ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herrera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Record close. The major indexes finished the week at all-time highs. But what happens next for stocks may depend on what happens to bonds.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Blue chip buys. With stocks at record highs right now, our market monitor guest is looking to some household names for big returns.
HERERA: Social media spies. LinkedIn (NYSE:LNKD) isn`t flashy. But according to law enforcement officials, it`s a hot bed of espionage activity.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday, November 8th.
GRIFFETH: And we bid you good evening, everybody. And welcome.
You know in golf, a 300-yard drive counts the same as a 2-inch putt, and it works pretty much the same way on Wall Street. Remember yesterday, a nearly 200-pinpoint rally pushed the Dow into record territory. Today, a mere 6-point gain did the same thing. The Nasdaq and S&P closed at record highs.
But the moves didn`t come easy. Stocks wavered between gains and losses. But in the end, help came from trade optimism, earnings moment up and decent economic data. Today as I mentioned, the Dow rose by six points. We`re now at 27,681. Nasdaq was up 40, the S&P added seven.
In fact, all the major averages were higher for the week. The S&P finished its fifth consecutive week of gains. But the big question for investors now is, can stocks move even higher?
And as Bob Pisani reports, the answer my lie in the bond market.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Beyond the rally in the stock market, we`ve also seen a rally in bond yields. The yield on the U.S. 10-year treasury note risen sharply over the past seven days, investors haven`t seen that kind of move in bonds since before the 2016 presidential election.
Now, this recent spike in yields mass pushed bank stocks back into a leadership position with regional banks like Comerica (NYSE:CMA) and KeyCorp (NYSE:KEY) hitting highs while utilities slumped 4 percent and the much loved homebuilding stocks, well, they`re down anywhere from 2 to 8 percent for the month. But more importantly, it`s finally given some credence to the bond bears, people who think bond prices are too high.
The big question is, how sticky is this rally in bond yields that we`ve seen? Well, it`s hard to say. But if a long-term U.S.-China trade deal reducing tariffs emerges, it could be sticky.
The decline in bond prices could force more investors into stocks and provide fuel to give the rally some additional legs going into the end of 2019. Now, keep in mind a few key factors have led global bond yields to stay low for longer. We had aging populations. We have lower yields in exchange for safety. We have central banks, and policy uncertainty. The uncertainties around trade and the 2020 election.
So, you`ve also got demands still outstripping supply for bonds globally. No one is expecting a revolution in bond prices. But it`s gotten some traders buzzing about what might happen if this trend continues a little bit more or gains momentum into the end of the year. Like I said, that could be a help to the stock market.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: New highs in the stock market tend to come when the economy is growing, but that`s not case now. Economic data shows that activity is slowing.
It`s an unusual phenomenon that we asked Steve Liesman to look into.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The market surged to all-time high looks underpinned by optimistic outlook in three risk areas, trade, growth and the Fed. But some think the optimism could be overdone.
First, the most important outlook is the potential for some kind of trade deal. That would ensure that the tariff situation economically at least doesn`t get worse from here. But the market has been fooled before. And some see all the upside now priced in.
GREG BOUTLE, BNP PARIBAS: The market has become much more optimistic about a trade deal and potentially tariff roll backs. So, I actually see the risk from trade now more asymmetric and more potentially to the downside, but that could disappoint. Similarly with growth, the market certainly when you look at earnings estimates is expecting a strong kind of rebound into next year.
And for the quarter, we have seen to be the lows in terms of corporate earnings growths. So, again, I think the risks for the estimates are on the downside not upside.
LIESMAN: Second prospect for the trade deal led for the prospect that they are the bottom at the slowdown this year.
CNBC looked at the growth forecast of eight Wall Street economists. After the 1.9 percent gain reported by the government and GDP for the third quarter, the median forecast sees growing slowing to 1.5 percent this quarter and next. But rebounds back to 2 percent in the second quarter of 2020.
And third, the back drop for all this is that interest rates remain low and the Federal Reserve stays on hold with a high bar to raise rates.
MARGARET PATEL, WELLS FARGO: I think there is very low possibility of interest rates breaking out of the 1.5 to 2.5 percent for the 10-year. The Fed is clearly — they learned the lesson in `18 by over-tightening. They`re clearly on the sidelines being passive. So, I think that makes a positive back drop for economic growth to continue, even if it`s only 1.5 or 2 percent. That`s good enough for earnings growth to expand over the next year or two.
LIESMAN: So an optimistic outlook for an improving trade picture, a bounce off the bottom for growth and the Fed on the sidelines created the foundation for the market to rise to all-time highs. The question is whether that foundation is solid or shaky, whether the forecasts are realistic, whether the good news is already priced in.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
GRIFFETH: Now, earlier this week, for the most part, there was optimism over the trade dispute between the U.S. and China. But today, there was a noticeable change in tone and more questions.
Kayla Tausche has the latest developments from Washington.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The White House is hoping to have a deal finalized with China by next week, the original date of the APEC summit and one month after President Trump and Vice Premier Liu He announced the agreement from the Oval Office and said it would take just a few weeks to put in writing.
The home stretch has seen both countries and officials within the White House posturing to put their preferred outcome forward. China on Thursday said an agreement was reached on a scheduled rollback of tariffs. Comments confirmed by U.S. officials.
National Economic Council Director Larry Kudlow said some tariffs would be removed as a condition of the first deal. The trade hawk Peter Navarro who had been fighting the deal internally then said there was no agreement on tariffs which President Trump himself today reiterated on his way to a fundraiser for Georgia Senator David Perdue.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Well, they`d like to have a roll back. I haven`t agreed to anything. China would like to get somewhat of a rollback, not a complete roll back because they know I won`t do it.
But we`re getting along well with China. They want to make a deal. Frankly they want to make a deal more than I do. I`m very happy right now. We`re taking in billions of dollars. I`m very happy.
TAUSCHE: Once the deal is clinched, the question is where to sign it? The White House has considered a dozen locations of varying political importance and convenience for the president`s schedule. Both the U.S. and China would prefer to host a signing summit on their home turf.
Trump again today suggested Iowa or elsewhere in the Farm Belt. Even as aides this week said it may be pushed to early December when the president is in Europe.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
HERERA: And trade was one of the issues we heard a lot about in earning season. But as the third quarter earnings season winds down, what did we actually learn?
Joining us is Matt Maley. He`s the chief market strategist at Miller Tabak.
Welcome, Matt. Nice to see you again.
MATT MALEY, MILLER TABAK: Thank you, Sue.
HERERA: So, what was your big takeaway from the earnings season this time around?
MALEY: Well, two things, number one, it wasn`t that great. It started off very strong, and looked like it was going to be really good.
But in the earnings season, they beat expectations. But, of course, they always beat expectations because they lower them so much. But the guidance coming out for the fourth quarter was disappointing because it came down again. We`re not looking for basically a slightly negative growth for 4th earnings.
That number was 2 percent growth two weeks. And back in May, it was 11 percent growth. However, on the flipside, you look at forward earnings a bit further out for the first and second quarter, the second quarter went from 7.7 percent growth, down to 7 percent. Not that huge decline like we saw for fourth quarter growth we have seen in recent months.
So, you know, we`re going — we`re still in the show me stage, especially given how much the stock market rallied. But right now, it`s not something we want to stick a flag in the ground and say this is a fabulous earnings season.
GRIFFETH: We are getting those mixed signals about the rollback of tariffs. But assuming that were to start happening, how would that impact those earnings down the road do you think?
MALEY: Well, the one problem we have at that is that the rollback would — there is no question it would be positive. I mean, especially for the consumer. And they`re the most important part of the economy.
But what does it mean for corporate executives? Does that really lift the uncertainty surrounding a more comprehensive deal? I`m not sure that it does.
So I`m not sure they`re spending in the way that will really help the economy grow in a major way. So, it`s not as good as I`d like it to be if we had a bigger deal.
HERERA: So, broadly speaking, if you`re a long-term investor, do you stick domestically in terms of investments or do you look overseas?
MALEY: I think we have to spread ourselves a little bit. The last couple of years, the U.S. has outperformed by — in a dramatic way. But I think now we`ve seen outperformance in several areas like emerging markets, even Europe, over the last two or three months.
That could continue as we move into the New Year. So, I think that, you know, I`m not saying people should leave the U.S. behind. But we are starting to see some bright spots in other parts of the world. So, if you broaden the horizon you`ll do better in 2020.
HERERA: Matt Maley with Miller Tabak — thanks, Matt.
MALEY: Thank you.
GRIFFETH: Speaking of earning, the Gap (NYSE:GPS) was downgraded today to market perform from outperform at Telsey Advisory Group following the departure of its CEO which we told you about last night and some disappointing earnings. And the stock fell more than 7 percent today to $16.68.
Courtney Reagan takes a closer look now at the troubles facing this once popular Gap (NYSE:GPS) brand.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Gap (NYSE:GPS) was already in a period of transition and just got more complicated. CEO Art Peck is stepping down, ahead of the plan to spin out Old Navy into its own public company in 2020.
Peck was slated to run the rest of the brands, including Gap (NYSE:GPS), Banana Republic and Athleta. Board member and founding family member Robert Fisher will be interim CEO.
Issues have existed for years at Gap (NYSE:GPS), Inc. Peck took over as CEO in 2015 as the business started to stumble and hasn`t been able to turn it around. Shoppers have more choices than ever before. And there have been a number of merchandise stumbles by Gap (NYSE:GPS), Inc, brands, including at Old Navy which had been the standout, though recently sales have begun to fall.
STACEY WIDLITZ, SW RETAIL ADVISORS: It`s time for a change in product. It`s time for a change in thought process. And it`s also time to consider the fact that non-stop promotions over the past several years have trained the consumer to never pay full price again.
REAGAN: The apparel retailer also preannounced disappointing third quarter results and lowered its full-year forecast. Sales at Gap (NYSE:GPS), Banana Republic and Old Navy all fell. The retailer said it was a challenging quarter. The CFO said macroeconomic impacts and slower traffic hurt results that were already hampered by, quote, product and operating challenges.
Gap (NYSE:GPS) planned to spin out Old Navy to unlock the value, but it`s since weakened. And the process costs about $1 billion, leading to a growing chorus of those that think it`s best to end the planned separation.
WIDLITZ: If we can save Old Navy and keep it from becoming that non-stop promotional brand, there is hope for this company, but I think changes need to happen in terms of product, incredibly quickly so that Old Navy doesn`t become what the Gap (NYSE:GPS) is, which is a low-margin, non-stop promotional product.
REAGAN: The CEO departure, disappointing quarter and forecast led a number of analysts to downgrade their outlooks for the company, as its futures and the plan for the Old Navy spinout looks more uncertain.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.
GRIFFETH: And still ahead, spies like us. When you think of LinkedIn (NYSE:LNKD) you probably don`t think of espionage. But maybe you should.
GRIFFETH: Democratic presidential candidate Pete Buttigieg today outlined a $1 trillion plan for affordable housing and child care. All part of a package of proposals designed to benefit the middle class. His campaign says the programs will be paid for by reforming the way capital gains are taxed among the top 1 percent of wealthy Americans. Mayor Buttigieg`s campaign also provided more details about how he would lower the cost of college, saying he would eliminate tuition at public colleges for families earning less than $100,000 and reduce the cost for those earning up to $150,000.
HERERA: Michael Bloomberg is reportedly preparing to make a late entrance into the 2020 Democratic primary race. And that could change the current debate over wealth and taxes.
Here`s Robert Frank.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Michael Bloomberg would be the richest man ever to run for president. And while his wealth could turbo-charge his campaign, it could also be his biggest liability in an increasingly populist Democratic party.
Bloomberg sending staffers to Alabama to qualify for the primary there before today`s deadline. He has not made a decision, but people close to the former mayor saying he is seriously considering a run.
Now, Bloomberg`s net worth is now $52 billion, that makes him the 8th richest American. Now, his fortune comes from his 88 percent stake in Bloomberg LP, that`s the financial data and news empire that he cofounded in 1981.
Now, he served as mayor in New York for 12 years, switching to the Republican Party for his first election and then back to the Democratic Party.
Mayor Mike, as he is known in New York City, has given away over $8 billion to charity mainly focused on gun control, climate change, education and health care.
Now, moderates are hoping Bloomberg could pull the party`s wealth tax and business agenda towards the center. At a speech in New Hampshire earlier this year, Bloomberg said the wealth tax is probably unconstitutional and that, quote, we shouldn`t be embarrassed about capitalism.
He favors more evolutionary changes to the tax system and health care to reduce inequality and help those at the bottom.
MICHAEL BLOOMBERG, FORMER NEW YORK CITY MAYOR: If you want to solve income inequality, one of the things you have to do is you have to adjust how progressive the tax rates are. To replace the entire private system where companies provide health care for in their employees would bankrupt us for a very long time. It`s just not a practical thing.
FRANK: Elizabeth Warren writing to supporters last night: Another example of the wealthy wanting our government and economy to only work for them.
And she directed Bloomberg to her billionaire wealth tax calculator which shows Bloomberg paying $3 billion in wealth tax this year under Warren`s plan.
Now, Bernie Sanders also tweeting that billionaire class is scared and they should be scared.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
HERERA: Earlier this week, two former Twitter gees employees were charged by the Department of Justice with spying for Saudi Arabia. The news got us wondering about other social media companies.
Eamon Javers did some digging and he found that it`s not just Twitter but LinkedIn (NYSE:LNKD) as well that`s a goldmine for foreign spies.
Eamon joins us now with more on that.
And, Eamon, you reported LinkedIn (NYSE:LNKD) as one of the biggest targets for foreign intelligence services, but why?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, so, that`s the question. Current and former law enforcement officials told me LinkedIn (NYSE:LNKD) is really teaming with spies and one of the hottest social media platforms for spies to go to. It has to do with what people post on there and why they post it.
First of all, what they`re posting. It`s a lot of business and personal information. You put your full resume up there. All of your credentials, where you work, who you know, all of that is valuable information for foreign intelligence services.
And then why are you post going on LinkedIn (NYSE:LNKD)? Everybody posting on LinkedIn (NYSE:LNKD) is putting their information up there because in theory, maybe down the line, they want a new higher paying job, maybe more responsibility, all of that. For an intelligence service, that means that that person may want some money, may want some recognition, may be disgruntled in their job.
All of that is a thread for spies to pull on to get information. They can set up fake accounts and really pretend to be people they`re not. And draw out a lot of the information.
GRIFFETH: Wow. What`s LinkedIn (NYSE:LNKD) doing about this? Anything?
JAVERS: Yes. You know, Bill, I talked to LinkedIn (NYSE:LNKD) about this. They say they`ve been aware of this problem for years. They`ve been working with the federal government on it. They say just in the first six months of the year, they eliminated more than 20 million fake accounts on their site.
They gave us a statement saying: We actively seek out signs of state- sponsored activity on the platform and quickly take action against bad actors in order to protect members. They say they are working on this and they are aware of the problem. And they say they prioritize the safety of LinkedIn (NYSE:LNKD) members who are participating in the site legitimately, not trying to trick people into giving over information.
GRIFFETH: And quickly as we wrap up this up, Eamon, do the social media themselves have a possibility to make sure what`s being posted on the site is the truth?
JAVERS: Well, that is the big question in social media right now. They`re all wrestling with it. You see LinkedIn (NYSE:LNKD) doing it here. Facebook (NASDAQ:FB) is doing the same thing in terms of phony disinformation, and disinformation, political advertising. That`s the big question in social media right now.
And it`s really a society-wide question. What kind of a media do we want to have? And what the do we want the companies to do on our behalf, Sue?
HERERA: Indeed. Eamon Javers in Washington — thanks, Eamon.
JAVERS: You bet.
GRIFFETH: Revlon (NYSE:REV) Sales are in need of a makeover. That`s where we begin tonight`s “Market Focus” with the beauty products maker saying it saw North American sales slip due to declines in well-known brands like Almay, Juicy Couture, and Britney Spears branded fragrances. Revlon (NYSE:REV) shares plunged almost 15 percent today to $20.76.
And despite reporting better than expected earnings, Honda cut its profit and global sales outlook. The automaker cited a stronger yen and weakness in some key markets including India, also announced plans to buy back $900 million worth of its own stock. The shares gained more than 3.5 percent to $28.91.
HERERA: Activist investor Carl Icahn is cutting his stake in Occidental Petroleum (NYSE:OXY) by nearly one third. Icahn has been a critic against Occi`s $38 billion acquisition of Anadarko Petroleum (NYSE:APC), calling it hugely overpriced and advised the company`s board to put it on the market instead. Shares rose about 3 percent to $40.10.
Southwest and American Airlines are removing the Boeing (NYSE:BA) 737 MAX from their flight schedules through March. The airlines cited continuing uncertainty around regulatory approval of the jet. Southwest and American fell a fraction. Boeing (NYSE:BA) shares were down about 2 percent to $351 even.
GRIFFETH: Speaking of which, time for our weekly market monitor who has three names that he believes will grow between 15 and 20 percent over the next 18 months. This is his first for a time on NBR. He is Kevin Miller, the chief investment officer at Evaluator Funds.
Kevin, good — nice to see you. Thanks for joining us tonight.
KEVIN MILLER, EVALUATOR FUNDS CHIEF INVESTMENT OFFICER: Thank you for having me. Appreciate it.
GRIFFETH: And your first pick is Boeing (NYSE:BA), a rather gutsy call, frankly. And I`m very curious to know why you think it will grow that much over the next 18 months.
MILLER: Well, the things we look at are cash flow, what corporations do with that cash flow. We want positive cash flow, growing cash flow. And we want to see them use that cash flow and give dividends back to their shareholders.
And Boeing (NYSE:BA) has a strong history of growing cash flow and also increasing their dividend year over year. Now, this last year, as a result of what they`re in the midst of with their MAX jet, cash flow has kind of leveled off.
But if you look at Boeing (NYSE:BA) back when — in 2017, that stock that year was up over 90 percent. You look what they have for competitors, the only other competitor they have in the world, quite frankly is Airbus. So, that gives them a good mote. Meaning another company cannot really come in and take them over or move them from the position they`re in.
We`re going to be spending money in aerospace. They`ll be part of that. They purchased an aerospace parts distributor, KLX, recently. And that`s a very high margin market.
GRIFFETH: All right.
MILLER: So I think we`ve got a real good opportunity with them.
HERERA: And then let`s go to Visa (NYSE:V). It`s a consumer play. But it`s also kind of an e-commerce play for you.
MILLER: Yes, you know, a lot of people were — we`re embarking on the holiday season. And people are doing a lot of purchases online. And either you are going to use Visa (NYSE:V), MasterCard (NYSE:MA), American Express (NYSE:EXPR) (NYSE:AXP). Well, Visa (NYSE:V) is broadly distributed in one of them.
And it`s a way for investors to partake in a strong consumer as we`ve been seeing with the consumer confidence report. And what we anticipate as a strong holiday season without having to particularly select, you know, do I invest in Walmart? Do I invest in Target (NYSE:TGT)? Do I invest in Amazon (NASDAQ:AMZN)? So, they`ll get an indirect opportunity through that.
GRIFFETH: Finally, quickly if we can, Home Depot (NYSE:HD). Is that a vote on the housing market? Why this one versus Lowe`s? What`s the story here?
MILLER: Yes, housing strong dividend again, strong cash flow growth, dividends at about 2.4 and inflation at 2. Interest rates are low. Opportunity for people to do their housing projects, consumer confidence is strong. It just — it`s got a probably a bigger footprint than Lowe`s. So, we really like it for multiple reasons.
GRIFFETH: Very good. Our market monitor this week. Kevin Miller with Evaluator Funds — Kevin, again, thanks for joining us.
MILLER: Thank you very much.
HERERA: Coming up, a look at what`s really holding back home buyers.
HERERA: There is a new barrier to entry in home ownership. And it`s not student loan debt. That`s just one of the surprising new findings in realtors` annual survey of who is buying homes and how.
Diana Olick has more.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Americans are racking up more and more credit card debt. And that is now keeping some from buying houses. Forty-five percent said that was making it hard to save for a down payment, up from 37 percent the year before, according to the latest annual profile of buyers from the realtors.
JESSICA LAUTZ, NAR VP OF RESEARCH: It could be that just expenses today are so difficult for people to make ends meet that they are putting things on credit cards that perhaps they have not typically in the past.
OLICK: Michelle Patters is trying to get out from under her credit card debt.
MICHELLE PATTERS, RENTER: Almost there. I`ve almost cleaned it up. That`s probably why I`m renting, too.
OLICK: Increasing debt, as well as higher home prices are also likely behind another striking change in this year`s survey. The share of first- time buyers purchasing homes with friends is small but it doubled in one year from 2 percent to 4 percent.
CLAIRE FRISBIE, RENTER: In grad school, I lived with three other women and that was fun. So, I think later down the road and the right place and price, I would really like to do that.
OLICK: Still, some are skeptical.
Christian Gordy owns a house on his own.
CHRISTIAN GORDY, HOMEOWNER: It`s an interesting concept. I would like to see what happens when things don`t work out legally, like, how do you split the assets?
OLICK: And that would be a problem as well for unmarried couples, another growing subset of buyers now at 9 percent.
COLLEEN KRIVACEK, HOMEOWNER: I think it`s great. I owned a home with my husband before he was my husband. So, with my — when he was my boyfriend and when he was my fiance.
LAUTZ: I think it mirrors the drop in the marriage rate in the U.S. people are not necessarily embracing the institution of marriage or getting married later in life. But they`re willing to make the biggest financial purchase of their life with a partner who they`re not married to.
OLICK: It also mirrors the very social nature of this social generation. Something also changing, why people move. For decades, the number one reason to move somewhere else was for a new job. Now, suddenly, the primary reason is to be closer to friends and family.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: Finally tonight, the iconic charging bull statue in Lower Manhattan is moving. Officials are working on a plan to relocate the bull, citing security concerns. A new location hasn`t been announced but it`s expected to move closer to the New York Stock Exchange.
HERERA: And before we go, a final look at the day`s numbers from Wall Street, where all of the major averages closed at records. The Dow rose 6, the Nasdaq was up 40, and S&P 500 added 7. All of the major indexes were higher for the week as well.
Good way to go into the weekend.
HERERA: That does it for us. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great weekend. We`ll see you on Monday.
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