Transcript: Nightly Business Report – December 17, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Market route. The sell-off
deepens. The S&P 500 closes at its 2018 low as investors grow concerned
that growth is slowing in the U.S. and worldwide.

Sentiment slump. Builder confidence at its lowest level in more than three
years. Buyers hesitate to purchase new homes. A sharp reversal from just
one year ago.

New prognosis? A legal blow to the Affordable Care Act is creating
questions for both consumers and investors.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday,
December 17.

Good evening, everyone, and welcome. Bill Griffeth is off tonight.

The chill on Wall Street this December deepened. The selling intensified
as investors zeroed in on the idea that the economy will slow into 2019. A
handful of weaker economic readings on the housing market and manufacturing
came one day before the start of a two-day meeting of the Federal Reserve
policy-makers.

The Dow Jones Industrial Average dropped 507 points to 23,592. The Nasdaq
was down 156 and the S&P 500 fell 54.

Right now, the S&P 500 is on pace for its second worst December ever. More
than half of the stocks in the S&P are in bear market territory, meaning
they`re 20 percent down or more from their most recent highs. And the
small cap index is also in a bear market.

As we`ve been reporting, there are a lot of positives in this market, but
as Mike Santoli reports, investors don`t seem to care.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: For the past two
months, the stock market has been nearly immune to what seemed like good
news. Not only are U.S. employment and retail spending still strong, but
several promised positive catalysts have passed without stemming the drop
of more than 10 percent in the S&P 500. This include a third straight
quarter of 20 percent corporate earnings growth, the resumption of
aggressive share buy backs by companies in October, the passage of midterm
elections with the gridlock result that Wall Street likes, a trade truce
with China, and a softer tone from the Fed on interest rate plans.

This run of upbeat or hoped for events has not been enough to rescue stocks
from an overriding fear of a 2019 global slowdown, the chance that the Fed
will hasten the downturn with further rate hikes and continued uncertainty
over China trade relations. Now, as Wall Street entered the final two
weeks of trading with the S&P 500 down a few percent, the question turns to
whether the market priced in enough negative possibilities to find support
even if we get the feared slow down and reduced profit expectations.

Some strategists calculated the reduced valuation is already implying
something close to flat corporate profits for 2019, suggesting there may be
a cushion built up already. And measures of investor sentiment are showing
anxiety that could leave the market open to pleasant surprises. Investors
pulled a record amount from stock funds in the latest week which might mean
the public is braced for tougher times.

Perhaps a reaction to the Federal Reserve interest rate decision and
outlook this week will be the best signal of whether the market has worried
itself into a state that leaves it primed for a relief rally that doesn`t
immediately fizzle.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

HERERA: And that Fed meeting that Mike just referenced has been a focus
for investors and especially today. Over the weekend, long-time hedge fund
manager Stanley Druckenmiller and former Federal Reserve Governor Kevin
Warsh wrote an op-ed in “The Wall Street Journal” that said central bankers
should not raise interest rates when they meet this week.

That sentiment was echoed by White House adviser Peter Navarro.

(BEGIN VIDEO CLIP)

PETER NAVARRO, TRADE AND INDUSTRIAL POLICY DIRECTOR: On Wednesday, the
only argument I`m hearing for the Fed to raise rates now is that somehow
they have to exert their independence from the White House. Now, this is a
bad argument. I think what the Fed should do is simply do what it says it
is going to do which is look at the data.

(END VIDEO CLIP)

HERERA: So, with the Fed meeting looming and volatility on the rise, what
should investors be watching?

We are joined by Jeremy Bryan, portfolio manager at Gradient Investments.

Jeremy, welcome. Nice to have you here.

JEREMY BRYAN, GRADIENT INVESTMENTS PORTFOLIO MANAGER: Thanks for having
me.

HERERA: Let me pick up on what Mr. Navarro said earlier. There are those
people on Wall Street who feel as though the market is concerned about the
Fed`s independence and as a result of that, it almost forces them to
maintain their independence by raising interest rates this week. What do
you think of that argument?

BRYAN: Yes. There`s an argument to be made there. I think the bigger
component is that we haven`t had a dramatic deceleration in economic data
yet. I think the Fed is going to stay the course for the December rate
hike. I think the probabilities out there are probably fairly accurate.

What may change is what the 2019 outlook looks like and the conversations
that may come as a result of that. If they change course in just the
sentiment for 2019`s outlook, that may give the market a little bit more of
a relief rally as a result.

HERERA: The other big fundamental factor that`s looming large is the
possibility of a government shutdown, which has created volatility in this
market last week and also today as well. How much of a possible shutdown
is factored into this market already?

BRYAN: Sure. I think the market`s digesting at least the threat of a
shutdown. At this point we don`t have anything concrete, but what we do
have that`s different is we have a Democratic House that`s coming into
play. And that`s a different dynamic than we have had since 2016. So, it
will be an interesting dynamic to see where the market shakes out from
that.

I think if we have a small shutdown, the market can digest that okay. I
think if we start to see worsening rhetoric around it or a prolonged
shutdown, that`s something the market isn`t ready for yet.

HERERA: It`s kind of difficult for longer-term investors to take a look at
the portfolio and try to rebalance when you have a market that goes from up
46 to down 507. But I think that`s what you think they should do is look
at their game plan, correct?

BRYAN: That`s exactly right. What we are assessing here at Gradient is
just reassessing and rebalancing. That`s the biggest component that you
can do right now.

So, if you have gains and you have stocks that you can trim gains from,
there is not a lot being that most asset classes are down this year. But
if you have some and you might want to make a trim here and there, that`s
absolutely fine. What else you might want to do is if you have taxable
accounts, it might be a good time to think about doing some tax rebalancing
and taking some of those tax losses, especially for companies that you
don`t want to be involved with longer term.

HERERA: And that`s if you are an active investor. But what about passive
investing? Jeffrey Gundlach today of Doubleline Capital gave an interview
to CNBC which produces this program and he made some comments on passive
investing. He took a swipe at it. Here`s what he had to say.

BRYAN: Yes.

(BEGIN VIDEO CLIP)

JEFF GUNDLACH, DOUBLELINE CAPITAL FOUNDER: I think passive investing is a
mania or reached mania status as we went into the peak of the global stock
market and the U.S. stock market. I think, in fact, passive investing and
robo advisors which I think tie together are going to exacerbate the
problems in the market because it`s herding behavior.

(END VIDEO CLIP)

HERERA: What do you think of that statement?

BRYAN: Yes, you know, my stance is honestly there`s not much thing as
passive investing. I think you need to know what you own, whether you own
ETFs or whether you own individual stocks. You need to understand what
those ETFs and your portfolio are for. If you own an S&P 500 ETF, you need
to understand you own 500 U.S. companies. You need to know what that means
for your portfolio.

So, that`s the way we think about it from our perspective at Gradient is
understanding what you own and investing in that regard.

HERERA: All right. On that note, Jeremy, thank you very much. Jeremy
Bryan with Gradient Investments.

BRYAN: Thank you very much.

HERERA: And now to the weaker economic data that we mentioned at the top
of the program. The New York Regional Manufacturing Index slumped to a 19-
month low. Factories in the empire state reported a sharp slow down in
business. New orders fell, along with shipments. Economists say this
latest report adds to the signs that the U.S. economic growth is, indeed,
moderating.

And sentiment is also down in the home building industry. A new report
puts confidence at its weakest level in three and a half years. Home
builder stocks, however, finished mixed on the hopes that the central bank
will halt the rate hikes. But that doesn`t erase the downbeat mood in the
sector.

Diana Olick has the details.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The expectation was
that the drop in mortgage rates would boost builder confidence a little.
But that did not happen. Home builder sentiment dropped four points in
December to 56, the lowest level since May of 2015 and a steep drop from 74
just one year ago, this according to the National Association of
Homebuilders.

Anything above 50, though, is considered positive sentiment. But it`s all
about affordability, which is still very weak despite the pullback in
mortgage rates. Home prices are just too high.

NAHB chairman Randy Noel said in the release, we are hearing from builders
that consumer demand exists but that customers are hesitating to make a
purchase because of rising home costs. Of the index`s three components,
current sales conditions fell the most, down six points. Sales
expectations in the next six months dropped four points and buyer traffic
fell two points.

Originally, sentiment fell hardest in the Northeast and West where home
prices are highest. It was down across the nation. Tomorrow morning, we
get a read on housing starts which have been weak for months.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: Johnson & Johnson (NYSE:JNJ) announced a $5 billion share
repurchase program. The company also reaffirmed its 2018 sales and
adjusted earnings per share guidance. This after the stock fell sharply on
a report of asbestos in baby powder, something we told you about on Friday.
In an interview today with CNBC`s “Mad Money”, CEO Alex Gorsky responded to
the allegations.

(BEGIN VIDEO CLIP)

ALEX GORSKY, CEO, JOHNSON AND JOHNSON: I would start by saying that we
unequivocally believe our talc, our baby powder does not contain asbestos.
That`s demonstrated in thousands of studies, not only conducted by Johnson
& Johnson (NYSE:JNJ), but studies conducted by independent authorities,
well-respected authorities where we work closely with regulators who are
overlooking the methodology. And, by the way, throughout this process, we
also not only use the best testing methodologies that were available, but
we continued to improve them through the years.

(END VIDEO CLIP)

HERERA: Shares fell nearly 3 percent today, adding to the 10 percent
decline of Friday.

Goldman Sachs (NYSE:GS) found itself where no company wants to be. It is
tangled up in a corruption scandal. The scandal is in Malaysia and now,
that country is filing criminal charges. That sent the stock down more
than 2.5 percent.

Wilford Frost has the details.

(BEGIN VIDEOTAPE)

WILFORD FROST, NIGHTLY BUSINESS REPORT CORRESPONDENT: Goldman Sachs
(NYSE:GS) was dealt another blow in a scandal it`s been trying to contain.
Malaysian prosecutors filed charges against the bank and two former
employees saying they committed gross violations of the country`s
securities laws.

This all relates to a bond issuance in 2012 and `13 that saw Goldman Sachs
(NYSE:GS) help the sovereign wealth fund 1MDB raise $6.5 billion, some of
which was later siphoned off fortunately by one 1MDB employees. The
Malaysian attorney general says Goldman Sachs (NYSE:GS) had to be held
accountable and is seeking off the top of my heads worth over $3 billion.
The U.S. Department of Justice is also investigating the issue.

Goldman Sachs (NYSE:GS) responded today and said, quote, we believe these
charges are misdirected. We`ll vigorously defend against them and look
forward to the opportunity to present our case. The firm continues to
cooperate with all authorities investigating these matters. They added,
quote, certain members of the former Malaysian government and 1MDB lied to
Goldman Sachs (NYSE:GS).

The stock has fallen sharply in recent months on news of the
investigations, down nearly 27 percent since early November, losing nearly
$15 billion in market cap. Investors not only fearful of a large fine but
possible loss of revenue for Goldman and more importantly, possible rising
cost from a need to improve internal functions. This is the first time
Goldman faced criminal charges on the case. But neither Malaysian nor U.S.
Justice Departments have suggested Goldman`s involvement was intentional.

For NIGHTLY BUSINESS REPORT, I`m Wilford Frost in New York.

(END VIDEOTAPE)

HERERA: It is time to look at some of today`s upgrades and downgrades.

Best Buy (NYSE:BBY) was downgraded to under perform at Bank of America
(NYSE:BAC) Merrill-Lynch. The analyst cites slowing sales of TVs and
iPhones. The price target $50. The stock fell more than 5-1/2 percent to
$52.23.

Lululemon was upgraded to buy from hold at Stifel Nicolaus. The analyst
there cites the potential for double digit revenue growth. The price
target is $151. The stock fell a fraction, along with the broader market
today, to $118.87.

And Stanley Black & Decker (NYSE:SWK) was upgraded to buy from hold at
Deutsche Bank. The analyst likes the company`s fundamentals and is less
concerned about the possible impact of tariffs. The price target is $143.
The stock rose more than 1 percent to $119.98.

Still ahead, the market turmoil doesn`t appear to be slowing down online
shopping.

(BEGIN VIDEO CLIP)

FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: Today is one of the
busiest of the holiday season for FedEx (NYSE:FDX). The company expects to
break its record for holiday deliveries. Coming up, I`ll show you how e-
commerce is the driving force.

(END VIDEO CLIP)

(MUSIC)

HERERA: Oil prices settled below $50 a barrel for the first time since
October of last year. The market is concerned about an oversupply in the
U.S. This after industry data showed inventories at the storage hub at
Cushing, Oklahoma, rose by more than over 1 million barrels. Add to that,
worries about global demand and domestic crude settled down about 2.5
percent.

CEO confidence has fallen to a two-year low. A new survey says chief
executives are concerned about a cooling economy, rising interest rates and
uncertainty related to trade with China. The survey also cited corporate
debt levels as a developing concern, especially if the Fed continues to
hike rates.

It was a rough day for health care stocks. The sector was pressured not
just by the broad market sell-off, but also by a legal ruling late Friday
that said the Affordable Care Act or the ACA was unconstitutional.
Insurers Molina and Centene (NYSE:CNC) have the highest exposure to the
ACA. Hospital stocks also fell.

So, what happens next for the industry given the ruling?

Mary Agnes Carey covers health care for Kaiser Health News and she joins us
now.

Mary Agnes, welcome. Nice to have you here.

MARY AGNES CAREY, KAISER HEALTH NEWS SENIOR CORRESPONDENT: Thank you.

HERERA: It was a shock for the market partly because of the timing of this
ruling. It came late Friday night Eastern Time. So, the market only had
today to react to it.

But in essence, what does this change, if anything at all?

CAREY: Right now, it doesn`t change a thing. Insurers that are part of
the Affordable Care Act marketplace, they are still in place for 2019.
Consumers on the federal exchanges, as you note, had through Friday
midnight to enroll. Some states like California have a longer enrollment
period.

So, everything is in place for 2019. But, of course, another legal
challenge to the Affordable Care Act just creates uncertainty for a lot of
companies.

HERERA: And a lot of people as well.

CAREY: A lot of consumers, exactly.

HERERA: And it is millions of people. Can you put in context for us how
many people use the Affordable Care Act?

CAREY: Sure. About 20 million people have newly found coverage on the
Affordable Care Act, either the exchanges or in the marketplaces. But for
millions of other Americans that might get health care through work, the
idea that their pre-existing medical conditions, they will still be covered
is incredibly important. There is also no more lifetime or annual limits
and no cost-sharing on preventative services. And for some Americans a
more comprehensive package of benefits.

So, all that is thrown into question with this legal challenge.

HERERA: And do you view an appeal in the offing?

CAREY: Oh, absolutely. There are other matters in this particular Texas
case that need to be settled with the judge in January. There will be an
appeal to the appeals court for the 5th Circuit. And some analysts expect
it to go to the Supreme Court.

HERERA: Now what will that do basically to those industries involved?
Because they have choices as to whether or not they want exposure to the
Affordable Care Act. We mentioned Centene (NYSE:CNC) and Molina.

Do they make business decisions based on the idea that it`s going to be
appealed or do they just stay the course and see what plays out?

CAREY: I think for now, they would stay the course. But as you look to
when the firms need to put in their bids for 2020, for example, by that
point in time will the appeals court have heard and ruled on this
particular ruling? And if they have, are there signals at that point of
whether or not it`s going to the Supreme Court and when?

So, I think for now people will hold. As they look to the next enrollment
season for 2020, it could have some impact.

HERERA: Mary Agnes Carey, thank you so much.

CAREY: Sure. Thank you.

HERERA: Mary Agnes is with Kaiser Health News.

Well, the cloud helps lift Oracle`s bottom line. That`s where we begin
tonight`s “Market Focus”.

The company reported better than expected earnings and revenue. It added
more clients to its cloud services and licensed support division, which is
the biggest business unit. Hardware revenue was, however, a little shy of
estimates.

But in general, it helped lift the shock in the initial after-hours
trading. Shares fell during the regular session to $45.73.

Boeing (NYSE:BA) is increasing its dividend by 20 percent to $2.05 a share.
The Dow component also announced a $20 billion buyback program and that is
up from $18 billion approved last December. That lifted the stock in
initial afterhours trading. It finished the regular session down just a
fraction to $316.13.

Jack in the Box apparently looking into selling itself. The restaurant
chain has seen lower sales and operating earnings and says it talked to
buyers about a potential sale. The board, though, did not lay out a
timetable. The stock rose 2 percent to $82.03.

California regulators late Friday said that PG&E falsified natural gas
pipeline safety records for years. An inspection found that utility
company didn`t have sufficient staff to fulfill required inspections and it
pressured employees to complete the work. PG&E says it is taking action in
response to the findings. The shares fell 6 percent to $24.44.

Today is one of the busiest days for FedEx (NYSE:FDX) this holiday season.
The shipping company expects to break records and process more packages
than ever.

Frank Holland takes us behind the scenes at a facility in Edison, New
Jersey.

(BEGIN VIDEOTAPE)

HOLLAND: The e-commerce boom has this FedEx (NYSE:FDX) facility busier
than it`s ever been.

PATRICK FITZGERALD, FEDEX SVP: It`s a huge impact on the holiday shipping
season, but it`s also a year-round phenomenon.

HOLLAND: The company predicting it will deliver more than 400 million
parcels, packages and other products between Thanksgiving and Christmas,
breaking its record from 2017.

FITZGERALD: The volumes and the peak season start to accelerate earlier
every year as e-commerce grows.

HOLLAND: UPS and the Post Office are also expecting to ship a record
amount this holiday season. For Thanksgiving week, Cyber Week, and the
week after, all three getting high marks for on-time delivery. FedEx
(NYSE:FDX) hit 95 percent. The average for the rest of the year is 98
percent.

TED DENGEL, FEDEX MANAGING DIRECTOR: Definitely growing. We can handle
the volume. We are looking at new ways to automate to our processes, to
handle more of that volume.

HOLLAND: This automated facility in Edison, New Jersey, was built in 2016
in response to the e-commerce explosion. FedEx (NYSE:FDX) says the
automation you see here helps the company handle more volume and deliver
even bigger packages.

DENGEL: We have about 80 percent of volume in the middle of the package
spectrum that goes through the automated system. But now, this time of
year with e-commerce, really the ends of the spectrum really change. The
smallest packages with volume increases and on other side, the largest
packages, that volume increases as well. So, think of things like tires
and trampolines and small furniture, comes to the facility, especially even
higher this time of year.

HOLLAND: Last quarter, FedEx (NYSE:FDX) saw the amount of packages it
handles on an average day increase by 3 percent. Analysts expect the trend
to continue. FedEx (NYSE:FDX) expects more and more orders than can fit
under a Christmas tree. That requires a more flexible supply chain.
Management says automation is a key to the goal.

DENGEL: Allows us to be flexible. We can ramp up and down. It allows us
to move volume around the network in different ways. During this time of
year especially, we have surges that happen from our customers.

HOLLAND: For NIGHTLY BUSINESS REPORT, I`m Frank Holland in Edison, New
Jersey.

(END VIDEOTAPE)

HERERA: FedEx (NYSE:FDX) reports its quarterly results tomorrow. And
investors are hoping to hear more about its delivery business.

Coming up — why the future of retail may be cashierless.

(MUSIC)

HERERA: CBS`s board of directors concluded its investigation into former
CEO Les Moonves and cultural issues at the network. It found that
harassment and retaliation are not pervasive but that diversity and
inclusion initiatives are, quote, inadequate. It also said that Moonves
will not receive a $120 million severance payment.

Google (NASDAQ:GOOG) is providing details of its expansion into New York
City. The company plans to spend more than $1 billion in lower Manhattan
as part of a project that could add more than 7,000 workers which would
double the current number in the city. Google (NASDAQ:GOOG) opened its
first office in New York 20 years ago.

California has abandoned the plans to tax text messages. Regulators say a
new FCC ruling prevented the state from levying the tax because it
reclassified texts. The money raised would have gone to fund programs to
bring connectivity to underserved residents. The tax had been opposed by
consumers and the wireless industry.

The holiday shopping season is entering the home stretch. And one big
theme that has emerged this year is high tech convenience, especially at
check out.

Courtney Reagan is in Dallas tonight.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Time is running
short to finish your shopping. But a store with no true checkout may
improve your frantic experience. At least that`s what retailers like Sam`s
Club is hoping.

This new Sam`s Club is a store and technology lab in one. The Walmart-
owned wholesale retailer can test technologies before deciding which to go
with. Scan and go has been available as one checkout option for Sam`s
shoppers for a couple of years. But it`s the only way to check out here.
There are no registers.

Sam`s Club said the scan and go checkout hasn`t eliminated jobs, just
repositioned what employees do at the store.

A member host helps shoppers sign up with the app for the first time which
takes about two minutes. Then they`re ready to shop. You simply scan
items as you go and load up your cart. Then at the exit, you scan a QR
code on your phone as you go.

JOHN FURNER, SAM`S CLUB CEO: We`ve had great member feedback for almost
three years now with scan and go. It`s one of these applications, the rare
ones you get where people tell you they love the product, they love the
time it saves them, the ratings are high. The re-usage rates are high.
It`s over 40 percent just over a year ago.

REAGAN: At Amazon (NASDAQ:AMZN), seven Amazon (NASDAQ:AMZN) Go stores,
shoppers don`t have to scan the products, just scan in with the app when
entering the store, shop normally and walk out. Cameras and sensors detect
the items in the cart and charge you once you leave. While Sam`s and
Amazon (NASDAQ:AMZN) built their own systems, standard cognitions sells
cashierless technology to retailers like grocery, drug and convenience
stores in Japan, the U.K. and the U.S.

Like Amazon (NASDAQ:AMZN) Go, shoppers check in with the app, cameras
detect the purchases and charge the connected account automatically. None
of these companies are disclosing the cost of the technology. But standard
cognition says in the long run, it`s less than the cost of traditional
checkout.

But like all technology, there are bugs that need worked out and it`s not
always perfect. But Sam`s Club says that`s all part of the reason for
testing at this one unique store.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Dallas, Texas.

(END VIDEOTAPE)

HERERA: Here`s another look at the final numbers on Wall Street. The Dow
dropped 507 points. The Nasdaq was down 156 and the S&P 500 fell 54.

That does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks
for joining us. Have a great evening. We`ll see you tomorrow.

END

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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