Transcript: Nightly Business Report – December 12, 2019

ANNOUNCER:  This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Trade-driven rally.  The S&P 500 and the Nasdaq closed at records after the U.S. reaches a phase 1 trade deal in principle with China.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  New opportunities.  Will trade deals open up more investment ideas for those looking for new places to grow their money?  

HERERA:  Location, location, location.  A $150 million fixer-upper that just became the most expensive Los Angeles home ever sold.  

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, December 12th.  

GRIFFETH:  And we do bid you good evening, everybody.  And welcome.  It is the headline that investors have been waiting for.  A phase one trade deal between the U.S. and China has reportedly been agreed to in principle pending President Trump`s approval.  Stocks initially rose sharply.  But the rally did moderate a bit in part because investors were waiting for details late in the day.  But it was still enough to send the S&P 500 and the Nasdaq composite to new records.  The Dow itself gained 220 points for a 28,132.  The Nasdaq up 63. The S&P rose by 26.  And we`ll have more on today`s market action in just a moment.  But we begin tonight at the White House where Kayla Tausche has been covering the day`s developments.  Kayla, what do we know about this deal so far?  

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, this evening, Bill, we are still awaiting the official word from the White House and the Office of the U.S. Trade Representative.  What we know is that the negotiating team of trade and economic advisers met with President Trump today for roughly an hour.  And that last week, that team had presented to China an olive branch of sorts that would see the tariffs set for Sunday delayed and previous rounds of tariffs curtailed significantly.  What we don`t know is what happened in the intervening days and what the exact deal presented to the president today was.  Also, whether the president signed off on that.  My sources say President Trump wanted to China to commit to a higher dollar figure of agricultural purposes before committing to roll back those tariffs.  

HERERA:  Kayla, you outlined some of the questions certainly that we have about this deal.  But what are the questions that still remain unanswered 

TAUSCHE:  Well, the questions, Sue, are what happens to the tariffs on tap for this weekend?  What happens to the tariffs put in place previously for those companies that have been paying those tariffs when their imports arrived at the border here?  Then the question of how much has China committed to buy in U.S. goods, whether that`s farm products or natural gas, or manufactured goods?  And then what is the path from here?  Is this the end of trade talks with China as we know it for now?  Or is there a path to continue toward a phase two and phase three of some of those thornier intellectual property issues to come?  

GRIFFETH:  Indeed.  Much more work to be done at this point.  Kayla Tausche at the White House, again, thanks for joining us tonight.  

HERERA:  That trade news certainly lifted sentiments on Wall Street.  And Bob Pisani watched it unfold from the New York Stock Exchange.  

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Stocks staged a somewhat measured rally on Thursday in light of all the trade deal buzz, markets got a jump right after the open.  President Trump tweeting that he was getting, quote, very close to a big deal with China, adding they want it and so do we.  And so, another turn high when reports came in at 2:30 Eastern saying the two sides reached a phase 1 deal, a little more comprehensive perhaps, ahead of the looming Sunday tariff deadline.  Predictably, trade sensitive groups, financials materials, retail, industrials all rose.  We saw new highs in some of these big industrials like Illinois tool works and Stanley Black and Decker.  Tech names also roared higher.  Microsoft (NASDAQ:MSFT) and Apple 

(NASDAQ:AAPL) new highs.  Semiconductors, very trade sensitive, also hit new highs.  The biggest breakout of the day though was the banks.  Bond yields spiked throughout the session.  It lifted big money centered banks like J.P. Morgan and Citigroup (NYSE:C), and smaller regional names like Fifth Third and KeyCorp (NYSE:KEY) to new highs.  Energy, another bright spot.  Crude oil prices climbing after OPEC forecast a supply deficit next year.  Despite all the optimism of getting the 11th hour deal done, key questions remain.  We`ll see if we get the answers.  For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.  

(END VIDEOTAPE)

GRIFFETH:  John Traynor joins us now to talk about any investment opportunities that this phase one trade deal might create.  He is chief investment officer at People`s United Advisers.  John, good to see you again.  Welcome back.  

JOHN TRAYNOR, PEOPLE`S UNITED ADVISORS CIO:  Thank you.  Thank you.  Good to see you.

GRIFFETH:  Bob just itemized some of the sectors that benefitted today.  Is that where you look?  Or are there other opportunities you could see now that we`re starting to see some progress on trade?  

TRAYNOR:  The most encouraging aspect he talked about on the rally was the rally that we saw in financials.  Financials are really — you know, the guide dog for the markets.  When we talk with our clients, we say keep you eye on financials, they really give you a sense of where the economy is going, where the markets are going.  And the fact the financials did very well today really sets us up, we believe, if this continues, sets us up for a very positive start to the New Year.  But the financials are key and it was great to see them moving today.  

HERERA:  You also like Microsoft (NASDAQ:MSFT) because of the export potential that that company has if indeed this all gets signed on the dotted line.  

TRAYNOR:  That`s right.  The technology stocks have done very well this year.  But if you think about, you know, what we just talked about with the trade deal, a lot of the controversy has been about intellectual property and technology transfer.  So, if there is a diminution or lessening in trade tensions, that will again flow through to technology stocks.  So, they did well this year.  We really think technology will also do well again next year.  

GRIFFETH:  I don`t want to get ahead of ourselves here, but, you know, defensive issues have been pretty popular for obvious reasons as we had all this trade uncertainty.  But as things to progress here, do you start to see — to look to more growth categories once again?  

TRAYNOR:  Well, I`d say what we`re looking at are more economically cyclical, economically sensitive companies.  You know, we still want companies that are growing revenues and growing the top line.  We still want to see good revenue growth, good sales growth, good earnings growths.  But we think we`re seeing more of that come from the let`s say the economically sensitive stocks rather than the very defensive consumer shares that have done well.  So while the overall averages could stay fairly stable next year, we think you`re going to see some big movements in the underlying stocks.  So, there are good opportunities to make money next year.  

HERERA:  Very quickly, John, there are a couple of stocks that have been beaten down through the whole two-year trade war, the poster child of that has been Deere, for instance, in the agricultural sector.  

TRAYNOR:  Yes.

HERERA:  But also because our farmers who have not been buying as much.  Would you step into a name like that that`s been beaten down?  

TRAYNOR:  We actually talked about that.  Fortunately, I had my equity team in town yesterday, today — yesterday and today, we actually talked about Deere, that that`s not a stock we own.  But we said, boy, you know, the seeds, so to say to coin a phrase, the seeds of opportunity are definitely being planted with Deere.  And we definitely see if we see good agricultural exports, if China really steps up their purchases, that could definitely flow through to Deere.

GRIFFETH:  Very good.  John Traynor with People`s United Advisors, good to see you again, John.  Thanks.  

TRAYNOR:  Good to see you.  Thank you.  

HERERA:  Also in Washington tonight, congressional negotiators have reached a deal in principle to fund the government.  The tentative agreement would avert a shutdown and would total about $1.4 trillion in spending.  Details were not announced.  But it is expected to pass the House next week.  

GRIFFETH:  And if you`ve been looking for any signs that inflation is building in the economy, you still didn`t get it today.  The producer price index which is a measure of the wholesale prices that businesses receive for their goods and services, that was unchanged in November when economists were expecting a slight rise.  A separate report shows a jump in number of Americans filing for unemployment benefits.  Jobless claims as they`re known rose by 49,000 to 252,000.  That is the highest level in more than two years.  And while that number may get your attention, it does typically happen in this period following Thanksgiving and it usually levels out over the next few weeks.  

HERERA:  A new survey shows that the majority of chief financial officers expect their companies head count to decrease over the next 12 months.  And according to the CNBC Global CFO Council Survey, North America was the only one of those three regions where the majority of respondents expected to see a reduction.  So, can we expect more job losses in the next year?  Joining us now is Andrew Chamberlain, chief economist at Glassdoor.  Andrew, welcome.  Nice to have you here.  

ANDREW CHAMBERLAIN, GLASSDOOR CHIEF ECONOMIST:  Thank you.  

HERERA:  We`re usually talking about on the show about a historically tight labor market.  The survey results took me a bit by surprise.  What did you make of it?  And I think you put it up to economic uncertainty. 

CHAMBERLAIN:  I did.  On the surface, they are surprising because all we hear from employers is what a strong job market it is and how much difficulty they have in hiring.  But below the surface, it`s consistent with what we see at Glassdoor for job postings.  We see job postings for big companies with 5,000 or more employees down from a year ago about 6 percent.  So, something is definitely going on below the surface.  

GRIFFETH:  What do you think it is?  

CHAMBERLAIN:  Well, you mentioned uncertainty.  So, it`s not just uncertainty about trade, which is helping get resolved because of today`s possible deal, there is also an upcoming presidential election.  There is also uncertainty about Fed policy.  And there is all sorts of uncertainty about a broader global slowdown.  So, uncertainty is like kryptonite for CFOs who love to plan and look ahead.  And so, I think that`s the main factor behind this.  

HERERA:  There are different ways to reduce your head count.  Did you get any kind of hint from this particular survey as to whether we were talking job cuts or might CFOs go about it in a different way?  

CHAMBERLAIN:  Well, I think it`s very unlikely that we will see job cuts.  Most of these CFOs in 2020 are still optimistic about the overall economy.  However, they might be sitting on their hands when it comes to new hires added on.  

So, the first thing you`ll see companies do is slow down job postings rather than lay people off.  Because that`s just — laying people off throws away the company`s most important asset.  Companies are very reluctant to do so.  So I think that`s likely to be what we will see them doing, is dialing back slightly and part of in might be a response to profits that we have seen.  We have reports about weak profits.  A great way to shore that up is slow down labor costs.  

GRIFFETH:  I have a couple of seconds left, which sectors do you think are most vulnerable to job slowdown next year?  

CHAMBERLAIN:  Manufacturing — unquestionably manufacturing is already in a recession.  I think oil and gas is a big question mark.  It all depends on prices.  The really strong sectors on Glassdoor: health care, professional services and tech, leisure and hospitality.  These three sectors are carrying the economy today.  

HERERA:  On that note, Andrew Chamberlain with Glassdoor, thanks so much.  

CHAMBERLAIN:  Thank you.  

GRIFFETH:  And it`s time to take a look at some of today`s “Upgrades and Downgrades”.  There were a lot of upgrades as it happens today.  

We start with General Electric (NYSE:GE), which was upgraded to a buy from neutral at UBS.  The analyst is predicting a 2020 rebound for that company, including better earnings growth and better free cash flow, led by its aviation and health care divisions.  Price target now $14.  The stock rose 4 percent to $11.44 today.  

Home Depot (NYSE:HD) was upgraded to outperform from neutral at Credit Suisse.  The analyst cited the company`s investment strategy in its digital operations and in delivery, among other things.  Price target now $235.  That stock was up 4 cents to $212.04.  

And Starbucks (NASDAQ:SBUX) was upgraded to overweight from neutral at J.P. Morgan.  The analyst citied the company`s sales momentum here in U.S. and in China.  The price target $94.  Shares rose more than 1.5 percent to $88.21.  

Charles Schwab was upgraded to buy from neutral at Compass Point.  The analyst cites the company`s acquisition of TD Ameritrade (NASDAQ:AMTD) and its potential impact on earnings and margin growth.  The price target is $60.  The stock rose about 3 percent to $51.07.  

Kroger (NYSE:KR) was upgraded to outperform from inline at Evercore ISI.  The analyst cites improving same store sales and moderating investment spending.  The price target is $33.  The stock gained a fraction to $28.20.  

GRIFFETH:  Still ahead, it`s been a tough stretch for Boeing (NYSE:BA) and it took a few more blows today.  

(MUSIC)

HERERA:  There is a lot of news on Boeing (NYSE:BA) tonight.  As first reported by CNBC, the company is now delaying plans to reach a record production rate of 57 737 planes per month by the end of next year.  Boeing (NYSE:BA) now says it will reach that rate in April of 2021.  Shares fell 1 percent in today`s trading session.  

GRIFFETH:  Meantime, American Airlines is now pushing back the date it expects the 737 MAX to return to service.  It is now looking at April 7th.  That would make it more than a year now that the jet has been grounded and it translates to roughly 50,000 American flights cancelled due to the grounding over that period.  

HERERA:  And in other developments Boeing (NYSE:BA) has agreed to pay an undisclosed amount of money to Southwest Airlines (NYSE:LUV) for the carrier being unable to fly the 737 MAX.  Boeing (NYSE:BA) helps that settlement will improve a strained relationship with one of its oldest and most important customers.  Phil LeBeau is in Atlanta tonight.  

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Southwest Airlines (NYSE:LUV) will soon get paid for being unable to fly the 34 Boeing (NYSE:BA) 737 MAX jets that have been grounded since March.  Boeing (NYSE:BA) will pay Southwest an undisclosed amount with an estimated $125 million from the settlement ultimately going to Southwest employees.  The money will reimburse Southwest for losing a chunk of the fleet for most of the year.  It could also help improve Boeing (NYSE:BA) standing with Southwest.  

In October, the airline CEO said he was fed up with the continued delays in fixing the MAX.  

GARY KELLY, SOUTHWEST AIRLINES CEO:  I`ve been very clear.  We`re not happy about our situation.  You know, we put — we put our future in the hands of Boeing (NYSE:BA) and the MAX, and we`re grounded.

LEBEAU:  Boeing`s settlement was announced hours before CEO Dennis Muilenburg met with the FAA Administrator Steve Dickson who says the 737 MAX will not be recertified this year.  The FAA says Dickson and Muilenburg discussed a more realistic timeline for getting the MAX back in the air.  And when it returns, airlines like Delta do not think the addition of dozens of MAX planes will have a major impact on air fares in the U.S.  Delta which does not fly the MAX is hoping the plane`s return helps Boeing (NYSE:BA) get back to the business of developing new planes and technologies.  

ED BASTIAN, DELTA AIR LINES CEO:  What we need is we need Boeing (NYSE:BA) focused on development and technology in the new frontiers of innovation that right now unfortunately they are paralyzed to be able to get after.  

LEBEAU:  Ed Bastian says Delta would be interested in buying Boeing (NYSE:BA) planes that complement the ones that it currently flies.  It doesn`t have a need for the 737 MAX, but perhaps a new Boeing (NYSE:BA) model at some point in the future?  Well, that could be a possibility for Delta.  

Phil LeBeau, NIGHTLY BUSINESS REPORT, Atlanta.  

(END VIDEOTAPE)

GRIFFETH:  So, would you get on a 737 MAX?  That question part of a new survey showing passengers are concerned about the safety of the plane.  According to the survey by Bank of America (NYSE:BAC) Merrill Lynch, many say they would be hesitant to fly it even after deemed safe by regulators.  Nearly two thirds of respondents said that they would wait at least six months before getting on the plane or they would never fly it at all.  

HERERA:  Oracle (NASDAQ:ORCL) reported earnings late today.  And while its profit topped Wall Street estimates, revenue fell short.  The company said growth in the cloud services and in its license support unit failed to offset declines in its traditional software business.  That sent the stock initially lower in after-hours trading.  Josh Lipton has more on Oracle`s results.  

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Oracle (NASDAQ:ORCL) is investing to become a bigger player in cloud computing, taking on companies from Amazon (NASDAQ:AMZN) to Salesforce.  So, investors are always on the lookout for more insight into how the effort is going.  One number to watch, the company`s so-called cloud services and license support division, its largest division, that includes cloud, revenue as well as maintenance fees for traditional software.  Their revenue came in at $6.8 billion, basically just in line with expectations.  Most analysts rate Oracle (NASDAQ:ORCL) a hold right now, nearly 70 percent.  JMP`S Patrick Walravens is staying on the sidelines, telling me the company need to show it can grow a lot faster at a sustained clip before he is comfortable recommending the shares.  

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco 

(END VIDEOTAPE)

GRIFFETH:  A financial software company rings up gains in its debut.  And that`s where we begin tonight`s “Market Focus”.  The company is called bill.com, no relationship.  But it began trading today at the New York Stock Exchange.  It sells software services to small and medium size businesses to help with payment processing.  And as the CEO described it during an interview today, they helped businesses get rid of the mess that runs their back office.  

(BEGIN VIDEO CLIP)

RENE LACERTE, BILL.COM FOUNDER & CEO:  My focus has always been the size of the market.  So, 81,000 businesses are using our platform today.  There`s 6 million businesses across the country that need help.  And so, if I have an opportunity to drive more adoption, because I know when you talk to our customers, when they actually get on the platform, they tell you how much time it saves.  They tell you they make better decisions.  If that`s true, then I want to serve everybody.  That`s what makes me happy.  

(END VIDEO CLIP)

GRIFFETH:  Shares were initially priced at $22.  They closed at $35.5.  That would be a gain of 61 percent.  It was a mixed quarter for Sienna.  The optical networking components company missed earnings estimate but topped revenue forecasts.  The firm said that it had three individual customers at each accounted for more than a 10 percent of the revenue in that quarter.  The stock had a healthy gain of 20 percent today to $42.62.  

And the world`s biggest publicly traded company got even bigger today.  Saudi Aramco is now worth more than $2 trillion, achieving the valuation sought by Crown Prince Mohammed bin Salman.  The Saudi government owns the majority of Saudi Aramco.  It began trading on the Riyadh Stock Exchange only yesterday.  And shares were up another 4 plus percent today to close at equivalent of $36.80.  

HERERA:  Constellation Brands (NYSE:STZ) is revising a previously announced deal to sell many of its lower priced wine and spirit brands to California wine giant E. & J. Gallo.  Federal regulators raised competitive concerns about the deal.  So, Constellation will sell fewer brands, reducing the value of the deal from $1.7 billion to $1.1 billion.  The stock was down 1 percent to $179.79.  

Broadcom (NASDAQ:BRCM) says it now expects full-year 2020 revenue to come in above Wall Street estimates.  The company cited strong demands for its chips as the new 5G technology continues to be rolled out.  The stock was volatile in initial after-hours trading.  It closed the regular session up more than 2 percent to $327.80.  

And Costco (NASDAQ:COST) reported lower than expected quarterly revenue dragged down by a slowdown in e-commerce sales growth.  The warehouse club operator`s digital sales grew more than 5 percent.  But it rose more than 20 percent in the previous quarter.  The stock was volatile in initial after-hours trading.  It closed the regular session up a fraction to $297.34.  

GRIFFETH:  Google (NASDAQ:GOOG), Facebook (NASDAQ:FB) and Twitter are all taking steps to improve oversight of their platforms because regulators in Washington have been discussing ways of making changes that could hold YouTube and Facebook (NASDAQ:FB) liable for the content that they host.  

Julia Boorstin has more.  

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  YouTube strengthening its anti-harassment policies and will remove videos that insult people based on race, gender or sexual orientation, whether the attacks are on private people or public figures.  YouTube is expanding its ban on threats to include veiled or implied threats as well as explicit ones.  YouTube warning that content creators whose channels, quote, repeatedly brush up against our harassment policy will be suspended from its partner program and will not be able to profit from ads.  The company also saying it expects to remove more comments for harassment than the 16 million it pulled down last quarter.  These changes sparked protests on Twitter with a #YouTubeisoverparty.  The top trend on Twitter in the U.S. yesterday and ranked fourth worldwide.  Complaints that YouTube had gone both too far and not far enough.  This comes as Facebook (NASDAQ:FB) gives an update on the plans to put controversial decisions about how it places content in the hands of a third party.  Facebook (NASDAQ:FB) pledging $130 million to fund its global oversight board, an independent organization that aims to be like a Supreme Court, to rule on what content is acceptable on the platform.  

The Facebook (NASDAQ:FB) delayed the appointment of board members but says they are eager to see the oversight board take shape and start hearing cases next year.  And Twitter CEO Jack Dorsey tweeted about now he is creating a research team to create open source standards for social media platforms.  Dorsey`s vision for a universal standard across social media aims to help with enforcing restrictions on hate speech and abuse and reduced recommendations for outrageous content.  

These announcements from Twitter, Facebook (NASDAQ:FB) and YouTube come amid growing scrutiny from Washington.  Just this week, Attorney General William Barr said the justice department is exploring recommending possible changes to the Communications Decency Act, which shields the tech giants from liability for the content they host.  

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.  

(END VIDEOTAPE)

HERERA:  Coming up, a record real estate deal with a story straight out of Hollywood.  

(MUSIC)

HERERA:  It is no secret that more investors are putting money into ETFs.  Total assets have been growing at a fairly consistent annual rate of 25 percent from $770 billion 10 years ago.  And at that rate, a new report from Bank of America (NYSE:BAC) says that market could hit more than $5 trillion by the end of next year, and $50 trillion by 2030.  

GRIFFETH:  Finally tonight, this house may look a little familiar.  After all back in the 1960s, it was the home of the Clampett family in the classic series “The Beverly Hillbillies”.  But today, it has a new title, the most expensive Los Angeles home ever sold.  Here is Robert Frank.  

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Lachlan Murdoch, the oldest son of Rupert Murdoch, paying a reported $150 million for an estate in Bel-Air.  The ten-acre spread known as Chartwell was sold by the estate of the late Jerry Perenchio, the former CEO of Univision.  And despite the price, Chartwell is a bit of a fixer-upper, valued mostly for its land and location.  “The Wall Street Journal” reporting that Lachlan was the buyer of what is now the most expensive home ever sold in California and the second most expensive home ever sold in the U.S.  It`s got a 25,000 square foot main home, 11 bedrooms, 18 bathrooms.  Built in the 1930s and overhauled in the `80s.  It`s also got a 5,700 square foot guest house.  A 75-foot pool, pool house, tennis court, and an underground motor court for 40 cars.  Perenchio spent millions on elaborate gardens and landscaping and buying up adjacent properties.  

My favorite part, it`s got two secret tunnels, one from the main house to the pool, and the other to the private gardens.  Perenchio also purchased also purchase the former home of Ronald and Nancy Reagan next door.  

Now, this is the third property this year in the L.A. area to trade at $100 million or more, although the broader luxury market in L.A. is still suffering from an oversupply of homes.  

Like the other six Murdoch offspring, Lachlan is flush with cash after the sale of Fox assets to Disney (NYSE:DIS).  By the time of the deal, the Murdoch family trust share of that sale was valued at $12 billion.  So, each of them getting about $2 billion.  

Disney (NYSE:DIS) shares are up 30 percent since that deal closed.  So, assuming they took all stock, Lachlan`s wealth has grown by over $600 million just in the past eight months, enough to buy four Chartwells and still have enough left over to fill that motor court.  

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.  

(END VIDEOTAPE)

HERERA:  Here`s a look at the final numbers from Wall Street.  The Dow gained 220 points.  Nasdaq up 63.  S&P 500 rose 26.  And that does it for NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera.  

Thanks for joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have a great evening.  See you tomorrow.  

END

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. 

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