Transcript: Nightly Business Report – October 17, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue

touches 23,000 for the first time ever, just days ahead of the 30th
anniversary of Black Monday.

reach a — get this — bipartisan deal to stabilize the health exchanges.
And it has the support of that man, the president.

HERERA: Security hole. If you use Wi-Fi, and most everybody does, there
are ways to protect yourself from the latest security scare.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
October 17th.

MATHISEN: Good evening, everyone, and welcome.

It happened even if just for a brief moment. The most well-known stock
index in the world broke 23,000 for the first time ever. And it didn`t
take long for the Dow to cross that milestone. In early August, the Dow
first closed above 22,000. And the index got a lift today from united
health care which reported stronger than expected profit. More on that in
a moment.

First, though, let`s give you the cheerful numbers. The Dow Jones
Industrial Average gained 40 points. It ended just below 23,000. NASDAQ
fell ever so slightly. The S&P 500 rose and was up nearly two points.

Bob Pisani takes a look at this major market milestone.


big milestone for the Dow. The index broke above the 23,000 mark on an
intraday basis for the first time ever, though just shy of a closing high
above 23,000. So, Boeing (NYSE:BA) and Caterpillar (NYSE:CAT) and Goldman
Sachs (NYSE:GS), Home Depot (NYSE:HD) , those were the four companies most
responsible for the majority of those gains since the Dow hit 22,000.

Now, you might think we`ve been seeing a lot of these Dow 1,000 days for a
year or so. If you think that you`re not hallucinating, we are. It`s
partly because it`s an easier, shallower climb to get to the next plateau
the higher we go.

But over the last 18 months, the Dow has gone up from 18,000 to 23,000,
that`s a gain of 5,000 points in 18 months. It took the Dow seven months
to go from 18,000 to 19,000, but only two months to get from 19,000 to
20,000, and even less than two months to get from 20,000 to 21,000. This
time around, it`s taken a little over two months to get from 22,000 to

So there`s been three distinct phases of this broad 5,000-point rally.
First was the earnings recovery. Earnings growth had been negative from
2015 and into 2016, the period we characterize as an earnings recession.
Well, then, we turned positive in the second half of 2016 and earnings took
off. And the stock market took off.

Second, after the election came, the Trump rally, that`s the second part of
this, with the belief that lower taxes and higher infrastructure spending
would boost earnings down the road.

Finally, we`re in this phase. We call this the growth trade, the reflation
trade, that`s happening right now characterized by an expanding global
economy, higher rates, a hopefully steeper yield curve and tax cuts.

Now that we`ve hit 23,000, how about the roadblocks? What could stop us
from getting to the Dow 24,000?

There`s several things. Number one, reversal of earnings — not likely
now. A more aggressive Federal Reserve, that`s possible. We could have
global growth slowdown, possibly. And finally, failure to get tax cuts
down. All four of those are potential roadblocks for the market.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.


HERERA: Kate Warne joins us now to talk more about what happened in the
market today and what she sees ahead for stocks. She`s principal
investment strategist at Edward Jones.

Welcome, Kate. Nice to have you here.

Glad to be here.

HERERA: You know, how do you view the market at these lofty levels? That
big 23,000, it`s a big round number for a big index. But overall, does the
market look fairly valued, overvalued? Are you finding pockets of

WARNE: Well, there`s certainly pockets of opportunities. I think overall,
certainly, facts are a little bit expensive. They`re not as inexpensive as
they used to be.

But I don`t think that`s something investors should be overall worried
about, because when you look at history, what you see is stocks continue to
rise, especially after they hit big milestones like a round number like the
Dow just did. They just tend to do it with a little bit more volatility,
and that`s what we think investors need to prepare for.

MATHISEN: The last two years have been very good to equity investors. How
should I set my expectations now for the next three to five years?

WARNE: Well, if you look at the last five years, U.S. stocks have returned
an average of about 14 percent per year. That`s well above historical
averages. And usually after a period of above average returns, you should
expect slightly below average returns.

So, we`re expecting 5 to 6 percent per year going forward. That`s still
better than bonds, than cash. But it`s not as good as what we`ve had
recently. And that`s what we think investors need to prepare for.

HERERA: Does the Fed matter at all in your equation, Kate? Because
there`s a lot of speculation that they finally will pull the trigger in
December. And we also have the president saying he`s going to make a
decision on whoever the new Fed chief will be or whether he`s going to keep
the current Fed chief in place, in early November.

Do those events matter to you?

WARNE: We do think the Federal Reserve matters, and certainly the chair
matters, although I think a little less right now than you might think.
And the reason is with the economy improving and with solid economic
growth, I think whoever is Fed chairman is likely to continue this slow,
steady pace of short term interest rate increases.

And does that matter for investors? Yes, in two ways. I think the first
is that investors know that the Fed is moving slowly and steadily. That`s
actually good news for stocks, because they`re not likely to be surprises.
That could change, but we don`t see that changing.

The second thing is as interest rates rise, it gets a little more expensive
to borrow. Over time, that could be something that does become a problem.
But right now, we don`t see that happening anytime soon.

The third thing is, if inflation rises unexpectedly, that is a risk.

HERERA: Right.

WARNE: And then the Fed might have to increase its rates more quickly.
That would probably be one of the biggest risks we see right now. We also
don`t see signs of higher inflation. That`s been a puzzle. So, no price
increases, no rate increases that are unexpected right now.

HERERA: Kate, thank you. We have to leave it there. Thank you for
joining us.

WARNE: Thank you.

HERERA: Kate Warne with Edward Jones.

MATHISEN: IBM could potentially help lift the Dow tomorrow as well, after
reporting better than expected earnings and revenue late today. Those
results aided by the company`s shift to cloud and security services. And
that sent shares higher in initial after-hours trading. Despite IBM
turning in its 22nd quarter of consecutive revenue declines.

Josh Lipton now with more on IBM`s results.


Rometty has worked hard to try and redefine a company emphasizing new
business lines. The company calls these markets strategic imperatives and
it includes artificial intelligence, analytics, cybersecurity and the
cloud. This quarter revenue from that division came in at $8.8 billion, a
jump of 11 percent. RBC`s Amit Daryanani says that`s important because as
next generation business lines grow, they could offset the slowdown in
IBM`s traditional business lines.

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


HERERA: As we mentioned earlier in the program, United Healthcare helped
lift the market today after reporting better than expected results. Its
shares rose more than 5 percent and it was one of the three blue chip Dow
members to post quarterly results. The others were Johnson & Johnson
(NYSE:JNJ) and Goldman Sachs (NYSE:GS). And the results were mixed.


HERERA (voice-over): United Health Group reported net profit of more than
$2.5 billion. That`s more than expected. And UNH raised guidance through
next year. Its revenue, up almost 9 percent to more than $50 billion. It
might have been up even more but UNH says withdrawing from the Affordable
Care Act markets took away $1.6 billion in sales.

Still, its insurance revenues are growing, as are revenues in its Optum
Medical Services Group. Optum is the biggest healthcare IT provider.

are out of control. The drug prices have gone through the roof.

HERERA: President Trump`s latest comments on drug prices have the caution
lights flashing for some drug makers. But Johnson & Johnson (NYSE:JNJ),
whose biggest business is prescription drugs, wants you to remember the
other side of that story.

care is a topic we should be talking about. But drug prices represent only
14 percent of health care costs. What`s lost in the discussion is the
immense benefit they provide to patients. And they actually reduce or help
resolution the other 86 percent of the costs that we`re not talking about.

HERERA: J&J said prescription drug sales were up 15 percent in the third
quarter to more than $9 billion. It posted top and bottom line beats and
J&J is raising its 2017 earnings guidance for the third quarter in a row.

Goldman Sachs (NYSE:GS) also reported better than expected earnings though
its fixed income, currency, and commodity trading sales dropped 26 percent.
That drop, however, was not as bad as many analysts feared. Some of its
other businesses are faring better. Equity returns remain up around 10
percent for the year. And Goldman says its investing and lending business
has doubled so far this year.


HERERA: And in a separate J&J story, the company scored a legal victory.
A Missouri appeals court today tossed out a $72 million jury verdict which
claimed its talc products caused ovarian cancer. The court found that the
case should not have been tried in St. Louis. The decision follows a
Supreme Court ruling limiting out of state plaintiffs. And it endangers
other Missouri verdicts against J&J as well as hundreds of actions filed
against the company.

MATHISEN: Two leading lawmakers have struck a short term deal to stabilize
the Affordable Care Act health care exchanges. The deal between Republican
Senator Lamar Alexander and Democrat Senator Patty Murray comes days after
President Trump decided to halt payments to insurers to make insurance more
affordable for low income enrollees. The agreement would reinstate those
federal subsidies for two years and provide states with more flexibility to
make changes to health care mandates.

President Trump has signaled support for the measure.


TRUMP: Lamar has working very, very hard with the Democratic — his
colleagues on the other side, and Patty Murray is one of them in
particular. And they`re coming up and they`re fairly close to a short term
solution. The solution will be for about a year or two years. That is a
short term solution so that we don`t have this very dangerous little


MATHISEN: John Harwood is following the story from Washington.

John, I am a little perplexed. There`s a lot that perplexes me about
Washington these days. But why would the president —


MATHISEN: Why would the president go along with restoring these subsidies
that he described I believe as recently as yesterday as nothing short of
payoffs to insurers?

HARWOOD: Well, perhaps because they`re not payoffs to insurers. They`re
subsidies that make low income people, including a lot of people who voted
for Donald Trump, makes them able to afford their out of pocket costs under
Obamacare. It`s part of what makes the system work.

And even if the president was making those statements publicly, privately,
he was encouraging Lamar Alexander in a phone call over the weekend to
proceed with those negotiations.

So I think the president sometimes uses strong words as tactics in
negotiations and I think that`s the way to look at his statements then.
The question now is whether other Republicans, especially in the House, are
going to go along with this and then be able to move on to tax reform or
whether they`re going to extend this argument about Obamacare with no
prospect of a better result than they`ve gotten so far.

HERERA: What does your gut tell you, John? I mean, where does it go from
here, do you think?

HARWOOD: I have to think the fact that Lamar Alexander and Patty Murray
came out with this deal, Lamar Alexander is a very experience and
credentialed Republican and Mitch McConnell having pulled the plug on these
negotiations while the Senate tried one more time in September, allowed
them to go ahead, and that the president then came out and praised it
today. I think that is a sign that it is likely in the end, that this deal
or something very close to this deal is going to become law, but there`s no
assurance of that whatsoever.

And we`ve seen the Republicans struggle with whether they want to govern or
whether they want to sustain argument that they`ve been making for a very
long time. This is their moment to govern.

MATHISEN: All right. John Harwood in Washington tonight, thank you.

HERERA: A federal judge in Hawaii issued an order blocking major parts of
the president`s newest travel ban, the court suggesting it violated
immigration law. The decision effectively stops the administration`s
travel restrictions before they were scheduled to take effect tomorrow.
The Justice Department plans to appeal that ruling.

MATHISEN: The latest round of NAFTA talks have ended in stalemate. Canada
and Mexico have rejected what they view as hard line U.S. proposals to
renegotiate the North American Free Trade deal. But the ministers from all
three nations have agreed to extend talks into next year to work out some
of the challenges.


forward substantially all initial tax proposals. New proposals have
created challenges and ministers discuss the significant conceptual gaps
among the parties. Ministers have called upon all negotiators to explore
creative ways to bridge these gaps.


MATHISEN: Some sticking points include auto manufacturing and how long a
new deal should last.

HERERA: Congressman Tom Marino has withdrawn his name from consideration
as America`s drug czar. The president tweeted: Rep Tom Marino has informed
me that he is withdrawing his name from consideration as drug czar. Tom is
a fine man and a great congressman, end quote.

The decision comes after a joint report by “The Washington Post (NYSE:WPO)
” and “60 minutes” that found that legislation sponsored by Congressman
Marino hindered the Drug Enforcement Administration in its fight against
the opioid crisis.

MATHISEN: Still ahead, how much is too much when it comes to spending on
original content?


MATHISEN: What`s hotter than Netflix (NASDAQ:NFLX)? Well, now, Netflix
(NASDAQ:NFLX) is planning to spend big money on original content over the
next year. The company says it will now spend between $7 billion and $8
billion on programming in 2018. That raises questions about rising content

Michael Olson is senior research analyst at Piper Jaffray and he joins us

You know, nobody quarrels with Netflix`s ability to attract new subscribers
and collect lots of money, but I guess some people raised eyebrows when
they saw that $8 billion price tag on what the company plans to spend on
content. Is it too much?

it`s a huge number but at the same time, it`s necessary. In order for the
company to continue to differentiate its content from other services that
are out there and have a competitive offering that keeps subscribers
interested and engaged, they`re going to need to continue to spend more on
content. And more of that will be on original content over time.

This year, it`s about 25 percent of their spend on original content. But
over the next few years, we expect that to trend closer to 50 percent.

HERERA: Does subscriber growth have to match or outpace the cost that
they`re spending for content?

OLSON: Absolutely. That`s how we look at it, is that today, subscriber
growth is outpacing the growth of the content spend. And if you think
about it, as long as that continues to happen, that puts Netflix
(NASDAQ:NFLX) in a good place for long term margin improvement. And we
expect that will continue to be the case. In fact over time, we expect
that subscriber growth will increasingly outpace the cost of content

MATHISEN: Where is the stock today and where do you see it going?

OLSON: Well, we think there`s a huge opportunity for international. In
particular, if you look today, about 50 percent of Internet households in
the U.S. have Netflix (NASDAQ:NFLX) subscriptions. And if you look at
international, it`s actually less than 10 percent. So, there`s a huge
opportunity for international growth of Netflix (NASDAQ:NFLX). We think
over time, that can drive significant profitability improvements and
ultimately, we have a 12-month price target of $240 for Netflix

HERERA: You know, when I look at the chart that we just put up, I mean, it
has been a phenomenal performer on Wall Street. Do you find anyone in the
universe that is close to them in terms of competition in original content?
Or are they really pretty much a case in and of themselves?

OLSON: Well, from a competitive standpoint, it`s fairly limited. If you
think about the offerings that are out there today, the closest are
probably Amazon (NASDAQ:AMZN) prime video, which comes free with a prime
subscription, and they`re spending a significant amount of as well, in the
multiple billions of dollars per year. And then the next closest would
probably be Hulu after that, and they`re also spending quite a bit as well
for their subscription service, as well as an advertising service. So,
there are competitors, but no one has matched what Netflix (NASDAQ:NFLX)
has done today.

MATHISEN: All right, Michael. I`m going to go home and watch some Netflix

Michael Olson with Piper Jaffray and Company, thanks a lot.

OLSON: Thank you.

HERERA: Morgan Stanley`s results top expectations. That`s where we begin
tonight`s “Market Focus”.

The financial services firm credited the growth to the wealth management
business which offset a drop in its sales and fixed income trading
business. Morgan Stanley`s shares rose a fraction to $49.12.

Harley-Davidson (NYSE:HOG) reported lower than expected quarterly retail
sales as demand for motorcycles in the U.S. continues to decline. And the
motorcycle maker said it expects the weakness in the industry to continue.
Nonetheless shares of Harvey rose 2 percent to $47.52.

Railroad operator CSX (NYSE:CSX) reported a rise in its quarterly net
profit, thanks to an increase in coal and consumer goods shipment, as well
as higher freight rates. But the company`s revenue took a hit as it
suffered from service delays in the quarter as it works to overhaul its
operations. Shares of CSX (NYSE:CSX) rose more than 2.5 percent to $54.32.

MATHISEN: The industrial supply company WWW Grainger reported earnings
that beat estimates. Grainger said growth was driven by strategic pricing
initiatives as well as its digital marketing activities. Shares jumped
more than 12 percent on a day to $205.42.

And Omnicom`s quarterly earnings topped estimates, despite a drop in
revenue from last year. The communications company said its advertising
and specialty communications businesses increased while its public
relations arm declined. Omnicom shares up better than 2 percent to $75.59.

HERERA: We told you yesterday about a Wi-Fi vulnerability that affects
nearly every modern protected network. In other words, just about
everyone. The security hole is called crack and there are things you can
do right now to make sure that you are protected.

Andrea Day has details.


called crack, really a gaping hole in the Wi-Fi system or the WPA2.

Arkan security expert, Rusty Carter.

uses to authenticate and secure communications between the device and the

DAY: It`s usually secure. But he says with this flaw, an attacker within
physical range of the Wi-Fi network could trick connected devices and steal
information, even install malware.

CARTER: It could be their user name and password. It could be medical
information they`re sending via e-mail. All of your information, all of
your personal information passes through your networks today.

DAY: And almost every device is vulnerable. From your phone to computer,
anything connected to Wi-Fi.

CARTER: The top targets would be hotel Wi-Fi, public Wi-Fi, hotspots in
airports and coffee shops.

DAY: The flaw was discovered by a security researcher and there`s no
evidence now that it`s been exploited. The good news, major tech vendors
are aware of crack and have or will soon have patches to fix it.

Microsoft (NASDAQ:MSFT) tells us, quote, we delivered security updates on
October 10th to protect our customers as soon as possible.

Apple (NASDAQ:AAPL) will release an update to its operating system in
coming weeks that will include a patch. But for now, Apple`s beta
operating systems do the trick.

CARTER: The android devices are much more vulnerable to the attack.

DAY: According to the researcher who discovered the flaw, the way Android
devices connect to Wi-Fi makes them more at risk. Android`s maker, Google
(NASDAQ:GOOG), tell us, quote: We`re aware of the issue, and we will be
patching any affected devices in the coming weeks.

(on camera): And Carter says the best step you can take is to always keep
your systems up to date. Anytime there`s a new update, make sure you
install it right now. And as always, try not to conduct personal business
on public Wi-Fi.



MATHISEN: Coming up, off the field drama. NFL owners and players seek
common ground on a divisive issue, one that`s also hitting and hurting the


MATHISEN: Here is a look at what to watch tomorrow. The Dow component
American Express (NYSE:EXPR) (NYSE:AXP) will report earnings. The Fed will
release its beige book survey on U.S. economic conditions. China`s
president will make a speech opening the party Congress. And that is what
to watch Wednesday.

HERERA: One Wall Street firm is warning that lower ratings for NFL games
will hurt CBS`s earnings. Credit Suisse cut its third quarter estimates
for the company, citing a 17 percent decline in ratings during the first
several weeks of the football season. The call comes as NFL owners and
players meet to discuss the anthem controversy and some other issues.

Eric Chemi is outside the meeting for us in New York tonight.

Eric, what happens specifically at the meeting today?

annual fall meetings. They meet every year. But this year, it`s not
normal because there are a lot of issues affecting the league. Like you
said, the anthem protests are hurting ratings, ticket sales, merchandise
sales. And the big broadcasters, it looks their earnings in the next
quarter are going to hurt.

So, they`ve got to get business back on track. Players and owners are
coming together to figure out, are they going to let the anthem protests
derail what should actually be a football season, not a political agenda?
That`s the main focus of the meetings today.

MATHISEN: Did they make progress today? What do we know? Number one.
And number two, how are the ratings declines affecting companies, sponsors,
broadcasters, et cetera?

CHEMI: So, in terms of specific progress, they didn`t actually say there`s
a new rule that says players have to stand. But what happened is players
and owners met and they came to some, let`s call it an agreement that we
want to work together on social issues, equality issues, and move forward.
And they`re going to keep having those discussions. They said there was a
watershed moment to bring players and owners together.

But as far as the businesses go, like you said, CBS (NYSE:CBS) and FOX,
they really rely on NFL ratings because of their broadcast business.
Turning that around is going to be a different story, because a lot of
people have already said, I don`t want to watch as long as players are

So, that`s a bigger question, they didn`t have an answer for that today.

HERERA: Yes. Well, what else can we expect as the meeting continues?

CHEMI: So, it`s a two-day meeting. They met today, they`ll meet again
tomorrow. They`ll just work through a lot of these issues. Part of them
are the anthem, part of it is just regular league business. As you know,
not stuff we would talk about in NBR, but regular NFL business.

Another thing that needs to get done, Roger Goodell, the commissioner, he
is negotiating a five-year extension on his contract. So, obviously, he
wants a lot of this drama to go away so that he can get back on track with
his own personal career.

HERERA: Eric, thank you so much — Eric Chemi in New York.

CHEMI: You got it.

MATHISEN: And finally tonight, the 400 richest people in America, and
they`re richer than ever. The minimum net worth to make the Forbes 400
list is now a record $2 billion. I`m not there.

Topping the list for the 24th consecutive year is Bill Gates, worth $89
billion. Jeff Bezos, number two, net worth of $81.5 billion. And rounding
out the top three is Warren Buffett who prior to last year had held the
second spot for 15 straight years.

The biggest gainer, Facebook`s Mark Zuckerberg ranked fourth. President
Trump saw his fortune fall by $600 million to about $3 billion, likely due
to a tough New York real estate market. He came in at number 248 on the

HERERA: And before we go, here is a look at how the stock market finished
the day, a day that saw the Dow briefly break the 23,000 mark. The Dow
gained 40 points to close at 22997, Nasdaq fell fractionally, and the S&P
500 was up nearly two.

And that will do it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
Thanks for joining us.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great
evening, everybody. We will see you back here tomorrow night.


Nightly Business Report transcripts and video are available on-line post
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Media, LLC. Updates may be posted at a later date. The views of our guests
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Business Report is not and should not be considered as investment advice.
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