ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: The Dow plunges nearly 800 points. The major indexes have their worst day of the year, and there`s a global selloff after China`s currency falls to its lowest level in a decade, sparking fears of an intensifying long term trade war.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: So what does it all mean and how does it impact you, your money and your investments?
We`ll do our best to explain on a special edition of NIGHTLY BUSINESS REPORT for Monday, August 5th.
GRIFFETH: And we do bid you a good evening, everybody, and welcome.
Not exactly the way you want to start a week, is it? By the time our alarm clocks went off this morning, stocks were already falling around the world after China`s currency fell to its lowest level against the dollar in more than a decade. Most European markets were down 2 percent. Hong Kong was down 3 percent, and then it was time for Wall Street to get to work, and it wasn`t pretty.
When you have names like Apple (NASDAQ:AAPL) down 5 percent, Boeing (NYSE:BA) down 2.5 percent, you know you`re going to be in for a rough time, and that`s exactly what happened today.
Here are the final numbers with the Dow down 767 points, just about 3 percent. It had been down nearly 1,000 at one time. The Nasdaq was hit the hardest off 278, about 3.5 percent, and the S&P dropped by 87. It was the worst day of the year for all three major indexes.
Now, numbers like this can be concerning for investors, especially when it`s driven by complex things like currencies, and tonight, we`re going to try to put everything in perspective on what this all means for you and your money.
And we start with two reports. Eunice Yoon will tell us what happened in China overnight, but first, Bob Pisani kicks things off with a recap of Wall Street`s bad day.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets were in turmoil today. The Dow plunging more than 900 points at its lowest, trade tensions to bubble over, but closed well off of that. The selloff was broad based. Everything except gold and utility stocks tumbled really 2 to 4 percent. Techs, banks, consumer discretionary, energy, industrials all closed sharply in the red.
Even consumer staples, which is usually a safe haven play didn`t fare well today. Walmart, Costco (NASDAQ:COST) — even Kroger (NYSE:KR), they get 100 percent of their revenues in the U.S., was under pressure.
This tells you that some investors taking down exposure to the overall market. It makes sense given how pricey stocks are and the risk. Right now, the markets in August are looking an awful lot like they did in early May. We saw trade talks break down then, the U.S. hiked tariffs on Chinese goods, and China retaliated.
In fact, the VIX, the market`s widely watched fear gauge is back above 20. That`s where it was in early May. Bulls say we are one treat away from a rally, maybe, but the problem is the positions are much firmer than three months ago. The bottom line, this is not May. Now we have currency issues and possibly other retaliatory measures outside the tariffs and could get even more serious. This could escalate, that`s the worry.
Market charters are also watching technical damage, the small cap Russell 2000 and the Dow Transports dipping below key technical levels. It`s also worth that the Dow Jones Industrial Average has now given up about half of its gains for all of 2019. It had been up just 17 percent last month.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese Yuan has weakened past the psychologically important 7 mark or crack seven as currency traders here say, raising questions as to whether or not Beijing policy makers are purposefully devaluing the currency as a way to offset the potential impact of President Trump`s next round of tariffs. Today in a statement on its Website, the People`s Bank of China didn`t mention the U.S. by name but explicitly linked the depreciation to the trade war, saying the losses today were largely due to unilateralism, trade protectionism and tariffs on Chinese goods.
For the past decade, the authorities here have kept the Yuan above the 7 level. The government heavily controls the value of the Renminbi. But today, Beijing sent the signal that it would tolerate a weaker Yuan. That`s being received well by manufacturers since the weaker Yuan helps make Chinese exports cheaper but it could anger the White House which could see the move as Beijing weaponizing the currency or giving up on the trade talks set for the U.S. in September.
And there`s another risk for Beijing with this move. Capital flights. The #RMBcrack7 is a top trending topic on social media here, with 410 million views so far. And generally, people are expressing their doubt that the authorities will be able to keep the value of the currency and what they see as their money safe.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
GRIFFETH: By the way, we should point out that the Chinese central bank denied purposefully devaluing its currency in response to the latest U.S. tariffs. Instead, it blamed those market forces that Eunice itemized.
And one more development, a report in Chinese state media said Chinese firms have suspended purchasing all U.S. agricultural products and that the country has not yet ruled out imposing tariffs on the ag products that it purchased in just the past few days.
HERERA: Now to Washington and questions about President Trump`s China trade strategy and where negotiations go from here.
Kayla Tausche has more.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: From the diplomatic room of the White House, President Trump addressed the weekend`s mass shootings but took to Twitter to address China, calling the country`s currency moves today historic and calling it to the attention of the Federal Reserve.
President Trump also saying China has always used currency manipulation to steal our businesses and factories, hurt jobs and depress wages, and harm our farmer`s prices. The missives in response to news China would stop buying U.S. agricultural products, that triggered by Trump`s threat of new tariffs. Chinese state media said that threat violated the terms of Trump and President Xi`s agreement back in June.
President Trump had been pushing China to buy more farm goods not less to offset the impact on red states as a trade deal remains elusive. China experts say Beijing is unlikely to budge in the coming months even as that September tariff deadline looms. But President Xi under pressure from protests in Hong Kong, U.S. arms sales to Taiwan and a sagging economy.
JEFF MOON, CHINA MOON STRATEGIES: The danger that I see going forward is that the president is not factoring in or not appreciating what`s happening with Chinese domestic politics.
TAUSCHE: In a text an outside ally of the White House described President Trump`s new tariff threat as a real miscalculation and one that might be difficult to undo.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
GRIFFETH: So what does the fallout for the Federal Reserve? And what is the central bank`s role in all of this?
Steve Liesman explains.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump ratcheted up his pressure on the U.S. Federal Reserve today after the Chinese currency fell to its lowest level in more than a decade against the U.S. dollar.
The president tweeted out, quote: China dropped the price of their currency to an almost historic low. It`s called currency manipulation. Are you listening, Federal Reserve? This is a major violation which will greatly weaken China over time.
The president has been on a sustained campaign to get the Federal Reserve to lower interest rates. He believes that will reduce the value of the dollar and help the U.S. economy. All of this sets up for a potential for a deeper battle between the president and Fed Chairman Jerome Powell whom the president appointed.
Powell and almost every other Fed member have said explicitly they do not make monetary policy to affect exchange rate.
JEROME POWELL, FEDERAL RESERVE CHAIRMAN: The U.S. Treasury has a responsibility for exchange rate policy, not the Fed. And we don`t comment in that sense on the level of the dollar. We have responsibility for maximum employment and stable prices. And we use our tools to achieve that. Of course, we do that through changing financial conditions and one of those is the dollar, but we don`t target the dollar.
LIESMAN: In fact, the Treasury Department has an exchange stabilization fund that can be used with the approval of the president to intervene to weaken or strengthen the dollar, but it`s rarely used in part because currency intervention is not seen as especially effective. There isn`t enough money to sway the $5 trillion currency market. That`s not to mention the U.S. has agreed to not intervene in its currency in several international agreements.
If the president does intervene, the Fed has a choice to join it and support the intervention with its own money or not, but that creates another potential flash point. It would present Powell with a tough choice. It would be unprecedented in recent memory for the United States to intervene on its own, that is without the support of at least one and usually several major nations.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
HERERA: Art Hogan joins us to talk about the selloff on Wall Street today. He is the chief market strategist at National Securities.
Welcome back, Art. Nice to see you.
ART HOGAN, NATIONAL SECURITIES CHIEF MARKET STRATEGIST: Thanks, Sue. Thanks so much for having me.
HERERA: Your reaction with today`s selloff given the fact that this spat is played very out publicly. Was today`s action appropriate or an overreaction?
HOGAN: I think it was very appropriate only in so much as we were caught off guard by what I would characterize as escalations in trade tensions. So, last week was a week characterized by things that were going to be important to us, the Fed, the earnings, the 160 companies reported earnings and then we got a jobs report.
And none of us expected to have a drive-by tariff announced and have this trade with China escalate to the point that we don`t know how bad it gets now. That`s the problem. We saw these exact things happen in May. Over a weekend, we found out that trade talks had fallen apart and then we escalated in tariffs on the first $250 billion. So, remember back in May, we sold off about 8 percent. We feel like we`re in is that same position where we need to recalibrate valuations and markets to adjust to the new news that`s in front of us today.
GRIFFETH: Where do you go to hide? Bonds went up. I mean, interest rates went down, gold went up. Are those the safe havens that you look to or what do you do?
HOGAN: Yes, those are the safe havens that are very, very crowded, Bill. And what`s I concerned about. I think in the near term, you wait for this to wash out a bit. If you want to hide, I would raise cash levels. I would certainly not chase things like staples, which are very expensive right now.
I think some of the other dividend darlings are getting expensive. I think after a couple of days and we see how much of this needs to work itself out. We`ve had the ability to say, you know, what? Health care looks very good. It actually outperformed today and is very defensive.
HERERA: Art, if you were a longer term investor, how do you harness this volatility and, say, take advantage of the selloff that we saw? For instance, in some of the big tech stocks and the like.
HOGAN: Yes, I think that`s a really good point, sue. I think one of the things you want to think about is, you know, name the three stocks you have — don`t have in your portfolio that you`ve been thinking about. Find a price that you missed in the past. You know, Apple (NASDAQ:AAPL) falls in that category, Amazon (NASDAQ:AMZN) is under a lot of pressure, Facebook (NASDAQ:FB), those names that have never been in your portfolio, they`re going to come to you at some point in time. Sharpen your pencil, make that list.
If you`re a long-term investor also, don`t change your game plan because the kind of volatility we`re seeing. We have 25, 5 percent drawdowns since 2009. This is another one of those. This, too, shall pass.
In the long term, you don`t want to change game plans because we have recent volatility.
GRIFFETH: Very quickly. It`s different this time because the currency devaluation affects all countries, not just the U.S. And all markets went down overnight and this morning.
So this is really becoming a global issue now, isn`t it?
HOGAN: It certainly is. I would argue, too, I think that`s completely correct. I would argue, too, this is a global issue. The two largest economies in the world are in a trade war and that trade war just got worse, not better. We`re escalating that trade war.
China`s devalued their currencies before August of 2015. We had a 10 percent drive down in market spend. It also passed. But this is another flavor of that same medicine.
HERERA: Art, thank you so much. Art Hogan with National Securities.
GRIFFETH: Well, the real world impact of a trade war is not only being felt in stocks. As we mentioned, oil prices fell again today on concerns that a prolonged trade war could put a crimp in global demand. Both benchmark Brent and domestic crude fell in today`s trade. And retail stocks took it on the chin again. The S&P 500 retail ETF, that fell more than 2 percent. Remember, last week, we told you this latest round of tariffs is expected to especially hit retailers.
HERERA: And mortgage rates have fallen to three-year lows, and that was before today`s wealth in bond yields. But as Diana Olick tells us, some borrowers may be making a big mistake.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Escalating tensions over Chinese tariffs had investors rushing further to the safety of the bond market today and mortgage rates loosely follow the yield on a ten-year treasury. The average rate on the 30-year fixed was at 3.70 percent on Friday, according to “Mortgage News Daily”. And remember, it started this year over 4.5 percent.
Very roughly, that comes out to about a $150 savings on a monthly payment for a $300,000 loan. It also means more people are eligible to refinance; 8.2 million 30-year mortgage holders could most likely qualify for a refinance and save at least 3/4 of a percentage point off their current interest rate, according to a new tally by Black Knight.
The size of that population, however, is still very sensitive to even the slightest rate moves since so many borrowers have already refied to very low rates.
But it is always important to shop for your rate. About 1/3 of borrowers today do not, according to a new survey from Fannie Mae. Most say shopping for a mortgage is more complicated and they just go with lenders they may already know and trust, even if it means leaving money on the table.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: Let`s turn to Michael Yoshikami to talk more about the real world implications of potentially higher tariffs and lower currencies and what it all means for you. He is founder and CEO of Destination Wealth Management.
Michael, always good to see you. Welcome back.
MICHAEL YOSHIKAMI, DESTINATION WEALTH MANAGEMENT FOUNDER & CEO: Hey, good seeing you, Bill.
GRIFFETH: I mean, right away, you see the lower oil prices, you see the lower interest rates. If you want to see a silver lining, those are it. But talk about the real world impact. How are our viewers going to feel what we`ve witnessed today?
YOSHIKAMI: Well, as you mentioned, you`re going to see lower energy prices. You`re going to lower interest rates not only for consumers but also for businesses. What you`re also going to see are very, very painful end of month 401k statements. You`re going to see asset values be under attack, maybe even house prices under attack.
So, any time you have this type of uncertainty, it creates in a lot of ways great anxiety for investors and what that does is it impacts markets and when it impacts markets, it basically impacts your bottom line.
HERERA: You do not see a prolonged conflict between the U.S. and China. Why is that? It`s been going on for more than a year.
YOSHIKAMI: Yes, I know. You know, Sue, I go to China quite often, and when you talk to the Chinese, not just regular citizens but business leaders, the Chinese want a deal. The Chinese need a deal. Their economy is slowing and because they have a slowing economy, it`s really impacting standard of living in China.
So, I believe they want a deal. I think there`s political reasons. Certainly, the unrest in Hong Kong is creating problems for China. And, of course, the administration, I`m sure, would like a deal going into the 2020 election.
So, I think something`s going to happen in the next 90 days. I`m surprised it`s gone this far, but I think there is a resolution, even if it is somewhat superficial.
GRIFFETH: Right after the president announced the tariffs, the Retail Federation came out and told shoppers they should expect higher prices, not just for the holiday shopping season, but even as soon as the back to school shopping season.
What do you see for retail right now?
YOSHIKAMI: Well, it`s interesting. That`s the retailer`s association speaking. So, of course, they`re going to raise alarm bells for their members. But I don`t see prices going up that much in the short term. In fact, many companies will just absorb what`s happening in currency into their bottom line. Maybe their profit will reduce a little bit.
What`s more problematic, Bill, is if we go for a period of time, if we go for three months, or four months, or six months. At that point, companies are going to have to start raising prices.
And be clear about this. As a consumer for all the viewers out there, tariffs essentially will mean higher prices. Higher prices negatively impact GDP or negatively impact economic growth and that`s when you start heading towards things like recessions and slowdowns in GDP.
GRIFFETH: Michael Yoshikami with Destination Wealth Management, again, thanks for joining us tonight, Michael.
YOSHIKAMI: My pleasure.
HERERA: We have much more on what this means for your money. Coming up, what one more portfolio manager is advising his clients to do when it comes to factoring in trade.
GRIFFETH: We did get some economic news this morning. Growth in the nation`s services sector in July slowed to their lowest level in three years. The Institute for Supply Management said that its index of non- manufacturing activity fell to a reading of $53.7. That`s down nearly a point and a half from June and almost two points below expectations.
Services make up more than 2/3 of all economic activity.
HERERA: Cars.com shares skid after failing to find a buyer. That`s where we begin tonight`s “Market Focus”. The cars search engine said that it completed a ten-month strategic review but apparently no one could meet its asking price. So, now, cars.com will remain an independent public company. Shares plummeted nearly 35 percent to $11.82.
Tyson Foods (NYSE:TSN) reported mixed results, beating Wall Street`s earnings estimates, but it missed on revenue. The meat processor saw a sales increase in its beef and prepared food divisions, but suffered a drop in pork sales due to higher costs and the African swine fever outbreak. Nonetheless, the stock rose more than 5 percent to $83.83.
British bank HSBC is partnering — parting rather ways with its CEO John Flint after he served in that position for only 18 months. The company said it is laying off 4,000 employees, or roughly 2 percent of its workforce. The bank`s chairman cited the economic uncertainties caused by Brexit and the U.S./China trade war. The stock fell more than 3 percent to $37.99.
GRIFFETH: Diamond Offshore missed analyst expectations for both earnings and revenue. The offshore oil and gas driller saw falling sales due to higher expenses and what it called challenging market conditions. Shares plummeted nearly 17 percent to $6.17.
And analysts at Deutsch Bank downgraded Dollar Tree (NASDAQ:DLTR) to hold from buy, due to concerns about the new tariffs, expected to hit Chinese goods on September 1st. The stock dropped more than 4 percent today to $92.86.
And America`s two largest New Hampshire chains are merging. New Media Investment Group, which owns Gatehouse, is acquiring Gannett (NYSE:GCI) for over a billion dollars. When the merger was completed, the combined company will simply be called Gannett (NYSE:GCI). New Media Shares fell more than 7 percent today $9.89, Gannett (NYSE:GCI) shares up about 3 percent to $11.04.
As we showed you earlier, Boeing (NYSE:BA) was one of the biggest drags on the Dow since it could be a target in the trade war and as it continues to grapple with the grounding of the 737 MAX. Meanwhile, its competitor from Europe, Airbus, has begun a major expansion here in the U.S.
Phil LeBeau has more on the new Airbus A220.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The A220, a recent addition to the Airbus portfolio, is now a huge part of the expansion in Alabama, where workers are starting to build the first A220 set for delivery next year.
JEFF KNITTEL, AIRBUS OF AMERICAS CEO: We have over a six-year backlog. I think that`s positive. Some of that from the U.S. airlines is a function of being in Alabama, but some of it is just having the right product at the right time.
LEBEAU: Delta is already flying the A220, a smaller, single aisle commercial aisle airplane that carries between 110 and 160 passengers. It is designed to have fewer seats than the Airbus A320 or Boeing (NYSE:BA) 737 MAX, the most popular models airlines have ordered.
Almost five months after the grounding of the MAX, the CEO of Boeing (NYSE:BA) says the company still expects the plane to be back in the air by the end of the year.
DENNIS MUILENBURG, BOEING CHAIRMAN & CEO: We`ll go through certification with the FAA. We plan to submit that certification package in September and currently anticipate that we`ll return the airplane to service early in the fourth quarter.
LEBEAU: Still with airlines taking a wait and see approach with the MAX, some have suggested Airbus should capitalize on the situation and start cranking out more planes. In reality, that`s not going to happen.
KNITTEL: The MAX situation really doesn`t change what we`re doing today. This is not something that we can flip a switch and start producing more airplanes. It is a complicated, long lead time system. And we want to make sure that we`re producing the highest quality airplanes possible.
LEBEAU: While Airbus has broken ground on a new assembly line in Mobile, it will be several months before it is up and running.
Ultimately, Airbus will hire another 400 workers to build the A220 in Mobile, Alabama, putting down deep roots in the Deep South and expanding Airbus`s presence in the U.S.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
GRIFFETH: And up next, money manager`s advice for you in these tense times.
HERERA: Well, the trade war conflict between the U.S. and China has been going on for about a year now, creating a lot of uncertainty in the markets, so on a day like today, you`re probably wondering what to do now and how should you be factoring in a trade dispute in your portfolio for the longer term.
We`re joined by Sandip Bhagat, who is the chief investment officer over at Whittier Trust.
Sandip, welcome. Nice to have you here.
SANDIP BHAGAT, WHITTIER TRUST CHIEF INVESTMENT OFFICER: Terrific.
HERERA: You are one of these people who think that this could last for, quote, several years or maybe even a decade. If, indeed, that is the case, how are you advising clients and what should our viewers do to factor this into their portfolio?
BHAGAT: So, first of all, let`s reset expectations. If for a moment we thought that there would be some convenient miraculous magical end to this trade war, well, that part needs to be abandoned. We are in this for the long haul.
This could last a few years, even a few decades, because the divide is not about trade imbalances, it is cultural. It`s about economic dominance, technological dominance.
And so, the first thing investors need to get accustomed to is that this is here to stay. With it will come a fair dose of uncertainty. They need to price that into the volatility of the asset classes. They need not to get spooked by bigger drawdowns.
BHAGAT: So, stay committed to equities with the realization that they are riskier now.
GRIFFETH: Now, I look at a list of companies that you think — you consider quality, that you would advise people to go to. There`s the Disney (NYSE:DIS), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Visa (NYSE:V).
But, you know, to some degree all of those companies do have an exposure to China. They will be affected by the ongoing trade dispute, so I`m curious why you pick companies like that necessarily.
BHAGAT: So, the common characteristics of all the stocks that we mentioned here is that these companies have superior business models that have shown the ability to generate steady sustainable cash flow. They have a significant competitive advantage. They have a big economic moat that protects that economic advantage.
They are capturing on secular things like cloud computing, ecommerce, mobile payments. So, you are right. Right now, the macro theme of the trade war is so dominant that nothing is spared.
Every single stock will be affected by it, but the high quality of those companies will help them withstand this better and just think about this. What a wonderful vehicle to grow wealth over a long-term basis. It just compounds without us having to trade and suddenly get into cyclical stocks or defensive stocks. They are tremendous vehicles for building long-term wealth.
HERERA: On that good advice, we will leave it there. Sandip Bhagat with Whittier Trust, thank you so much.
BHAGAT: Thank you.
GRIFFETH: And before we go, a final look at this day on Wall Street and what a day it was. The Dow down 767 points, about 3 percent, had been down nearly 1,000 points at one time. Nasdaq was hit the hardest, down 278 or 3.5 percent. The S&P down 87. The worst day of the year for all three major indexes.
HERERA: And it`s just a Monday. We`ll see what the rest of the week holds.
That is it for us tonight on NIGHTLY BUSINESS REPORT. I`m Sue Herera. Thanks so much for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you tomorrow.
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