ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Big gains. The week started off on a high note, but will the days ahead usher in a new wave of volatility?
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Mission statement. CEOs redefined the role of corporate America, saying it`s not always about maximizing profits for shareholders.
HERERA: The American consumer is flexing its muscle and powering the economy, but does it have the staying power to keep the country out of recession?
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, August 19th.
GRIFFETH: And we do bid you a good evening, everybody.
And welcome. Well, it was rally day on Wall Street today. The rally was broad. Every sector was higher and there was some faint optimism over trade which in turn helped ease some of last week`s concerns about a potential recession.
Overall, the trading day did have a much different feel from what we experienced last week which had intense swings both higher and lower.
Today, the industrial average was up 249 points to close back above 26,000. Nasdaq added 160, S&P gained 34.
But it`s only Monday. And even though we`re in the dog days of summer, this week promises to be anything but quiet.
Bob Pisani starts us off tonight from the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: We have had quite a rally over the last couple of days. The Dow has moved up roughly 800 points since Thursday`s bottom. Stocks bottomed precisely when the ten year treasury bottomed right at 1.47 percent, as yields came off their lows, so did the stock market.
Now, that shouldn`t be too surprising since stocks have been moving in tandem with bond yields all month. Much of today`s move higher can be tied to fading fears of a possible recession in 2020, a point President Donald Trump`s advisers repeatedly made over the weekend. High hopes for U.S./China relations are also adding fuel to the rally after the White House decision to extend a reprieve given to Huawei given the Chinese telecom giant 90 more days to buy supplies from American companies so it can serve as existing customers.
Naturally, cyclical sectors like semiconductors and banks and retail led the rebound today. Defensive sectors like REITs and utilities, they underperformed. That`s a reversal of what we`ve been seeing for the quarter and for most of 2019. Still, there`s no shortage of catalysts ahead that could move the markets this week, including a handful of retail and home building earnings, manufacturing data and new home sales.
Plus, we`ll hear from global central banks. Lots of chatter from Federal Reserve officials at their annual meeting in Jackson Hole, Wyoming, plus the latest minutes from both the Fed and European Central Bank. Busy week even though it`s August.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: So, let`s turn now to Burns McKinney to talk more about what lies ahead this week in the market. He is the portfolio manager with
Allianz Global Investors.
Burns, nice to have you back. Welcome.
BURNS MCKINNEY, ALLIANZ GLOBAL INVESTORS PORTFOLIO MANAGER: Thank you so much.
HERERA: It does seem like it`s going to be a busy week even though we`re in the middle of August. And you think that the focus is going to be firmly on the Fed later this week?
MCKINNEY: Absolutely. There certainly is — there is a lot of economic data. We`ve been living in a market over the last several months that`s really been moved by two primary factors. Those being the rhetoric on trade, and central bank activity and interest rates. We spent the last week and a half talking about trade and really we expect the markets to be moved more than anything by what Jay Powell says in Jackson Hole this Friday.
GRIFFETH: And the consumer has certainly had something to say about this as well, maintaining a strength-based on the strong jobs market and we get all these retail earnings out this week. What are your expectations for that?
MCKINNEY: Well, the consumer — one thing I learned long ago was that you`re going to lose money if you bet against the American consumer and likewise the American consumer`s willingness to spend beyond their means. And consumers have been strong.
I mean, you do have a very strong job situation. Unemployment is near a 50-year low. Consumer confidence is high. Consumer balance sheets are fairly clean right now as well.
And so, you know, we expect to see some good signs from the retail numbers and, of course, there`s also been some divergence. I mean, there`s been winners and losers within retail. You saw just over the past couple of weeks, you saw a company like Macy`s (NYSE:M) that got hit hard versus you saw Walmart actually report very strong and very good same store sales.
I think you do have certain players like the Walmarts of the world that have been really disrupting retail alongside Amazon (NASDAQ:AMZN) that have been gaining shares for a lot of other retailers.
HERERA: Where do you come down in terms of the debate that`s out there right now about whether or not we`re in for a slowdown or we`re actually going to go into recession?
MCKINNEY: We don`t — we don`t see a recession happening, at least over the next 12 months. You know, the market — you know, the economy certainly is slowing with the inversion of the yield curve, you know, basically, to put it simply, that`s typically one of the best indicators of a recession. And so, that`s something that`s gotten investors a little bit cautious.
But really in this case, it`s had a lot to do with being, you know, interest rates being moved by race overseas. And, you know, simply put what it means is that that we do see the economic growth slowing. We don`t expect it to tip into recessionary territory, but probably just kind of dip back into that that percent annual economic rut that we`ve had over the last, really, hopefully, the last decade or so, which — you know, it`s the type of environment for which investors can still do fairly well.
HERERA: All right. On that note, Burns, thanks so much.
MCKINNEY: Thank you.
HERERA: Burns McKinney with Allianz Global Investors.
And speaking of which, there are reports late tonight that White House aides are looking at a payroll tax cut to help offset a weaker economy. This follows a big push by the administration to ease fears of a possible recession.
Eamon Javers picks up the story from their reporting tonight from the White House.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The White House went into full messaging mode this weekend to try to push back on the idea that there`s a recession coming just around the corner. Call it all the president`s economic men as the economic team here swarmed the broadcast and cable nets with their upbeat economic message.
Between them, National Economic Council Director Larry Kudlow and trade advisor Peter Navarro appeared on four television networks in two days in the wake of an extremely volatile week on Wall Street.
LARRY KUDLOW, NATIONAL ECONOMIC COUNCIL DIRECTOR: I tell you what, I sure don`t see recession. We had some blockbuster retail sales, consumer numbers towards the back end of last week really blockbuster numbers.
JAVERS: Navarro disputed the widely held idea that the yield curve inverted last week which is often a sign that a recession is coming.
PETER NAVARRO, WHITE HOUSE TRADE ADVISOR: Technically, we did not have a yield curve inversion. An inverted yield curve requires a big spread between the short and long end.
JAVERS: And President Trump said it`s not the White House that`s limiting economic growth, it`s the Fed.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Interest rates are low. I think I could be helped out by the Fed, but the Fed doesn`t like helping me too much.
JAVERS: The PR offensive continues again tomorrow off-air. Larry Kudlow is scheduled to host two conference calls tomorrow for business, state and local leaders all about the president`s economic agenda. The White House says these calls were long planned and have nothing to do with recent economic concerns.
For NIGHTLY BUSINESS REPORT, I`m Eamon Javers at the White House.
HERERA: The president of the Boston Fed today signaled that he is not in favor of further interest rate cuts. Eric Rosengren cited current economic conditions that he described as good. He also said that easing monetary policy could encourage people to take on more risk and build up debt, and that he said could worsen the next downturn and leave the Fed with few policy tools.
GRIFFETH: Meantime, China is joining the chorus of global central banks that are cutting interest rates but it`s not lowering them directly. Instead, the Chinese central bank is reforming its interest rate policy by gradually replacing its fixed benchmark lending rate with one that fluctuates. The hope is that it will lower borrowing costs for companies and support growth.
HERERA: America`s biggest companies are making a new pledge and shareholder return is no longer the main objective. The Business Roundtable is changing its statement of, quote, the purpose of a corporation, end quote. The influential business group says decisions should no longer be based solely on whether they will yield higher profits for all shareholders. Instead they should take all stakeholders into account, including employees, customers and community.
GRIFFETH: So what could this new change to the corporate mission statement potentially mean for you?
Joining us to talk about it is Charles Elson. He`s director of the Weinberg Center for Corporate Governance at the University of Delaware.
Thanks for joining us tonight.
CHARLES ELSON, UNIVERSITY OF DELAWARE: Great to be with you.
GRIFFETH: You`re not exactly enamored of this change in the mission statement, are you?
ELSON: Not at all. It, frankly, is a rerun of the mission statements that you saw many corporations thirty years ago which led to the whole corporate governance movement, civil rights movement, because frankly, the more people you are, quote, accountable to, the less likely a bad decision we`ll ever have any consequence to you.
It`s like your watch. The watch stops, it still gets the time right twice a day. You`ve got multiple constituencies you answer to, you`re going to get right for somebody but that doesn`t mean a healthy business.
And for shareholders, being deep sixed like this, particularly given the fact that today, everyone`s a shareholder through the retirement plan, state pension plans and whatnot, it really will harm I think accountability of management to the shareholders and the public frankly.
HERERA: Those who support this move though say it`s a recognition that corporations need to do more to help balance out the ever-growing income inequality and that may mean engaging more with their employees and their community. But it doesn`t sound like, like you would be a fan of that?
ELSON: Well, you know today a good shareholder profit corporation has to take into account its employees in the community. You`re never going to get long-term profitability, which is what Delaware law has always said is the is the raison d`etre of the corporation, to get to profitability unless you take care of the stakes, where the employees, the community, customers and suppliers. Everyone does that.
But to change the polestar to reflect everybody, if you will, loses a sense of accountability and ultimately creates a real mess. Again, you know, we`re all shareholders today.
ELSON: We all benefit when the company does well, and I think that they`ve done is going back years which and that was really that the climate then created the economic dislocations that resulted what we`re doing today. If they feel that strongly about it on pay and whatnot, let them cut their pay by a two-thirds or so and give it back to their employees. But they`re not going to do that.
ELSON: And that`s the — that`s what that`s why this thing is a little disingenuous. I`ve great respect for the Business Roundtable but this thing was a bit self-serving in my view.
GRIFFETH: Charles Olsen with the University of Delaware, thanks for your thoughts tonight. I appreciate it.
OLSEN: Thank you.
GRIFFETH: And speaking of new missions, Google`s original slogan was do no evil when it went public years ago today. Later in our program tonight, we`re going to look at why Google`s strategy for the next 15 may be very different.
HERERA: But, first, the power of the American consumer. As it changes, an entire industry is remade.
GRIFFETH: If you ever needed evidence of just how powerful the consumer can be, take a look at the retail sector right now. Looks a lot different today than it did just a few years ago because as our buying habits changed, a whole industry was transformed.
And tonight, Courtney Reagan takes a look at the American consumer.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: While there are many signs economic activity is slowing, the U.S. consumer remains strong. Retail sales just posted the strongest five-month growth streak in more than 13 years. The consumer may be what`s holding up the us economy since 70 percent of economic activity is tied to consumer spending.
But where we shop in what we buy has changed. More than a quarter of the country`s malls have closed since retails real estate peak. And today, walk into any mall and you`ll see empty stores. In less than three years, there are 9,400 fewer stores overall.
Last year, more than 500 apartment stores closed their doors for good. Bon-Ton liquidated, Sears (NASDAQ:SHLD) filed for bankruptcy and closed hundreds of locations, JCPenney and Macy`s (NYSE:M) also went through a store closure program. We simply spend less at department stores than we used to.
VINCE TIBONE, GREEN STREET ANALYST: We do think there will be much more department store closures over the next five to ten years. Macy`s (NYSE:M) has also had its, you know, struggles, but we think there`s a — JCPenney is really the most imminent concern from the department store front.
REAGAN: The shift to online shopping and a higher portion of spending on experiences instead of stuff has also pressured physical stores. Put together, the U.S. needs less retail space. Online shopping accounts for three-quarters of U.S. retail growth and half of all online shopping is done on Amazon (NASDAQ:AMZN) alone.
LINDA KIRKPATRICK, MASTERCARD EVP: Retail is not that. It`s very much alive. It`s just morphing. It`s morphing to, again, become more digital and morphing to accommodate the digital consumer who`s very savvy online and understands how to get what they need and how to curate the products that they need using the channels that they`re most comfortable with.
REAGAN: When U.S. consumers aren`t waiting for online orders to arrive, they`re spending on experiences. In the 1960s, less than half of our spending, which is services. Now, it accounts for two-thirds.
Retail success takes more than just a strong consumer. Shoppers have more choices than ever before. The winners have a mix of the right merchandise, the right environment and the right experiences.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in New York City.
HERERA: So, can the consumer keep fueling this economy.
We`re joined now by Anthony Chukumba, managing director at Loop Capital.
Anthony, welcome. Nice to have you here.
ANTHONY CHUKUMBA, LOOP CAPITAL MANAGING DIRECTOR: Thanks for having me.
HERERA: I guess that is the question. I mean, Courtney laid it out beautifully for us there. Do you think that the consumer has staying power and will continue to keep the economy healthy?
CHUKUMBA: We think so. The three main indicators that we look at to gauge the health of the consumer are, first off, unemployment, which is that a 50-year low, wage growth which is at a 10-year high, and consumer confidence was at a multi-year high. So just as long as those three indicators stay strong we see no reason that the consumer spending would slow significantly anytime soon.
GRIFFETH: But Courtney also highlighted the store closures that we`ve seen just breathtaking numbers over the last three years and it looks like we could be in for another record number of closures this year. Where are we in that cycle right now, do you think?
I think that we`re getting to the middle, maybe toward the late innings of that. I mean, you know look the us was overstored even before the advent of e-commerce. But clearly, with more and more shopping going online, you just don`t need as many physical stores.
Now one thing to remember is that there always are going to be some retailers that are growing their stores, but, you know, but it`s — but it really isn`t a case-by-case basis. So, for example, I cover five below which has a very, very unique concept offering approximate below for teens and tweens, and they`re growing and then part of that is the fact that that it`s value, which a lot of consumers like and it`s also pretty sort of Amazon (NASDAQ:AMZN) resistant.
In general, do you think that the many of the retailers have as one guest put it morphed and embraced the new ways that consumers shop?
CHUKUMBA: The smart ones certainly have. So I think about a company, for example, like spy which is really significantly invested in their e- commerce channel. But I`ll also figure out a great way to leverage the store, so a significant portion of their online orders are actually picked up in score — in store. Or I think of a couple like our RH which has made their stores big and beautiful and very sort of experiential, they have restaurants in their stores. But they do 50 percent of their sales online.
So, the retailers that have the staying power from my perspective are the ones who have adjusted to this new omnichannel reality that we`re living in.
GRIFFETH: And this — there may be no answer to this, but what will be the right mix of brick-and-mortar versus online for in — you know, particulars stores out there to achieve success in this environment?
CHUKUMBA: You know, that`s a good question. I agree with you. It`s probably tough to come up with a precise answer. But — I mean, I do have retailers like RH, like Williams Sonoma that do about 50 percent of their sales online, so maybe that`s the right answer, right? It`s 50 percent of your sales online, 50 percent of the stores, and just really being able to integrate the two of them and integrate those experiences.
HERERA: Anthony, thanks so much for spending time with us.
HERERA: Sorry, Anthony. Chukumba, with Loop Capital, I`ll get it next time.
GRIFFETH: Meantime, Estee Lauder looks good to investors and that`s where we begin tonight`s “Market Focus”.
The cosmetics maker topped estimates thanks to growth in its skincare, makeup and fragrance products. Company also raised its full-year outlook, but did say escalating U.S. and China trade tensions, Brexit and the Hong Kong protests are still potential risks right now. Estee Lauder though was the best performing stock in the S&P 500 today, up more than 12 percent to $201.65.
Microsoft (NASDAQ:MSFT) is giving Minecraft video game more realistic graphics by adding technology from chip maker Nvidia. The new graphics will bring improved upgrades to that game. Nvidia shares jump seven percent to $170.78.
And Chinese social media company Weibo reported what it called a notable acceleration and user growth, which helped it top analyst earnings estimates even though it narrowly missed on revenue. Weibo also increased its full-year revenue outlook. Stock jumped more than 14 percent today to $42.31.
HERERA: PG&E fell today after a judge ruled a jury could decide whether the utility is responsible for a massive wildfire that killed 22 people and damaged more than 5,000 buildings two years ago. The company could face up to billion $18 dollars in damages as the blaze was the second worst wildfire in California history. PG&E shares lost more than a quarter of their value. They closed at $10.67.
Twitter suspended more than 900 accounts it believes are tied to China running a disinformation campaign against the Hong Kong protests. Twitter also said it would no longer receive advertising from state-controlled news media entities. Shares rose more than two percent to $41.70.
And after the bell, Baidu`s results topped expectations as the Chinese Internet giant saw an increase in its daily app users. Shares initially rose in after-hours trading and they closed the regular session up nearly 8 percent to $104.22.
GRIFFETH: And coming up, Google (NASDAQ:GOOG) made big acquisitions in its first years as a publicly traded company but the next 15 may be different.
GRIFFETH: Various state attorneys general are reportedly moving forward with an antitrust investigation into big tech. According to “The Wall Street Journal”, that probe is likely to focus on whether a handful of companies are using their power to stifle competition. The investigation apparently could be launched as soon as next month.
HERERA: It has been years since Google (NASDAQ:GOOG) went public. The company started trading at $85 a share. Since then the stock has surged more than 2,600 percent. And as Josh Lipton reports, that`s due in part to its acquisition strategy.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: A $1,000 investment in Google (NASDAQ:GOOG) at the time of its IPO would now be worth about $28,000 in part because of its major acquisitions. There`s YouTube which the company bought for more than one and a half billion dollars in 2006. The video streaming powerhouse now generates an estimated $20 billion in ad revenue per year. There`s also Double Click which it bought for over $3 billion in 2007, that advertising platform helps power Google`s ad business, which still accounts for the vast majority of Alphabet`s total revenue.
But its biggest acquisition so far, more than $12 billion for Motorola Mobility in 2012. Less than two years later, it`s sold Motorola`s smartphone business to Lenovo for just under $3 billion, but Google (NASDAQ:GOOG) did get to keep most of Motorola`s portfolio of mobile patents, offering the company legal protection for its android operating system.
To date, Alphabet has spent over $32 billion on acquisitions, 40 percent more than Amazon (NASDAQ:AMZN), almost 500 percent more than Apple (NASDAQ:AAPL).
But what about the quarters and years ahead? Some analysts think increasing regulatory scrutiny both here and abroad will hamper Google`s ability to do some deals.
MARK MAHANEY, RBC CAPITAL MARKETS: Them attempting to do a large $10 billion to $20 billion, $30 billion acquisition, a vertical integration acquisition in the internet advertising space off the table. Twitter — Google (NASDAQ:GOOG) for Twitter off the table and the reason is the concentration, the large market share they already have in online advertising. Google (NASDAQ:GOOG) accounts for, you know, close to 50 percent of Internet ads spend in some markets. It just wouldn`t be allowed. They wouldn`t be allowed to increase that share.
LIPTON: Mahaney does think Google (NASDAQ:GOOG) can still do relatively smaller deals to build out its growing cloud business as it looks to close the gap with industry leaders like Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). In fact, Google`s new cloud chief has already made it clear that acquisitions will be an important part of his strategy, recently announcing that Google (NASDAQ:GOOG) will buy a data analytics company called Looker for nearly $3 billion.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.
GRIFFETH: And finally tonight, an auction blunder. On Friday, we told you about this rare 1939 Porsche type 64 that went up for auction in Monterey over the weekend. It was expected to fetch at least $20 million.
But a misunderstanding caused some expensive confusion. The bidding started at $13 million, but the giant screen displaying bids in the room showed $30 million. When the bid hit $14 million, the big screen showed $40 million, and when it got to $17 million and the auctioneer saw the big screen displaying $70 million, he stopped the auction.
And since $17 million was below the reserve price, RM Sotheby`s pulled the lot. And the auction house said later this was in no way intentional on behalf of anyone at RM Sotheby`s, rather an unfortunate misunderstanding amplified by excitement in the room.
HERERA: Before we go, here`s a look at the day`s final numbers from Wall Street. The Dow was up 249 points to close back above 26,000. Nasdaq added 106, S&P 500 gained 34.
And that is NIGHTLY BUSINESS REPORT tonight, I`m Sue Herera. Thanks for joining us. We want to remind you that this is the time of year your public television station seeks your support.
GRIFFETH: I`m Bill Griffeth. We always thank you for all of your support. Have a great evening. We`ll see you tomorrow.
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