ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Trade truce. That`s what investors are hoping for when President Trump and China`s President Xi meet. But stocks gains were kept in check.
Rally mode. The first six months of 2019 are in the books now and the S&P 500 logs its best first half in decades.
Bank bounce. The sector has been out of favor for months now, but new dividend increases may be just what it needs to get investors excited again.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this Friday, June 28th.
And we do bid you a good evening, everybody, and welcome. Sue is off tonight.
Well, here we are at the end of the week, the month, the quarter and the first half of 2019. What a fist half it was. We`ll have more on that in just a moment, but we begin tonight with that meeting that investors have been all waiting for, President Trump and Chinese President Xi are in Japan at the G20 summit ready to discuss trade. And analysts say that this discussion could mark a turning point for the market which has been bouncing around for months now on any and all headlines of progress and stalemates between the world`s two largest economies.
Kayla Tausche reports tonight from Osaka, Japan.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: White House officials can`t say with certainty exactly what will transpire during President Trump and President Xi`s 90-minute meeting, but a senior administration official tells me the working assumption is that it will result in an agreement to de-escalate tensions and resume talks for an unspecified amount of time, that is unless President Xi refuses to revisit the terms Beijing balked at last month.
Since then, tensions have heightened but there`s still an opportunity according to the White House`s former G20 negotiator.
CLETE WILLIAMS, FORMER WHITE HOUSE INTERNATIONAL ECONOMICS ADVISOR: I think President Trump needs to show in front of those hard liners to President Xi that this isn`t about keeping China down, but this is just about making sure that China is treating U.S. companies fairly. I think if President Trump can signal that in front of Xi and his hard liners, I think that will give the president of China some more flexibility to come back to the negotiating table in the way that we need him to.
TAUSCHE: When asked by reporters in Osaka, President Trump said he still hadn`t decided to suspend new tariffs.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We are going to have a meeting with President Xi of China tomorrow as you probably have heard. There seems to be a rumor about that. And we are indeed and we look forward to it. I think it will be productive and who knows? But I think it will be productive. At a minimum, it will be productive. We`ll see what happens and what comes out of it.
TAUSCHE: The meeting`s outcome could remove or deepen uncertainty in the global trading system and the tariffs that have been the fly in the ointment of the global economy, but there are other trade and geopolitical issues that are closely watched. European leaders want to figure out next steps on their trade front with President Trump with auto tariffs not off the table. Japan was on defense as Trump slammed its post-war defense treaty.
Russia and the U.S. were going to discuss a new arms framework after a previous treaty resolved and new sanctions could be in the works for Turkey after purchasing Russian military equipment. That could come up on the final day of the G20 when President Trump meets with President Erdogan immediately following the shut down with President Xi and immediately before a wide-ranging press conference.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Osaka, Japan.
GRIFFETH: So, what to expect from this meeting? Joining us now to talk about, Kevin Nicholson is chief market strategist at Riverfront Investment Group.
Kevin, good to see you again. Welcome back.
KEVIN NICHOLSON, RIVERFRONT INVESTMENT CHIEF MARKET STRATEGIST: Thank you.
GRIFFETH: Here, we were saying how well the market has done the first half of the year. Do you think the markets are overly optimistic about this meeting coming up? What do you think?
NICHOLSON: Well, I think that the markets are optimistic about the meeting. Our base case is that they`re going to agree to restart negotiations, and the greatest hope that we could have coming out of the meeting is that the U.S. says that they`re not going to raise additional tariffs on the other $300 billion worth of goods coming out of China.
GRIFFETH: You know, we speak of the market as a whole, but let`s face it, there are certain sectors of our economy that are more vulnerable to this trade dispute, especially when it comes to the tariffs that you were just mentioning there.
Are they the ones that you should be mindful of as we wait for the outcome of this particular meeting? In other words, if they`re moving higher as well, does that mean that the market is becoming overly optimistic here?
NICHOLSON: Yes, I think so. I think that the market has rallied over the last week or so based upon the negotiations and the idea that the two presidents were going to sit down and actually talk about trade, because, remember, a month ago, there was escalation and, you know, there were — they moved away from the table and there were no talks whatsoever.
NICHOLSON: I think that the discussions had gone as far as they could with their representatives, and having the two presidents in the same room I think is what is really giving the market hope and why a lot of the sectors that could be affected by the trade agreement or trade war in this sense are indeed rallying.
GRIFFETH: Well, Monday should be very interesting to see how the markets respond to what happens over the weekend.
Kevin Nicholson with Riverfront Investment Group, always good to see you. Thanks for joining us tonight.
NICHOLSON: Thanks for having me.
GRIFFETH: And with companies looking to shift some operations out of China amid the trade war, Apple (NASDAQ:AAPL) is reportedly ready to move production of its iMac Pro into China. It was Apple`s only device being assembled in the United States, but according to reports the company can save on shipping costs of Mac Pro components since many suppliers are in close proximity to Shanghai. And you can read more about that move on our website at NBR.com.
Meanwhile, on Wall Street, stock rose ahead of the key meeting on trade, but the gains were muted. The Dow Industrial Average rose just 73 points, now at 26,599. The S&P was up 38. The S&P added 16.
But check out some of these numbers. For the month, the Dow notched its best June since 1938. The S&P posted its best June since 1955, and for their first six months, the S&P posted its best start to a year since 1997.
But if you looked at where the money flowed in the first half, that told a different story. And Bob Pisani explains.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Investors appear very divided over the global and superintendent economy in first half of the year, at least if you follow fund flows. Many seem to be positioned for some kind of global slowdown, so it makes sense that bond funds were big winners in the first half of the year. Taxable bond flows, those are government and corporate bonds, they jumped 11 percent in the first half in terms of the flow, the amount of money going in, particularly in the longer duration bond funds, that`s money going into the bonds remember.
So, municipal bond flows, which are exempt from federal and most state and local taxes also rose, up 9 percent, and then these again are flows. Compare it to stock fund flows, a measly 3 percent increase, most of that goes into those low volatility funds, which are defensive in nature.
On the other side, there`s evidence that many simply believe rates will be lower for longer and that it`s not necessarily telegraphing some slowdown in the global economy. For example, high yield ETFs like the HYG, they ebbed and flowed in price all year but they`ve still seen significant inflows. Right now, investors seem not too worried about the fact that these corporations with the junk bond ratings, they don`t seem worried they will go under any time soon. That`s important because these funds would be first to turn down if there was any consensus about a U.S. base downturn.
As for the big gainers in the year, the surprise has been the huge success of the IPO market, IPO ETF, which is a basket of roughly last 60 largest IPOs of the year, is up 35 percent this year, double the performance of the S&P 500. That success is guaranteeing that other IPOs waiting in the wings, WeWorks, Peloton and potentially even Airbnb will be eager to find a way to go public in the second half of the year.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: Now, to the latest on the economy, personal income and spending both rose in May with households increasing purchases of cars and they spent more at restaurants and hotels as well. A separate report showed consumer sentiment declined slightly in early June, although it remains at elevated levels. But a measure of business conditions in the Chicago region fell into contraction territory in June, that`s the first time that`s happened in 2-1/2 years. The survey cited the impact of tariffs on that region.
And as soon as the G20 wraps up in Japan, two big players, Saudi Arabia and Russia, will be immediately heading to their next big meeting as oil producers gather in Vienna. But a question looms, given the heightened tensions with Iran and the collapse of Venezuelan oil production, why have prices remained relatively stable instead of shooting higher?
Brian Sullivan found some answers for us.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is not one thing that kept oil price it relatively stable but a few. First and foremost, record American oil production. The U.S. could be headed to 13 million or even 14 million barrels per day, and this oil, largely considered risk free, meaning it is not subject to the whims of geopolitics.
Next, it`s not just us. Russian production remains elevated as well. While Russian output is down fractionally from a few months ago, they`re still above 11 million barrels a day. That`s likely frustrating OPEC who was hoping last year`s cut would firm up prices.
Speaking of OPEC, another problem is that not everybody believes that deal to cut production is going to hold up. Some traders are worried that should the OPEC deal break, another million plus barrels a day will hit an already-over supplied market.
Finally, oil has been held down by growing fears of an economic slowdown around the world. If the world`s major economies begin to taper off, demand for oil will fall, leaving more excess barrels on the market.
For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan.
GRIFFETH: Time to take a look at some of today`s “Upgrades and Downgrades”.
We start tonight with Procter & Gamble (NYSE:PG) shares. They were upgraded to buy from neutral at Goldman Sachs (NYSE:GS). The analyst cited the company`s market share and organic sales growth, which has turned around this year. The price market now is $125. Despite that upgrade, though, the stock fell a fraction to $109.65.
Biogen was downgraded to neutral from overweight at Piper Jaffray, with the analyst citing headwinds facing two of the company`s drugs. Price target, $250, and that stock fell about 2.5 percent today to $233.87.
And Live Nation Entertainment (NYSE:LYV) was downgraded to a sell from neutral at Citi. The analyst cited the stock`s valuation following a 30 percent gain so far this year. Price target, $63. That stock fell 1 percent to $66.25.
Still ahead, the Democratic divide over the future of our health care system.
GRIFFETH: Clearly, the Democrats are divided over health care, at least that`s one of the takeaways from this week`s first debate. A few candidates said that they would abolish private health care coverage in favor of a government-run plan, but not all are in favor of that idea and some analysts say that split could be a positive for health insurance stocks.
John Harwood is in Miami for us tonight.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: The first Democratic presidential debates helped some candidates like Elizabeth Warren, Julian Castro and Kamala Harris (NYSE:HRS) and hurt others like former Vice President Joe Biden, the Democratic front-runner, but it also placed a question mark over a major American industry, private health insurance. And for the likes of Aetna (NYSE:AET), Humana (NYSE:HUM) and UnitedHealth, that uncertainty could play out through November 2020.
Senator Warren has long-favored a new universal Medicare-for-All program, but in her debate on Wednesday night, Warren broke new ground by specifying that meant she`d get rid of the entire private health insurance industry.
SEN. ELIZABETH WARREN (D-MA), PRESIDENTIAL CANDIDATE: Look at the business model of an insurance company. It`s to bring in as many dollars as they can in premiums and to pay out as few dollars as possible for your health care. That leaves families with rising premiums, rising co-pays, and fighting with insurance companies to try to get the health care that their doctors say that their children need. Medicare-for-All solves that problem.
HARWOOD: That draws a clear contrast with Biden and other Democratic moderates who favor building on the current system rather than creating an entirely new one. Less disruption also means less risk of alienating voters in a general election against President Trump.
Last night, Senator Harris (NYSE:HRS) appeared to join Warren and Bernie Sanders out on the political limb, raising her hand to signal she would give up private insurance too, but there was a fresh plot twist after the debate. Senator Harris (NYSE:HRS) clarified she only meant she would give up her own private insurance, not take away everyone else`s.
The next Democratic debate comes in late July and this issue isn`t going away any time soon.
For NIGHTLY BUSINESS REPORT, I`m John Harwood in Miami.
GRIFFETH: Banks have been raising their dividends following the latest results to the Fed`s stress test that we told you about yesterday. And that sent many bank stocks higher today and we took notice of some of the dividend yields that these banks are paying. J.P. Morgan Chase, for example, is now above 3 percent, many others around 2-1/2 percent, which is more than the average yield of the S&P 500 stock.
So, we are wondering, will this make this sector which has been floundering attractive again?
Joining us tonight is Ed Groshans. He`s a financial services analyst at Height Analytics.
Good to see you again. Welcome back.
ED GROSHANS, HEIGHT ANALYTICS FINANCIAL SERCIES ANALYST: Thank you.
GRIFFETH: What do you think? I mean, clearly, people have had high expectations for bank stocks as the Fed was raising rates. But now they halted — now there`s talk of Fed rate cuts.
What do you think the banks are going to do at this point?
GROSHANS: I think we`re kind of in a stable spot. If anything, I would be slightly optimistic. You know, loan growth lass been in the low single digits. I think that`s really going to be a driver of any value growth and we haven`t seen that yet. We had tax cuts. We had a strong economy. We had recapitalization of funds from overseas coming into the U.S. economy and it hasn`t translated into loan growth.
So, we did have rising rates but it was on the same assets, not new assets. So, I think, you know, higher dividends will certainly add some value to it, but I think the strong economy is going to have to produce for the banking sector, and at this point, I like the fee income banks, the banks with capital market exposures, banks that have international exposure as to true regional lending banks.
GRIFFETH: Right. I mean, those fees are what made up the difference for those banks unable to make any money on the traditional way of borrowing and lending.
So, who do you like best in this group? Do you just pick from the group that has the highest yields or what do you do here?
GROSHANS: Only picking from the highest yields if I`m a yield investor. I think here I want capital appreciation, so I`m going to focus on J.P. Morgan, Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS). I think there`s a lot of market activity out there. I think we`re going to see capital markets both in investment and trading pick up, and those are the firms that are going to benefit from it the most.
GRIFFETH: What about those regionals though? Sometimes they can have a higher dividend yield.
GROSHANS: They have a much higher dividend yield. Many of them are approaching 4 percent.
GROSHANS: But at the end of the day, you know, the discussion over the past few quarter was the positive, i.e., how much it is costing to attract deposits and it was going up. I don`t think it is going away even though yields are coming down. I think they will experience margin pressure and if they don`t have loan growth to offset, you get a nice dividend but where does the capital appreciation come along with that.
Ed Groshans with Height Analytics, good to see you again. Thanks for joining us tonight.
GROSHANS: Thank you, Bill. Have a good day.
GRIFFETH: Investors raise a glass to Constellation Brands (NYSE:STZ), and that where we begin tonight`s “Market Focus” with a pair of Corona and Modelo topping revenues and sales growth in its beer and wine portfolios. As a result, the company raised its fiscal outlook, but due to ever changing consumer taste the alcoholic beverage company is looking at cannabis for growth.
(BEGIN VIDEO CLIP)
BILL NEWLANDS, CONSTELLATION BRANDS CEO: This is something that we need to be in. The consumer is interested. We see it as somewhere in the next ten years of a $200 billion business. It`s going to be big business, and we felt it would be important to be involved with that and be a part of that, and we choose — chose to make that investment through Canopy. We`re very excited about the long-term potential of that investment.
(END VIDEO CLIP)
GRIFFETH: Constellation Brands (NYSE:STZ) rose more than 4-1/2 percent today to $196.94.
Elsewhere, Deutsche Bank is reportedly considering cutting up to 20,000 jobs or more than one in six full-time positions globally at that company. “Wall Street Journal” says that the lay-offs could take a heavy toll on its U.S. operations and on the company as a whole. Stock was up more than 1 percent though to $7.63 today.
RealReal had a strong Wall Street debut after raising more than $300 million in its IPO. The CEO of the online consignment retailer sees a profitable future for her company.
(BEGIN VIDEO CLIP)
JULIE WAINWRIGHT, THEREALREAL FOUNDER & CEO: We did $711 million last year. The total opportunity in the U.S. is $200 billion. So we`re going to continue to focus on growth, but not growth at any cost. We`re hyperconscious about unit economics, we have a path to profitability, and we`re going to execute against that path.
(END VIDEO CLIP)
GRIFFETH: Yet another strong IPO today with it up almost 45 percent at $28.90.
Shares of Sarepta got a lift after some safety concerns were raised in an early stage study for a rival gene therapy from Pfizer (NYSE:PFE) that treats a rare muscle wasting disorder. Sarepta already reported promising data from its own research last year. Pfizer (NYSE:PFE) dropped a fraction today to $43.32, but Sarepta did surge more than 17 percent on the news to $151.95.
Now to our weekly market monitor who likes stocks that are paying you a better income than bonds. We are back to income tonight. Hank Smith is with us. He is chief investment officer at Haverford Trust.
Hank, always good to see you. Thanks for joining us tonight.
HANK SMITH, HAVERFORD TRUST CHIEF INVESTMENT OFFICER: Good evening, Bill. Good to be with you.
GRIFFETH: And we start with a company we were just talking about a moment ago, J.P. Morgan. Is that your favorite bank because of its yield or why do you like it right now?
SMITH: It is our favorite bank because it`s the highest quality bank not only in the United States, in the world, with the best in class management, a very reasonable valuation, a 3 percent dividend yield that they just announced a 13 percent increase on top of last year`s 42 percent increase.
So in the past five years, they`ve annualized that dividend increase at 15 percent, so you have doubled your income in five years. Not only are you getting a better than bond-like yield, you are getting growth of income. A very attractive situation. Oh, by the way, the stock price has doubled over the last five years.
SMITH: Although as you noted earlier, it hasn`t done much recently.
GRIFFETH: Exactly. To UPS now, I was looking — now, they have a dividend of about 3.75 percent or something around that yield. I was looking at FedEx (NYSE:FDX), their main rival, they are only at 1-1/2 percent. So, you get a better yield but does it mean more risk necessarily?
SMITH: Well, look, UPS has always paid a healthier dividend yield than its competitor FedEx (NYSE:FDX), and I don`t think that`s indicative of a riskier situation. Usually you have to have stocks yielding north of 6 percent, 7 percent, 8 percent that indicates the market doesn`t trust that yield.
But, again, UPS has been a consistent dividend grower ever since they went public. They`ve increased their dividend at a 10 percent rate over the past five years, so you have grown your income, you know, practically 50 percent over the past five years.
GRIFFETH: All right.
SMITH: I think they`re going to continue to do that.
GRIFFETH: Finally and rather quickly if we can on Pepsi, you like that one better than Coke necessarily?
SMITH: We do. It is a little bit more diversified, and on the snack food, which is what is driving the tremendous growth there, they`re just hitting it out of the ballpark in snack foods. And again, paying nearly a 3 percent dividend yield with a 46-year record of annual dividend
increases. So I think you can have confidence that`s going to continue.
GRIFFETH: You would think so. Hank Smith with Haverford Trust — again, thanks for joining us, Hank. Have a good weekend.
And to read more about his picks, you can head to our Website at NBR.com.
And coming up, the federal minimum wage has set a record for not rising, but it is not the case in some states.
GRIFFETH: Here is what we`ve watching next week. Don`t forget it`s 4th of July next week as well, but on Monday, members of OPEC meet to discuss whether to extend the current oil production cuts. Tuesday, some automakers report their June sales figures. Investors will be focusing on the pace of SUV demand.
Then on Friday, government releases the always-important employment report, this time for June. That`s what we`re watching for next week.
Elsewhere, farmers apparently planted more corn than expected this spring despite heavy rains and flooding in the Midwest. We should point out all of the water kept farmers out of their fields for much of the planting season making official estimates difficult to put together, but the Department of Agriculture did say that while corn acreage was up, soybean acreage came in below forecast to the lowest level since 2013.
It has been ten years since the federal minimum wage was increased. That`s a record. While it may be stuck at the federal level, states and some companies have been taking matters into their own hands.
Kate Rogers (NYSE:ROG) has more.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Workers across the country are getting a raise as states and localities increase minimum wages. The pay increases come as the federal minimum wage remain stagnant at $7.25 for nearly a decade now, a new record, despite cries from politicians and worker advocates for a hike to as much as $15 an hour.
New Jersey will raise pay to $10 on July 1st. While in Oregon, workers will be paid $11.25. In Washington, D.C., the minimum wage will reach $14 an hour.
Many of these hikes are incremental steps on a path to a $15 an hour wage. More than half of the states nationwide now have wage floors higher than the federal minimum wage.
LEO GERTNER, NATIONAL EMPLOYMENT LAW PROJECT: Right now, we have seven states and the District of Columbia going to 15 and that`s a third of the U.S. workforce. But that still leaves 100 million workers in states that haven`t at the time is floor at 15. Fifty-six million of those workers are in states where the federal minimum wage is $7.25.
ROGERS: Despite little movement from the federal government, major corporations have been raising pay for workers. Amazon (NASDAQ:AMZN) hiked wages to $15 an hour and Target (NYSE:TGT) is on a path to $15 by 2020.
Walmart CEO Doug McMillon recently called on Congress to raise the federal floor and McDonald`s (NYSE:MCD) has said it would no longer lobby against hiking the minimum wage.
GERTNER: I think there`s broad recognition among American people now that if somebody works they should be able to afford a place to live, you know, some means of transportation, enough food, and $7.25 doesn`t pay for that. $10 doesn`t pay for that. $12 doesn`t pay for that. In a lot of places, $15 doesn`t, but $15 at least is a place to start to do that for an adequate minimum standard of living.
ROGERS: Critics say a $15 blanket hour a wage doesn`t make sense in every locality, particularly in places where the cost of living is lower. House Democrats are moving closer to a vote on the issue that would raise the level to $15 an hour, and those vying Democratic presidential candidates, including Senator Bernie Sanders and Vice President Joe Biden also have braced a $15 an hour wage.
Meanwhile, President Trump has previously said he believes states should decide the minimum wage floor.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers.
GRIFFETH: And before we go, one final look at the day on Wall Street as we close out the first half of the year, the Dow is up 73 points. Nasdaq, up 38. The S&P added 16. As we mentioned, the S&P posted its best start to a year since 1997.
That is NBR for a Friday night. I`m Bill Griffeth. Thank you so much for watching. Have a great weekend. 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.
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