ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Fresh record. The major averages extend their rally as much of the focus today shifted from Wall Street to Washington.
Strike or no strike? The UAW and the big three automakers are entering labor talks, and most agree it could get contentious.
Retirement strategy. More employers are offering Roth 401(k)s. But are they right for you?
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Monday, July the 15th.
And we do bid you a good evening, everybody, and welcome. Sue is off tonight.
It wasn`t much, but it was enough. Today`s modest gains in the stock market were just enough for the three major averages to eke out another record close. Lately, investors have been optimistic that the Federal Reserve will cut interest rates later this month. But in the meantime caution is setting in ahead of earnings season when corporate America will say how slowing global growth and trade uncertainties are impacting business.
Today, the Dow rose just 27 points. We`re at 27,359. The Nasdaq was up 14. The S&P gained a fraction. All of it enough for records.
Now, one of the biggest risks to the stock market may come from Washington if the debt ceiling is breached. As you know, the debt ceiling refers to a cap on the total amount of debt that the U.S. can accumulate. Only Congress can raise that ceiling to prevent a default. And once again it`s time for lawmakers to act on it.
But as Ylan Mui reports now, a lot has to get done in very little time.
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Treasury Secretary Steven Mnuchin said the White House and Congress are getting closer to a deal to raise the nation`s borrowing limit. Mnuchin said he has been briefing President Trump daily on this issue. He`s also been in regular contact with House Speaker Nancy Pelosi as well as Minority Leader Kevin McCarthy and Senate Majority Leader Mitch McConnell.
Ideally, they would do a two-year package that raises the debt ceiling and also lifts the federal spending cap.
STEVEN MNUCHIN, TREASURY SECRETARY: I think there is a preference on both parties to the extent we can agree on the debt ceiling and a budget deal, that that is the first choice. And I think we`re getting closer.
MUI: Treasury has warned it could run out of cash at the beginning of September. And that`s earlier than expected because corporate tax receipts in particular have been so unpredictable. Now, lawmakers are realizing that means they need to vote on this before they go on summer recess. The House departs in just two weeks. The Senate leaves in early August. Congress doesn`t come back until September 9th, after Labor Day and potentially after the debt limit deadline. And that`s generating urgency in Washington to take care of this now.
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.
GRIFFETH: Ed Mills joins us now to handicap what happens next on this issue. He`s Washington policy analyst at Raymond James.
Ed, good to see you again. Welcome back.
ED MILLS, WASHINGTON POLICY ANALYST, RAYMOND JAMES: Thank you for having me.
GRIFFETH: What do you think? Ylan says they`re working on possibly a two- year deal. That`s sort of a symbolic or critical time frame, isn`t it?
MILLS: Yes. So I think that no member of Congress wants to take a tough vote this year and then have to take another tough vote next year right before the 2020 election. And so, I do think that the base case here is that there is a two-year deal increasing the budget cap and extending out the debt limit.
I think the debt limit ultimately gets extended until March of 2021, bring it past the next year`s election, past inauguration, give the new congress, whoever`s in the White House, a couple of months to come up with the next deal. That`s what is absolutely going to happen. The fight between now and then is what the stock market`s going to trade on.
GRIFFETH: You know, any more it seems just inevitable that it gets raised anyway. It has to be or we default on our debt payments.
GRIFFETH: So what`s the give and take in the meantime? What has to be achieved before the votes can actually come up?
MILLS: Yes, if this was on the floor tomorrow, it would pass. I think what we`re really working on right now are those budget caps.
Right now, Congress is still under the Budget Control Act. This is the bill signed by President Obama and the Republican Congress that put automatic cuts to the budget unless Congress changed them. That`s about $130 billion this year and next year.
So, just to keep level funding you need to increase those caps by about $250 billion. Republicans are vying to increase those caps but they want more military spending than domestic spending. Democrats want more domestic spending than military spending. Usually, how these get resolved is you agree to both increase domestic and military about the same amount.
We probably will see an increase in these budget caps in the $400 billion to $500 billion range over the next two years. You have a deal, it`s bipartisan, it gets signed into law, we move on.
GRIFFETH: All right. We will see what happens. Ed Mills with Raymond James — again, thanks for joining us tonight.
MILLS: Thank you.
GRIFFETH: Also in Washington, there are reports that a shake-up in the president`s cabinet could be in the works.
Kayla Tausche has more on that.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump is considering replacing Commerce Secretary Wilbur Ross after a legal defeat to include a citizenship question on the 2020 census, according to multiple aides and outside advisers.
Commerce Department oversees the Census Bureau and the Census was described by multiple sources as the last major item on Ross`s to-do list. Secretary Ross and President Trump have a long-standing friendship. One reason Ross has avoided the president`s firing line before.
But in his 2 1/2 years running the agency, the president has been frustrated by Ross`s negative press on his financial disclosures and comments about federal workers` financial issues during the government shutdown. Trump also nixed two deals Ross tried to reach with China. And just last week, publicly another one of Ross`s policy suggestions, putting tariffs on uranium imports.
Treasury Secretary Steven Mnuchin told reporters Ross had played a key role on trade.
MNUCHIN: I have no reason to think Secretary Ross is doing a good job. I`ve never heard anything otherwise.
TAUSCHE: A commerce statement says Ross`s work continues and that he has shepherded the department into a new era. It`s unclear who would be tapped to replace Ross. The woman that`s come up in many conversations is Ray Washburn, the Texas developer who ran the overseas private investment corporation until March. Aides and advisers say Ross`s departure could come as soon as late summer and his chief of staff is already looking for a new job.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
GRIFFETH: And during that wide-ranging press conference today, Treasury Secretary Mnuchin also said the administration officials had some very serious concerns over Facebook`s proposed digital currency called the Libra. Mnuchin said that the fear is it could be misused by money launderers and terrorist financiers among others. Facebook (NASDAQ:FB) has said that it anticipated critical feedback from regulators around the world and that it announced Libra a year before its anticipated launch so that it could have these kinds of conversations.
In fact, David Marcus (NYSE:MCS), the head of Facebook`s crypto-currency project, is scheduled to testify on Capitol Hill tomorrow and in prepared testimony he will say that the digital currency will not launch until regulatory concerns are addressed.
And there was more talk today about the record fine that Facebook`s going to reportedly pay over its privacy lapses. As we reported Friday, that penalty could reach as high as $5 billion. But the company`s challenges are not over yet.
Julia Boorstin has that story.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Five billion dollars. That`s the cost of the FTC`s settlement with Facebook (NASDAQ:FB) for violating its commitment to protect consumer privacy. That`s a record. And it`s a high end of the expected range.
But it`s actually not that meaningful for Facebook`s bottom line. Just about a month`s worth of revenue.
Senator Elizabeth Warren tweeting, quote: Let`s be honest, this settlement is a victory for Facebook (NASDAQ:FB). Just look to the markets. In the first 15 minutes after the settlement was reported, Facebook`s market value went up by more than $5 billion.
Senator Amy Klobuchar saying in a statement, quote: A one-time $5 billion fine for a company whose profits are in the tens of billions of dollars a year is not enough to deter Facebook (NASDAQ:FB) and force them to put consumers` privacy before profits.
With no indication that the coming FTC settlement will meaningfully limit Facebook`s ability to collect and monetize data, Cowen has a buy rating on the stock.
JOHN BLACKLEDGE, COWEN: I think there`s probably a couple more years of this heightened discussion around privacy and antitrust for all of the players. But ultimately, we don`t think if there`s going to be anything material happen, you know, or material change in the business.
BOORSTIN: But some lawmakers say the minimal impact of the FTC`s fine gives more urgency to pass laws to change Facebook`s policies and the U.S. maybe the least of Facebook`s policy problems. Over 40 countries have passed regulations targeting social media and fake news over the past three years. And now, the E.U. is in the early stages of an antitrust investigation and the U.K. and France are writing new social media laws. But analysts note all these issues haven`t cost Facebook (NASDAQ:FB) its most valuable asset, its users.
VICTOR ANTHONY, AEGIS CAPITAL: They really aren`t losing users over this whole data privacy issue they`ve had in the last year and a half. Users are still growing across the globe. And video has become a bigger part of the mix. You have undermonetized assets and some other optionalities where they become e-commerce or payments as well.
BOORSTIN: And regulatory scrutiny of Facebook (NASDAQ:FB) continues this week on Capitol Hill as the head of Facebook`s crypto currency division will testify about the company`s investment in that space.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
GRIFFETH: Time to take a look at some of today`s “Upgrades and Downgrades”.
We begin with shares of General Electric (NYSE:GE). They were downgraded today to neutral from buy at UBS. The analyst cited the stock`s valuation after a 40 percent run-up so far this year. Price target $11.50. That stock fell about 1 percent today to $10.27.
And Deere was upgraded to buy from neutral at Bank of America (NYSE:BAC)/Merrill Lynch. The analyst cited a strong outlook for the agriculture economy. Price target $185. That stock rose a fraction to $166 even.
Still ahead, it`s been more than two decades since the last major auto union strike. Some say it`s not off the table this time around.
GRIFFETH: Now to China which overnight posted its slowest growth in 27 years. The world`s second largest economy grew at a 6.2 percent annualized rate in the second quarter. Economists say the slowdown is no doubt due to the U.S.-China trade war. Much of the country`s growth occurred in April and early May, helped in part by a tax cut and heavy infrastructure spending.
American Airlines is extending in cancellations of Boeing (NYSE:BA) 737 MAX flights now through early November. This is the fifth time the carrier has pushed back the time the MAX would be back on its schedule. The aircraft has been grounded-a as you know worldwide since March following two deadly crashes. It is undergoing an upgrade of its flight control software but the fix has yet to be approved by either the FAA or other international regulators.
Separately, “The Wall Street Journal” reported today that the grounding could stretch into next year.
This week, the United Auto Workers and the big three U.S. automakers are kicking off negotiations on a new labor contract and for the first time in well over a decade, the talks are likely to be contentious, could lead to a strike, as a matter of fact, shutting down some assembly lines.
Phil LeBeau has the story.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The ceremonial handshakes marking the start of talks between the United Auto Workers and Ford is filled with smiles and plenty of comments about the importance of working together.
WILLIAM CLAY FORD JR., FORD MOTOR EXECUTIVE CHAIRMAN: Thank you to each and every one of you for what you`ve done to build our industry, to build our company, in our case over 116 years.
LEBEAU: Don`t be fooled by the smiles. These UAW talks will be contentious, particularly around three issues. The UAW wants to shorten how many years it takes new members to reach higher pay tiers. And they want automakers to hire fewer temporary workers.
But the biggest stumbling block could be health care costs. Automakers would like union members to pay more for their health insurance benefits. The UAW sees things differently. Auto profits are close to a record high. So the union thinks its members should be rewarded for that success in a new contract.
GARY JONES, UAW PRESIDENT: I like to point out and applaud that Ford Motor (NYSE:F) Company chose a business strategy with great success that keeps much business in North America and the United States. Thank you very much for that.
LEBEAU: It`s been more than 20 years since the last major UAW strike. While few expect to see lengthy picket lines this fall, some issues like ending production at the GM plant in Lordstown, Ohio, have the potential to flair up and become major stumbling blocks.
Unlike UAW contract talks in the past decade, these negotiations come at a time when the big three find themselves at a crossroads, spending billions of dollars developing electric and autonomous cars while also keeping their current assembly lines humming along at a profitable level, which is why finding labor peace this fall will be crucial.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
GRIFFETH: Consumer lending helped Citigroup (NYSE:C) top expectations. And that`s where we`ll begin tonight`s “Market Focus”, with the bank also saying it was helped by a gain from the IPO of its electronic trading platform called Tradeweb. Citigroup (NYSE:C) is the first of the closely watched major banks to report its quarterly results. Shares were down a fraction today to $71.71.
Elsewhere, Symantec (NASDAQ:SYMC) and Broadcom (NASDAQ:BRCM) merger talks have reportedly collapsed. CNBC is reporting the negotiations stalled because of price. Broadcom (NASDAQ:BRCM) offered $28.25 a share. Symantec (NASDAQ:SYMC) wanted more. The deal would have expanded Broadcom`s growth in the enterprise software industry. Symantec (NASDAQ:SYMC) fell more than 10 percent today to $22.84, while Broadcom (NASDAQ:BRCM) rose more than 1 percent to $288.34.
Drugmaker Gilead plans to invest over $5 billion now to increase its stake in biotech firm Galapagos.
(BEGIN VIDEO CLIP)
DANIEL O`DAY, GILEAD SCIENCES CHAIRMAN AND CEO: One of my priorities was expand the portfolio at Gilead and I think this collaboration we announced is exactly in line with what we need. It`s a collaboration with, you know, one of the leading biotech companies in Europe that allows us to collaborate, have significant investments and have an exclusive right to everything that comes out of this innovative company for the next ten years.
(END VIDEO CLIP)
GRIFFETH: Gilead`s shares were up nearly 3 percent on this news today at $68.07. But Galapagos soared more than 17 percent to $170.76.
And you`ve probably heard. Today marked the beginning of Amazon`s fifth annual Prime Day, which allows the retailer`s prime members to shop online for more than 1 million deals globally. This year, the event will last 48 hours for the first time. Amazon (NASDAQ:AMZN) was up a fraction to $2,020.99.
Charles Schwab is reportedly in negotiations to acquire USA`s brokerage and wealth management operations for about $2 billion. The “Wall Street Journal” says Schwab would likely add about $100 billion of assets from USAA and then help us increase its presence in the wealth management business at the same time. The stock was up a fraction today to $40.30.
Then after the bell, J.B. Hunt missed earnings expectations but revenue was in line. The transport services company saw growth in truck production but a decline in its transcontinental business. Shares initially rose in after hours trading tonight but they did close the regular session down a fraction at $92.58.
And the FDA has called it an epidemic. Teen use of e-cigarettes has risen dramatically along with concern among their parents.
Carl Quintanilla looked into that controversial issue and spoke with executives at market leader Juul Labs about the popularity of their product among adolescents.
GRACE DEBONO, TEEN VAPER: It felt like we were smoking, you know? It was cool.
CARL QUINTANILLA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Grace Debono is a high school senior from Bloomfield Hills, Michigan, who was 14 when she started vaping. But it didn`t become a habit until the summer of 2017 when she got her first Juul.
DEBONO: We went to a gas station, and my friend already bought one from the same gas station. So she was like I`ll just go in and get it for you. But we were 15.
QUINTANILLA: But she went in.
DEBONO: And she came out with two Juuls.
QUINTANILLA: It wasn`t long before Grace was addicted.
DEBONO: It would always in my hands. It would always be with me, you know? So I would always hit it because it was just so easy.
QUINTANILLA: Grace was part of an adolescent phenomenon.
Between 2017 and 2018 e-cigarette use increased by 78 percent among high school students and 48 percent among middle schoolers. By the end of 2018, more than 3.5 million American kids were vaping.
ADAM BOWEN, JUUL CO-FOUNDER: Juul is a fraction of the use of vapor products by minors. I think we get a lot of the attention and criticism because we are the biggest brand, the biggest manufacturer, but we`re certainly not the only product out there.
QUINTANILLA: Juul is just one of thousands of different e-cigarette products in what is a $9 billion a year industry. The company says it was created to help cigarette smokers kick their habit. Since its launch in 2015, Juul has captured over 40 percent of the market and is valued at about $38 billion.
BOWEN: It really started taking off just recently, and that caught us by surprise. And then we had to do a lot of catching up. And along with that ramping growth came the unintended consequence of usage by youth.
QUINTANILLA: Can you explain to viewers about the marketing strategy, about campaigns that appear aimed at young people?
BOWEN: Well, we think that`s inappropriate. When we launched Juul, we had a campaign that was arguably to kind of lifestyle-oriented, too flashy. It lasted less than six months. It was in the early days of the product introduction. We think it had no impact on sales.
QUINTANILLA: Actually, in the year immediately following what Juul called its vaporized campaign, its sales grew by nearly 1,000 percent. It has become the most popular e-cigarette among teens.
KEVIN BURNS, JUUL CEO: This is where the injection of the e-liquid takes place into the pod.
QUINTANILLA: Literally by a needle right on this wheel?
QUINTANILLA: This is Juul`s secret sauce. Kevin Burns, brought on as CEO in 2017, gave us a tour of a pod-filling plant in Wisconsin, the first time Juul has let reporters inside a factory. This one`s running day and night to crank out some of the 60 million pods Juul sells in the U.S. every month.
If we did this tour today, with the parent of a teen who`d been using or who had been addicted, how would you sort of defend all this?
BURNS: First of all, I`d tell them I`m sorry that their child is using the product. It`s not intended for them. As parent of a 16-year-old, I`m sorry for them and I have empathy for them in terms of what the challenges they`re going through.
QUINTANILLA: For Grace Debono the challenges continue. She doesn`t own a Juul anymore but he had still vapes a couple of times a week. And memories of darker times stay with her.
DEBONO: It`s not something I`m proud of. It affected me, my health, and my relationship with my parents.
QUINTANILLA: Carl Quintanilla for NIGHTLY BUSINESS REPORT.
GRIFFETH: And to read more about the vaping industry, you can head to our website at NBR.com.
Coming up, the other employer-based retirement plan that lets you grow your savings tax-free.
GRIFFETH: There has certainly been a lot of talk this election season about the discrepancy between CEO and worker pay. And now, one major U.S. city is moving to actually tax that gap.
Robert Frank explains.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Members of San Francisco`s board of supervisors approved an excessive CEO salary tax. The tax would apply to any company whose CEO makes at least 100 times the median pay of its San Francisco employees. Now, companies with pay between 0.1 percent and 0.6 percent of additional tax on their gross receipts, that`s on top of the current city tax of 1.3 percent on gross receipts.
Now, the authors say it would raise up to $140 million a year which would go to fund a new mental health program. This comes a year after the largest ever tax increase for companies in this city. That was proposition C. That taxes companies to help pay for homeless services.
Now, the revenue from that tax is still tied up in legal challenges and hasn`t been released. Portland became the first city in the world to pass a tax on highly paid CEOs. That raised a few million dollars a year.
Now, San Francisco politicians blame the tech boom and highly paid CEOs and tech workers for driving up housing costs and living costs in the city, adding to that homeless problem. But some say the tax could change companies to lower tax more business-friendly states like Texas or Utah.
And the companies most likely to pay this tax are banks, retailers, and fast food chains since they have well-paid CEOs but also many lower-paid workers. Now, labor experts say that tech companies are not likely to pay the tax since they`re San Francisco employees. All those tech engineers and software engineers they`re highly paid.
So, the tax could cause companies to cut lower paid workers, which would hurt those at the bottom the most.
JARED WALCZAK, TAX FOUNDATION: This tax is not going to change CEO compensation. CEOs are not necessarily the most sympathetic population. But no one`s going to change CEO compensation around this.
What they may do is change their employment patterns within the city, because it`s your median San Francisco employee. So, you drop some of the lower compensated employees, you push them out of the city, and then you don`t have to pay the tax or don`t pay as much.
FRANK: Now, the tax faces a vote in the spring ballot. It would have to pass by 2/3 of all voters. So far, the tax is highly popular.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
GRIFFETH: A new savings strategy is gaining popularity among employers, but it`s been slow to catch on with their employees.
Our senior personal finance correspondent Sharon Epperson joins us to talk more about what you should know about a Roth 401(k).
So how popular is this thing?
SHARON EPPERSON, NIGHTLY BUSINESS REPORT SENIOR PERSONAL FINANCE CORRESPONDENT: Well, it`s definitely growing in popularity. Like a 401(k) that you`re used to, you can put in $19,000 this year. An extra $6,000 if you`re 50 or older. What`s different is that the money goes in after tax.
And a lot of people don`t know what that means for them and don`t understand necessarily how it works. But we have seen now up to about 7 out of 10 employees who have access to a 401(k) plan have access to that Roth option. So it is offered to them but only about 11 percent are take k advantage of it according to Fidelity Investments, and they`re the largest provider of 401(k) plans in the country.
GRIFFETH: The tax treatment is the big difference between that and a regular 401(k).
EPPERSON: It is. The way a regular 401(k) works many people already know you contribute that money pretax. You love getting that reduction in your tax bill income come tax time. The earnings will grow tax deferred. You`ll pay at your ordinary income tax rate when you take that money out, and that`s what happens to your withdrawals after 59 1/2.
What is different with the Roth 401(k) is the money going in is after-tax money. And then when you take that money out you don`t have to be taxed on those qualified withdrawals. That money can be taken out tax-free in retirement as long as you`re 59 1/2 and you`ve held it for five years. And that includes the earnings as well. You don`t pay taxes on that either.
GRIFFETH: Of course, we`ve all heard about the Roth IRA. How does that differ necessarily?
EPPERSON: So, people say — my mom always told me I should have a Roth account. You know, that`s what I hear from a lot of millennials who are the ones who are getting that Roth 401(k) as well. And it is similar in that the money that you`re putting in is after tax. It is similar in not you are able — you`re not necessarily going to be taxed in retirement.
The difference is you get a higher contribution limit, much higher with a Roth 401(k). Only about $6,000 you can put into a Roth IRA. There`s no income limitation on a Roth 401(k). That`s a very key factor.
And the other is we always say contribute to the 401(k) up to a company match. That`s a 401(k). You can`t have a company match with an IRA. So, that`s also free money you`re getting with the Roth 401(k).
So, it`s important for people to look at the tax impact, how much they want to save, whether they really need to have that tax savings with their returns, or if they can wait and have that tax-free money in retirement-s that going to be a bigger benefit for them.
GRIFFETH: Indeed. Always good stuff. Thank you, Sharon Epperson, as always.
GRIFFETH: One final look before we go at what happened on Wall Street today, with records all around once again. The Dow was up 27 points. Nasdaq up 14. The S&P gained a fraction. All of them at all-time highs.
That`s NIGHTLY BUSINESS REPORT for tonight. I`m Bill Griffeth. Thanks as always for watching. We`ll see you tomorrow.
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