Transcript: Nightly Business Report – May 21, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue


STEVEN MNUCHIN, TREASURY SECRETARY: Both parties have agreed to suspend
the tariffs.


stocks take off. And a number of companies are set to benefit if the spat
cools further.

closes back above 25,000, but the market may not be out of the woods just


UNIDENTIFIED MALE: What rule named after the Federal Reserve chairman who
proposed it —

UNIDENTIFIED MALE: You have five seconds.



HERERA: The best and brightest meet the economic leaders of tomorrow.

Those stories and more for tonight on NIGHTLY BUSINESS REPORT for Monday,
May 21st.

GRIFFETH: And we do bid you a good Monday evening, everybody.

A surge in stocks to start this week. The industrials powered the major
indexes higher after the Trump administration said that the trade war with
China was on hold. So, with tensions easing, excitement on Wall Street is
building and today, that excitement sent the Dow up more than 300 points
for much of this trading session.

And here are the closing numbers. The Dow closed up just under 300 point
gain to 25,013. The Nasdaq added 39 and the S&P 500 was up 20 points.

We have two reports for you tonight. Kayla Tausche takes a look at the
cooling of those trade tensions between the U.S. and China, but first, Bob
Pisani has more on today`s stock market rally.


relief rally. Stocks surged after U.S. Treasury Secretary Steve Mnuchin
declared a temporary truce between the U.S. and China easing trade tensions
are a major tailwind for the markets. No surprise that gave a boost to
trade oriented industrials like Boeing (NYSE:BA), Caterpillar (NYSE:CAT),
United Technologies (NYSE:UTX), all of them were up sharply.

But even before today, cyclical stocks had been leading the charge this
month, sectors like technology, industrials, materials, and energy that are
especially sensitive to the health of the economy, all up 5 to 6 percent in
May. That`s the kind of leadership investors like to see. Right now, the
large cap S&P 500 is less than 5 percent below its record highs and small
caps are hitting new highs for a fourth straight session.

Selling pressure is dropping a little bit, buying power, while not soaring,
is building modestly. But the markets aren`t out of the woods just yet.
Several headwinds still remain, so commodities are still on fire. Many of
them are at three-year highs and the U.S. dollar is at the strongest levels
of the year. The yield on the U.S. ten-year treasury note is also near a
seven-year high.

The markets can handle all of this as long as rates don`t move up too
rapidly as long as the markets are convinced that we`re still growing
throughout the year.

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


HERERA: And now to Kayla Tausche with details on our trading relationship
with China and what might happen next.


from flat screen TVs to golf carts imported from China will be spared from
tariffs and China will back down on new fees on Tesla, whisky and soy beans
in return. For now, the economic ceasefire welcome news for the market as
Treasury Secretary Steven Mnuchin denied a trade war was approaching.

MNUCHIN: This has been a trade dispute all along. It never was a trade
war. It`s a trade dispute on significant issues.

TAUSCHE: China says it will buy more U.S. agricultural and energy products
to help the U.S. chip away at the trade deficit. On Twitter, President
Trump praised the impact of the potential deal on farmers. Trump wanted a
$200 billion deal, a figure on which China was mum. The U.S. is also
reviewing its enforcement of Chinese telecom giant ZTE, a direct request
from President Xi.

While the details and timing of the deal have yet to be worked out, the
threat of tariffs remain.

tariffs as a negotiating tool or an enforcement tool from this process, you
cannot do that. And, therefore, I don`t think we`re saying tariffs are
over — far from it.

TAUSCHE: The truce does not extend to imports of steel and aluminum, and
there are worries it doesn`t address the big issues around forced
technology transfer and excessive intellectual property, but officials
stress this is a work in progress.

KUDLOW: This is not a term sheet for a finance deal. This is a very
complicated negotiation with the two largest economies of the world.

TAUSCHE: Commerce Secretary Wilbur Ross is going to China to work out the
details of a deal. A date worth watching is June 12th when a summit
between Trump and North Korea`s Kim Jong-un is playing. Sources say
there`s a reluctance to rattle China and put that meeting at risk.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.


HERERA: But the delay in implementing tariffs on Chinese steel imports
weighed on the sector, sending shares of AK Steel, U.S. Steel and Nucor
(NYSE:NUE) lower in trading today.

GRIFFETH: But a number of companies could benefit from this truce.

Joining us tonight to talk about that, John Petrides is back with us. He`s
managing director and portfolio manager at Point View Wealth Management.

Welcome back.

MANAGEMENT: Thanks for having me on.

GRIFFETH: We should point out, the companies we`re going to talk about,
you wouldn`t exactly jump into now just because of this truce, right?

PETRIDES: Yes, that`s right. I mean, I wouldn`t — we don`t recommend
buying this market at all simply because that the trade wars have been
tabled. This is turning into a mini series. Trade wars, the saga


PETRIDES: Just as you shouldn`t sell the market on potential tariffs, you
shouldn`t be buying today because of this.

HERERA: But do you set up a wish list, so to speak, because, you know, as
Mr. Mnuchin said, it`s been a trade dispute, not a trade war? I mean,
obviously, that`s the administration`s standpoint on it. But if you`re a
longer term investor, what do you look for if you want to add to your

PETRIDES: Right. Well, I think the beneficiaries from not having the
trade wars are clear from the industrial to auto side. I mean, there`s a
reason why Boeing (NYSE:BA) is up 3.5 percent today. So, Ford and GM and
some of the car players, they`re clearly going to benefit by not having
tariffs. At the end of the day, listen, we all benefit by no tariffs
because companies are going to pass it through to you and I at the

So, the economy should continue this synchronized global growth pattern
without tariffs.

GRIFFETH: You had GE on that list there as well. But as the year
progresses, the dollar is starting to strengthen here. That`s not going to
help these companies.

PETRIDES: No, well, it depends. You know, it`s not going to help clearly.

GRIFFETH: And the trade deficit.

PETRIDES: And the trade deficit, but, you know, that`s going to be more in
line with what the Fed does and what the Fed says coming up in the June

HERERA: What about technology? A lot of it has been beaten down
certainly. Is it too early to take a look at tech?

PETRIDES: No, we definitely like some of the suppliers like a company
called Flex International. Ticker is FLEX. And they`re the middle market
between a chip maker and, say, a Cisco (NASDAQ:CSCO). So, they go out
there and design and make the product. Very low margin business, so
tariffs would really negatively impact their business but they basically
supply the entire tech hierarchy.

GRIFFETH: Once again, good to see you, John. Thanks for joining us.

PETRIDES: Thanks for having me on.

GRIFFETH: John Petrides with Point View Wealth Management.

HERERA: Well, the Trump administration is also outlining new demands on
Iran. Secretary of State Mike Pompeo said a new nuclear deal would require
Iran to stop enriching all uranium and pull out of the Syrian civil war.
The list of demands also comes with the threat of more sanctions.


MIKE POMPEO, U.S. SECRETARY OF STATE: These will, indeed, end up being the
strongest sanctions in history when we are complete. The regime has been
fighting all over the Middle East for years. After our sanctions come
enforce, it will be battling to keep its economy alive.


HERERA: Iran announced those demands and rejected the allegations.

GRIFFETH: Iran, of course, is closely watched by the oil market since it
is an OPEC member. Venezuela is also a member of the oil cartel and it
held elections over the weekend. And already, those elections are being
called illegitimate by some and could lead to stricter international
sanctions. In fact, just today, President Trump signed an executive order
restricting Venezuela`s ability to liquidate state assets. That helped the
price of domestic crude as well today which settled near its 2014 highs.

And a rise in oil, of course, means a rise in prices at the pump. The
average cost of a gallon of gas has now risen 10 cents over the past two
weeks. It is now up to $3 a gallon.

HERERA: In Washington, the Supreme Court upheld a ruling that companies
can use arbitration clauses in employment contracts to prohibit workers
from forming a class action lawsuit over workplace issues. The court`s
decision could impact 25 million employees who work under contract. The
decision is viewed as a win for business and the vote was 5-4.

GRIFFETH: Time to take a look at some of today`s upgrades and downgrades.

CBS`s rating was raised to outperform from market reform over at Bernstein.
The analyst there cites four possible paths forward amid its board room
drama with major shareholder Shari Redstone. Price target $65. The stock
closed up a fraction today to $52 even.

Shares of Campbell Soup (NYSE:CPB (NYSE:CPF)) were downgraded to an
outright sell from neutral at Bank of America (NYSE:BAC). The analyst
calls 2018 a transition year now under the new interim CEO who will be
initiating an extensive strategic review process. Price target $31. The
stock fell 2 percent to $33.58.

HERERA: And another call for Bank of America (NYSE:BAC), but this one is
an upgrade, of Dillard`s (NYSE:DDS), to buy from under-perform. The
analyst says the Southern (NYSE:SO) retail chain will benefit from a
strengthening energy economy since Dillard`s (NYSE:DDS) has a large
presence in Texas and Oklahoma. The price target is $89. The shares were
up 3 percent to $79.87.

VF Corp is rated to buy a new coverage at Argus. The analyst cites strong
demand for some of the company`s brands like Vans and North Face. The
price target is $101. Shares of VF Corp rose 1 percent to $80.92.

GRIFFETH: Still ahead, a new threat. Hackers are not just after companies
or their data, now they`re going after something else. We`ll tell you what
it is.


HERERA: “Consumer Reports” will not recommend Tesla`s Model 3. The
magazine said there are a few features that are preventing the group from
giving the vehicle a full endorsement, such as long stopping distances and
difficult to use controls. However, the group did praise the agile
handling of the Model 3 as well as its battery range. Separately, a Wall
Street firm raised its price target on the stock to about $500 a share and
that helped lift the stock in trading today.

GRIFFETH: The transformation of General Electric (NYSE:GE) continues. The
company is merging the bulk of its transportation business with railroad
equipment maker Wabtec (NYSE:WAB). It`s a deal worth about $11 billion.
GE and its shareholders will end upholding 50.1 percent of the merged
company. The deal is all part of GE`s strategy to pare down to three core
businesses, namely power, aviation and health care.

This is the biggest deal done by CEO John Flannery since he announced his
plan to remake the conglomerate. Shares of GE and Wabtec (NYSE:WAB) both
rose in today`s trading. GE is up about 10 percent, by the way, over the
past two months.

HERERA: Well, from a stock that is rising to a sector that is falling.
Consumer staples is the worst performing group this year. The sector is
down about 13 percent while the S&P 500 is up 2. Is this a sector to steer
clear of or are there bargains waiting to be bought?

Here to talk about that is Nancy Tengler, chief investment officer at
Heartland Financial.

Welcome back, Nancy. Nice to see you.


HERERA: Are you finding value in this particular area? Because it has
been a really rough patch.

TENGLER: It has been, and as a value manager and someone who is contrarian
by nature, I would like to say — I would like to pound the table, but I`m
still concerned that there`s structural change going on in this group and
it`s not helped at all by a stronger dollar. So, there are a few places we
like, but not the entire group.

GRIFFETH: Why have they gone down? What happened?

TENGLER: Hey, Bill. Good to see you.

GRIFFETH: You, too.

TENGLER: So I think a couple of things. Certainly, there`s a pricing —
there`s pricing pressure from the online providers and from the business
box retailers.

So, the power lies in — it has shifted. It lies in the hands of the
Amazons, the Walmarts and Costcos of the world. So, we actually own and
have big commitments to both Walmart and Costco (NASDAQ:COST) in our
portfolios. We think they are the ones that are carrying the cards and
have the ability to be Amazon (NASDAQ:AMZN)-proof.

In the case of the underlying food and beverage companies in the staple
sector, we do like coke. That management has turned the company around and
has dealt with pricing pressures and the lack of growth in the emerging
markets and the way they`ve done that is by shrinking packaging, so you pay
more per ounce for Coke, but it`s healthier because you`re not drinking as

They`ve improved the packaging and they`ve also added product in the
carbonated beverage section. So, it — but it takes a long time for these
big companies to change and the others in the group have not made the
strategic changes they needed to make.

HERERA: And one of them, I think, is P&G. You say you`re considering
exiting that position. What is it that the management has not been able to
do to convince you to stick with the stock?

TENGLER: Well, so P&G`s CEO after wasting time fighting a proxy battle
with Nelson Peltz for almost, I don`t know, close to a year, he recently
said on their disappointing most recent earnings call that we have a lot of
very big businesses in very difficult markets.

So, you just think about it logically. If 40 percent of trade is
denominated in the dollar globally, that represents four times our share of
trade. That means that if my currency in Venezuela, Argentina, Brazil is
depressed, I have to pay so much more for Tide, a P&G product, than I did
before. And so, I`m going to find another product. And the managements
have not anticipated or adapted to that change and they`ve not improved
their distribution through the right channels.

HERERA: On that note, Nancy, always good to see you.

TENGLER: You, too, thanks so much.

HERERA: Nancy Tengler with Heartland Financial.


GRIFFETH: Sue, Fifth Third inks a multi-billion dollar bank deal, and
that`s where we begin this evening`s “Market Focus”.

The bank said that it would buy Chicago`s MB Financial (NASDAQ:MBFI) for
about $5 billion as it looks to expand its presence in the Chicago market.
Fifth Third also said the deal would create substantial savings within a
couple of years. Fifth Third investors though were not exactly fans of the
deal. They sent shares of the bank down nearly 8 percent to $30.90.
Meanwhile though, shares of MB Financial (NASDAQ:MBFI) took off, rising
almost 13 percent to $49.28.

And after speaking with a number of potential buyers, LaSalle hotel
properties says that it has agreed to be bought by private equity firm
Blackstone for just under $4 billion. LaSalle said rival Pebblebrook Hotel
Trust (NYSE:PEB) was among the interested suitors otherwise. Blackstone
shares finished p 1 percent to $31.68. Shares of LaSalle climbed by 5
percent to $33.61.

Hospital operator HCA Healthcare and private equity firm KKR (NYSE:KKR) are
reportedly teaming up on a takeover bid for Envision Healthcare. Reuters
said that the two are working together to create what they hope will be a
compelling offer even as other buyout firms eye Envision. Envision has
requested that all offers be submitted this month. HCA`s shares were up 1
percent to $103.86. Shares of Envision were 3 percent higher today to

HERERA: Pinnacle Foods has reportedly hired investment firm Evercore
Partners (NYSE:EVR) to consider strategic alternatives. “The New York
Post” says activist investor Jana Partners has pressed the maker of Duncan
Hines baking mixes to merge with its rival Conagra Brands. The two
companies have reportedly discussed the potential combination in the past.
Shares of Pinnacle Foods were off a fraction to $62.93.

Entertainment company World Wrestling Entertainment (NYSE:WWE) has
reportedly found a new broadcast home. As first reported by ESPN, 21st
Century Fox`s network reached a, quote, massive deal with WWE to air its
“Smackdown Live” show. And the report added that the deal will take effect
October of 2019. Shares of WWE were up more than 12 percent to $57.86.

And restaurant equipment company Middleby is buying United Technologies
(NYSE:UTX) ice cream and frozen drink services for $1 billion. The move
comes as United Technologies (NYSE:UTX) focuses more on the core business
while Middleby looks to grow its foot print in the commercial food service
industry. Middleby shares were off a fraction to $103.98. Shares of
United Technologies (NYSE:UTX) rose 2 percent to $128.05.

GRIFFETH: Up until recently, hackers have mainly been focused on breaking
into and stealing sensitive information. But now get this, they have the
capacity to change that data that they hack and that could have far more
devastating consequences, like manipulating stock prices.

Andrea Day went to IBM Securities headquarters to learn about this latest
cyber threat.



Barlow spends his days watching cyber criminals and their latest tweets and
plots. But there`s a new threat that keeps him up at night.

BARLOW: What we`re moving into is a new scenario where the bad guy goes in
and changes data.

DAY: Modifying data, a huge problem, he says, that can cause far more
devastation than just stealing sensitive information.

How tough is it to spot?

BARLOW: It`s extremely difficult to spot data manipulation because you
have to not only identify the attackers broke in, you have to find the
exact data element they changed. Otherwise, you can`t trust anything in
the system.

DAY: And according to Barlow, it could even impact a company`s stock.

BARLOW: There are lots of ways bad guys can profit, in ways that appear to
be even legitimate. You can short a stock, you can invest in another part
of the supply chain and that becomes a major source of attack that we`re
really concerned about moving forward.

DAY: So what can be done to stop it?

BARLOW: If we can figure out who they are, what their motivations are, we
can often block their attacks.

DAY: So, IBM security is developing intimate profiles on the latest cyber
criminals and shocking to know, they act just like a legitimate business.

BARLOW: They go to work Monday through Friday, they take the weekends off.
We know this because we literally see the attack volume drop off on a
Saturday and pick back up on a Monday and in particular Tuesday. There`s
the boss, which think of them as a general contractor, and they may have
dozens and dozens of subcontractors with unique and specific skills.

DAY: He says they have employee reviews, even meetings to decide where to
invest a lot of stolen cash.

BARLOW: These are highly legitimate illegitimate businesses.

DAY: And Barlow says the challenge here is the companies must bolster
their defenses and put in place new means of detection, so they can spot
data changes before it`s too late.



HERERA: Coming up, do you know more about the economy than a high
schooler? Find out coming up next.


GRIFFETH: The number of 401k millionaires is at a record. As we told you
last week, a new Fidelity Investments report says there are now more than
150,000 accounts with balances of $1 million or more, but having all of
that money stashed away in a traditional employer sponsored savings account
doesn`t necessarily mean that you`ll be a millionaire in retirement.

Our senior personal finance correspondent Sharon Epperson is here to
explain why.

How much of an increase in millionaires are we talking about here on these

one year a 45 percent increase according to the fidelity data.


EPPERSON: We have seen a jump to above the 150,000 mark to accounts that
are over $1 million. Now, these are folks who have been saving for quite
some time, working for about 30 years. The average age is 58 and keep in
mind while 1/3 of that rise in what they`ve seen to that $1 million mark
has been in contributions, about 2/3 of them are market returns over the
last 10, 15 years. That`s a big part of why they reached that number.

HERERA: So, let`s say I`m one of those who has $1 million. How far is it
going to get me?

EPPERSON: One thing to keep in mind, we`re talking about traditional 401k
plans. And so, that is pre-tax money. When you take that money out in
retirement, you have to pay taxes on it. So, if you`re in a middle income
bracket, and you`re saying 24 percent tax bracket, that million dollars is
close to $760,000.

Also keep in mind where you live means how far that`s going to go. Go
banking rates did a survey and they looked at cities where $1 million will
last you and in Houston, Texas, it`s great. It will last you nearly 26
years because the average expenses you`re going to have at 65 or older are
$40,000 but in New York City —


GRIFFETH: It`s measured in months.

EPPERSON: Exactly. More like 17 years 6 months. So, a lot less because
you`re going to be spending $55,000 just on expenses.

GRIFFETH: In the interest of diversification, though, what other options
do we have beyond 401ks to help us reach those goals of maybe a million

EPPERSON: As you know, a lot of folks are really focused on asset


EPPERSON: Tax diversification is very, very important as well. And about
70 percent of employers who have 401k plans now offer a ROTH option. And
what means is you can be building money tax free in a ROTH account. You`re
not going to get that tax break that you would on pretax money right away.

But you`re going to get it at retirement. So, that money will actually be
your money, not money that`s going to go to Uncle Sam. So, you want to
contribute the max you can to a Roth 401k if offered, a Roth IRA if you
can. The maximum contribution there is $5,500 this year, $6,500 if you`re
60 or older.

And a lot of folks have side gigs. You may not be fully self-employed, but
if you have self-employment income, look into a solo 401k or SEP IRA. And
think about converting a traditional IRA also to a Roth to get the tax free
income. But again, you need to talk to a financial advisor. You need to
talk to an accountant about this because it can be complicated, but I can
be worth it to get tax free income in retirement.

GRIFFETH: Worth the price of admission right there.

EPPERSON: There you go.

GRIFFETH: Sharon Epperson, thank you as always.

EPPERSON: My pleasure.

HERERA: Well, how much do high schoolers know about economics? The answer
is a whole lot as Steve Liesman found out when he quizzed the next
generation of economic leaders.


Economic Challenge, put on every year by the Council for Economic
Education, the question is not if the kids are smart.

UNIDENTIFIED MALE: Consumer surplus decreases, producer surplus increases
and net welfare decreases.

UNIDENTIFIED MALE: That is correct.

UNIDENTIFIED MALE: That is correct. Well done.

LIESMAN: The question is, how ridiculously smart they are? Almost to the
point of reading minds.

UNIDENTIFIED FEMALE: Monta Vista, you have five seconds to answer.

UNIDENTIFIED MALE: Structural unemployment.


LIESMAN: All right. That`s totally unfair for people at home that are
watching on TV. I`m going to read the full question.

It`s no wonder the kids are brilliant. To get to the finals of the
National Economic Challenge, you have to be the best and brightest of
11,000 kids who compete across the nation.

This year, Monta Vista High School from Cupertino, California, won the
David Ricardo Division. That`s for kids with just one semester of

What do you like about economics?

UNIDENTIFIED MALE: It`s very applicable to the real world and honestly I
wanted to shout out to all my teammates here. Without them, I wouldn`t
have this high of a level of interest in economics.

LIESMAN: And Lexington High School from Massachusetts won the coveted Adam
Smith Title for kids in A.P. and honors courses.

UNIDENTIFIED FEMALE: Price and quantity increase.

UNIDENTIFIED MALE: That is correct.

LIESMAN: Nan Morrison, head of the Council for Economic Education,
explains the value of an early economic education.

operate in the real world. Better success, better outcomes, better
decisions for themselves and their countries.

LIESMAN: For the second year in the row, Americans faced off against the
Chinese in international division. Americans won both rounds but the
Chinese competed strongly. It`s too bad we can`t let these kids negotiate
the country`s trade problems.



GRIFFETH: For “Fortune” magazine is out with its annual ranking of the
nation`s largest corporations, and Walmart tops the list for the sixth year
in a row with $500 billion in reported revenue. In fact, it`s the first
company in history to generate that much in annual sales and it is more
than double second place ExxonMobil (NYSE:XOM) which had $244 billion in

In third place, Berkshire Hathaway (NYSE:BRK.A) at 242 billion. Apple
(NASDAQ:AAPL) fell one spot to fourth place. Amazon (NASDAQ:AMZN) moved
into the top ten for the first time. It`s now ranked eighth.

All 500 companies represent 2/3 of the U.S. gross domestic product with
nearly $13 trillion in revenue combined.

HERERA: Before we go, here`s another look at the day on Wall Street. The
Dow advanced 298 points. The Nasdaq added 39 and the S&P 500 was up 20.

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

GRIFFETH: By the way, happy birthday, Steve Liesman, today.

HERERA: That`s right.

GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.


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
and commentators are their own and do not necessarily represent the views
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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.


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