ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Record close. The major averages finish at levels never seen before. And for that, you can thank retail.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Holiday cheer. What this old school retailer is doing to thrive in a digital world.
GRIFFETH: Criminal probe. There are reports tonight that federal prosecutors have opened an investigation into opioid makers. And they plan to go after them the same way they go after drug deals.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Tuesday, November 26th.
HERERA: Good evening, everyone, and welcome.
Sometimes a win is a win. And today`s gains though slim were just that. The major averages finished the day at all-time highs thanks to quarterly results from some retailers which brightened the mood and which we`ll get to in a moment. There were also incremental developments and U.S.-China trade talks that investors interpreted as positive, though as you know that changes from day to day.
So, here are closing numbers: The Dow Jones Industrial Average rose 55 points to 28,121, the Nasdaq gained 15 and the S&P added six.
GRIFFETH: Now to this new report on the makers of opioids. According to “The Wall Street Journal”, a criminal investigation has been opened into role drug manufacturers and distributors played in fueling our country`s opioid crisis. The news sent shares of Teva, Mallinckrodt, McKesson (NYSE:MCK) and AmerisourceBergen (NYSE:ABC) sharply lower. Dow component Johnson & Johnson (NYSE:JNJ) was down just a penny.
Meg Tirrell has our story tonight.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: These companies are already facing thousands of lawsuits over their role in the opioid crisis. And today, yet another negative headline rattled stocks. These drugmakers and distributors already disclosed they`ve received subpoenas from U.S. attorneys concerning the Controlled Substances Act. That`s Johnson & Johnson (NYSE:JNJ), Teva, Mallinckrodt and Amneal on the drug company side, and AmerisourceBergen (NYSE:ABC) and McKesson (NYSE:MCK) of the distributors.
“The Wall Street Journal” reported today that federal prosecutors have opened a criminal investigation into drug companies, examining whether they violated that act which “The Journal” points out is normally used to go after drug dealers. Bernstein analyst Ronny Gal said he was surprised the stocks were moving so sharply lower. He said investigations are one thing, but criminal investigations would be another thing.
And right now, the report is that the probe is in early stages. But he also pointed out the stocks have recovered quite a bit over the last month on potential expected relief in these lawsuit. Some of the companies have reached a tentative settlement framework with some states` attorneys general over the opioid litigation but not all states are onboard, and it`s not a done deal.
Meanwhile, OxyContin maker Perdue Pharma continues to make its way through bankruptcy, trying to get more state A.G.s onboard with its settlement proposal, which is contingent on settling DOJ probes as well.
And the New York state case against multiple companies is scheduled to go to trial early next year unless a settlement reached. Deadline today just another reminder the saga is far from over for these companies.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
HERERA: Best Buy (NYSE:BBY) is firing on all cylinders heading into the holiday season. The big box retailer reported better than expected earnings and raised its guidance. That sent the stocks up more than 9 percent to a 52-week high.
Courtney Reagan takes a look at what this brick and mortar big box retailer is doing right at a time when digital seems to dominate.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Best Buy (NYSE:BBY) is riding momentum going into Black Friday. The consumer electronics retailer posted an 11th straight quarter of comparable sales growth, exceeding expectations. Best Buy (NYSE:BBY) also increased its earnings forecast for the year, which includes an improved outlook for the holiday season.
Just last quarter, Best Buy (NYSE:BBY) was expecting a broader consumer spending slowdown as a result of higher prices from tariffs. But the consumer has held on. Economic data points remain fairly positive and most retail groups expect holiday sales growth.
CEO Corie Barry said there is more certainty in her forecast than she`s excited about the holiday season.
BRIAN NAGEL, OPPENHEIMER: I think Best Buy`s position quite well, the tariff worry does not seem as severe. That`s why I think we`re past that, but really the key here is you have a very healthy consumer. And that bodes well for Best Buy (NYSE:BBY) in a category like consumer electronics.
REAGAN: Best Buy`s strongest categories this quarter were appliances, headphones and tablets, while gaming and home theater were the weakest. Services sales like in home adviser total tech support and technology geared to senior living increased 13 percent over last year.
NAGEL: Services is a great way for Best Buy (NYSE:BBY) to differentiate from online retailers or companies only selling products. So, to extent that Best Buy (NYSE:BBY) sells individual services or more importantly services attached with products, that`s a real differentiator in this shifting retail landscape.
REAGAN: For the holiday season, Best Buy (NYSE:BBY) is offering free next day delivery without a minimum purchase or membership. It`s also adding $175 pickup locations in the New York City and Chicago at CVS (NYSE:CVS) and UPS stores. Best Buy (NYSE:BBY) knows consumer electronics are key items for the holiday season as rivals, and executives said it`s ready to compete.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan at the New York Stock Exchange.
GRIFFETH: So will the big box retailers like Best Buy (NYSE:BBY) and others be winners this Christmas.
Joining us tonight, Jan Kniffen. He`s the CEO of J. Rogers (NYSE:ROG) Kniffen Worldwide.
Jan, always good to see. Welcome back.
J. ROGERS KNIFFEN WORLDWIDE CEO: Good to see you.
GRIFFETH: I know you think they will be winners his year and I think many of them like Target (NYSE:TGT) and Walmart and others have found a way to blend the brick and mortar with the digital sales, and it`s starting to pay off now, isn`t it?
KNIFFEN: Well, bill, come on, you know the big boxes that aren`t going to win are already dead, right? So, the ones that are left have learned to fight with Amazon (NASDAQ:AMZN). And Best Buy (NYSE:BBY) is just a good example. They basically are the last man standing in the space of electronics, all the rest have gone online and a lot of their business has gone online, but they`ve learned to make a living doing that.
The same is true for Walmart. The same is true for Target (NYSE:TGT). They`ve had many, many quarters in a row just like Best Buy (NYSE:BBY) of better numbers.
And it`s not just online. Yes, Walmart is growing 40 percent year to year online. Last report, Target (NYSE:TGT) was growing over 30 percent year to year online, but they were still growing out of the store as well. So, these big boxes have all figured out, we can play online, we can still play out of the store and we can use the store against Amazon (NASDAQ:AMZN).
Eighty percent of what Target (NYSE:TGT) did last time in online business was directly tied to the store. So, they`re using the store Amazon (NASDAQ:AMZN) doesn`t have stores. They`re fighting that battle pretty well now.
HERERA: We also heard on the conference call with the CEO of Best Buy (NYSE:BBY) that she has focused considerably on the customer experience when they are in the store, once you get them in the store, whether it`s the geek squad or the personal attention that you get. Does that differentiate Best Buy (NYSE:BBY) from the other big box stores like a Target (NYSE:TGT)?
KNIFFEN: I think they`re all differentiating themselves by what they`re doing in store. Think about it. It does depend on what your expectations are. If you buy from Walmart now, you can drive to the store. They`ll come out and load it in the car and you can drive off. Or you can come in and pick it up in the tower.
Best Buy (NYSE:BBY) has got the same thing driving the great in store experiences. They put in Microsoft (NASDAQ:MSFT). They put in California kitchens. They put in magnolia. They`ve got lots of interesting things going on in the store.
So, they`re all doing things to make the customer feel better about the store. And the level of service is not so important as the expectation of service. You`re not looking for much real hand-holding when you go to Walmart. But if you can drive through and pick it up or drive in and come and pick it up from the tower and be out in a hurry, or if you go in and get what you want or bring stuff back to the store you feel like you get good service.
I don`t know what you think but Amazon (NASDAQ:AMZN) gives really good service from the point of view of once the order gets to me.
KNIFFEN: But other than that, I don`t have an emotional involvement with Amazon (NASDAQ:AMZN).
GRIFFETH: Very quickly, let`s not forget, all of the companies are enjoying success because the consumer is as strong as they are right now, right?
KNIFFEN: The consumer is fabulous. The unemployment at 3.5 percent, wages rising 3 to 3.5 percent depending on the sector. We`ve got all kinds of growth in savings.
We got the highest savings rate we`ve had in a long time. If you want to buy something, you can. So we`ve got all these good things going on with the consumer.
They feel good about — you saw the report today. We were at 125-plus on consumer confidence. That wasn`t fabulous but it was still very strong.
KNIFFEN: So, we`re going to see good consumer sales for the fourth quarter. We`re probably going to see 4 percent for holiday. That will be best in a very long time despite the fact that we`ve got the shortest selling season you can get between Thanksgiving and Christmas. It`s going to be a really good year.
GRIFFETH: Six fewer days compared to last year, that`s for sure.
Jan Kniffen with J. Rogers (NYSE:ROG) Kniffen Worldwide — again, thanks, Jan. Happy Thanksgiving.
KNIFFEN: Thank you. You, too.
HERERA: The president of the Dallas Fed said today that he expects fourth quarter growth to be weak. Robert Kaplan cited the pullback in business inventory spending due to trade concerns.
(BEGIN VIDEO CLIP)
ROBERT KAPLAN, FEDERAL RESERVE BANK OF DALLAS PRESIDENT: I`m still of the view and we`re off the view potential in the U.S. is around 2 percent. And for people who are disappointed in that, I`m disappointed in that. And we should be because we`re very highly leveraged as a country, particularly at the government level. But if you want to grow faster, we need policies away monetary policy.
(END VIDEO CLIP)
HERERA: Mr. Kaplan also said that he thought monetary policy was in the right place.
GRIFFETH: Now something that Jan Kniffen just mentioned, a new report says consumer confidence fell a fourth month in November. According to the Conference Board, the dip suggested economic growth in the final quarter of 2019 is going to remain weak. But overall, confidence levels are still relatively high and economists say that that should support solid holiday shopping.
HERERA: Sales of newly built homes fell slightly in October, compared with September. But stocks of the big builders moved sharply higher.
Diana Olick explains.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: New home sales did fall in October compared with September, but September`s number was revised much higher. So, the monthly drop really doesn`t mean much, especially because October sales were up a whopping 32 percent compared with October of last year, that`s why we see the big builder stocks popped today. Names like D.R. Horton (NYSE:DHI), Lennar (NYSE:LEN), KB Home (NYSE:KBH) and Pulte were already up dramatically year to date. But it looks like there is still room to grow.
Builder sales have been buoyed this year by lower mortgage rates. Rates are down more than a full percentage from a year ago, boosting buyer demand. Builders are also benefitting from a shortage of existing homes for sale. Now, price gains for existing homes are heating up again according to Case Shiller.
For new homes, though, the median price was down 3.5 percent annually in October as demand is clearly on the lower end of the market.
Builders are trying to pivot to meet that demand, but they`re still up against the high cost for land, labor and regulatory compliance.
The supply of newly built homes for sale is better than the existing supply, but builders are still not back to normal historical levels of production. And demand is now much stronger than normal.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: And a separate report on home prices shows that gains accelerated in September. According to the S&P Core Logic Case-Shiller index, prices rose 3.2 percent. Of the 20 cities making up the index, Phoenix, Charlotte and Tampa saw the biggest annual gains. Home prices are rising the most in the Sun Belt where housing is more affordable than on the East or West Coast.
HERERA: So, what is today`s housing data telling us about the housing market overall?
Odeta Kushi is deputy chief economist at First American (NYSE:FAF) Financial Corporation and she joins us now to talk about that.
Odeta, welcome back. Nice to have you with us again.
We got a lot of data here to go through. But if you could give me a kind of an umbrella of how you see the state of housing in the U.S. right now.
ODETA KUSHI, FIRST AMERICAN FINANCIAL DEPUTY CHIEF ECONOMIST: Absolutely. The housing market is really has momentum going right now. As you can see from the new home sales data, the lower mortgage rates are really pushing people to buy homes where they can. And you can also see from the S&P Case-Shiller that we have the situation of high demand against limited supply of homes for sale, which is resulting in faster house price appreciation, especially in the Sun Belt cities.
So, overall, you know, you can characterize this market by increasing demand but very limited inventory for sale.
GRIFFETH: Why now? Why are we seeing this acceleration? Interest rates have been low a long time. The jobs market has been strong for quite a long time. And we`re not in the summer months when typically people start looking to buy or sell a home.
So, why aren`t we seeing it now do you think?
KUSHI: Well, there is a couple of reasons. First, you know, it takes time for potential buyers to really realize that we`re in a healthy market of historically low rates. But, again, the job market has been fairly strong and wages have been rising. And so, buyers are really taking advantage of this — of this exact market where the affordability is the highest it`s ever been.
HERERA: So talk to me about some of those — we`ve talked about the Sun Belt cities certainly. With you where else do you see exceptional strength?
KUSHI: So you see a lot of strength in some of the tertiary markets. You know, New York, the East Coast, the West Coast markets last year when mortgage rates went up became unaffordable. So, you have some pullback especially in first-time home buyers. So, those millennial first time home buyers are moving to, you know, Phoenixes and, you know, Memphis. That`s why you`re seeing the acceleration in some of these cities.
GRIFFETH: Do you think this lasts?
KUSHI: We`re seeing some momentum going into 2020 as long as mortgage rates remain low and we still have a healthy labor market, you know, we should see demand continue to rise especially with these demographics of millennials entering the first-time homebuyer age. The issue, of course, will be, is there enough homes for the people to buy? Will inventory keep pace?
And really the good news there is that builders in this Q4 have started to build more homes. And so, we should see that realized in early 2020. But will it be enough to keep pace? That remains to be seen.
HERERA: Indeed, it does.
Odeta Kushi with First American (NYSE:FAF) Financial Corporation, thank you. Happy holidays.
KUSHI: You, too.
GRIFFETH: Time to look now at some of today`s “Upgrades and Downgrades”.
Chipotle was upgraded to outperform from market perform at Cowan. The analyst cited the company`s rapidly growing digital sales. Price target $970. The stock rose more than 3.5 percent to $815.84.
Deckers was upgraded to outperform from neutral at Baird. The analyst cited the company`s solid earnings and strong execution. The price target $205. Shares rose more than 1.5 percent to $167.58.
And Molson Coors was downgraded to market perform from outperform at BMO Capital. The analyst says that management`s plan to lift sales growth does not go far enough in his opinion. Price target, $55. Shares fell 2.5 percent to $51.06.
HERERA: Still ahead, tax proposals that would hit billionaires and millions more who make a lot less.
GRIFFETH: On the campaign trail, a number of Democratic candidates have said they are in favor of increasing taxes on the wealthiest Americans. One of the most outspoken of course on the issue has been Senator Elizabeth Warren. But she also has other tax proposals, some that would hit those who are no where near to being billionaires.
Here is Robert Frank.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: On the campaign trail, Elizabeth Warren says she would only raise taxes on the rich.
SEN. ELIZABETH WARREN (D-MA), PRESIDENTIAL CANDIDATE: So when you make it big, really big, when you make it top one tenth of one percent big, pitch in 2 cents so everybody else gets a chance to make it.
FRANK: But along with her wealth tax which targets those worth $50 million or more, Warren is also proposing a dozen other tax increases, including one that would raise taxes on those making $250,000 a year. Her Social Security plan would be funded with a payroll tax of 14.8 percent on those who earn that much or more. This would affecting more than 5 million American households.
So, a taxpayer making $350,000 a year would pay an extra $14,800 a year in income taxes. She would also limit deductions for those making more than about $320 a year and restore the old top tax rate of 39.6 percent.
That means the top federal incomes tax rate would be over 54 percent. That`s the highest since 1971. Now, for those living in New York City or California, the combined federal and state taxes would be over 67 percent. And it`s not just wage income. Investment income or capital gains would also be taxed at the same rate, even when you don`t sell.
Now, right now, Social Security payroll taxes are capped at $133,000. Bernie Sanders, Joe Biden and Pete Buttigieg would all raise that cap, effectively also raising taxes on those making more than $133,000 a year.
HEIDI HEITKAMP (D), FORMER NORTH DAKOTA SENATOR: There is a lot of discussion about raising the cap. In fact, there is a bipartisan proposal that donut holes the cap. You know, stocks at a certain point and then picks it up when the firefighters — the firefighters would continue to get a break. But over like 250, that`s pretty popular eliminating the cap to try and bring solvency to the Social Security system.
FRANK: But paying for that solvency means even the non-rich may have to chip in more.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
HERERA: A strong quarter for Dick`s Sporting Goods (NYSE:DKS). And that`s where we begin tonight`s “Market Focus”.
The company`s quarterly results topped analyst expectations thanks to growth in its apparel and foot wear businesses, as well as 6 percent pop in same store sales. Dick`s also raised its full year earnings outlook for 2020. The shares rose 19 percent to $46.77.
Abercrombie and Fitch (NYSE:ANF) fell short of Wall Street estimates with the retailer same store sales coming in flat. The company also cut its sales forecast citing Brexit and protests in Hong Kong impacting its businesses at its international stores. A & F shares fell more than 2.5 percent to $15.91.
The discount retailer Dollar Tree (NASDAQ:DLTR) missed earnings estimates and lowered the profit forecast for next quarter and they`re blaming tariffs. Shares fell more than 15 percent to $95.26.
Hormel is also factoring global trade uncertainty into its outlook, anticipating higher protein prices. The food producer with brands like Skippy and Spam posted mixed results, beating earnings results but missing revenue. The shares rose more than 3.5 percent to $44.28.
Cracker Barrel missed profit estimates with the restaurant chain blaming the short fall and less foot traffic during the quarter but the company said its sales growth still outpaced the rest of the casual dining industry. Shares dropped about 4 percent to $151.13.
After the bell, enterprise software company Box beat revenue expectations helped by adding more customers to its cloud content management platform. Profits were pretty much in line with estimates. Shares initially rose in after-hours trading tonight. They close the regular session up almost 1.5 percent to $16.70.
Also after the bell, Dell`s revenue missed expectations hurt by higher costs and lower demand in its server unit because of those trade tensions with China. Shares were volatile in the after-hours trading tonight. They close the regular session down more than 3 percent to $53.19.
HERERA: 2019 will not go down as one of the best years for the auto industry. In fact, sales around the world have posted their biggest decline since the recession in 2008.
Phil LeBeau explains why auto sales have stalled.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: After a decade of building and selling more and more cars around the world, automakers have been forced to hit the brakes. In the U.S., sales have softened slightly, as they have in Europe.
But the biggest decline is in the world`s biggest auto market, China, where sales are down 11 percent this year. As a result, Fitch says global auto sales that peaked at almost 82 million in 2017 have dropped by almost 5 million vehicles since then. China`s slowdown is due to a variety of factors, including the end of some government incentives that encouraged the public to buy certain vehicles like electric cars.
Meanwhile, sales in the U.S. have eased due to Americans buying a record number of cars and trucks over the last four years. In effect, they`re due for a break.
This slowdown is one reason some auto makers like GM have shut down auto plants as they right size their operations.
That is likely to continue in 2020, especially overseas where the auto industry still has too much capacity. Meanwhile, Fitch says that auto sales worldwide are expected to be flat, to slightly lower next year.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
GRIFFETH: And coming up, how the trade war with China is actually helping feed the hungry.
HERERA: Here`s a look at what to watch for tomorrow. The Federal Reserve releases its Beige Book, which is an anecdotal look at the economy across the country. Pending home sales and weekly mortgage applications will give investors and home owners more insight into the housing market. Deere`s earnings will offer insight into the American farm economy and the impact of weather trends and trade uncertainty.
So, there is a lot to watch for on Wednesday.
GRIFFETH: As we mentioned earlier, optimism about trade lifted the mood on Wall Street again today. Chinese officials said they reached a consensus with their U.S. counterparts on resolving certain problems suggesting that progress is being made in those talks. In the meantime, though, American farmers are not able to sell as much of their agriculture products to China as they once did, including beef, poultry pork and produce.
So, the American government has stepped in to pick up that slack. And you might be surprised to find out where all that surplus food is going.
Kayla Tausche has our story.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The loading dock at the Washington food bank is bustling as trade tensions simmer and farm business overseas is falling. What would have gone to China now steered to shelters, churches and schools.
So far, the U.S. Department of Agriculture has bought and distributed roughly a billion dollars of protein and produce, and is budgeted for a billion dollars more. It`s all part of the $28 billion aid program for farmers hit by retaliation.
This shipment just arrived from USDA and is awaiting pickup. It`s essentially the stuff that farmers couldn`t export themselves, so USDA bought it and send it here. Stood fare like gallons of milk and bags of cheddar cheese, but what you wouldn`t have seen before now is all the fresh fruits and vegetables.
The Capital Area Food Bank had seen shipments from federal programs rise 77 percent in the last year.
RADHA MUTHIAH, CAPITAL AREA FOOD BANK CEO: These are all trade mitigation products. And you`ll see that it will say Titaf (ph), for example.
TAUSCHE: Radha Muthiah is the food bank CEO.
MUTHIAH: For those who qualify for U.S. government programs, the holidays should be much, much brighter. You know, we`ve got a lot more protein, a lot of more dairy, a lot more produce that people are going to be able to have on their tables.
TAUSCHE: Daryl Wright helps set the table and menu at this Washington community kitchen.
DARYL WRIGHT, SO OTHERS MIGHT EAT: And today, we are doing beef and bean soup and we get all the ingredients from the USDA.
TAUSCHE: Wright says they`re making 200 more bowls of soup a day, more takeout meals and pop-up farmers markets in underserved neighborhoods.
WRIGHT: With the food from the USDA, I`ve been able to do floating markets. That`s; what we pack up as much fresh produce and meet and dairy and fruit and we put them on our truck and we go to the food deserts in the city where there are no grocery stores.
TAUSCHE: He acknowledges that`s not forever, but it`s a blessing while it lasts.
WRIGHT: While I`m appreciative of farmers wishing to capitalize off of their investments, I also look at the many millions of people who are living below the poverty line who this food to feed, and to allow them to thrive.
TAUSCHE: Amid a crowd of uncertainty for farmers a silver lining for others in need.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
HERERA: And before he go, here is a look at the day`s numbers on Wall Street. The Dow rose 55 points. The Nasdaq gained 15. S&P added 6.
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.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by ASC Services II Media, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2019 CNBC, Inc.
<Copy: Content and programming copyright 2019 CNBC, Inc. Copyright 2019 ASC Services II Media, LLC. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of ASC Services II Media, LLC. You may not alter or remove any trademark, copyright or other notice from copies of the content.>