look at the final days numbers on Wall Street. The Dow rose 38 points, the Nasdaq up 33, S&P 500 added eight, less than 1 percent away from a record.
And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herrera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.
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