ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Volatile stretch. The third quarter saw trade clashes and recession signals, but that didn`t stop the market from staying within reach of all time highs.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Speaking out. How smaller companies are helping regulators understand just how dominant big tech can be.
GRIFFETH: Finding financial aid. Have college-bound kids, do you? Well, it`s time to fill out a key form if you want to receive any assistance.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Monday, September 30th.
HERERA: Good evening, everyone, and welcome.
Well, it may be the start of the week, but it`s the end of the month, and the end of the third quarter. A period that was defined by trade tensions, recession concerns, interest rate worries and now political drama. But despite it all, stocks stayed steady.
Let`s run through the numbers. Today on the last day of the quarter, the Dow Jones Industrial Average rose 96 points to 26,916. The Nasdaq added 59 and the S&P 500 was up 14.
For the month, all of the major averages were higher. And for the quarter, the Dow and the S&P were up, but the Nasdaq dipped slightly.
And now comes October, a month that historically is volatile, and the next big hurdle, earnings.
Bob Pisani is at the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: For the third quarter officially out of the way, the markets are still on track to end the year strong. But investors are going to be fixated on the next big catalyst, and that is earnings. This next great earnings recession fear that dominated the first quarter and the fear that companies would dramatically lower earnings expectations in the second half of the year because of the tariffs and trade wars, and the global slowdown, none of this has ever come to pass.
Earnings have held steady and remain roughly flattish for the first quarter, the second quarter, and now, for third quarter. Going in to the year end, the fourth quarters estimates show a gain of roughly 4 percent. But still, that`s a big improvement over the last three quarters. And that`s good news.
So, there`s the problem: the two biggest issues that would earn the needle in earnings in one direction or the other are unresolved. The first one is trajectory of trade talks. Are we going to get more or less tariffs in the fourth quarter? And then there`s the Federal Reserve. Are they on hold when it comes to rates or are they not on hold?
And while there`s been no wholesale attempts to lower earnings in a big way, we do see a couple of troubling trends emerging. 13 of those 14 companies who`ve reported for the fourth quarter have had their estimates for the fourth quarter come down. That`s a very high percentage, north of 90 percent, and it`s been very notable downward revisions from some important bellwethers like FedEx (NYSE:FDX) and Micron and Carnival (NYSE:CCL).
The other trend is energy seeing very big downward positions, even in the third quarter. Exploration and production companies like EOG, for example, estimates have come down 20 percent for this as a group since July because excessive production of oil is keeping oil prices low. That`s something to keep an eye on as well.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: Mark Luschini joins us now to talk more about these third quarter earnings expectations. He`s chief investment officer at Janney Montgomery Scott.
Mark, good to see you again. Welcome back.
MARK LUSCHINI, JANNEY MONTGOMERY SCOTT CHIEF INVESTMENT STRATEGIST: Thank you, Bill.
GRIFFETH: Certainly no shortage of things to talk about, as we look at what is traditionally the most volatile month of the year for Wall Street. But what`s your outlook? I mean, you know, Bob says flattish earnings are coming our way. What do you think?
LUSCHINI: Well, we know typically that companies tend to guide a little bit lower and the beat ratio typically comes in around 75 percent plus or minus a few percentage points around which generally means that over the course of the earnings season, earnings tend to trend higher than what are our original estimates are guesstimating. And right now, the negative 3 percent level looks daunting, but it shouldn`t be overcome and flatten out. I think investors are going to start to look toward fourth quarter in 2020 earnings estimates, and so much of that is going to be predicated upon conditions globally, both as it relates to trade as well as growth.
HERERA: And given that, this earnings season, what sector of the market do you think is going to be key? Not just for you, but the market overall?
LUSCHINI: Well, certainly, Sue, the biggest sector in the market is the technology sector. It represents 22 percent of the S&P 500. So, it`s going to matter a lot in interprets of the influence on the direction of the market. Another big sector however is financials.
And we see a nice rally in the stock prices here in the month of September. We`ll see if it`s because investors are sniffing out better earnings to come from the financial sector growth, which again given its double-digit weight could help support the market if technology doesn`t, or if in combination drive the overall market higher.
So, those are the two I`ll be most focused on.
GRIFFETH: And energy, what you saw in that graphic, you feel it looks attractive right now, even as energy prices start to come down again here.
LUSCHINI: Well, Bill, one would have to be a pretty hard contrarian to wade into energy stocks at this juncture because they`ve done nothing but disappoint here so far this year. But that said, from a valuation perspective, there`s two standard deviations below their relative return against the S&P 500 so far this year. And so, that would suggest to us perhaps they`re bombed out sufficiently, as to warrant some attention, particularly if investors become more confident that perhaps elevated energy prices or a geopolitical risk premium as a consequence of the attack on the Saudi Arabian facility could lead to even higher prices in the near future.
HERERA: So, Mark, how much of what you`ve just laid out for us do you think is already in the market, because there is still a lot of headline risk as Bill mentioned earlier in the market. Do earnings trump that or not?
LUSCHINI: Frankly, Sue, I think it`s the macroeconomic issues that trump earnings at this juncture. I think that you`re right, it`s baked in at this point. We`ve known for some time that earnings were going to face some difficult comparisons, because 2018 earnings were so strong. And we`re finally seeing the base effects of that perhaps fade in the fourth quarter of this year and for all of 2020. But that said, if we would get a resolution or at least some permanence to the truce between China and the U.S. and we start to detect real convincing signs of global growth beginning to at least stabilize if not outright improve, that could be enough even in the absence of third quarter earnings improving to be the driver for stock prices going into the end of the year.
GRIFFETH: Mark Luschini with Janney Montgomery Scott — again, always good to see you, Mark. Thanks for joining us tonight.
LUSCHINI: Thank you, Bill.
GRIFFETH: You bet.
HERERA: Well, part of the reason the market traded higher today was because of slightly positive economic news out of China and optimism around the trade talks. In a statement over the weekend, the Treasury Department said that the White House is not considering blocking Chinese companies from listing shares on U.S. stock exchanges.
As you may recall, that report was one of the reasons why stocks fell on Friday. And the Chinese government had something to say about it.
Here`s Eunice Yoon in Beijing.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The foreign ministry criticized reports that the Trump administration could be limiting U.S. investments into Chinese firms by saying that any decoupling of China and the U.S. would harm both sides and cause instability in global markets. Analysts here, though, say it`s not clear how damaging those restrictions would be in any case since foreign investors generally play a small role in domestic stock markets, and China has been trying to make its markets more attractive to Chinese firms with the launch of its own Nasdaq-style market.
Separately, China posted more data that surprised to the upside. But the improvement is likely only temporary. Analysts say the stronger orders were likely due to seasonal factors, possible frontloading and government stimulus. The better numbers came one day before China celebrates its 70th anniversary of the founding of the People`s Republic on Tuesday, expect the military hardware filled parade and an address by President Xi Jinping.
Investors will be looking for any clues on his speech on China`s policy towards the West.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
GRIFFETH: Elsewhere, Senate Majority Leader Mitch McConnell said today that he hopes the U.S. and China do reach an agreement on trade sometime soon because he said the trade war has hit America`s heartland especially hard.
(BEGIN VIDEO CLIP)
SEN. MITCH MCCONNELL (R-KY), MAJORITY LEADER: It`s been very tough on American agriculture. And as you know, my party is very deeply based in rural America and small town America.
So, I hope the president can get a good outcome here. The Chinese have been stealing our intellectual property and not playing by the rules for a long time. So, I admire what he`s trying to do, but I hope we can get a conclusion of this sometime soon, because rural America really needs it.
(END VIDEO CLIP)
GRIFFETH: According to “Reuters”, about $19.5 billion in U.S. farm goods were exported to China in 2017, that figure fell to about $9 billion last year, after agriculture products were made more expensive by tariffs.
Senator McConnell also said that farmers would benefit if Congress passed the new NAFTA, which is now called USMCA.
HERERA: The president of the Chicago Fed said the Central Bank`s current accommodative stance is a good one, but suggested more cuts could be needed if economic headwinds increased. Charles Evans considers himself open- minded when it comes to monetary policy and said getting inflation to the Fed`s target rate of 2 percent has been a challenge over the last six months.
GRIFFETH: Oil prices fell sharply today on reports that Saudi Aramco has fully restored its production capacity following those drone attacks on those facilities earlier in the month. The attacks had briefly knocked out more than 5 million barrels a day of Saudi crude, knocked it offline. Price of domestic crude here in the U.S. today settled at a one month low.
HERERA: Boeing (NYSE:BA) plans to sharpen its focus on safety following the grounding of its 737 MAX plane. The announcement comes as the company enters a critical time of year.
Phil LeBeau has been following the story for us all along.
And, Phil, welcome.
Boeing (NYSE:BA) CEO Dennis Muilenburg is increasing safety protocols.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:
HERERA: How significant are the moves?
LEBEAU: Well, the moves are significant considering the fact that what Boeing (NYSE:BA) has gone through has exposed a lot of flaws in the process of developing and building aircraft. So, certainly, the fact that they`re going to be taking a greater focus, and people can now step up if they see a safety issue, that`s certainly going to help in the future.
Look, it can`t get worse than it already has been for Boeing (NYSE:BA). But keep in mind, this also comes as people continue to question what was being done as they developed the 737 MAX. The most recent report over the weekend is that this was a plane that as they built the military version of it, it had safeguards that were not applied also to the commercial version.
It`s just one more case where people, and you can bet they`ll bring this up when they question Dennis Muilenburg in Washington, D.C. People are saying, what was going on?
GRIFFETH: Yes. Well, of course, tomorrow starts fourth quarter. And this is the time when Boeing (NYSE:BA) said it hoped that the 737 MAX could return to service.
What do you think, yes, no?
LEBEAU: They`ve got a lot of hurdles they`ve got to clear. If they`re going to make it within the next 90 days, think about this. They`ve still got to do a recertification flight, and I get no indication that that`s going to be happening any time soon.
Then they`ve got to formally ask for the regular lighters to approve the MAX going back into service. Then they`ve got have to prepare all these grounded MAX planes. Just can`t flip a switch. That`s going to take anywhere from 20 to 40 days is the estimate I hear from the airlines. So, a lot of things have to happen if the MAX is going to fly by the end of the year.
HERERA: You`re a busy guy these days. You have another huge story on your radar, that`s the UAW/GM strike.
HERERA: Any movement so far today?
LEBEAU: They`re still talking. And everyone says that they are making progress. But I get no sense that we see a deal coming any time soon. So, keep in mind that the UAW workers, they have been without work. So, they`ve been two weeks without work, they missed a paycheck on Friday.
They are now eligible for strike payments from the UAW. That comes out to $250 a week, as they start to get those this week. That will help a little bit.
But, guys, $250 a week, that`s nothing compared to what you`re making if you`re on the assembly line.
GRIFFETH: Indeed. It`s interesting that GM shares have not suffered over this time frame. Why is that do you think?
LEBEAU: The inventory is still there. Sales have been hit. If we see inventory drop off, especially for pickup trucks, then you would see the stock really suffer.
HERERA: Phil LeBeau, thanks as always, Phil.
LEBEAU: You bet.
GRIFFETH: Time to take a look at some of today`s “Upgrades and Downgrades”.
We begin with shares of Bed, Bath and Beyond. They were upgraded to outperform from market perform at BMO Capital. The analyst there cited the potential for earnings to stabilize over the next couple years. Stock price target now, $16. Shares rose 7 1/2 percent today to $10.64.
Also at BMO Capital, United Healthcare and Humana (NYSE:HUM) were downgraded to outperform. That analyst cited election uncertainty and its impact on future health care policy. Price target for UnitedHealthcare is $249. For Humana (NYSE:HUM), it`s $290. The stocks however moved in opposite directions today, UnitedHealth rose, Humana (NYSE:HUM) was down.
HERERA: Apple`s price target was hiked to $265 at JPMorgan (NYSE:JPM). The analyst sees sentiment on the stock improving materially. The firm has an overweight rating on the stock. The stock was up 2 percent to $223.97.
Newell Brands was upgraded to buy from hold at SunTrust. The analyst there says the company is on a verge of a turnaround. The price target is $25, and the shares gain more than 2-1/2 percent to $18.72.
GRIFFETH: Still ahead, Bernie Sanders has a plan to tax corporations and address the pay gap between CEOs and workers.
GRIFFETH: WeWork has now officially pulled its initial public offering. The embattled office sharing startup formally announced its intent to go public last month.
And in the process, it revealed big losses and a confusing corporate structure. Then came weak demand for its stock, which led to a reduced valuation for the company. Last week, WeWork`s co-founder and CEO Adam Newman stepped down and gave up his voting power in the process. And so, today, the IPO has been shelved.
HERERA: Forever 21 has filed for bankruptcy. The fashion retailer that helped popularize fast fashion has filed for chapter 11 protection. The company which targets teen shoppers said it would cease operation in 40 countries and close up to 178 stores here in the U.S. Forever 21 plans to continue to operate its website and simplify its operations while going through the bankruptcy process. Analysts say the store was not able to keep up with the shifting tastes of younger consumers.
GRIFFETH: A judge today dismissed a lawsuit brought by four states that challenged a provision of the 2017 tax law that kept state and local tax deductions. The judge reaffirmed that cap as part of Congress`s broad powers to write and pass tax legislation under the Constitution. He also said that the states did not show that the cap constrains their decision- making process.
HERERA: Senator Bernie Sanders has outlined a new tax plan that targets corporations. The aim is to narrow the gap between what they pay their top executives and what they pay their workers.
Robert Frank has the details.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Bernie Sanders announcing this morning that it is, quote, time to send a message to corporate America. If you do not end your greed and corruption, he said, we will end it for you.
And he hopes to end it with a new inequality tax — tax would apply to companies with revenues of more than $100 million both private and public, where CEO pay is at least times the median salary of their workers. Now, it`s a sliding scale starting with half a percent tax and rising to 5 percent for companies whose CEO makes more than 500 times their median worker. Now, Sanders said it would raise $150 billion a year.
Now the companies that would be hardest hit are mostly in retail, banking and restaurant chains since they have large workforces of lower paid workers or they have operations in developing countries.
Now, McDonald`s (NYSE:MCD) would pay an additional $110 million in taxes last year under the plan while Walmart would have had to pay an additional $800 million and JPMorgan (NYSE:JPM) Chase would have paid $1 billion more in taxes. Now, some of the other companies with large pay gaps include Chipotle, Coca-Cola (NYSE:KO), Dollar Tree (NASDAQ:DLTR), Kohl`s (NYSE:KSS) and The Gap (NYSE:GPS).
Now, some market strategists say the plan is more political than practical.
DAN CLIFTON, STRATEGAS: There`s a difference between campaigning and governing. And from a campaign theme, it fits very well in this theme that we were talking about income inequality, CEO pay. I think as a practical aspect, it would be very difficult to implement.
FRANK: The tax is made possible by recent SEC rule that requires companies to disclose the pay gap. But there are no set rules for how companies have to calculate the median pay. So, like any tax, companies would probably find ways around it.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
GRIFFETH: Thor Industries (NYSE:THO) drops the hammer and that`s where we begin tonight`s “Market Focus”, with the RV maker topping analyst profit expectations, thanks to lower costs in North America. But the company missed on revenue due to sluggish sales, but investors seem to be focusing mainly on that bottom line number. The shares jumped nearly 16 percent to $56.64.
Cal-Maine Food says an extreme drop in egg prices hurt the egg producer`s sales which led to a bigger loss than Wall Street expected. Egg prices have dropped by as much as 40 percent of the past year due mainly to an oversupply that started in early 2018. Cal-Maine stock dropped about 17 — about 12 percent today at $39.96.
And Seattle Genetic says that data from an early stage bladder cancer drug test showed about a 70 percent overall survival rate when it was combined with Merck`s Keytruda. And Wall Street noticed, as multiple brokerage firms today raised their price target on that biotech company. And shares rose more than 12 percent to $85.40.
HERERA: Walgreens is joining CBS (NYSE:CBS) in suspending the sales of Sanofi`s Zantac and other generic heartburn products, as the FDA continues its review after an online pharmacy cited low levels of a chemical that could cause cancer. Both CVS (NYSE:CVS) and Walgreens shares rose more than one-and-a-half percent. Sanofi was up a fraction.
Congressional antitrust investigators are looking at Google`s new Internet protocol worried it might give the company an unfair advantage by denying others access to consumer data. The House sent a letter earlier in the month asking Google (NASDAQ:GOOG) if it would collect the data for any commercial purposes. Google (NASDAQ:GOOG) claims its goal on this project is to improve Internet security. The shares fell a fraction to $1,221.14.
GRIFFETH: Now, Google (NASDAQ:GOOG) isn`t the only big tech company under scrutiny these days. Other Silicon Valley giants are as well. And as regulators investigate their dominance, they are calling on smaller companies to better understand just how much power the big ones hold.
Ylan Mui talks to one business who says it`s getting squeezed.
MIKE MOLSON HART, VIAHART FOUNDER: Technically by appearing in this interview, we could get in a lot of trouble.
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Molson Hart has been selling toys for almost 10 years.
HART: This is another one of my favorite guys. This is Slowmo, Slowmo the sloth.
MUI: Stuffed animals, a construction toy called Brain Flakes, even kickboards.
Where does he sell all of this?
HART: Definitely Amazon (NASDAQ:AMZN) by far. In 2018, 98 percent of our revenue actually came from Amazon (NASDAQ:AMZN).
MUI: In a post on “Medium”, Hart argued that gives Amazon (NASDAQ:AMZN) enormous power over his business and ultimately harms consumers.
HART: If we`re caught selling our products for less on walmart.com, let`s say, then we sell them on Amazon (NASDAQ:AMZN), then Amazon (NASDAQ:AMZN) will actually suppress our listings in Amazon (NASDAQ:AMZN) search which tremendously hurts sales.
So, what do we do? We actually end up raising prices on our other marketplaces to match Amazon (NASDAQ:AMZN).
MUI: That caught the attention of the FTC. An investigator reached out and Hart spent an hour on the phone with him.
HART: It`s really hard to find someone who`s willing to speak up about an issue when it comes to Amazon (NASDAQ:AMZN) because people are afraid to speak publicly.
MUI: Regulators appear to be casting a wide net. The FTC has reportedly reached out to Snap in its case against Facebook (NASDAQ:FB), and a source tells us the Justice Department has sent a subpoena to DuckDuckGo, a search engine that`s trying to compete with Google (NASDAQ:GOOG).
Other Google (NASDAQ:GOOG) rivals like TripAdvisor and Yelp say they`re finally being heard after trying for years to get the attention of U.S. regulators.
LUTHER LOWE, YELP SR. VP OF POLICY: It can`t just be sort of one squeaky wheel raising this issue. It has to be lots of players who are talking about these issues, in order to spur the government to take action.
MUI: Google (NASDAQ:GOOG) says its services helped create more choice, not limit it. Amazon (NASDAQ:AMZN) did not respond to our request for comment.
For Hart, speaking out publicly violates his contract with Amazon (NASDAQ:AMZN) and means he could end up suspended from the platform.
HART: Going into Christmas, we have — we`re going to hit over a million dollars or at least get really close to it in inventory. What happens to the business if we can`t sell November and December? We`re a toy seller. What do we do with that inventory?
It`s going to be a really long haul from that point on if we were to get in trouble.
MUI: For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.
HERERA: Coming up, it`s time to start thinking about college financial aid, a confusing process but it doesn`t have to be.
HERERA: California`s governor has signed into law legislation that allows college athletes to be paid. They can now sign endorsement deals and profit from their name, image and likeness. The measure is the first of its kind and analysts say it could transform the economics of college sports. The NCAA, which is the governing body of college sports, strictly prohibits athletes from profiting in any way from their sport. Many expect the new law to be challenged in court.
GRIFFETH: Well, the fall semester may have just begun. But for college- bound high school seniors and their parents, now is the time to start thinking about the next school year. Starting tomorrow, you can apply for loans and grants using the Free Application for Federal Student Aid called FAFSA.
Our senior personal finance correspondent Sharon Epperson joins us now to talk about this lovely process.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT SENIOR PERSONAL FINANCE CORRESPONDENT: Yes.
GRIFFETH: Why is the FAFSA form so important?
EPPERSON: Because it unlocks the gateway to all kinds of aid. Federal student aid, yes, but also perhaps state aid, perhaps private institutions aid.
When you look back at 2018 statistics, $122 billion in aid was awarded because people filled out this form, to about nearly 13 million students and about six thousand colleges participated. So, there are a lot of schools that are participating in this, a lot of students that are participating in it, and their families.
The key is not that they`re going whether or not they`re going to fill out the application.
EPPERSON: It`s when they fill it out. That`s going to be very key.
HERERA: And when do they start?
EPPERSON: Tomorrow, October 1st, the sooner the better, because the earlier you start, the more likely you are to get aid that may be given on a first come, first served basis. So, you want to make sure you apply as soon as you can, don`t wait until your child has actually gotten into the school because you need to figure out how you pay for it before that acceptance even comes or maybe before you even apply.
And you want to fill it out regardless of your income because this is not only for grants and scholarships for free money but it`s also a work study. It`s also loan. So, you want to make sure that you fill that out, and also because states and private institutions are using the form.
GRIFFETH: So, what do you need to bring with you as you`re filling out that form?
EPPERSON: Make sure that you have your 2018 tax return. That`s the one that they`re going to be looking at.
EPPERSON: You need to have an ID that is an FSA ID that you get so that you can go on to the Department of Education Website, your Social Security number, and then a record of your assets, your bank and brokerage statements. Know that your retirement accounts will not be counted for financial aid.
HERERA: It sounds like so much fun.
How is it — how is the information really used or processed to determine what kind of aid or how much aid you can get?
EPPERSON: They use it to figure out your EFC, your expected family contribution. How much you`re expected to pay for your child`s education. And the key there is to make sure that you include your assets, as well as your child`s, and to know that your assets are not counted as much as your child.
So, when you`re saving in that 529 plan, it`s not the same as if you`re putting all that money in your kid`s name.
HERERA: Got it.
GRIFFETH: I`m so glad that`s past me now.
EPPERSON: Oh, lucky you.
HERERA: You can hold my hand as I`ve — as I`ve —
EPPERSON: Yes, we`re holding each other`s hands.
HERERA: Exactly, we are.
GRIFFETH: Thank you, Sharon Epperson. Always good to see you.
HERERA: Here`s a look at the final numbers on Wall Street. The Dow rose 96, the Nasdaq added 59, S&P was up 14. For the month, all of the major averages were higher and as for the quarter, the Dow and the sp up, but the Nasdaq dipped slightly.
And that is NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.
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