ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Record finish. The market closes at all-time highs. With the S&P 500 breaking through 3,200 for the first time ever, as the year-end rally rolls on.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Just do it. Nike (NYSE:NKE) tops profit and revenue estimates but sales in the biggest markets slow down.
HERERA: Picking up speed. Used cars are in demand and auto dealers are cashing in.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Thursday, December 19th.
GRIFFETH: And we do bid you a good evening, everybody, and welcome.
The Santa Claus rally, it continued on Wall Street today. The market`s major indexes all closed in record territory again. There was more progress on trade when the House passed the NAFTA agreement and the Senate passed the massive spending bills to keep the government running next year. And we`ll have much more about all of that in just a moment.
In the meantime, consumer staples and technology stocks led today`s rally as the Nasdaq recorded its seventh day of gains and the S&P surpassed a key level. The Dow itself finished today up 137 points now to 28,376. The Nasdaq rose by 59. The S&P, now as Sue mentioned, above 3,200. It added 14 today.
HERERA: Dow component Nike (NYSE:NKE) reported better than expected quarterly revenue and profit but sales in its key North American market slipped. That`s because the world`s largest footwear maker has been facing increased competition from the likes of Adidas, Vans and Skechers, even as it has spent more on sneaker launches and celebrity endorsements. The company also said that tariffs weighed on its gross margins during the quarter. That news created volatility in the stock price in after-hours trading.
GRIFFETH: But China does remain a key market for Nike (NYSE:NKE). Doing business in the country was a little tricky during the height of the China trade war. But Nike (NYSE:NKE) and a few other companies were able to figure out how to grow their operations there despite all of the tensions.
Seema Mody shows us how they did it.
SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Trade tensions and a slowing economy have made China a challenging country to operate in this year, despite these headwinds, a number of consumer companies have been able to grow sales in the country, including Nike (NYSE:NKE) which has seen its revenue from China grow steadily over the past five years.
It`s not just Nike (NYSE:NKE). Analyst point to Starbucks (NASDAQ:SBUX), Proctor & Gamble, Marriott, luxury retailers like LVMH and Hermes.
What these companies have in common is a laser focus on the aspirational Chinese consumer that has an affinity to its Western brands. Plus, they`ve been expanding their retail operations as a way to strengthen their brand name in the country. Starbucks (NASDAQ:SBUX) currently has 4,100 stores in 168 cities across the mainland and is planning to increase its footprint to 6,000 by 2022. Gucci and LVMH are using a similar strategy.
Even though China`s economy is set to cool down next year, Marriott and Hilton and Hyatt are aggressively expanding number of hotels. For now, these multinationals are betting that a combination of bigger investments, key partnerships with local players will win over the Chinese consumer. Experts say it appears to be working. But strategists warn that increasing their exposure to China could also make them more vulnerable to the ongoing U.S.-China trade tensions.
For NIGHTLY BUSINESS REPORT, Seema Mody.
HERERA: The Senate today passed two funding bills needed to avert a government shutdown. As we reported, the House has already approved the $1.4 trillion appropriations package which increased spending for both military and domestic programs. It also eliminates a number of health care industry taxes and raises tobacco buying age to 21. That bill now goes to President Trump for his signature.
GRIFFETH: And just one day after that partisan vote to impeach President Trump last night, there was a bipartisan moment in the House today. Lawmakers overwhelmingly backed the new trade agreement with Canada and Mexico. Of course, that`s the president`s signature deal to replace NAFTA.
Kayla Tausche reports tonight on that from Washington.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: A holiday gift from House Democrats to the White House.
UNIDENTIFIED MALE: The yeas are 385 and nays are 41. The bill has passed.
TAUSCHE: Approving President Trump`s USMCA deal with broad bipartisan support, in stark contrast to the bitter politics of impeachment. After two years of closed door talks and press conferences and signings with Mexico and Canada, the Trump administration and House Democrats spent months ironing out their own compromising. The results: higher wages for Mexican workers that Democrats say will dissuade companies from outsourcing, stricter rules for manufacturers to export products duty free.
The Congressional Budget Office says more companies will opt to pay the tariffs than make more goods in North America, estimating the U.S. will get $3 billion in tariff revenue as a result.
One Rust Belt lawmaker says there will be unintended consequences.
SEN. PAT TOOMEY (R), PENNSYLVANIA: The really detrimental aspects are concentrated in the auto sector. The expiration date is a problem. But I think the net effect is, you know, a little bit of lost growth, marginal.
TAUSCHE: The International Trade Commission estimates the deal would grow the economy a third of one percent once it`s implemented.
Treasury Secretary Steven Mnuchin says it should be higher.
STEVEN MNUCHIN, TREASURY SECRETARY: We`re getting in excess of 50 basis points of additional growth in GDP as a result of the agreement. People who say this is just NAFTA 2.0 just don`t understand the technicalities of this agreement. This is a whole new agreement that really brings the trading relationship into the modern era.
TAUSCHE: Mnuchin says the pact will set a precedent for every trade deal the U.S. does from here, including with China. But first, the Senate must pass it. That`s expected to happen early next year.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche on Capitol Hill.
HERERA: Investors are the most optimistic they`ve been all year. According to the latest survey from AAII, a growing number of investors expect stock prices to rise over the next six months while bearish sentiment fell to below its historical average. The survey attributes the upbeat outlook to the partial trade agreement with China.
GRIFFETH: And that increase in optimism seems to be helping the holiday shopping season.
As Steve Liesman reports, consumers are opening their wallets.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The American attitudes toward the economy taking a turn upward. Views on the economy improving. You can see the percentage saying that it`s fair or come down by five points and a 5-point increase in those gauging the economy as good or excellent. Eight hundred Americans polled around the country.
So, that`s the assessment of the current state. The expectations for the economy are also improving. Let`s start over here. Percentage saying it`s getting worse or staying the same, oh, within the margin of error, call it, but a pretty noticeable improvement in those saying the economy, in fact, will improve.
Why is that? Well, we dug deeper in the survey. Fifty percent of respondents saying they expect their home price to increase. That`s six points better than the September swoon that we saw in the data. Forty-nine percent saying the take home pay will go up. That`s 13 points better. That`s one of the highest ones we`ve seen, by the way, since before the Great Recession.
And all of that, part of the underlying sense of the stock market attitudes also going up, percentage saying it`s a good time to invest, 66 among the financial elite. Those are $50,000 or more in stocks, 45 percent among the public as a whole.
I will caution you or maybe I will advise you, each one of these peaks coincides with a peak in the stock market. This may be an excellent contrarian indicator.
So, anyway, put it all together, better prospect on the economy, better prospect for jobs. Home prices upbeat views on the stock market and then ask about spending, 20 percent say they will spend more, 51 percent about the same, 27 percent will say they`ll spend less. This may not look like much this 20 percent number here. But it is the highest we have had in the 13 years of the survey. And it`s why we`re over $900 in estimated spending per individual for the third time.
Back to you, guys.
HERERA: Steve Liesman.
Joining us to talk more about the economy, the Fed and financial markets is Roger Ferguson. He is the former Federal Reserve vice chair and currently president and CEO at TIAA.
Welcome. Nice to have you with us tonight.
ROGER FERGUSON, FORMER FEDERAL RESERVE VICE CHAIRMAN: Thank you very much, Sue. A pleasure to be here.
HERERA: That was a very positive survey that Steve Liesman just laid out. Give us your overall view of how you see the economy and the markets.
FERGUSON: So, I saw 2019 as a year in which the economy slowed. As you have pointed out, the markets tended to rally and do better than many of us thought. There is a risk that 2020 might turn slightly a different direction. So, the optimism Steve talked about may hold up for the economy itself where perhaps growth starts to pick up in the U.S. and maybe other parts of the world, as uncertainty recedes around the trade issue.
On the other hand the climb may be harder for the markets because they`ve been rallying so much for a long period of time. Don`t expect necessarily a dramatic drop off. But I would say this is a time maybe to expect that the — the increase in stock valuations may slow a bit from the pace we had in 2019.
GRIFFETH: I think it`s pretty safe to say right now, interest rates aren`t going anywhere in 2020 for the foreseeable future. After the last week`s meeting, Jerome Powell made it clear they don`t plant to do anything through the summertime of next year.
But do you worry? You know, going back to the days as vice chair of the Fed, do you worry that these prolonged periods of low interest rates while they`re good for borrowers, they`re not good for savers.
You are head of TIAA now, the retirement services industry. People at the — you know, rely on retirement income sometimes have to reach for that much more risk to get the income through the door.
FERGUSON: Well, I think the answer is in these times the secret for retirement savers is to think broadly about diversification. So, you want to have a retirement saver wants exposure to the equity markets because that continued to go up. In the fixed income space, maybe thinking much more about focused on income, part of the fixed income story as opposed to expecting interest rates to change and move in positive direction. And more importantly, thinking about alternative asset classes, real estate, agriculture, timber.
So, the answer for the retirement saver in a period of low interest rates is think broad diversification. And that`s not necessarily the same thing as chasing risk. It`s really perhaps spreading out risk a bit more by thinking about different asset classes that have different cycles.
HERERA: You have also been a big supporter of what`s called the Secure Act, which Congress has prioritized. Tell us why you think that`s important as we talk about people in retirement.
FERGUSON: Well, thanks for raising it. Yes, I and my company and many have been supporters of the Secure Act. Part of the spending bill that was signed passed today by the Senate and hopefully soon signed by the president was the Secure Act. It`s really important for retirement savers, because it allows them to get an annuity in their retirement plan which then gives them the opportunity for guaranteed income for life or private pension. It makes those annuities more portable.
And importantly, it allows individuals to understand how big savings they can expect out of the nest eggs they put aside through an income illustration as it`s called. So there are a number of components about the Secure Act that I think would be very welcome for individuals and businesses who are thinking about saving successfully for retirement.
HERERA: And we will be talking much more about that with you I think in the future.
Mr. Ferguson, thanks very much for joining us.
FERGUSON: Sue, thanks so much for having me on.
GRIFFETH: Time to look at some of today`s “Downgrades and Upgrades”.
Johnson & Johnson (NYSE:JNJ) upgraded to overweight from equal weight at Barclay`s. The analyst there called the stock a good, defensive pick and it said that litigation concerns involving opioids and its talcum powder are already priced into the stock right now. Price target, $173. The stock rose 1.5 percent today to $145.35.
Barclays also upgraded Cisco (NASDAQ:CSCO) to overweight from equal weight. The analyst cited the company`s recent product announcements. Price target, $53, the shares were up about 2.5, a little more than that, to $47.88.
And Colgate-Palmolive (NYSE:CL) was downgraded today to neutral from buy at Bank of America (NYSE:BAC). The analyst cited market share losses in its toothpaste division and said that 2020 may be another year of investment for that company. Price target, $74. But despite that downgrade, the stock actually rose today to $68.34.
HERERA: Still ahead, supply is lean, demand is strong. And that means home prices are heading higher.
HERERA: Sales of previously owned homes fell more than expected in November. That`s the second drop in three months. But it wasn`t because of a lack of demand. It`s because there is just very little supply.
Diana Olick has the numbers.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: As demand for existing homes surges, the shortage is only getting worse. There were just 1.66 million homes on the market at the end of November, down 5.7 percent compared to a year ago, and the lowest on record for the month, according to the realtors.
They began tracking this in 1999. Supply is leanest on the low end where the demand is strongest. For homes priced below $100,000, inventory was down 15 percent annually. For those priced between $100,000 and $250,000, supplies were 7 percent lower annually. Supply is only growing on the high-end of the market, where demand is weakest. The housing shortage has reignited home prices which had been cooling last year and into the first months of this year.
The median price for existing home sold in November was $271,300, the highest November price reading since the realtors began tracking it.
JESSICA LAUTZ, NAR VP OF RESEARCH: The expectation is that prices continue increasing especially at the lower price line. At the high end, there is supply but there`s not many buyers at the very high end of the market.
OLICK: Demand began rising just as mortgage rates began falling. And now, rates are a full percentage point lower than they were a year ago.
Combine lower rates with a stronger job market and an aging millennial population and the result will likely be even fewer homeless for sale comes spring.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: Consumers are munching on Conagra Brands, and that`s where we begin tonight`s “Market Focus”.
With the Birds Eye and Healthy Choice topping Wall Street`s earnings and revenue estimates, thanks to increased demand in snacks and its frozen food units. Now, this is the first time that Conagra has beaten sales forecasts in the last six quarters. Shares surged nearly 16 percent as a result to $33.66.
Darden Restaurants (NYSE:DRI (NASDAQ:TBUS)), the parent company of Olive Garden, Longhorn Steakhouse and other chains, posted mixed results. They did topped earning estimates but fell short on revenue. The company however did reaffirm its full-year financial forecast for 2020. But shares still fell more than 6 percent today to $109.03.
And drug store chain Rite Aid (NYSE:RAD) reported a surprising strong profit which handily beat expectations helped by strong numbers from its prescription business. The company also says it plans to announce a strategy to revitalize its retail pharmacy. And shares rose an eye-popping 42 percent today to $11.84.
IAC Interactive is spinning off its online dating service Match Group. It will be a fully separate company next year. IAC shareholders will get shares in the new Match company. IAC expects that deal to close in the second quarter of 2020 as a matter of fact. Both IAC and Match Group rose more than 7 percent in today`s trade.
HERERA: Accenture reported better than expected quarterly results driven by the fast growing digital and cloud services unit. The consulting firm also raised the lower end of its 2020 earnings forecast. Accenture rose more than 1 percent to $208.30.
S&P global cut Boeing`s credit rating because of uncertainty over when the 737 MAX will be cleared to fly again. This comes a day after Moody`s (NYSE:MCO) also downgraded Boeing`s debt. Boeing (NYSE:BA) shares, though, were up a fraction to $333.50.
Live Nation is reportedly settling with the Justice Department over the entertainment company`s ticketing practices. Reports say Live Nation will extend the consent decree that was formed in 2010 when it merged with Ticketmaster. Terms will extend an additional five and a half years and Live Nation will not retaliate against venues which do not sign up for Ticketmaster. Live Nation shares rose about 9 percent to $69.83.
GRIFFETH: All week, we have been getting you ready for the New Year by bringing back some familiar market monitor guests. And tonight`s guest has three small cap names that he says you may not know about but could prove to be timely investments. Now, the last time he was on as a market monitor guest back in February of 2017, he recommended these three companies: Tower Semiconductor (NASDAQ:TSEM), which has risen 11 percent in the time, Knight Swift Transportation, up 12 percent, Kansas City Southern (NYSE:SO) (NYSE:KSU), up 78 percent since that time.
Eric Marshall is back with us tonight, though, as the market monitor. He is a portfolio manager at Hodges Capital.
Eric, good to see you again. Welcome back.
ERIC MARSHALL, HODGES CAPITAL PORTFOLIO MANAGER: It`s good to be here, Bill.
GRIFFETH: And we start an old name in iron ore, Cleveland-Cliffs goes back to the 1800s here in the United States. It`s had a very volatile history of various names. It`s a small cap now but it was ten times this size a decade ago.
Why do you like this right now?
MARSHALL: Well, we think this is an interesting situation. The company has really turned itself around over the last three or four years. They have reinvested heavily back into the business. And we see profitability benefitting from that over the next couple years.
They also just announced a deal to acquire AK Steel, which we think will be a great complementary fit and create additional profits and we think the stock should be rewarded over the next year because of that.
HERERA: Tower Semiconductor (NASDAQ:TSEM) is second on the list. Why did you pick this one?
MARSHALL: Well, this is a company that we think has become very timely again. They are a semiconductor foundry really leveraged to the build out of 5G wireless. They make semiconductors that are used in a lot of the equipment that`s used to facilitate 5G.
And we think that they`re at the very beginning of a new growth cycle. We like the valuation there. And we see substantial upside over the next year in that stock.
GRIFFETH: Yeti just came public last year. It`s had a pretty good year so far, makes those innovative cups that keep things cold and so forth. Why do you like this one?
MARSHALL: Yes, this is a consumer product company that really has some dynamic growth that we think is still ahead of it. And the valuation on it looks relatively compelling here to us. And it`s one that is still very much under-owned and still flying underneath the radar. And that`s one that we think will be a great consumer pick for us in 2020.
GRIFFETH: All right. Let`s see what happens. Eric, good to see you again, thank you. Eric Marshall with Hodges Capital tonight.
And coming up, secondhand shift. As new car sales slow, used car sales are revving up.
GRIFFETH: General Motors (NYSE:GM) is recalling more than 814,000 pickup trucks and cars in the U.S. They are trying to fix problems with brake controls and battery cables. The recall affects Cadillac CT6 sedans, Chevy Silverado and GMC Sierra pickup trucks. There have been no documented crashes or injuries though.
HERERA: If you recently bought a used car or truck, you`re not alone. In fact, the U.S. is on pace to have a record number of pre-owned vehicles sold in one year. And that has made 2019 a blockbuster year for many of the publicly traded auto dealership chains.
Phil LeBeau has more.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Talk about blowout sales. Americans are buying used cars at a record pace. In fact, for the fourth straight year, pre-owned sales are climbing to an all-time high, topping more than 40 million vehicles.
Why are so many people buying used cars? Well for starters, the strong economy and low unemployment means more people need a way to get around, or at least a different model. Meanwhile, new vehicle prices have surged to a record high, averaging more than $37,000, making a used car far more affordable and far more attractive.
JESSICA CALDWELL, EDMUNDS: So I think for a lot of savvy shoppers, they are going to the used car market. They`re looking for a low mileage good deal. And there are a lot of those to be had.
LEBEAU: Increasingly, auto dealers are buying three and four-year-old model just traded in because the lease was up. And those relatively new models are in demand.
CALDWELL: So the vehicles with are well-contented. If we wind back the clock three years, those vehicles had a lot of the same amenities we see today. We haven`t had a quantum leap in amenities in the past three years. So, tor a lot of car shoppers, that`s good enough.
LEBEAU: In short, the used business has been a great business for dealers. As profits have surged, so have shares of publicly traded dealership stocks. Lithia and Sonic (NASDAQ:SONC) Automotive (NYSE:SAH) are both up more than 120 percent this year. While online used car retailer Carvana is up more than 200 percent.
Because people are looking to buy used cars, prices have gone up. On average, a pre-owned model goes for $20,000, pricier than a few years ago but low enough to attract buyers.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
GRIFFETH: And finally tonight, from cars to movies. It could be another big weekend at the box office as the ninth and final film in the latest “Star Wars” saga hits theaters tonight. And this one has Hollywood Boulevard buzzing.
Julia Boorstin is at the iconic El Capitan Theater in Hollywood.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: “Star Wars: The Rise of Skywalker” opens around the world this weekend, the finale of the nine-film “Star Wars” saga. It`s expected to bring in about $200 million in ticket sales at the North American box office this weekend. That would be the second biggest of the year and the seventh biggest of all-time, but still behind the prior two “Star Wars” films openings.
The last two films had rave reviews. “The Rise of Skywalker” has just a 56 positive rating on Rotten Tomatoes.
NIKKI NOVAK, FANDANGO CORRESPONDENT: I think in terms of this holiday, it just seems like one of the movies that`s going to have legs over the season, where it might not have the same opening as “The Force Awakens”, but I think it`s going to be one of those that people are going to be talking about. I think the fans will really like it and people are going to see it several times.
BOORSTIN: “Star Wars” fans showing up in droves for the film`s debut. This is one of 21 theaters around the country hosting overnight nine-film movie marathons, ahead of “The Rise of Skywalker” showing tonight.
The 500 tickets for this movie marathon at $125 apiece sold out within minutes. There is a lot of excitement for “The Rise of Skywalker” because Disney (NYSE:DIS) won`t be putting another “Star Wars” movie in theaters for another three years.
But the media giant still has a lot riding on the franchise both as theme parks and at its streaming service.
Disney (NYSE:DIS) spent over a billion dollars on each of its “Star Wars” lands, in Orlando and Anaheim, which opened earlier this year with slower than expected launches.
In “Star Wars” spinoff, “The Mandalorian”, is the flagship show of streaming service Disney (NYSE:DIS) Plus. And it has several other live action and animated series in the works.
But regardless of how “The Rise of Skywalker” performs, Disney (NYSE:DIS) has dominated the box office this year, with about one-third of studio market share, setting it up for some tough comparisons next year when it doesn`t have a “Star Wars” or “Avengers” film.
NOVAK: It`s going to be interesting to see how they do, because the past year, we have seen a lot of franchise movies that we`ve come to rely on, and they are sort of breaking around next year.
BOORSTIN: Next year, Disney (NYSE:DIS) is betting on Marvel`s “Black Widow” and live action “Mulan” and “Jungle Crews” movies, as it enters a galaxy beyond “Star Wars”.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
HERERA: Before we go, let`s take a final look at the record day on Wall Street. The Dow gained 137 pinpoints, the Nasdaq rose 59 and the S&P 500 added 14.
And that is NIGHTLY BUSINESS REPORT for 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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