ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Triple-digit rebound. President Trump says China wants to return to the negotiating table even as another round of tariffs loom large.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Landmark decision. An Oklahoma judge finds J&J helped fuel the state`s opioid crisis, and it could have implications for other cases yet to come.
GRIFFETH: Streaming strategy. Disney`s taking a different approach than Netflix (NASDAQ:NFLX), it`s betting on the power of its brands.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Monday, August 26th.
HERERA: Good evening, everyone, and welcome.
There was a change in tone and a change in the direction of the stock market. President Trump struck a more conciliatory note at a meeting of world leaders at the Group of 7 Summit in France, and there was a softening of rhetoric when it comes to trade between the U.S. and China. It was a shift from just a few days ago when Beijing imposed new levies on U.S. goods and then the White House increased tariffs on Chinese goods.
As we reported Friday, the president also told U.S. companies doing business in China to relocate. So just the notion of a de-escalation in trade tensions sent stocks higher. The Dow Jones Industrial Average rose 269 points to 25,898. The Nasdaq was up 101 and the S&P 500 added 31.
Eamon Javers reports tonight from the G7 in France.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump lit a fire under financial markets early Monday morning announcing the Chinese had been in touch with U.S. negotiators.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I got calls and very, very good calls, very productive calls. They mean business. They want to be able to make a deal.
JAVERS: That was enough to send futures soaring in the United States, although the traveling White House staff were unable to provide any details of the calls the president cited. At the same time, Trump insisted the U.S. has the advantage over China.
TRUMP: Maybe I`m wrong but I think we`re probably in a stronger position now to do a deal, a fair deal for everybody. And so, we`re having very meaningful calls.
JAVERS: Throughout the day, the president and the world leaders sought to present a united front to the world one year after the last G7 in Canada ended in a spate of angry tweets and insults.
TRUMP: If there was any word for this particular meeting of seven very important countries, it was unity. I think most important of all, we got along great.
JAVERS: Also in France, the U.S. struck a trade agreement in principle with Japan and leaders said they made progress to resolve a dispute over France`s new law to tax digital services.
President Trump declined to say a retaliatory attacks on French wine was off the table and he continued to hold open the possibility of tariffs on European automobiles. But the most revealing moment came when the president was asked if he was causing the volatility in world markets with his rapid-fire changes.
TRUMP: Sorry. It`s the way I negotiate. It`s the way I negotiate. It`s done very well for me over the years. And it`s doing even better for the country.
JAVERS: The countries here were unable to agree on the traditional joint communique, but France said the seven advanced economies were committed to global economic stability.
For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Saint-Jean-de-Luz, France.
GRIFFETH: And as Eamon reported, the president referred to those phone calls between the U.S. and China, but Beijing had a different story to tell.
Eunice Yoon has that for us.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China`s foreign ministry said it is not aware of any weekend phone calls between the trade negotiators and had not heard of a call by China to restart trade talks. That said, China`s chief negotiator, Vice Premier Liu He, did indicate earlier in the day that China would be willing to resolve the trade dispute if negotiations were calm.
Whether there was a phone call, there are reasons not to get overly excited. The expectation had been the two sides would hold talks next month. There`s also a feeling here that China is becoming more hard line. The way it was explained to me is that Chinese officials are worried about the economic impact of the trade war, but they`re even more concerned about rapidly introducing reforms under U.S. supervision the way the Trump administration wants.
Politically, the economic fallout would be dangerous, I`m told the appearance that China could be forced into making changes by an outside power would be intolerable. So even if they are talking, the tactic would be not to openly confront the United States but to engage and wait for a better moment to get the best outcome for China.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
HERERA: And those trade tensions between the U.S. and China have some investors looking for safe havens from all the recent stock market volatility. But are areas like gold and bonds as safe as they once were?
Hugh Johnson, chairman and chief investment officer of his own money management firm, Hugh Johnson Advisors, joins us now.
Good to see you, Hugh.
HUGH JOHNSON, HUGH JOHNSON ADVISORS CHAIRMAN & CIO: Nice to be with you, sue.
HERERA: So a lot of people do look to the bond market perhaps as a safe haven, but we have record d low interest rates. And you maintain that gold is not necessarily a safe haven either?
JOHNSON: Yes, the problem, of course, is there`s an old expression in our business called, you know, is that there`s no solutions, there are only trade options. So you could go to the bond market, money market, mutual funds, up to a 30-year treasury. Your money might be safe but the returns there are not very attractive or not very appealing, talking about 1.5 percent to, say, 2.5 percent at best.
So that`s a real problem. And then, of course, when you look at what we call a traditional safe haven like gold, it`s not as though the price of gold doesn`t also trade up and down or there`s volatility associated with it. And you know, Sue, going into a bear market that might be accompanied by a recession, if that is the case, gold does serve as a good safe haven, it does outperform the market.
But quite frankly, coming out of a bear market that`s accompanied by a recession, there`s no need or anybody`s — nobody`s looking for a safe haven. And the case for inflation is all but eliminated. So, gold performs poorly under those conditions. So the point is there`s volatility associated with that traditional safe haven called gold.
GRIFFETH: There are sectors of the stock market where people have been going to find refuge away from volatility. I think of utilities. I think of health care. I think of, you know, some of those industries that are not as affected by trade with China.
But they`ve become, as we like to say, crowded trades. So, how safe really are they right now?
JOHNSON: You know, that`s right. Everybody`s a little bit worried that that`s been played too much. In other words, the traditional so-called defensive safe sectors, and you mention health care, you mention utilities, I would add consumer staples to that list.
JOHNSON: They`ve had a real run to the upside. So you wonder if there`s anything left. But the point is, is that I hear from a lot of clients that they`re very worried about the volatility. They can`t sleep at night. If you can`t sleep at night, think about reducing your allocation to equities.
If you can`t sleep at night, start to shift towards safer sectors like utilities and consumer staples. And probably, Bill, you know, the most important thing is to think about dividend strategies.
JOHNSON: Buy stocks with good dividends.
HERERA: Hugh Johnson with Hugh Johnson Advisors, thanks, Hugh.
JOHNSON: You`re welcome.
GRIFFETH: Now, despite the rise in the stock market today, the threat of new tariffs is still very real. And that could create a bigger headache for some of the key sectors of the U.S. economy. So, tonight, we`re going to look at the potential impact on three of those sectors — retail, autos, and technology.
We begin with the retail sector which has a lot of exposure to the world`s second-largest economy.
Here`s Courtney Reagan.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Much of the focus of this quarter`s retail reports has been the impact of tariffs on goods made in China. Companies from Home Depot (NYSE:HD) to Kohl`s have talked about strategies to mitigate the higher costs from tariffs. Well, no retailer is so far in favor of the tariffs, most are figuring out how to lessen the impact so that profit is protected for investors and prices are stable for shoppers.
But that was when tariffs ranged from 10 percent to 25 percent. Now they`re 15 percent to 30 percent. And President Trump told U.S. companies to pull production out of China altogether.
The National Retail Federation said, quote: It`s impossible for businesses to plan for the future in this type of environment. The administration`s approach clearly isn`t working. The answer isn`t more taxes on American businesses and consumers. Where does this end?
But distributors and retailers of America said there is zero doubt shoe prices will rise, hurting poor families the most. This uncertainty may directly plunge us into a recession where we shed thousands of American footwear jobs.
Quote: The United States has created record expansion built on a confident and empowered consumer. A protracted and costly trade war is the one thing that can shatter consumer confidence and ground this economic high. That from the retail industry leaders association.
Even as retail has moved manufacturing out of China over the past decade, more U.S.-sold shoes and clothes are still made there than anywhere else. Prior to Friday`s escalation, Nordstrom`s CFO had said the tariff impact would be, quote, relatively immaterial, and Urban Outfitter CEO said he is, quote, reasonably confident that the effect will not be too great.
Macy`s (NYSE:M) CEO said he was working on solutions to manage a 10 percent tariff on merchandise including clothing and shoes without raising prices. But if that goes up to 25 percent, the path is unknown. It`s not clear what the plan is now for Macy`s (NYSE:M) and other retailers.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.
GRIFFETH: For the U.S. auto industry, China represents its largest market in the world which is why a resolution to the trade war with China would bring a sense of stability and clarity to that sector.
Phil LeBeau has more.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The car business in China is slowing down. And you can see it in showrooms. In fact, as that country`s economy has pulled back, auto sales that surged over the last two decades have fallen for 13 straight months.
That`s hurt automakers like GM, which has several plants in China, and sold 3.6 million vehicles there last year. Last quarter its China profits fell by more than 50 percent.
Now with President Trump and China`s President Xi threatening to raise tariffs again, automakers are preparing for the fallout. Take Tesla. One report out of China says the automaker will raise prices later this week in response to China once again lifting tariffs on American-made cars. Tesla will be able to avoid those tariffs when the starts building the Model 3 in China.
CEO Elon Musk broke ground on Tesla`s shanghai plant earlier this year and says it should be up and running in a few months. Meanwhile, SUVs from BMW and Mercedes built in the southeastern U.S. and shipped to China would also be hit by higher tariffs.
The uncertainty that swirls around the China auto market shows no sign of slowing down. Especially with the U.S./China trade war flaring up again. Meaning an industry that was counting on China to rev up profits has shifted gears and must accept slower growth in the future.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
GRIFFETH: And then there`s the technology industry, arguably one of the most influential sectors in the markets because of its weighting in the S&P 500.
Josh Lipton looks at the potential fallout.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Many tech companies count on China as an important market and depart of their supply chains.
Take the semiconductor industry. It does a lot of business in China. According to one estimate, there are some companies in that sector generating more than half of their revenue in that country. And don`t forget Apple (NASDAQ:AAPL). China represents an estimated 12 percent of its sales. It`s also where the company assembles many of its products like iPhones and iPads.
There`s a big date coming up for apple, September 1st, when its wearables like the watch and air pods could get hit with a 15 percent tariff.
Given these trade tensions, some analysts think a smart bet for tech investors could be stick with those companies that don`t have exposure to China.
MARK MAHANEY, RBC CAPITAL MARKETS: Our top two picks, Netflix (NASDAQ:NFLX) and Facebook (NASDAQ:FB), have zero exposure to China. So, we like these stocks. We don`t think they`ll be impacted by trade tensions.
LIPTON: And there`s one thing most experts agree on, that the increase and uncertainty is making it even trickier to navigate this critical sector.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.
HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.
Lyft was upgraded to buy from neutral at Guggenheim. The analyst cites factors including rising fares and expects the ride hailing company to be profitable by 2021, two years sooner than his previous estimate. The price target is $60. The stock gained 4 percent to $51.21.
Dish was upgraded to strong buy from market perform at Raymond James. The analyst says the company is well-positioned whether it stays as a paid TV service only or expands into 5G wireless. The price target is $44. The stock was up about 4 percent to $32.26.
Foot Locker was downgraded to neutral from positive at Susquehanna. The analyst said the company`s outlook is still too optimistic. Price target $39. The stock finished the trading session up almost 5 percent, though, and — on the trading day.
GRIFFETH: Still ahead, a judge rules against Johnson & Johnson (NYSE:JNJ) in an opioid lawsuit. So, why is the decision a relief to shareholders?
HERERA: A legal ruling against Johnson & Johnson (NYSE:JNJ). In a landmark case, an Oklahoma judge said the company helped fuel that state`s opioid crisis and ordered it to pay the state about $570 million. This is the first trial in the U.S. seeking to hold a drugmaker accountable for the opioid epidemic. The stock rose in initial after-hours trading, probably because Wall Street was expecting the monetary penalty to be much higher.
Meg Tirrell is at the courthouse in Norman, Oklahoma, for us.
So, Meg, what can you tell us about this particular decision?
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Sue, this is an incredibly closely watched decision, both by the public and Wall Street. Analysts had said that J&J could have been on the hook for $1 billion to $2 billion here and when the verdict came down, or the judge`s decision came down at $572 million, that may be why you`re seeing stocks rise.
Attorney General Mike Hunter directed his comments directly to the CEO of Johnson & Johnson (NYSE:JNJ) after the decision came down. Take a listen.
(BEGIN VIDEO CLIP)
MIKE HUNTER, OKLAHOMA ATTORNEY GENERAL: Johnson & Johnson (NYSE:JNJ) is a member of the Business Roundtable. And I`m asking the CEO of Johnson & Johnson (NYSE:JNJ), Alex Gorsky, to put his money where his mouth is and get out his checkbook.
(END VIDEO CLIP)
TIRRELL: Now, J&J said in a statement directly after the decision that it will appeal this decision and that it`s going to seek to stay the order that it pay $572 million throughout that appeals process, which it expects to take through 2021. Now, there is other litigation that is about to start potentially in the fall involving Johnson & Johnson (NYSE:JNJ) and more than a dozen other companies. J&J said this outcome should have no bearing on those cases and said in those cases, it is open to all sorts of outcomes including potentially a settlement.
Now about this case, we talked with J&J Attorney Sabrina strong directly following the decision.
(BEGIN VIDEO CLIP)
SABRINA STRONG, JOHNSON & JOHNSON ATTORNEY: Our position on this is that the decision is flawed. There`s no basis for liability against the company, whether you`re looking at the law or looking at the facts.
(END VIDEO CLIP)
TIRRELL: So a momentous decision today here in Oklahoma, but not at all the end of the opioid litigation.
Guys, back to you.
HERERA: Indeed. Meg Tirrell in Oklahoma City — Meg, thank you.
GRIFFETH: Joining us to talk about what this really means for the rest of the pharmaceutical industry, Chris Meekins is back with us. He`s health care policy analyst at Raymond James.
Chris, good to see you. Thanks for joining us tonight.
CHRIS MEEKINS, HEALTHCARE POLICY ANALYST, RAYMOND JAMES: Thanks, Bill.
GRIFFETH: So they were found liable but the judge, Wall Street was expecting a penalty of maybe $1 billion to $2 billion, it was only $572 million, something of a surprise there.
What impact is all of this going to have on future litigation that Meg was referring to, do you think?
MEEKINS: Yes, so the state was asking for $17 billion. Generally, the street thought it would be $1 billion to $2 billion. It ended up being about half that, at $500 million. So, I think from a broader perspective, while Johnson & Johnson (NYSE:JNJ) may want not to tell what`s going to happen in future litigation, there`s no question people are watching this. And I think it could result in maybe a lower settlement than what some people were thinking in the other cases in Ohio.
HERERA: What about the issue of settlement which Meg brought up as well? We saw Purdue settle, we saw Teva settle, might we see more of that rather than future litigation?
MEEKINS: Yes, I think generally speaking the companies are going to look for a way to settle. In addition, one of the benefits of settling is that you won`t necessarily have to pay all that cash up front. There are multiple different mechanisms in the funding of a potential superfund to look at ways to fund opioid treatments going forward in states across the country.
HERERA: There is a very, very large case that will be heard in New Jersey where they`ve consolidated so many of the lawsuits against the pharmaceutical companies on this. The judge has hoped that the companies will be able to find a settlement before this thing goes to trial. What do you think is going to happen there? I mean, that really gets down to the heart of the issue for this.
MEEKINS: Yes, I think the ruling in Oklahoma really benefits both sides to pursue a settlement. So companies know that they probably are going to be held liable based on the Oklahoma ruling. And from a city, county, state government side, they may not be able to get as much money as they were planning. So, whether you`re a pharmaceutical manufacturer like Teva, Purdue, Johnson & Johnson (NYSE:JNJ), or a distributor like McKesson (NYSE:MCK), or AmerisourceBergen (NYSE:ABC), that`s really a part of these lawsuits, you`re going to look for a way to structure a settlement to really put this behind you, to really stop that overhang on the stock.
HERERA: In terms of the monetary damages that were demanded of J&J today, it was as bill mentioned lower than what the street was looking for. Does that change the math for some of the future litigation or future settlements?
MEEKINS: I think it does. I think it may bring it down a hair. But you`re still looking at more than 1,500 lawsuits across the country involving cities, counties, and states. So while Oklahoma was one of 50 states, there`s still going to be a large amount of money.
So, for example, the drug distributors, we anticipate you could see them being hit for north of $20 billion among all the distributors in what a settlement could look like.
GRIFFETH: Chris Meekins with Raymond James — thanks for joining us tonight.
MEEKINS: Thanks so much, Bill.
HERERA: Bristol-Myers moves closer to buying Celgene (NASDAQ:CELG). That`s where we begin tonight`s “Market Focus”.
Celgene (NASDAQ:CELG) is selling a psoriasis drug called Otezla to Amgen (NASDAQ:AMGN) for over $13 billion in cash. The company`s hope the sale will address antitrust concerns related to the $74 billion proposed merger between Bristol-Myers and Celgene (NASDAQ:CELG). Amgen (NASDAQ:AMGN), Celgene (NASDAQ:CELG), and Bristol-Myers were all up more than 3 percent in today`s session.
Drugmaker Zogenix (NASDAQ:ZGNX) is buying privately held bio pharmaceutical Modis Therapeutics for $250 million. Modis focuses on developing drugs for rare genetic diseases. The deal is expected to close in September. Zogenix (NASDAQ:ZGNX) shares slid more than 8 percent to $45.79.
And in another merger, PDC Energy has agreed to combine forces with fellow energy producer SRC energy in a deal valued at more than $1.5 billion. PDC hopes that acquisition will bolster its free cash flow. PDC shares rose more than 17 percent to $29.65. While SRC Energy shares jumped more than 12 percent to $4.65.
GRIFFETH: Mail management company Pitney Bowes (NYSE:PBI) is selling its software solutions unit to data company Syncsort for $700 million. Pitney Bowes (NYSE:PBI) says the sale will allow it to focus on shipping, mailing, and related financial services, and also help reduce its debt load. The stock dropped more than 8 percent today to $3.31.
KFC is the latest fast food chain to test a Beyond Meat product. This time, it`s a plant-based chicken. The beyond fried chicken menu item is going to be test marketed at one KFC store in Atlanta this week. If the response is positive, the item will be rolled out to other stores. Beyond Meat shares rose more than 5 percent to $155.13.
HERERA: Coming up, Disney (NYSE:DIS) streaming service hasn`t launched yet but analysts say it already has an advantage over others.
HERERA: There was one major economic report released today, and that was durable goods. The Commerce Department says orders for long-lasting items rose 2.1 percent in July. That`s the second straight monthly gain and better than economists had predicted. Within the report, a measure of investment spending also picked up.
GRIFFETH: Gasoline prices are still falling. The average price of a gallon of regular now is $2.66, that`s 8 cents lower than it was two weeks ago. And according to the survey, it`s 25 cents lower than we were paying last year. The highest average price in the nation right now is $3.57 in Honolulu; lowest, $2.07 in Baton Rouge, Louisiana.
HERERA: Disney (NYSE:DIS) has been a big winner at the box office this summer and it hopes to be the big winner this fall when it launches its streaming service called Disney (NYSE:DIS) Plus. Over the weekend, Disney (NYSE:DIS) gave a few more details on how it plans to compete in the very crowded streaming space.
Julia Boorstin has more for us tonight.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Disney (NYSE:DIS) giving a look at its annual D23 Convention and how Disney (NYSE:DIS) Plus aims to apply the same blockbuster approach to streaming as it has to successfully dominate the box office. We`ll have far fewer original shows than Netflix (NASDAQ:NFLX) does, but Disney`s focusing on the big brands with big budgets that could stick up from the streaming clutter.
Disney (NYSE:DIS) debuting a trailer for on “Star Wars” spinoff series, “The Mandalorian”, drawing over 13 million views on YouTube in two days. It`s one of eight new shows to debut on the service on November 12th. Disney (NYSE:DIS) also revealed a new trailer for “Star Wars: The Rise of Skywalker” opening in December, reminding fans Disney (NYSE:DIS) Plus will be the exclusive streaming home for all of Disney`s upcoming movies including “Captain Marvel”, the day of the streaming services launch.
BRETT HARRISS, G. RESEARCH ANALYST: Their content is distinct because it lives within these established franchises. So, “The Mandalorian”, for example, looks like it`s going to be a very high-quality series, but it`s set within the “Star Wars” universe which already has a very, very large fan base built into it.
BOORSTIN: Disney (NYSE:DIS) also announcing more details about Disney (NYSE:DIS) Plus, that show the media giant`s strategy to appeal to consumers in the face of so many streaming alternatives, including Netflix (NASDAQ:NFLX), with even more coming from Apple (NASDAQ:AAPL), AT&T (NYSE:T), and NBC Universal (NYSE:UVV). Disney (NYSE:DIS) Plus` standard $7 plan or $13 bundle with ESPN Plus and Hulu will include up to seven user profiles and four streams at the same time. And it will include streaming in 4K and HD.
To compare, Netflix (NASDAQ:NFLX) charges $16 for 4K and four streams. Now, unlike Netflix (NASDAQ:NFLX), Disney (NYSE:DIS) plans to release new episodes of its originals weekly, rather than dropping them all at once. Disney (NYSE:DIS) indicating it will continue to mine its deep library as well as Fox`s, with its “Simpsons” movie, as well as a spinoff for Disney (NYSE:DIS) Plus in the works.
HARRISS: Disney (NYSE:DIS) is going to be incredibly competitive with Netflix (NASDAQ:NFLX), both from a content perspective and specifically from a pricing perspective, based off of the announcement we`ve seen so far. What it means for Netflix (NASDAQ:NFLX) is life is going to get much more competitive for them.
BOORSTIN: As Disney (NYSE:DIS) gets closer to launching its streaming service, the incumbent in streaming, Netflix (NASDAQ:NFLX), has been struggling. Its shares have lost 20 percent since its earnings in mid- July. While Disney (NYSE:DIS) shares are down 7 percent over that same period. Netflix (NASDAQ:NFLX) is facing growing concerns about its declining U.S. subscriber base in the face of heightened competition from Disney (NYSE:DIS) and others.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
HERERA: Before we go, here`s another look at the day`s final numbers from Wall Street. The Dow rose 269. The Nasdaq was up 101. The S&P 500 added 31.
And that is NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening, everybody. We`ll see you tomorrow.
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