Transcript: Nightly Business Report – November 9, 2016

NBR-ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

(BEGIN VIDEO CLIP)

DONALD TRUMP (R), PRESIDENT-ELECT: I pledge to every citizen of our land that I will be president for all Americans, and this is so important                                                                       to me.

(APPLAUSE)

HILLARY CLINTON (D), FORMER PRESIDENTIAL CANDIDATE: We must accept this result, and then look to the future. Donald Trump is going to be our president. We owe him an open mind and the chance to lead.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We’re not Democrats first, we’re not Republicans first. We are Americans first.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The animosity seems to have abated for now. And the markets like the conciliatory tone, sending stocks to near record levels.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: But what’s next? From stocks to big pharma to infrastructure and the American economy, how might the new administration impact your money?

HERERA: This is a special edition of NIGHTLY BUSINESS REPORT for Wednesday, November 9th.

MATHISEN: Good evening, everyone, and welcome to the day after.

America has spoken, as it has in its peaceful solemn way, every four years since 1789. Yesterday, the country chose businessman Donald Trump to be its 45th president. To many, including most pollsters and pundits, the result was a shocker.

To many investors, what happened today was almost equally unexpected. Stocks rose, and not just a little. A lot. Bond yields spiked, crude oil jumped, a major dollar index fell but rebounded to trade higher. Safe haven gold was initially bid up 5 percent but ended basically flat.

So many of the confident assumptions, a Clinton win, a violent market selloff if she didn’t, were turned on their heads.

Not that it was all smooth-sailing. Asian markets did sell off and at one point overnight, U.S. stock futures signaled an 800-point Dow dive at the morning open. It didn’t happen. By the close, the Dow Jones Industrial Average rose 257 points to 18,589. The NASDAQ added 57. And the S&P 500 was up 23.

HERERA: The pharma sector was one of the top performers today. That’s because Donald Trump’s victory eased concerns about potential action on drug pricing and taxes. Pfizer and Merck both rose sharply in today’s session.

Meg Terrill has more on what’s ahead for that industry.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Republican sweep of the presidency, House and Senate, alleviates investor concerns over increased regulation of drug prices an issue that dogged the industry for the past few years, increasingly into election day.

Stocks including Ariad Pharmaceuticals soared today. It had been in the crosshairs of Senator Bernie Sanders over pricing of its leukemia drugs. A majority of investors now expect no major drug price reform in the new Congress, according to a survey done by Evercore ISI.

And the relief not just on the federal level. A key ballot initiative in California focusing on drug prices called Prop 61 also appears to have been defeated, called the California Drug Price Relief Act, it attempted to match discounts on drugs for California’s state agencies to what the federal Department of Veteran Affairs received. But the drug industry and others opposed to the bill outspent supporters by about 7-1.

The other issue drug industry investors are focused on is tax reform. The industry has been swept in the series of so-called “inversion deals”, where American acquirers seek targets overseas to lower their corporate tax rates. Some have been successful, like Mylan’s deal to move to the Netherlands. While others were quashed by government intervention — most recently, Pfizer’s attempt on Allergan.

Under the new administration, investors expect not only a potential lowering of the U.S. corporate tax rate but a potential tax holiday, as well, where companies could bring overseas cash back into the U.S. at a lower rate than what they would normally pay.

This, a potential boon to companies like Amgen, which holds $34 billion outside the U.S., Gilead with $25 billion, and Merck with $21 billion, according to Evercore ISI.

But it’s not all smooth-sailing. Donald Trump has also said he would repeal the Affordable Care Act, which could create a lot of uncertainty for the future of health care in America.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

HERERA: And a bit later in our program, we’ll take a closer look at what might happen next to the Affordable Care Act.

MATHISEN: Dow component Caterpillar along with other industrial stocks also performed well today on Trump’s pledge to invest heavily in bridges, roads, tunnels and other infrastructure.

Morgan Brennan has more.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s not just a deeply divided populace that the new commander-in-chief will have to repair. Infrastructure is on the agenda, as well. In his early morning victory speech, President-elect Donald Trump vowing to make it a priority.

TRUMP: We are going to fix our inner cities, and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.

BRENNAN: It’s no secret America’s infrastructure is crumbling. The American Society of Civil Engineers has estimated the backlog of projects could cost more than $3.5 trillion by 2020. Trump’s potential plan could dedicate up to $1 trillion to new projects, partly funded by revenue from a one-time tax holiday for corporate profit brought home from overseas. If passed, experts say it would amount to fiscal stimulus, which could bolster economic growth and the industrial stocks that stand to gain.

DAN CLIFTON, STRATEGAS RESEARCH PARTNERS: Policymakers are looking for ways to stimulate the economy. Donald Trump has a two-part plan. One which involves corporate tax reform, the second which involves increased infrastructure spending, and so you’re starting to see a broad rally in infrastructure stocks that will benefit from additional spending in that category.

BRENNAN: In trading today, shares of Martin Marietta and Vulcan which makes cement and other construction materials jumped. And Caterpillar led the Dow higher, as investors anticipate demand for bulldozers and other heavy machines will now increase.

Wells Fargo analyst Justin Ward says equipment rentals companies like United Rentals and engineering firms like Aecom could enjoy a significant tailwind. Steel makers like U.S. Steel and Nucor could be winners as well since Trump promised to build with, quote, “American steel made by American workers.”

The prospect of better infrastructure could also benefit transportation carriers, like railroads and truckers, which would not only reap the benefits of better roads, tracks and bridges, but be needed to haul the goods to make all of it happen.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

HERERA: And defense stocks also got a lift on Trump’s election victory and the Republican sweep of Congress. Trump has pledged to increase military spending which sent shares of Lockheed Martin, Northrop Grumman and General Dynamics sharply higher.

MATHISEN: The energy sector could also be in for some changes under a Trump administration.

Jackie DeAngelis breaks down what investors should expect.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Candidate Trump supported relaxing energy industry regulations. If President Trump can achieve those goals, that would benefit the drillers, the frackers and the infrastructure companies. But it can also increase supply, at a time when there is already a worldwide supply glut.

ANTHONY GRISANTI, GRZ ENERGY: Trump will open up the oil markets and make it more advantageous for exploration and production. The markets will regulate themselves. In other words, if there is too much oil on the market, and it’s not profitable for them to produce, then those wells will stay shut. And if it is, they’ll come online.

DEANGELIS: Infrastructure projects are also in focus, especially pipelines to move oil around. Not only will the projects create jobs, but they’ll continue to build out the domestic transport network we need to get oil where it needs to go.

On coal, Trump won’t expand the industry, but he won’t make moves to tamp down on it too quickly. The goal would be to keep coal companies and workers in business. Alternative energy was an area expected to thrive under Hillary Clinton. It may not see exponential growth under Trump, but analysts are not expecting alternative energy companies to suffer dramatically, either.

GRISANTI: The problem that we had before was there was a jump to green when it was not economically feasible for many companies to be able to do that. Fossil fuels are what we use right now. The world does want to go to green but it’s going to be a slow process, not something that we could force on companies.

DEANGELIS: Meantime, experts say that none of these changes will be made overnight. It’s going to take some time to approve and implement them. And when it comes to the energy industry, slow and steady wins the race.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: So what might a Trump presidency mean for the financial markets and your money?

Mohamed El-Erian is the chief economic adviser at Allianz and he joins us now to talk about that.

Always good to see you, Mohamed. Nice to have you here.

MOHAMED EL-ERIAN, ALLIANZ CHIEF ECONOMIC ADVISER: Thank you, Sue. Thank you very much.

HERERA: Let’s start first of all with your reaction to the whipsaw that we saw in this market between the 800 points to the down side in the futures markets last night and then a rally to within I think 47 points of a record high?

EL-ERIAN: Absolutely remarkable. And like Tyler, I was up when the change started to happen. It reflected two things: content and tone. On the tone, the president-elect’s speech was conciliatory, was inclusive, was unifying and got reinforced during the day from what we heard from President Obama, from Secretary Hillary Clinton and from others.

On the content, he stressed pro-growth components — infrastructure, deregulation, and corporate tax reform. He did not go to the anti-growth elements, which is protectionism.

So, put nice tone, nice content, and you got an amazing reversal.

MATHISEN: What I found today, Mohamed, very interesting, was two things, actually, over the last two days. Nothing that we thought or that the supposedly smart people thought was going to happen. The pollsters, the pundits, investors did happen. Everybody said if Trump wins, the market is going to sell off. It didn’t.

What is an investor to do when what they think is going to happen just turns out to be dead wrong?

EL-ERIAN: And that’s a big question mark about so-called expert opinion. And it reflects I think a misunderstanding of the politics of anger. The fact that when you run sophisticated market economies at low growth for a long time, and when the benefits of growth go to very few people, the reaction of that is to get improbables that become realities. We saw it with Brexit. We are seeing it with this election. We’re seeing it with negative interest rates. I can cite you a whole list of things.

So I don’t think we don’t quite yet understand fully the politics of anger and what that produces. In terms of market reaction, I think we also underestimate how much money there still is on the sideline, willing to come in, because we have been conditioned to buy on the dips. And you saw that happen again. And it’s been something we have been conditioned to do for four to five years now.

HERERA: You know, Mohamed, the old saying is that the market likes gridlock and we don’t have that now. So, how do you view the market going forward, given the change in dynamic in Washington?

EL-ERIAN: I think we come to an inflexion point. The road we have been on, which is low but stable growth, and central banks able to repress volatility. That road is coming to an end. If only because the politics is proving to be really messy. People want more than that.

If the political class responds and if we get pro-growth measures, then we can transition to higher growth, more inclusive growth and genuine final stability. But if we go back to gridlock and no political action, then low growth will become recession, and artificial financial stability will become unsettling financial instability.

I really do believe that over the next two years, we’re going to come to that very critical T junction. And we’re going to flip one way or the other.

MATHISEN: I think this is the critical point you’re making, Mohamed, and it’s about growth and low income, low or zero income growth, and the fact that what growth there has been and what income growth there has been has been at one end of the spectrum. It is destabilizing.

Are you optimistic about growth under a Trump administration? And secondly, very briefly, if you wouldn’t mind — what about bonds today? They spiked. The yields did.

EL-ERIAN: So, bonds moved massively, 20 basis points, and what they’re telling you is the market is expecting higher growth, and higher inflation, right? So, the markets responding to two things.

Look, it’s feasible. This has never been an engineering problem. We know — the economists know pretty well what we need to generate growth. It’s always been a political issue. So, if you are more optimistic on the politics, which some are, I’m yet to be totally convinced but some are.

HERERA: Right.

EL-ERIAN: If you’re more optimistic on the politics, then you get more optimistic on growth.

HERERA: Mohamed, thank you so much. Appreciate it.

EL-ERIAN: Thank you.

HERERA: Mohamed El-Erian with Allianz.

MATHISEN: And still ahead, how the relationship between the world’s two largest economies may change under a Trump administration.

(MUSIC)

HERERA: China’s president called Donald Trump to congratulate him on winning the U.S. presidency. The relationship between the world’s two largest economies is not only important but also very complex.

Eunice Yoon reports tonight from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Investors in Asia are worried about a rise in U.S. protectionism and greater uncertainty. That uncertainty played itself out in the markets today, tanking the Nikkei by 5 percent.

Now once the dust settled and the reality sank in that Trump had won, the Japanese Prime Minister Shinzo Abe contacted Donald Trump to congratulate him, also the Chinese President Xi Jinping called Donald Trump to say congratulations and also to say that he hopes that U.S./China relations would be stable.

Now, the message of the Chinese president is telling, because if you believe the rhetoric around Trump’s campaign, when it comes to China, you would think that Trump wants anything but that. Trump has called China a currency manipulator, a cheater, that steals American jobs. He’s also threatened to slap China with 45 percent tariffs on Chinese imports.

Now, if those policies do go through, China could face a great disruption to its relationship with a very important trading partner.

On the security front, though, a different story. Beijing could welcome a Trump presidency, because Trump’s approach is isolationist. And under President Obama, and his pivot to Asia, the U.S. has been increasing its presence in the region, economically, with a TPP, and strategically with greater patrols in the South China Sea.

But every indication has been that a President Trump would want the U.S. to withdraw from the region, and that could leave a void for China to more freely pursue its own economic and strategic goals for Asia.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon, in Beijing.

(END VIDEOTAPE)

MATHISEN: But it’s not just the Trans Pacific Partnership trade agreement that is being questioned. President-elect Trump has also promised to look at NAFTA, and has suggested tariffs on Chinese and Mexican goods.

Seema Mody here to talk Trump, trade and tariffs.

What exactly, Seema, has Mr. Trump proposed to do?

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, if he were — wants to get rid of TPP, President-elect Donald Trump, it would be seen as a big win for China, because it could likely redefine Washington’s relationship with many of its allies in Asia. And potentially, bring Japan and South Korea closer to China. So overall, big win for China, and elevates their economic —

MATHISEN: China would fill the vacuum, basically.

MODY: Yes, exactly.

HERERA: What companies are going to be watching this closely? We saw a big rally in Caterpillar, for instance, today.

MODY: Yes, absolutely. I think it’s those multinational companies, specifically in technology actually that are so reliant on business overseas and the favorable trade agreements that could potentially be heard by any of these trade agreements that are taken off the table.

Walmart in the retail space, another company to keep an eye on. They import about $50 billion of goods from China every year. So any type of added tariff could likely impact the company’s bottom line.

MATHISEN: How could some of these suggested policies affect the U.S. economy? Some people worry that it could throw the U.S. economy into a recession.

MODY: It really depends on what Trump’s economic policies are at the end of the day. But when it comes to trade, Moody says that that added tariff of 45 percent on Chinese goods could result in millions of Americans losing their jobs. U.S. economy could potentially shrink by 2019. At the heart of the debate is trade and impact on America.

MATHISEN: Seema, thank you.

MODY: Thank you.

HERERA: Well, shares of two private prison stocks soar following Hillary Clinton’s loss. And that’s where we begin tonight’s “Market Focus”.

Investors of Geo Group and Corrections Corporation had a sense of renewed optimism regarding the future of the industry following the results of last night’s election. Earlier this year, the Department of Justice said it would phase out its use of private prisons and Clinton was expected to adhere to that decision if she had become president.

Trump, on the other hand, has expressed interest in keeping private prisons. Geo shares were up 21 percent to $28.96, while Corrections Corp was up 43 percent to $20.31.

AT&T’s proposed $85 billion acquisition of Time Warner was called into question today following Donald Trump’s presidential victory. Mr. Trump has been an outspoken critic of that merger, saying he would not approve the deal if he became president, because the combination would result in too much concentration of power in the hands of too few. AT&T was up a percent to $37.44, but Time Warner fell nearly 1.5 percent to $86.60.

Norwegian Cruise Lines saw sales and profits rise as that company benefited from a larger inventory of ships and higher onboard spending. Earnings beat expectations while revenue was roughly in line with estimates. But the company did say it would lower the high end of its full year earnings guidance due to currency headwinds. Norwegian dropped 9 percent to $35.53.

MATHISEN: General Motors said it would lay off 2,000 employees and cut production shifts as the company responds to slowing sales of its Chevy and Cadillac cars. The job cuts were expected to happen early next year. GM shares off about 2.5 percent on this up day at $30.96.

The drug maker Mylan said strength in its foreign markets helped quarterly results when the company posted earnings and revenue that missed estimates. Shares initially fell slightly in after hours, but ended the regular session up nearly 5 percent at $38.92.

HERERA: One sector that did not do well today, the hospital stocks. Tenet and Community Health Systems fell more than 20 percent. Universal Health and Health South also dropped. And the concern is that the new Republican government will repeal the Affordable Care Act, which means that fewer people will likely be admitted to hospitals.

MATHISEN: But will lawmakers and president-elect Donald Trump work together to keep the affordable care act, or, as many have promised, could we see the end of the health care law under a President Trump presidency?

Craig Garthwaite at Northwestern University’s Kellogg school of management and he joins us now.

Craig, good to have you back.

What could Mr. Trump do as he has promised on day one to cripple or gut the ACA?

CRAIG GARTHWAITE, NORTHWESTERN UNIVERSITY’S KELLOGG SCHOOL OF MGMT: On day one on his own, he has a decent amount of executive power with a set of subsidies at fairly low income people getting their insurance through the ACA marketplaces. Those are currently funded by an executive order because Congress didn’t fund them in the ACA and he could remove those by executive order and that would really make it hard for these low-income individuals to buy insurance and can set sort of an avalanche of risk within the — within the ACA marketplaces.

HERERA: So if he does indeed do that, what — where does that put the system? Do we go back to the old system?

GARTHWAITE: I mean, it’s really — we’re not exactly sure where we would go. Just that wouldn’t take us back to the old system. He can then through a process of reconciliation in the Senate which would require 50 votes, remove the subsidies and allow middle class people to buy insurance and remove the Medicaid expansion, the states that have passed it. We can do that with only 50 votes. There is no way to filibuster that.

If he did that in terms of the insurance expansion part of the ACA, we sort of ended most of the gain we have. That gain that’s taken us to the lowest rate of un-insurance in the history of our country.

MATHISEN: So, it’s really the targeting of the subsidies is where is the — is the beating heart of the ACA. Do I have that right, Craig?

GARTHWAITE: Yes. It’s both the beating heart and the only thing you can really touch with less than 60 votes in the Senate. I think it’s clear, Democrats filibuster any actual repeal of the entire legislation and so they’re left trying to take things away that have a budgetary focus and that’s going to be the subsidies, it’s going to be the Medicaid expansion, and that leaves us sort of holding one half of what Trump has promised to do on day one, which was to repeal and replace the ACA.

And in replacement is really going to require some cooperation with Democrats. Now, I just don’t right now see with the rhetoric that’s happening we’re going to see that type of cooperation for some type of replace mode.

HERERA: Yes, I was just going to ask you, what role will Congress have in all of this? And do we focus on, you know, what might happen or what could happen? You know? How do you view the argument?

GARTHWAITE: Yes, I mean, I think right now, we have to focus on what could happen. We have never had a president in modern history that’s been elected with such little information about what he’s actually going to do in a policy sense. So, we can focus on what could happen. What is for certain when it comes to Congress that there are a set of powerful interests in the form of hospitals, insurers and pharmaceutical companies that you should — taking big hits because of this worry, and they’re going to activate their lobbying and their political power to try and preserve the important parts of the ACA in terms of insurance expansion.

So, I don’t think it’s a done deal, right? I think that, you know, if you were to remove the Medicaid expansion, you’re going to be taking insurance away from millions of people across the country. And that’s not going to be politically popular regardless of what party you’re in.

MATHISEN: And as you point out, it may not be politically popular with drug makers or hospitals particularly, and maybe even with some drugmakers.

Thank you very much, Craig. Appreciate it.

GARTHWAITE: Thanks for having me.

MATHISEN: Craig Garthwaite is with Northwestern University’s Kellogg School of Management.

HERERA: Coming up, why Donald Trump will be the most conflicted president in American history.

(MUSIC)

MATHISEN: Donald Trump is not only our president-elect, but also businessman, of course, in control of a multibillion dollar empire with operations around the world.

Robert Frank reports on the potential conflicts of interest facing the next president.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Donald Trump will be the richest man ever to be president of the United States. There is no law preventing the president from owning or running a company from the Oval Office while ethics rules impose limitations on cabinet members and officials in Congress, the president is exempt. So legally, Donald Trump and his family would be allowed to move the headquarters of the Trump organization, his private company, to the White House.

While the issue garnered little attention during the campaign, Mr. Trump has said he would consider putting the company into a blind trust, and handing it off to his children. But any blind trust would be impractical, since by nature he knows what assets and interests are actually in the company. People close to the Trump family tell me that he plans to hand control of the Trump Organization to his children with Ivanka running the hotel group, Eric running the winery and golf properties, and Donald Jr. running the real estate developments.

The big question is whether they will expand the company without inviting the appearance or benefitting from access to the president. Mr. Trump’s businesses are valued at up to $3 billion with 17 golf properties, over a dozen hotels, and more than 20 Trump branded residential buildings.

His interests span the globe from South Korea to India, Azerbaijan, Dubai, Scotland and Brazil. At a Republican debate this summer, Mr. Trump said, quote, “If I became president, I wouldn’t care less about the company. It’s peanuts.”

That, of course, compared to being CEO of the United States.

For NIGHTLY BUSINESS REPORT, I’m Robert Frank, New York.

(END VIDEOTAPE)

HERERA: And before we go, here’s another look at the post-Election Day on Wall Street. The Dow rose 257 points to close just shy of a record. The NASDAQ added 57. And the S&P 500 was up 23.

it sure didn’t feel that way about 11:00 last night.

HERERA: No, it did not. We were all on our devices, contacting sources. It was a dicey night for the market.

That’s it for NIGHTLY BUSINESS REPORT tonight. I’m Susie Herera. Thanks for watching.

MATHISEN: And thanks from me, as well. I’m Tyler Mathisen. Have a great evening, everyone. Get some sleep, everyone.

HERERA: Get some sleep.

MATHISEN: We’ll 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 CQRC Transcriptions, 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) 2016 CNBC, Inc.

 

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