ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Hitting a triple. The Dow, S&P and Nasdaq close at records, as the 2019 rally picks up steam.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Bump in the road. Uber loses its license to operate in London, raising questions about the company`s future in its most lucrative European market.
HERERA: Farm aid. Many thought government help for the trade war would go to the heartlands. But that`s not necessarily where the checks are being sent.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, November 25th.
GRIFFETH: And we do bid you a good evening, everybody, and welcome. Well, it was a record start for the week on the stock market and three major indexes all finished at all-time highs today, powered by technology shares. A handful of major deals were confirmed, which helped lift the mood. And we`ll have more on that in a moment.
And Wall Street`s view of the U.S./China trade negotiations, which seem to change daily, they were optimistic today. And it all contributed to a continuation of the latest rally that began in early October. The Dow was up another 190 points, back up 28,000, Nasdaq was up 112. S&P added 23. Mike Santoli takes a closer look at whether the new highs can hold.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street`s record rally slowed in recent weeks but it has not yet stopped.
While the broad S&P 500 drifted to a fresh all-time high Monday, it is up only a fraction of a percent over the past ten days. Now with the index ahead by nearly 25 percent for the year, the question turns to whether the rally has already priced in most of the expected good news on the economy and trade or whether the market is really pausing ahead of a typical homestretch run higher through December. The key drivers for the market`s recovery since August remain in place. Rampant recession fears in late summer now appear unfounded. Mobile growth is showing signs of picking it. The Federal Reserve is on hold with rates at the benign level and seasonal factors favor stocks at the year end.
And history shows that when a market gains at least 20 percent in a year, the following of the year is also up about 70 percent of the time, albeit with more modest gains. Still, some analysts are quibbling with the market action here and there. The portion of all stocks that are keeping case with the major indexes has fallen off a bit. The economic cyclical stocks that led the way across the August market bottom, repealed a little bit. And stock valuations are about as high as relative to corporate earnings as they have been this decade. It`s easy to make the case stocks reaped the benefit of a U.S./China trade deal and the return to moderate earnings growth in coming quarters.
But then again, grinding higher overshadow trade and policy issues is exactly what strong bull markets tend to do.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
HERERA: Kevin Mahn joins us now to discuss the market and if it can continue higher. He`s president and chief investment officer at Hennion and Walsh Asset Management.
Welcome, Kevin. Nice to have you here.
KEVIN MAHN, HENNION & WALSH ASSET MANAGEMENT PRESIDENT & CIO: Good to be here.
HERERA: Do you agree with Mike Santoli`s last point that bull markets tend to slowly grind higher?
MAHN: Yes, I think we`re in a market where most investors who were fearing a potential recession about a month ago now fearing out on the next upside in the market. We have a very confident consumer, and consumers as we all know are a large part of the U.S. economy. So, as the consumer spends, the economy does better. And I am forecasting a record holiday shopping season which could bring a little Santa Claus rally at the end of the year.
GRIFFETH: But it`s when we start convincing ourselves that the market only has one direction to go that I start getting sweaty palms? What about you?
MAHN: But if I think you look at the underlying drivers of the economy right now, with the consumer at the head front being 70 percent of the economy, we have the lowest unemployment level in 50 years, wages are rising and we have a Federal Reserve who has basically told us they`re not going to do anything, at least for the next month, that set the stage for a pretty good stock market rally, but it`s going to be limited because of where valuations are right now.
HERERA: That was going to be my next question.
HERERA: If we do get a little Santa Claus rally, about what type of percentage gain do you think is still left in this market?
MAHN: As it stands right now, we think the market can grow by about 10 percent between now and the end of 2020, with the bulk of that gain likely becoming between now and end of the second quarter of next year. Once we get into the summer months of next year, then all of a sudden, we get to the Democratic convention, Republican convention, and we can see some tremendous volatility until we know who the candidates are.
GRIFFETH: And who do you think takes us higher? I mean, we`ve been through a couple of cycles already this year where growth has led the way for a time and then the defensive issues led the way for a time. Now we`re back to growth again.
MAHN: We`re back to growth again but investors are still craving income. They`re looking for a yield because they can`t turn to traditional fixed income sources when the 10-year U.S. treasury is yielding about 1.7 percent. So, they want growth opportunities, they want some dividend income. That points to dividend-paying
HERERA: Kevin Mahn, thank you so much for joining us tonight.
MAHN: My pleasure.
HERERA: And Kevin is with Hennion and Walsh Asset Management.
GRIFFETH: And as we mentioned earlier, it was a big day for mergers, some of which we told you about last week. Today, they were confirmed by the companies involved.
First, Charles Schwab said it`s buying TD Ameritrade (NASDAQ:AMTD) for about $26 billion, creating a retail brokerage with 24 million customers and $5 trillion in assets. Tiffany`s is being bought by LVMH for $16 million, making it the largest luxury goods deal ever. Many expect LVMH now to expand Tiffany`s presence internationally, especially in growing Asian markets. And finally, there`s Novartis` acquisition of The Medicine`s Company for nearly $10 billion. Medicines develop treatments for cardiovascular disease.
HERERA: And another deal was announced, this one from eBay (NASDAQ:EBAY), which is selling off StubHub in a $4 billion deal. It is being purchased by a European company called Viagogo. The combined company expects to sell hundreds of thousands of tickets each day across more than 70 countries.
And finally, there`s a deal that`s not being done. HP rejected Xerox`s takeover bid after turning down its unsolicited merger off last week. HP says the proposal undervalue the company.
GRIFFETH: Now to the economy and the consumer. A new survey says that most Americans plan to spend about as much as they did last year during the upcoming holidays. According to Bankrate, three quarters of adults have to plans to increase their spending, 22 percent plan to actually spend less. And holiday spending is exactly what economists are trying to predict right now, because as we saw last year, it`s not easy.
Here`s Steve Liesman.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Will it be a bah humbug or ho, ho, ho holiday shopping season?
The consumer looks in good shape to spend but there remains major question. The answer is critical now, a manufacturing capital investment slowdown in the economy, which is up to the consumer to power growth. And last year was among the worst Christmases since the financial crisis.
Despite upbeat indicators going in, consumers stunned the retail industry last year, registering zero growth in November and a massive 2.3 percent decline in December. Analysts cast blame then on a stock market decline and the week before Christmas, Fed interest rate hikes and a brewing trade war. This year finds consumers with near record low unemployment, high savings rate, decent wage growth and low debt service.
JOHN RYDING, BREAN CAPITAL: Eighty to 90 percent of consumers spend their income and that depends on employment. And so, I think wage growth and employment growth are the keys to consumer spending and signals there remain quite positive.
LIESMAN: Jack Kleinhenz, the National Retail Federation economist wrote: There`s unease but current economic data and recent momentum of the economy show that we can expect a much stronger holiday season than last year.
The NRF predicts 4.2 percent growth in holiday spending, more than double last year`s rate. But there are still worries about tariffs, about business uncertainties and the broader economic slowing.
So, this year`s yuletide optimism remains colored by last year`s disappointment.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
HERERA: Oil prices rose today to remain near a two-month high. Domestic crude settled up above $58 a barrel as global supplies have fallen. But the industry faces a number of challenges, including the amount of debt that`s been piling up.
Brian Sullivan has more.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The numbers really are staggering. The U.S. oil and gas industry has around $200 to $250 billion of debt and much comes due in the next couple of years.
Let`s break it down by type of company in the industry. According to Moody`s Investor Service, the exploration and production companies, E&P, are in the worse shape with about $93 billion worth of debt due. The oil services companies, they`ve got around $31 billion, and midstream at the pipeline companies, they`re in hawk for about $72 billion.
The industry`s total debt across all years is about $600 billion, which is nearly half the industry`s total annual sales and ten times more than the industry`s net income. Think about that.
Now, these companies have been able to ride it out the last couple of years or two but it gets serious beginning next year, when the debt bill really starts to come due and it`s not just the big numbers that has the market spooked, it is this. It is that most of this debt is junk related — some of it deep into junk. The purple right there at the top, that is the worst-rated debt in the industry. It matters because it makes it more difficult, more expensive or even impossible to refinance or extend the debt, like companies did back in 2016.
Now, this debt load, along with stagnant oil prices and pressure on many funds to sell fossil fuel company stocks, have absolutely decimated energy investors. The average return for all on-shore oil and gas stocks the past year is a drop of 38 percent, and many are much, much worse.
And this may be the most incredible stat of all, because of that stock drop that I just talked about and the weight of all of the debt on market caps, the combined market valuation of the 55 biggest onshore and U.S. gas companies including Exxon, Chevron (NYSE:CVX), Occidental, and a lot of names you know, is now $400 billion less than the expected value of just one country Saudi Aramco. One company, the entire onshore oil and gas industry. Energy stocks have never been more hated and debt is a gig reason why.
It is a big story to watch heading into 2020.
For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan, CNBC.
GRIFFETH: Time to take a look now at some of today`s “Upgrades and Downgrades”.
Netflix (NASDAQ:NFLX) was downgraded to underperform at market from Wells Fargo (NYSE:WFC). The analysts said that Wall Street is overestimating the streaming service`s free cash flow and then there`s the increase in competition. Price target $265 and despite that downgrade, shares actually rose with the rest of the market, was up 1 1/2 percent to $315.55.
Prudential Financial was downgraded to sell from neutral at Citi. The analysts cited concerns about growth and low interest rates which reduced profitability. Price target $86. That stock fell a fraction to $93.67.
HERERA: Nvidia was upgraded to overweight to equal weight at Morgan Stanley (NYSE:MS). The analyst cites investments Nvidia`s gaming business which should pay off next year. The price target is $259. The stock was up 4 1/2 percent to $221.21.
Wendy`s was upgraded to buy from hold at Stifel. The analyst cites increased confidence in the outlook for the fast food chain. The price target is $25, the shares were up more than 2 1/2 percent $21.49.
GRIFFETH: Uber has lost its operating license in London, which is one of the ride-hailing firm`s most important markets. Regulators cited persistent safety problems in their announcement and that sent the stock down about 1-1/2 percent in today`s trade.
Willem Marx has more for us tonight from London.
WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT: The relationship between the ride-hailing giant and the London transport regulator has long been a troubled one. Back in 2017, the firm was told its license to operate as a private hire company would not be renewed because of concerns about criminal background checks of drivers and the firm had not been sufficiently reporting criminal offenses carried out by some of its drivers. And then in 2018, a judge granted some relief for 15 months, they were given a probationary period of a license in order to show they had changed their ways. That was extended for two months in September.
And today, Monday, the firm has been told it will not be renewed. They`ve got 21 days to appeal.
Sadiq Khan, the mayor of London, saying he supported this decision by the regulator and gave some details as to why.
SADIQ KHAN, LONDON MAYOR: There have been at least 14,000 journeys where unauthorized drivers have been driving people around and they aren`t the driver who the passenger thought they were going to be.
Another example is we`ve heard drivers have had their license suspended or dismissed, who have manipulated Uber`s system to drive people around and this has taken a long risk with the safety and security of Londoners. So that`s why I stand by and support TFL`s decision not to grant Uber a license.
MARX: The company says it`s taken several measures over the last couple of years to try and allay the concerns of regulators here. The CEO of the firm saying he thought this decision was wrong. That was echoed by his general manager for North and Northeastern Europe, who said this was an extraordinary decision by Transport for London or TFL and, of course, they have 21 days to appeal.
In order to push that appeal process through, they will have to show they sorted this issue out once and for all for the 3.5 million users of the ride-hailing app here in London and more than 45,000 drivers who could soon be out of a job.
For NIGHTLY BUSINESS REPORT, I`m Willem Marx in London.
GRIFFETH: Still ahead — a wave of homes could hit the market when baby boomers decide to sell and that could have a big impact on some local economies.
HERERA: American farmers are receiving a new round of trade aid before Thanksgiving, as an end to the U.S./China trade conflict remains elusive. But not all of that money is heading directly to the heartland, thanks to some loopholes.
Kayla Tausche has more.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Between a highway and baseball stadium sits this urban row house, a single family home and headquarters of RLD (ph) Enterprises, which federal records show received $18,000 in farm aid this year. That residence, this post office box, and a town house in upscale Georgetown, are among the dozens of down D.C. addresses and thousands nationally that received a cut of the $24 billion earmarked for farmers to soften the blow from the trade war, according to data obtained by the Environmental Working Group, a public policy nonprofit.
USDA says a person must be actively engaged in farming to collect aid, but the bar is low.
ANNE WEIR SCHECHINGER, ENVIRONMENTAL WORKING GROUP: People who are related to farmers or have some kind of shared risk in a farm can still receive a payment, but they don`t actually live on a farm or work on a farm.
TAUSCHE: Sue Swetner (ph) is one of those recipients, an attorney in D.C. by day who manages a farm in Illinois on the side as a way to carry on her family`s tradition. She plans to apply for the next round of aid because every bit helps.
Other recipients of larger payments like a sugar industry lobbyist, a retired real estate investor and an agriculture landlord defended their qualifications, but declined to speak on the record. RLD Enterprises for its part hung up when reached by phone and the U.S. Department of Agriculture did not respond to a request for comment about how it enforces its own criteria.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
GRIFFETH: General Electric (NYSE:GE) names a new CFO, and that`s where we begin tonight`s “Market Focus”.
Carolina Dybeck Happe will replace Jamie Miller as GE`s chief financial officer early next year. Dybeck Happe was CFO of Danish shipping giant of A.P. Moller-Maersk. She will be leading GE`s global finance organization as well as being the head of the company`s digital tech knowledge and global operations functions. GE`s shares rose 3 cents today to $11.58.
Amazon (NASDAQ:AMZN) has filed a lawsuit challenging the Pentagon`s decision to award a $10 billion cloud computing contract to Microsoft (NASDAQ:MSFT). The e-commerce giant alleges the evaluation process for the contract contained clear deficiencies, errors and unmistakable bias.
Amazon (NASDAQ:AMZN) rose more than 1-1/2 percent today to $1,773.84.
Tesla CEO says the company has already received 200,000 preorders for its new cyber truck pickup. The preorders require a refundable deposit of $100. The truck was introduced just last week during an L.A. auto show. During a presentation, its bulletproof windows unexpectedly shattered when they were hit with a metal ball. Tesla was up a fraction today to $336.34.
HERERA: Facebook (NASDAQ:FB) and Twitter said data from hundreds of its users may have been accessed after customers used their accounts to log into certain android apps from the Google (NASDAQ:GOOG) Play Store. Twitter says it notified Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) regarding the breach and there`s currently no indication Apple (NASDAQ:AAPL) devices were impacted. Facebook (NASDAQ:FB) rose a fraction to $199.79 and Twitter rose more than 1 1/2 percent to $30.54.
After the bell, activist investor Starboard Value has reportedly taken a stake in CVS (NYSE:CVS). Dow Jones says the stake appears to be small but both Starboard and CVS (NYSE:CVS) recently held talks. CVS (NYSE:CVS) shares were volatile in afterhours trading. They closed the regular session up more than 1-1/2 percent to $76.58.
Also after the bell, Palo Alto networks reported revenue shy of estimates due to lower demand for its products. The cybersecurity company also gave weak guidance, which it said includes expenses from its proposed deal to buy the cloud security firm Aporeto. Palo Alto shares initially dropped following the news, but it closed the regular session up nearly 1-1/2 percent to $250.28.
GRIFFETH: It`s being called the Silver Wave. “The Wall Street Journal” cited research by Zillow that says a record number of homes will hit the real estate market over the next two decades as baby boomers age. The question is, who`s going to buy all of those homes?
Joining us tonight, we welcome back, Skylar Olsen, senior economist at Zillow.
Skylar, good to see you again. Welcome back.
SKYLAR OLSEN, SENIOR ECONOMIST, ZILLOW: Thanks for having me again.
GRIFFETH: First of all, how many homes are we talking about?
OLSEN: Well, I mean, one of the ways to kind of think about this is that roughly a third of homes are owned by those 60 and older. And, you know, if you want to project that into what that means into the future, you`re looking at roughly 2 million more homes being released over the next decade than the previous decade, just by the rate of downsizing from that older generation.
HERERA: You know, you would think with the housing shortage that would be good news for those who want to move into those homes but some of those homes are in areas that younger people are not much interested in living anymore.
OLSEN: Yes, I think if we`re looking from a national picture, it`s hard to say really how this will net out because the millennium generation itself is so huge and there are a lot of force guide buyers. And we`ve been under-building on the national picture.
But you`re right, as soon as I get to a much more local view, say I`m looking at Rust Belt areas that have not been able to add the jobs or industry growth that attracts a younger population or, say, places that are de facto retirement communities. So, they don`t track that younger population by very nature of what they offer to older generations right in there exclusivity in those kinds of communities.
Those areas, the relative size between boomers and the next generation gen X is going to make it so that housing is going to slow down. You know, prices may really truly start to sell down and sales will have a really hard time picking up.
GRIFFETH: And we should be clear, we`re not just talking about retiring baby boomers. We`re talking about baby boomers who are moving to assisted living or moving in with their kids. They`ve been retired already. I mean, I — in the article, we talk about Sun City, Arizona, which is one of the biggest retirement areas cities in the country, that will be affected as well, right?
OLSEN: Yes, absolutely. And, you know, what we`re really getting at for a lot of elements here is really towards the later stages of life. So, what really, one of the triggering events of one life that makes you change home is the loss of a spouse, for example, right? The person that made that last house the home it was.
And so, if you go through that kind of experience, you know, I think ma the next several few decades will go through, that will cause a lot of housing change.
GRIFFETH: Something to think about tonight. Skylar Olsen, again, thanks for joining us tonight.
OLSEN: Yes, thanks for having me.
HERERA: Coming up, Disney (NYSE:DIS) broke the box office this weekend by shattering all records.
GRIFFETH: The Super Bowl won`t be held until early February but ads are already sold out. Fox Sports has sold all available commercial inventory for the television`s biggest annual event. Thirty-second spots this year were priced at $5.5 million.
Now, ads usually sell out around Christmas or in January. But experts say this year`s quick sellout suggests advertisers found new appeal in the live game telecast.
HERERA: UBS is telling clients to buy shares of Hasbro (NYSE:HAS) because of “Frozen 2,” which made history this weekend as the biggest opening animated opening film ever. The analyst expects strong sales from Hasbro`s lineup of “Frozen 2” dolls, given the movie`s success. That sent Hasbro (NYSE:HAS) up 3 percent in today`s session. Shares of Disney (NYSE:DIS), the company behind the “Frozen” franchise, also got a lift after exceeding all expectations at the box office.
Here`s Julia Boorstin.
CHARACTER: I`m just living the dream, Anna.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: “Frozen 2” blowing past expectations at the box office this weekend, Disney (NYSE:DIS) announcing today that the film brought in $130 million from the North American box office. With the $350 million global take, a record opening weekend for an animated movie, the film is well on its way to be Disney`s sixth film this year to gross over $1 billion.
NIKKI NOVAK, FANDANGO: I think it did exceptionally well at the box office because number one you have that built-in fan base. I think what it did really well at was appealing to a younger audience who had never seen “Frozen” before but also the people who grew up with “Frozen”. The themes for this movie were a little more adult, and so, it really appealed to the teens out there. So, it wasn`t just for kids anymore.
BOORSTIN: What`s particularly notable about the success of “Frozen 2” is that it comes on the heels of the launch of Disney (NYSE:DIS) Plus, which offers the first “Frozen” and slew of other princess films at a fraction of what it costs to take a family to the movies. This weekend showed that fans were willing to pay up for the theatrical experience.
And “Frozen 2” furthers Disney`s dominance to the box office, with 30 percent market share, 35 percent if you include Fox. That`s thanks to other hits including “Avengers: End Game” and “Lion King.”
NOVAK: Disney (NYSE:DIS) has absolutely dominated the box office. People are talking about how do studios compete? $10.8 billion so far at the box office this year, they still have “Star Wars: The Rise of Skywalker” coming out. So, that doesn`t include those numbers.
I don`t — we have never seen anything like this in the movie business.
BOORSTIN: The annual box office is still down about 7 percent from the same period last year. We`ll have to see whether moviegoers exposed to trailers when in the theater for “Frozen 2” return to other films over the holidays.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
GRIFFETH: Finally tonight, America`s best-run companies, the annual ranking by the Drucker Institute, has a new number one. It`s Amazon (NASDAQ:AMZN). They knocked Apple (NASDAQ:AAPL) out of the top spot due to its focus on innovation. Microsoft (NASDAQ:MSFT) came in number two. Apple (NASDAQ:AAPL) rounded out the top three.
HERERA: And before we go, here`s another look at the day on Wall Street. It was a record day at that. All three major indexes closed at all-time highs. The Dow rose 190, Nasdaq up 112 and S&P 500 added 23.
And on that note, 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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