TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Tax talk. Reports of progress on tax reform helped lift the stock market today. But are some of your favorite deductions now on the table?
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Hefty verdict. Johnson and Johnson ordered to pay a record amount in a baby powder case. What shareholders need to know.
MATHISEN: Shifting gears. Why automakers are charged up to sell cars that plug in.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, August 22nd.
HERERA: Good evening, everyone, and welcome.
Stocks took off today. Investors dove back into the market amid growing speculation that the Trump administration is making headway in its efforts to reform the tax code and implement pro-business policies, which the markets view as a positive for corporate earnings. Technology and energy shares led the way as investors put their recent nervousness on the back burner.
Today, the Dow Jones Industrial Average advanced 196 points to 21899, its biggest gain since April. The NASDAQ added 84, and the S&P rose 24.
Bob Pisani has more on today’s bounce-back.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The bulls were back in charge today. Stocks rebounded after a string of sloppy trading days to close higher with the Dow up nearly 200 points. That’s the best day in four months, believe it or not.
Tax reform talk at the stage early on after sources at the White House said lawmakers and President Donald Trump’s economic team were closer to orchestrating tax cuts and are reaching a consensus on how to pay for those cuts. The market rose because it’s finally some meat on a tax cut proposal, though some say short-term tax cuts are far from full on tax reform. Regardless, risk was back on the table.
So, banks, biotech, semiconductor stocks all were higher on the day, and more defensive sectors like utilities and real estate and consumer staples, they were all down on the day. It’s been a very rough year for infrastructure stocks, but they rallied today on hopes that part of the tax reform proposal would allow companies to repatriate profits from overseas that could then be use for infrastructure investment.
Tomorrow, we’ll get data on new home sales, plus earnings from Lowe’s, Express and American Eagle Outfitters among others.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.
MATHISEN: Well, today is renewed hope for tax reform was driven mainly by a report from “Politico”. It said the White House and key GOP lawmakers have found common ground on how to pay for cutting both the individual and corporate tax rates.
Some of the options, capping the mortgage interest deduction, eliminating state and local tax write-offs, eliminating businesses ability to deduct interest. And another idea on the table is to tax money that workers put into their 401k plans and do the taxing upfront.
“Politico” also reports that any proposal will require U.S. companies to bring back earnings from overseas at a one-time low tax rate. The corporate rate could fall somewhere between 22 percent and 25 percent, down from 35.
Still, undecided is whether the tax cuts suggested are permanent, temporary or a mix of both.
HERERA: So, joining us now to talk more about what this potentially common ground on tax reform could mean for you. It’s Ben White. He is the chief economic correspondent at “Politico”.
Good to see you, Ben, as always.
BEN WHITE, CHIEF ECONOMIC CORRESPONDENT, POLITICO: Good to be here.
HERERA: What is your sense as to how big this common ground is? I mean, that’s certainly what Ty just laid out, is much more detail than we’ve heard previous to this.
WHITE: Yes, there is large-scale agreement among those negotiating this package that’s the leaders in the House and the Senate, along with the White House on which deductions to go after to help pay for this. They got rid of the border tax idea they had. That would have been a trillion dollars over ten years so they had to find new revenue sources.
The problem here is it all sounds good when they’re talking about it. Once it actually hits the floor of Congress and gets public debate started, these are pretty popular deductions, and if you’re trying to make the case that you’re cutting taxes for middle-class Americans, if you’re then hitting their 401ks, their mortgage deductions and their state and local tax write-offs, that becomes hard to sell.
So, I think the negotiators are in a good position right now much tougher to actually sell that once it gets to Congress.
MATHISEN: But as I look at the so-called Gang of Six or Group of Six or whether, they are all GOP guys. The Democrats have not been heard from at all on this.
MATHISEN: Where do they stand?
WHITE: Well, they stand opposed to any kind of tax reform plan basically. If it cuts taxes on corporations by a lot and then individuals at the top end a great deal, particularly through pass-through income, people who run business on them and are taxed that way. You give big tax cuts to them, Democrats are going to oppose all of it.
Basically, their position now is if Trump is for it, if the White House is for it, we’re against it.
So, Republicans plan to go on their own, that means they need uniformity in their ranks and that’s hard to come by.
HERERA: You know, the president had a very difficult week last week with a number of the CEOs on all of his panels leaving and resigning. But one thing that corporate America has been looking for is that cut in the corporate tax rate and a one-time break to repatriate funds. Might that bring some of those CEOs back on board and perhaps ease some of the discussions, some of the acrimony on tax reform?
WHITE: Yes, I think the tensions will ease. You’ll have corporate America really lining up behind this package through their lobbying groups, Chamber of Commerce, various other organizations that will be out there pushing this and selling it. So, and I think you’ll see a transition in the way CEOs interact with this White House, less of the public events, more private one-on-one discussions, and they very much want to see the repatriation and obviously get a rate down to the 22, 25 percent ranges, what they’re talking about now.
So, I think you’ll see a bit of a renaissance of the Trump administration and business, but not these big public events because they don’t want to be associated —
MATHISEN: Congressional Republicans and the White House need a win big time, it was certainly seen. But all of these deductions have their own little lobbying groups and not so little.
MATHISEN: The whole home mortgage deduction has the real estate industry behind it; 401k deductibility has financial services.
WHITE: These are big, big lobby groups that will line up opposed to a lot of these things and getting rid of the interest deduction, that brings in all the private equity. It brings a lot of big money groups. They’re going to oppose these, and they’re going to make the political case that, hey, you said you were going to fight for the little guy and fight for middle class America, maybe taking away the mortgage interest deduction doesn’t do that, 401k doesn’t do that.
WHITE: And state and local, for those of us who live in New Jersey, California and Texas — I mean, these are big deductions that people who don’t necessarily make a ton of money count on in their taxes. So, there’s a long way to go from this sounds good on paper among six people negotiating it, to we can settle this the American public in Congress.
HERERA: Well, if there’s a long way to go, that means you’re going to come back and rejoin us.
WHITE: I love that.
HERERA: We hope anyway.
Ben, thank you very much. Ben White with “Politico”.
MATHISEN: Well, the U.S. and South Korea are discussing their 5-year-old free trade deal and the talks are apparently not going well. Officials from the two countries failed to agree on how to move forward. Washington’s goal is to cut its trade deficit with Asia’s fourth-largest economy. South Korea’s trade minister said the two countries have very different views on the free trade agreement. A U.S. spokesperson said the discussions will continue.
HERERA: The Treasury Department today placed sanctions on Chinese and Russian individuals and firms. The move, part of a broader effort by the U.S. to further isolate North Korea. Officials say the targeted individual and firms had conducted business with North Korea in ways that helped advance its nuclear program. In response, China said the us should immediately correct its mistake of imposing sanctions to avoid damaging bilateral cooperation.
MATHISEN: Well, Boeing was one of the best performing stocks today on the blue-chip Dow index. This after the Air Force awarded contracts to Boeing and Northrop for work that could one day replace the nation’s intercontinental ballistic missiles. The contracts are part of a planned overhaul of the country’s nuclear arsenal that will cost tens of billions of dollars. Shares of both companies moved higher as you see there in trading today.
HERERA: But it wasn’t just Boeing and Northrop. The entire sector moved higher today, one day after President Trump said the U.S. will stay engaged in the war in Afghanistan, and that could impact a number of companies both big and small.
Morgan Brennan has the details.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump outlined a broad strategy to commit more troops and resources to America’s longest-running war.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: The vacuum we created by leaving too soon gave safe haven for ISIS, to spread, to grow, recruit and launch attacks. We cannot repeat in Afghanistan the mistake our leaders made in Iraq.
BRENNAN: The details are still unknown and the president says he will not reveal troop numbers or further military activity. But experts say this represents a big shift in strategy. One focus on better supporting the Afghani military through personnel and investments, rather than sending more Americans to fight on the front lines.
JAMES CARAFANO, HERITAGE FOUNDATION: They’ve already started to expand what’s called the advise-and-assist mission and while that important is not the number of troops, but it’s what they’re doing is, and they’re where they’re helping the Afghans is in fire support that limits their casualties and conflict, logistical support and in medical support and evacuation.
BRENNAN: Some experts say more support would likely mean more business for service contractors like Leidos and CACI. It could also spur more demand for remotely piloted aircraft from privately held General Atomics and small-cap AeroVironment.
And after years of hard use and difficult terrain, more light tactical and armored vehicles made by BAE Systems, General Dynamics and Oshkosh Corporation may also be needed. But this could help make the case for a light attack aircraft program as well.
And just as the Air Force’s test off-the-shelf options from Textron, Air Tractor, and L3, and Sierra Nevada and Embraer. Analysts are skeptical about how quickly that experiment could result in an actual operational aircraft, but Sierra Nevada’s Super Tucano is already being produced for the Afghani military and being paid for by the U.S.
For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.
MATHISEN: Still ahead, Johnson & Johnson loses another talcum powder lawsuit and is ordered to pay a record amount.
HERERA: Johnson & Johnson has been ordered to pay more than $400 million in a case tied to one of its most well known products, baby powder. It’s not the first verdict against the company and this product, but it is the largest and it may not be the last.
Meg Tirrell has the details.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Johnson & Johnson this week was ordered to pay $417 million to a woman in California who claimed in a lawsuit that the company’s iconic baby powder caused her ovarian cancer. It was the biggest verdict yet for the healthcare giant which has faced a series of lawsuits over its talcum powder safety when used regularly for feminine hygiene. J&J has lost four cases in St. Louis with damages totaling more than $300 million. It won a recent case there and two cases in New Jersey have been dismissed.
The company said it plans to appeal saying it’s, quote, guided by the science, which supports the safety of Johnson’s baby powder.
CEO Alex Gorsky addressed the mounting lawsuits in an interview last year.
ALEX GORSKY, CEO, JOHNSON & JOHNSON: We’re disappointed in some of the recent talc verdict findings and we always have a lot of empathy for plaintiffs and the families that they may represent. But in this case, we think frankly, it’s inconsistent with more than a hundred years of experience with powder, more than 30 years of very compelling clinical evidence.
So, look, in these cases we think you know the right thing to do is to appeal it and they continue to fight it. But we put safety and quality first in everything that we do.
TIRRELL: J&J said today it’s preparing for additional trials in the U.S. and will continue to defend safety of Johnson’s baby powder.
For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.
MATHISEN: The lawsuits however have not affected J&J stock price so far. Over the past year, shares are up 13 percent. That’s slightly better than the performance of the broader S&P 500, of which J&J is a member over that same time frame.
If you’re a shareholder though, are these lawsuits something that you need to watch?
Peter Andersen is chief investment officer at Fiduciary Trust.
Peter, welcome. Always good to see you.
And we should point out that whether you own Johnson & Johnson as an individual company in your portfolio, you may own it in an index fund or you may own it in a mutual fund like one that you run.
How big a deal is this for Johnson & Johnson? I gather there could be as many as a thousand suits that could go to trial here.
PETER ANDERSEN, CIO, FIDUCIARY TRUST: Well, you know these cases are inherently unpredictable and I think that’s the problem is that it’s very, very hard to financially model going forward what the outcomes are going to be, how many of the cases will actually come to a trial, how many will be dismissed before that. And remember, we’re if they actually, they’re saying maybe a thousand or up to four thousand cases could be on the books.
So, we’re at the very beginning of this phase, Tyler, and it’s inherently unpredictable as I said. But yet, the curiosity is as you opened why hasn’t the stock responded to these initial findings.
MATHISEN: And do you have a theory on that? I mean, perhaps this is not as big a part of J&J, this particular sector or product and others? Or is there another reason you think the stock has been so resilient?
ANDERSEN: I think — well, first off, you know, J&J is a huge company. So, even with the amounts of you quoted earlier, you know, it’s slightly immaterial at this point, the amount that they’ve settled for. So, that’s the first point.
But the second point is J&J remains a triple-A rated credit. You know, that is a rare rating these days in the bond world I’m referring to by the rating agencies. So, that reflects the tremendous resiliency that a company like this has, even in the face of some of these lawsuits that might be pending. So I think investors the smart investors that hold good stock are probably waiting to see exactly how the next phase of this will come out.
You know, we’ve only had several what they call bellwether trials in this situation and we’ve had other trials too as you mentioned earlier. They haven’t all been successful.
So, you know, to quote a baseball analogy, I would say we’re just in the beginning, the top of the first inning of this situation and you have to wait and see to get more statistics to model this, to get a sense what will go look like going forward.
MATHISEN: Peter, thank you, as always. Good to see you. Peter Andersen of Fiduciary Trust.
HERERA: DSW sold a lot of shoes in the most recent quarter, and that’s where we begin tonight’s “Market Focus”.
The discount shoe retailer said higher sales of regular priced merchandise help the company report its first same store sales gained since 2015. Earnings and total revenue were also ahead of street expectations. The shares took off, rising more than 17 percent to $18.43.
An increase in marketing costs caused cosmetics company Coty to swing to an unexpected loss. The owner of the brand’s CoverGirl and Rimmel top sales forecast but warned that retailers may not stock some of its beauty products until the second half of 2018. Shares of Coty fell nearly 9 1/2 percent on the news to $17.71.
The luxury homebuilder Toll Brothers reported higher sales but said a drop in average selling prices caused overall revenue to miss analyst expectations. Profits topped estimates and the CEO said he was pleased with the results.
(BEGIN VIDEO CLIP)
DOUG YEARLEY, TOLL BROTHERS CEO: Our revenue was up 18 percent. Our backlog was up 21 percent. Our new orders were up 24 percent and it’s the fourth quarter in a row that we’ve been north of 20 percent in order growth. We lead the industry. So, we’re doing really well. We’re very happy with all of our operations nationwide.
(END VIDEO CLIP)
HERERA: But the company also trimmed its full-year revenue guidance, citing delivery delays of a flooring product, and that sent shares lower by 2 percent, finishing the day at $37.27.
MATHISEN: The medical device maker Medtronic said strong demand for its heart and vascular devices helped profit grow on top estimates. Sales also rose but were lower than expected as a week long computer outage hurt those results. Medtronic shares off 2 percent at $81.76.
Chevron CEO John Watson reportedly planning to step down. “The Wall Street Journal” says the oil giant, number two behind Exxon in the U.S., seeks new leadership and its vice-chairman could be the leading candidate for the executive position. No decisions final just yet. The report said the transition could be announced next month. Chevron chair shares up fractionally to $106.36.
And after the bell, the cloud computing company Salesforce.com reported better than expected results, lifted its revenue outlook. But Wall Street zeroed in on a decline in profit in the most recent quarter, and that sent shares initially lower as you see there. In the extended session, they did however finish the regular day up 1 percent at $92.95.
HERERA: Ford is plugging into China’s electric car market. The automaker is planning a joint venture in that country, which is the world’s largest auto market. Separately, Volvo, which is owned by a Chinese automaker, is wrapping up its own push to build electric cars and SUVs.
Phil LeBeau has more on the charged up interest to sell cars that plug in.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When you mention electric cars, most people talk about Tesla and maybe the Chevy Volt or Nissan Leaf. But Volvo and its new XC60 crossover utility vehicle, which is a plug-in hybrid, is out to shift that perception.
LEX KERSSEMAKERS, VOLVO NORTH AMERICA CEO: Now this is an evolution and not a revolution, and we have stated — we have made a few statements in the past being Volvo. We have said by 2025, we want to have 1 million electrified cars on the road.
LEBEAU: Ford is joining the race to plug-in cars. New CEO Jim Hackett has inked a deal to work with a Chinese automaker to build electric vehicles for Chinese buyers. Why? Because electric vehicle sales in China far outpaced the U.S., Germany and France. In short, the Chinese are plugging in and they’re pushing automakers to go green around the world.
While Americans have been slow to embrace EVs that may be changing. Tesla has almost a half million reservations for its new Model 3, with many coming from the U.S., and Volvo says interest spiked after it committed to making all of its vehicles electric starting in 2019.
KERSSEMAKERS: Every time like when we announced two weeks ago that we are going for electrified cars by 2019, you instantly see that it sparks an interest. The demand is increasing with the result by example that the current XC60, the T8 is sold out until early next year, and that’s definitely not something what we expected.
LEBEAU (on camera): While buyers may be more interested in electric vehicles, automakers realize that if gas prices drop further or remain extremely low, those who said they once were interested in an electric car may change their mind.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
HERERA: Coming up, what Beyonce and Jay-Z will pay to buy their dream house in Los Angeles. You won’t believe the size of their mortgage.
MATHISEN: California solar power grid unscathed by yesterday’s solar eclipse. Solar generation did plummet as expected as the eclipse neared its peak, but it quickly rebounded. Utility operators say extensive planning helped limit any challenges caused by the sudden drop and then the surge. As we reported, California uses more solar power than any other state.
MATHISEN: Macy’s doubling down now on its digital push to department store, hiring a former eBay executive to be its new president. The CEO says the plan is to use more data consumer insights to help grow sales.
(BEGIN VIDEO CLIP)
JEFF GENNETTE, MACY’S CEO: We obviously take lots of markdowns on a yearly basis and having science really inform those decisions at a much more robust level than they are today is going to help us grow faster, turn inventories more quickly, get better margins, drive more sales.
(END VIDEO CLIP)
MATHISEN: Well, investors do seem to like the plan. They sent shares of Macy’s higher today by 4-1/2 percent.
HERERA: While many retailers are struggling to improve sales and some are going to great lengths to win back shoppers. Saks is one of them.
Courtney Reagan went to check out the stores new retail experiment in New York.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Brick-and-mortar retailers are fighting to survive as consumers are flooded with more choices and information than ever before that’s pushing them to come up with new experiences to entice shoppers to come into the stores.
(on camera): Welcome to Saks Fifth Avenue store location, second floor. It’s called “The Wellery”. Right now, I’m sitting in a brave salt booth. I understand that after about minutes in there my respiratory system will feel detoxified. I may even see clearer skin and hopefully, I’ll even sleep better tonight.
Then, I can walk over here to PXG’s golf simulator where I can step up here, take a swing, and then they can custom-fit golf clubs tailored to my specific needs.
And there’s so much more here on nearly 17,000 square feet of space.
(voice-over): You can take fitness class con body taught by formerly incarcerated instructors, using only your body weight just as you would in prison. Quench your thirst with hydrogen infused water. Get a non-toxic vegan manicure with some guided meditation at Sundays Studio. The Wellery is only opened between May and October between renovations at Saks Fifth Avenue store.
But rather than sit empty in between those redevelopments, Saks president Marc Metrick decided to experiment with a wellness experience.
MARC METRICK, PRESIDENT, SAKS: We’re learning a lot. We’re innovating. We’re seeing what’s portable, what we can take to our other stores, what we can continue with here, what we can put online and services, and we’re doing really what we want to do, which is we’re creating a connection with our consumer, in a different way than retailers have ever had to do before.
REAGAN: As of now, there are no plans to create The Wellery in other Saks stores, but pieces of it may get introduced in the future. The department store is mum on traffic and sales metrics, but seems to think it’s on to something.
METRICK: It’s all about feeling better, and the consumer is interested in it and like a lot of fashion and a lot of trends, it’s going to take a little bit more time to take hold, but we have a lot of momentum will continue to learn what’s important.
COURTNEY: Consumers may be more into health and fitness, but do they want to get their wellness fix from a department store?
For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan in New York City.
MATHISEN: And here’s the story you don’t hear every day. The power couple Beyonce and Jay-z just took out a $52 million mortgage, $52 million. And before you try to calculate the monthly payment, Robert Frank has run the numbers for you.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Jay-Z and Beyonce’s just became the latest record breakers in the exploding L.A. real estate market. The superstar couple paid $88 million for a newly built ultra-modern home in the Bel-air neighborhood. Now, that’s the most expensive sale of the year in L.A.
The couple’s new digs total 30,000 square feet, with six buildings, a spa, staff quarters, basketball court, four swimming pools and bulletproof windows and doors.
Now, the power couple has been trying for years to buy a home in the city but with prices soaring at the high end, they were repeatedly outbid. They first made a run at this house in Beverly Hills in 2014, but before they had a deal, the founder of Minecraft stepped in and offered $70 million and he got the house.
Then last year, they were outbid by designer Tom Ford on a $50 million home. Sources tell me they toured a $250 million home and lots of other properties this year, but they couldn’t agree on price. Even though they’re paying $88 million for the home, they’re getting a mortgage for $52 million. And that would work out two monthly payments of around $250,000.
L.A. has eclipsed New York to become the capital of hyper priced real estate. There are now more than a half dozen listings over $100 million in L.A., compared to just one or two in New York City. Maybe Jay-Z and Beyonce should have considered settling in more affordable Manhattan.
For NIGHTLY BUSINESS REPORT, I’m Robert Frank.
MATHISEN: What if you leave your reading glasses in one of the rooms of a 30,000 square foot house?
HERERA: You have to go —
MATHISEN: You have to go hunting for it.
HERERA: I don’t know, it just doesn’t seem right or real.
MATHISEN: Real, real.
HERERA: All right. That’s NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us.
MATHISEN: And thanks for me as well. I’m Tyler Mathisen. Here’s a look for my reading glass.
HERERA: I was going to say —
MATHISEN: Have a great evening, everybody. We’ll see you tomorrow. Here they are.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by ASC Services II Media, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2017 CNBC, Inc.