ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Record close. The three major indexes finish at all-time highs as the bulls and bears tangle over what might come next.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Temporary halt. Boeing (NYSE:BA) is suspending production of its 737 MAX jetliner in January, as the trouble surrounding the grounded jet grows.
HERERA: Put a fork in it. Why a small flatware manufacturer in New York state could be a big beneficiary of the new Defense Department spending bill.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Monday, December 16th.
GRIFFETH: And we do bid you good evening, everybody, and welcome.
Wall Street`s major indexes did start with more records, the Dow, the Nasdaq and S&P all closed at new highs. It probably helped that phase one of the U.S./China trade deal has been reached and that the Fed is not likely to touch interest rates for the foreseeable future.
Today, the Dow rose 100 points for a 28,235, Nasdaq up 79, S&P added 22. And we will have more on the markets in just a moment.
But we begin tonight with Boeing (NYSE:BA) and these reports that the aerospace giant will temporarily halt production of the 737 MAX jetliner starting in January. This is the first production halt during the plane`s 20-year history in its development, something that few saw coming when the jet was grounded last March.
And that late news sent the stock lower in initial after-hours trading tonight.
Phil LeBeau is covering the story for us, as always.
Phil, what are the details of the halt and how big of a deal is this for Boeing (NYSE:BA)?
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it`s a huge deal, Bill. And what you`re looking at here is a suspension of 737 MAX production starting in January, likely lasting 45 to 60 days. I say likely, because Boeing (NYSE:BA) is not putting a timeframe in terms of when it plans to resume production.
That will be determined by whether or not the FAA lifts the grounding of the 737 MAX, recertifies the plane, let`s say, by late January, early February. If that happens, then you could see them start up production again maybe in mid February or the end of February. But, again, it all depends on when the FAA says the MAX is good to go. That will be the trigger that says, OK, let`s resume production again.
HERERA: Now, what happens to the workers that are on that project? Are we expecting layoffs?
LEBEAU: No. Boeing (NYSE:BA) says that they are not going to furlough approximately 12,000 workers who are that plant that builds the Max in Renton, Washington. Some of them will be redeployed to work in Everett, where they build other Boeing (NYSE:BA) commercial airplanes. Some will be working on other projects within the company and there will still be work taking place at the Everett plant.
But it`s key that Boeing (NYSE:BA) is saying, we will continue paying these workers. But that was the big concern, that you would have furloughed workers and you potentially lose that skill labor that will be crucial when they ramp up production at some point in 2020.
GRIFFETH: But what about its suppliers? Are we going to see a ripple effect there?
LEBEAU: Potentially. Now, Boeing (NYSE:BA) says it will be working with its suppliers to ensure that they are not seeing their production lines disrupted. But look at a company like Spirit AeroSystems in Wichita, Kansas. They build the fuselage for the 737 MAX. They`ve not lowered their production even though Boeing (NYSE:BA) lowered production overall for the final finished airplane.
So they`ve got these planes, these fuselages, about 100 of them, that have been built, that are in storage. Will they continue to build at that rate? That remains to be seen. And then if they have to bring down their production, how will those workers be compensated? Will they do the same thing as Boeing (NYSE:BA)? Will they pay them or furlough them?
These are all the details that have to be sorted out over the next several weeks.
HERERA: For investors who hold the stock, what about the company`s dividend and its CEO?
LEBEAU: Right. Well, the good news is that the dividend is not changing. It still is $2.05 a share. They just announced that this afternoon.
Boeing (NYSE:BA) has never reduced its dividend, or I shouldn`t say “never”. You have to go back to 1937 the last time that they reduced their dividend. It`s always been the same as it is right now or it`s increased.
In terms of Dennis Muilenburg, no word from the company he is potentially leaving the company. But, clearly, he`s under a lot of pressure. Production halt, this is unprecedented, guys.
GRIFFETH: Indeed. Phil LeBeau, as always, great job. Thanks.
LEBEAU: You bet.
HERERA: More now on that record close on Wall Street and the question that many investors are asking, what happens next?
So, we asked Bob Pisani to answer that for us.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: With a phase one trade deal out of the way, markets look to have avoided the worst case scenario, at least for the time being. But as investors gear up for the New Year, there are arguing over the impact on 2020 earnings. Bulls say several issues may be on the verge of being resolved while bears say trade over and a lack growth will keep a lid on the gains in 2020.
So, exactly, who is right about this? Well, first, let`s look at the bulls` case.
They have a lot they`re checking off of their list of worries that kind of fade a little bit for now. Federal Reserve, number one, is in neutral mode. Meaning no interest rate hikes in 2020, at least so far. The U.S. economy has avoided the recession so many people were worried about. Another positive.
Overseas, Prime Minister Boris Johnson`s victory over the U.K.`s pro-tax Labour Party may mean Brexit is coming but it also means a boon to banking stocks in Europe. And, finally, tariff fears have faded a little bit, thanks to the U.S./China trade, let`s call it a truce.
But the bears are cautioning against euphoria. They still see several critical pieces missing from the puzzle, including the removal of most existing tariffs on Chinese goods with the majority still in place and a clear bottom in global growth, they still a little bit elusive on that. That concern about global growth was echoed by Morgan Stanley (NYSE:MS) CEO James Gorman who said China growth was a top issue for the global economy in 2020.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: But even with the phase one trade deal announcement late last week, there are still some loose ends that need to be tied up, not just with China, but the new NAFTA agreement as well.
Kayla Tausche report tonight from Washington, where officials are trying to avoid things from getting lost in translation.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: So the deal will be finalized over the next couple of weeks.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump highlighting the homestretch of trade talks with China, just days after announcing a first phase of the deal, awaiting T`s crossed and I`s dotted after two years of talks.
TRUMP: Translation is very important. I said, make sure you have the right translators because you`re going to lose a lot with bad translation.
TAUSCHE: Within the 86 pages of the deal, some appear lost in translation. Beijing and Washington offering differing accounts on how much China will buy from U.S. farmers and when three previous rounds of tariffs will go away.
The lead U.S. negotiator, Ambassador Bob Lighthizer, remained skeptical on China`s ability to honor this and future deals.
ROBERT LIGHTHIZER, U.S. TRADE REPRESENTATIVE: We`re going to sign this agreement, but I`ll tell you this. The second phase that is going to be determined also by how we implement phase one. Phase one is going to be implemented right to — right down to every detail.
TAUSCHE: Lighthizer spent Monday trying to solve another problem, calming Mexico`s anger over a new provision in the USMCA, that allows U.S. government officials to report back on Mexico`s labor laws. Mexico`s chief negotiator back in Washington to make sure these so-called attaches wouldn`t be as heavy handed as Democrats made them sound.
JESUS SEADE, MEXICO TRADE NEGOTIATOR: These personnel will not be labor inspectors. It`s not the kind of inspector that had been disclosed (ph) for the whole year.
TAUSCHE: A statement from the U.S. trade representative said labor inspectors are just like existing officials stationed in other countries, clearing a vote for the House deal Thursday, while the China deal appears on track for a signing in January.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
HERERA: After stumbling a bit earlier this year, housing is once again being called by some, the hottest sector within the U.S. economy. And it`s the nation`s home builder that appeared to be leading the way.
Here is Diana Olick.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Homebuilder sentiment in December jumped to the highest level in 20 years on the National Association of Home Builders` index. Not only is it well positive territory, but it`s up dramatically just from last year.
Why? Well, builders point squarely to the severe housing shortage on the existing home side, as well as to high housing demand and improving economies.
But NAHB`s chief economist Rob Dietz noted builders are still under- building due to a lack of labor and land and increased cost. You can see that when you compare sentiment with actual housing starts. Sentiment is way up. Starts, not as much, despite the fact that builders are seeing much higher sales conditions and buyer traffic.
And stocks for the big names like Lennar (NYSE:LEN), D.R. Horton (NYSE:DHI) and Pulte weren`t up as high as you expect today because interest rates are also moving higher. It appears that no matter how great the builders feel, mortgage rates will always have the last laugh.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.
Goldman Sachs (NYSE:GS) was upgraded to buy from neutral at Citi. The analyst says Goldman Sachs (NYSE:GS) is in a better position than other banks given the low interest rate environment. The price target is $255. The stock rose more than 1 percent to $228.04.
Micron Tech was upgraded from positive to neutral at Susquehanna. The analyst cites the potential for higher selling prices. The price target is $85. Shares were up more than 3 percent to $52.94.
Pepsi was downgraded to equal weight from overweight at Morgan Stanley (NYSE:MS). The analyst cites signs of slowing sales growth. The price target is $145. The stock fell a fraction to $137.06.
GRIFFETH: Urban Outfitters (NASDAQ:URBN) was downgraded to hold from buy at Loop Capital Markets. The analyst cited an increase in discounts during this holiday shopping season by specialty retailers like Urban Outfitters (NASDAQ:URBN). Price target there now $28. Shares were basically flat. They`re up just 3 cents today to $26.78.
And Amarin (NASDAQ:AMRN) was downgraded to hold from buy at Stifel Nicolaus. The analyst says that investors should take profits on that stock following the FDA approval of its innovative fish oil based drug designed to prevent heart problems. Price target, $28. The shares fell 5 percent today to $22.88.
HERERA: Still ahead, a potential big win for a small company.
(BEGIN VIDEO CLIP)
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Ylan Mui in Sherrill, New York, headquarters of the only company left in the USA that still makes utensils, forks, knives and even spoons. I`ll give you the scoop coming up on NIGHTLY BUSINESS REPORT.
(END VIDEO CLIP)
HERERA: Congress looks ready to prohibit the sale of tobacco to anyone under the age of 21. According to reports, that provision is expected to be included in a year-end spending bill. The measure has the support of both Democrats and Republicans, but that did not stop tobacco stocks from gaining ground in today`s session. British American Tobacco was pushed higher on an upgrade.
GRIFFETH: There is also word that lawmakers are moving toward eliminating three major health industry taxes that were implemented to help pay for the Affordable Care Act. Those taxes include the so-called Cadillac tax on employer health plans, the 2.3 percent tax on medical devices and a health insurance fee. And that news sent shares of UnitedHealthcare, Humana (NYSE:HUM), Cigna and Anthem higher. It did the same for a handful of device maker as well.
HERERA: Over the past few months, John Harwood has talked to a number of Democratic presidential candidates. He recently spoke with Senator Elizabeth Warren. He asked her about her position on breaking up big tech, big banks, agriculture and other major industries.
(BEGIN VIDEO CLIP)
SEN. ELIZABETH WARREN (D-MA), PRESIDENTIAL CANDIDATE: I see this as what`s the best way to grow our economy going forward? So, you talk about let`s break up big ag, let`s break up the big banks. You know, that`s enforcing antitrust laws that have been around for more than 100 years, and unfortunately for decades now have been under-enforced and let these giants come in, who not only scoop up all of the profits, they also undercut wage growth.
They undercut innovation in our economy. They stamp out little businesses in small towns. We need some enforcement of our antitrust laws.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: But you`re not worried that the scale of all of this is going to have big, unintended consequences?
WARREN: I think the intended consequences here are pretty clear, that when you don`t have just one place or two places that you can buy seed from, there`s more competition in the industry.
(END VIDEO CLIP)
HERERA: She also took to task the Business Roundtable over something she calls accountable capitalism and the organization`s recent pledge to redefine the corporation beyond shareholder profits. Senator Warren says that should not just be part of a mission statement but also the law.
GRIFFETH: Tucked deep inside the defense spending bill now before Congress is a provision that would give a big boost to the country`s last domestically based flatware manufacturer.
As you saw, Ylan Mui traveled to Sherrill, New York, that`s the smallest city in the Empire State to check it out for herself.
MUI: Sherrill Manufacturing is the last factory in the country that still makes flatware. The custom equipment fires up the stainless steel rods, stamps out the designs, then buffs them clean. The end product, roughly 10,000 forks, spoons and knives come off the assembly line each day.
UNIDENTIFIED MALE: So, this design is called the pearl design. It`s a soup spoon. You can eat soup and ice cream with it.
MUI: Those numbers are about to get a lot bigger. Tucked inside the $738 billion spending bill is a provision that requires the U.S. military to buy utensils made in America. Sherrill is the only company that can do it.
MATTHEW ROBERTS, SHERRILL MANUFACTURING PRESIDENT: Today, we`re doing about 6 million in sales. We could probably double or triple that with the equipment we have and probably put a second shift on even more.
MUI: Right now, the company employs about 56 workers and it could add dozens more. The bill is seen as a lifeline for a factory that has watched its competitors move overseas and it`s a big win for the region`s congressman, Representative Anthony Brindisi. He`s a freshman Democrat in this very red district and he`s one of only a handful of members who are on the fence about impeachment.
Both of those things have made him a very important person in Washington.
REP. ANTHONY BRINDISI (D-NY): I`m going to take some time to decompress this weekend, go back through all the evidence, take a look at the articles of impeachment and make a decision early next week.
MUI: But Brindisi is feeling the heat at home as well.
Both the congressman and the company say what`s happening at this factory has nothing to do with politics but it is just the kind of hometown win the Democrats are looking for to show they`re not only the party of impeachment.
ROBERTS: You can talk about all the politics. We can talk about all the bills. We can talk about buy American. But, look around this room, and this is what happens when you buy American.
MUI: For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Sherrill, New York.
GRIFFETH: And you can read more about Sherrill Manufacturing on our website, NBR.com.
HERERA: DuPont strikes a $26 billion deal, and that`s where we begin tonight`s “Market Focus”.
The company is merging its nutrition and biosciences business with international flavor and fragrances to create a massive consumer goods company. DuPont shareholders will own more than 55 percent of the combined company and its executive chairman says the acquisition will broaden its reach.
(BEGIN VIDEO CLIP)
EDWARD BREEN, DUPONT EXECUTIVE CHAIRMAN: We made the decision based on strategic fit and culture. This creates the global leader across all the ingredients phases. It`s the broadest portfolio by far. And we`ll have doubled the R&D of any other company in the industry.
(END VIDEO CLIP)
HERERA: DuPont shares rose a fraction but International Flavors shares dropped more than 10 percent due to the high price tag of the deal. The company — with the company`s already high debt pile.
Intel (NASDAQ:INTC) is making a big push into artificial intelligence with a $2 billion acquisition of Israel base start-up Habana Labs. Intel (NASDAQ:INTC) hopes to use its technology to reconnect damaged spinal nerves in paralyzed patients and create wheelchairs that can be controlled with facial expressions. The company expects to generate more than $3 billion in AI-driven revenue this year. The stock fell a fraction to $57.70.
PG&E`s bankruptcy reorganization plan was rejected by California`s governor, saying the proposal failed to comply with a recently enacted state fire law. The company, which is California`s utility, has until tomorrow to meet the governor`s demands. The stock slid about 14 percent to 9.67.
GRIFFETH: Pfizer (NYSE:PFE) announced today it is increasing its dividend by 5.6 percent to 38 cents a share. That new dividend implies a yield of 3.9 percent, which is higher than the yield of the benchmark SPDR Health Care Exchange traded-fund. Shares rose more than 2 percent today to $39.14.
And Tech Crunch is reporting that Uber is nearing a deal to sell off Uber Eats Indian unit to rival Zomato. It`s a deal that would value that unit to around $400 million. Tech Crunch is also reporting that Uber may then invest up to $200 million in Zomato. Shares were up about 5.5 percent today to $30.05.
And WW International, formerly known as Weightwatchers, has announced an Oprah Winfrey is extending her partnership with the company for another five years. Winfrey will remain on the company`s board. She will continue her role as an adviser. She also has the option to increase her stake in the company.
Oprah is currently the second largest shareholder in WW International. And that stock gained more than 3 percent today to $39.15.
And Amazon (NASDAQ:AMZN) is blocking third-party sellers on its website from using FedEx (NYSE:FDX) ground service for its Prime deliveries. The e-commerce giant cited a decline in FedEx (NYSE:FDX) shipping
performance heading into the final stretch of the holiday shopping season. Amazon (NASDAQ:AMZN) shares up a fraction today to $1,769.21. FedEx (NYSE:FDX) shares were down a fraction to $164.10.
HERERA: So for the next two weeks, we will be bringing back some of our favorite stock pickers who will have a list of stocks they like heading into the New Year. Tonight`s guest likes large cap companies. Last time he was on in June, he recommended J.P. Morgan, which is up 26 percent, UPS, which is up 17 percent, and PepsiCo is 4 percent higher.
Joining us once again is Hank Smith, chief investment officer at Haverford Trust.
Welcome back, Hank, nice to see you again.
HANK SMITH, HAVERFORD TRUST CHIEF INVESTMENT OFFICER: Good evening, Sue. Good to be with you.
GRIFFETH: Bill, just mentioned some of the details on FedEx (NYSE:FDX). So, that`s one of your stock picks. Let`s start there. Why do you like it?
SMITH: OK. It`s certainly a contrarian play. It`s underperformed dramatically over the fast two years. They`ve had four big headwinds.
You mentioned one, losing the Amazon (NASDAQ:AMZN) business. Secondly, they`ve been making some major investments that`ll be — that`s impacted earnings. There will be gains through that as we get through 2020.
The merger with TNT in Europe, it will be five years now they`ll finally be fully integrated this spring. And then fourthly, the whole uncertainty around trade and tariffs has had a greater impact on FedEx (NYSE:FDX) because of their more business orientation.
So, a lot of these headwinds should fade as we go into 2020.
SMITH: And we think the stock should do fairly well.
GRIFFETH: The second one is CVS (NYSE:CVS), maybe another contrary play. I mean, here`s a company that`s trying to redefine health care, bought Aetna (NYSE:AET), as we know. But this stock that`s been in a downward trend the last five years. What is going to turn it around, do you think?
SMITH: Well, Bill, in fact, the past three quarters, they had beat both on the top and the bottom line. That`s been underappreciated. The merger with Aetna (NYSE:AET) is going better than expected in terms of integration and also in terms of paying down the debt.
So, we think if they can continue beating expectations over a few more quarters, you`re going to get some multiple expansion because it`s only selling at ten times earnings, yielding over 2.5 percent. This is not a challenging bar and, as you said, they are redefining health care. They will be part of bringing costs down.
HERERA: And, lastly, Home Depot (NYSE:HD), it has had a really tough year. It has sold off at different parts of the year. But you think that it`s basically on the comeback trail, mostly due to management.
SMITH: Yes. So, Home Depot (NYSE:HD) made an all-time high a couple of months ago at $139. It`s off a little over 15 percent on the recent earnings. The earnings were okay, but they guided down based on softening of lumber prices and also some investments that they are making. They`re taking a little bit more time to play out in terms of rewarding the bottom line.
This is a very, very well run company. And the decline in prices, an opportunity for investors who don`t own it to get in.
HERERA: Hank Smith with Haverford Trust — thanks, Hank.
SMITH: You bet.
GRIFFETH: And coming up, `tis the season when consumers rack up credit card debt. But it`s not because people are out shopping.
HERERA: Have you noticed all the discounts while you`re out shopping? Well, according to a report in “The Financial Times”, department stores and clothing retailers are cutting prices by the most since the 2008 financial crisis. Special offers are lasting longer and they`re steeper than they have been in previous years. Discounts tend to heighten, though, a concern of a squeeze in profit margins.
GRIFFETH: Also new research shows that more than 137 million Americans face financial hardship in the past year because of medical debt.
Sharon Epperson joins us with how Americans are tackling this debt burden if they are at all.
I mean, they`re using this debt to pay off medical bills now, aren`t they?
SHARON EPPERSON, NIGHTLY BUSINESS REPORT SENIOR PERSONAL FINANCE CORRESPONDENT: That`s absolutely right. They`re paying with plastic. And a new survey by CompareCards.com found that 33 percent of card holders are in credit card debt because of medical bills. About 60 percent of those surveyed used the credit card because they had no other way to pay. And 15 percent owe between $1,000 and $5,000 in medical debt on that credit card.
HERERA: And that has to have a ripple effect in other parts of their lives, right?
EPPERSON: It`s impacting what they can do in terms of other types of spending, like trying to buy a home. Zillow came up with a survey. They looked at 13,000 people they interviewed for this survey and they found that home buyers are — who owe money for their health care expenses are more likely to be turned down for a mortgage.
Lenders realize there are risks, because 44 percent of these home owners that had medical debt admit that a $1,000 unexpected expense, they couldn`t handle it.
GRIFFETH: So, how do they avoid this medical debt?
EPPERSON: Before you get into it, it`s important to have a conversation with the provider. You can try to negotiate what that price is going to be and see if you can come up with a payment plan where you can have affordable monthly payments. A lot of people don`t think to ask their doctor before they go in and have an elective procedure. But this is the time to do it.
If you do it end up putting it on your credit card, transfer from that high interest rate card to a zero percent card at least temporarily, you`ll get that break. Make sure to pay it off before that rate goes back up.
And higher medical billing advocate, it is so difficult having gone through it, to understand all of these medical bills and the expenses tied to them. Having someone who has done it before, help you walk through it. It can help a lot.
HERERA: I bet.
GRIFFETH: Sharon Epperson, as always. Thank you. Great advice.
EPPERSON: My pleasure.
HERERA: And finally tonight, auctions for the ages. The bat that Babe Ruth used to hit his 500 career home run was auctioned off over the weekend for more than $1 million. The bat which Ruth`s autograph was given to a friend named Jim Rice, who`s then mayor of Suffern, New York. Ruth was the first Major League player to hit 500 homers.
And a separate auction saw a pair of John Lennon`s sunglasses sell for about $183,000. It was put up for auction by the late musician`s former chauffeur. It is unclear, though, who won that auction.
GRIFFETH: Before we go, one more look at the day on Wall Street. Another record day, records all the way around with the Dow up 100 points to 28,235. The Nasdaq was up 79, and S&P 500 added 22.
So, Santa Claus, the rally —
HERERA: Is coming to town.
GRIFFETH: — is under way right now.
HERERA: That is NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks so much for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.
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