Transcript: Nightly Business Report – December 18, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Dizzying day. Stocks rallied
and fizzled and gained steam again, making it tough for investors to figure
out what exactly this market wants.

Sour sentiment. Surveys show confidence in the economy is waning. The
question is, when will the harder statistical reports show the same?

Industry blossom. Why Kentucky could fast become the America`s hemp
capital?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Tuesday,
December 18th.

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

Stocks struggled to keep a strong rebound alive in what was yet another
volatile trading session. The market rallied early on, but midday, the
gains fizzled and gathered steam into the close. Energy stocks fell on a
sharp decline in oil but investors were mostly in wait and see mode, ahead
of the Fed`s decision on interest rates tomorrow.

The Dow Jones Industrial Average rose 82 points to 23,675. The Nasdaq
added 30. And the S&P 500 was up a fraction.

Bob Pisani takes a look at what`s driving this market.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks staged a
comeback early on, regaining a big chunk of Monday`s steep losses but it
was another rally that faded into the close. It`s tough to figure out what
exactly the markets want right now.

So, the market has been seized by the slowing global growth story. And
it`s been a buyer strike lately. We have seen half hearted attempts to
rally in heavily oversold groups like banks, but all the rallies failed.
There`s no real follow-through. No one is being rewarded for buying the
dips.

The bulls are pinning their hopes on the Federal Reserve putting a floor
under stocks. Now, how would they do that? By signaling a most one rate
hike next year down from about the three hikes that were expected just a
few months ago. But will it matter?

The bears are screaming that they have already priced in one rate hike for
2019 and bigger debate has emerged around those who are calling for the Fed
not to hike at all tomorrow or even next year. The problem is that imply
the Fed is spooked about something in the economy causing them to hesitate,
maybe the markets will have the opposite reaction and go down.

So far, no real agreements on what makes the market go up or down on the
Fed decision.

Now, does the market rally because it`s relieved or do stocks selloff
because investors think the Fed has panicked. You see? A lot of
confusion.

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

(END VIDEOTAPE)

HERERA: And it`s been a while since the Fed meeting has gotten this much
attention. Today, policymakers gathered the first of a two-day meeting to
decide on the direction of interest rates. Now, a lot has changed in the
market in the past few weeks.

And as Steve Liesman reports, the outlook is shifting as well.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s become the most
controversial Fed meeting in recent memory. With the Fed gathering with a
prior forecast to hike rates but after a deep market selloff and worries
about the economic outlook suggesting the Fed may have already hiked too
much.

Despite these concerns, 98 percent of respondents to the CNBC Fed Survey
think the Fed will still hike rates by a quarter point. But they backed
off the outlook for rate hikes in 2019, at least somewhat. The 43
respondents who include fund managers, strategists and economists lowered
their estimates for the number of hikes next year to just under two.
Before the debate was whether there was two, or maybe as many as three.

The reason the group thinks the Fed ought to hike is because they think the
market has fallen too far. Sixty-three percent say the recent market
selloff reflects too pessimistic an outlook for earnings and the economy.
The biggest threats to growth are seen as protectionist trade policies,
slowing global growth and a Fed making a policy mistake.

Amid those worries, respondents to the survey up the probability of a
recession in the next year to 23 percent. That`s the highest level for the
Trump presidency, four points higher than the long run average. But it
surged before as high as 28 percent and not resulted in a downturn.

So, the Fed has a choice to make and the market bet is that it hikes by a
quarter point and holds off some next year.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: And it`s no secret that the hot housing market is starting to
cool. Today, another disappointing report was released, this time on home
construction.

Diana Olick is in Washington tonight.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The nation`s
homebuilders are pulling back. Single family home construction took a dive
in November, falling to the slowest pace in over a year, according to the
census. And this came after another report that home builder sentiment had
dropped to the lowest level in more than three years.

The only bright spot in the numbers, multifamily starts jumped over 20
percent annually showing still very strong demand for rental housing as
existing home sales weakened further. New home sales for November are not
out yet, but one top analyst who surveys over 400 builders says the writing
is already on the wall.

JOHN BURNS, JOHN BURNS REAL ESATE CONSULTING: I definitely think we are in
a correction. Sales according to us — our survey last month were down 19
percent year over year. Now, that`s off a tough comp. I call it a
correction.

OLICK: Sales were high last year because the mortgage rates were low, a
full point lower than today. Home prices are still high, although the
gains are shrinking.

While builders begin to cut prices they can`t cut much especially because
they are building in the move up market, not entry level.

BURNS: Half of America can only afford a $230,000 mortgage. And the
builders in good locations just can`t get down to anywhere near that.
Eleven of the top 18 or 19 builders, their average sales price is above 400
grand.

OLICK: Fewer people may want to move up now that mortgage rates are
higher, because to move up, they`d have to give up the rock bottom rate
they already have.

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

(END VIDEOTAPE)

HERERA: As Diana just mentioned, housing sentiment data has turned weaker.
Other confidence surveys have also shown a dip. But that`s one view of the
economy. The other is derived from harder statistical reports which are
yet to show substantial declines.

Dominic Chu takes a look at the divergence.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Traders and investors
are working through a confidence crunch. Markets have gone from an
“accentuate the positive, eliminate the negative” mode, to more of an
“accentuate the negative and eliminate the positive” mode. The erosion in
confidence is arguably being driven by trends in economic survey data that
have been trending lower.

For example, the CBC Fed Survey from today, nearly a quarter of respondents
now expect a recession in the next 12 months. Or the chief executive group
CEO Confidence Survey yesterday which posted its sharpest month over month
drop in outlook for business conditions this year and hit the lowest level
since before the 2016 presidential election.

A big question for investors and maybe those on Main Street as well is when
will the actual hard albeit backward looking economic data like gross
domestic product, non-farm payroll, consumer spending and others start to
reflect the more coincident and forward looking sentiment indicators?
Those who are already closely tide to the housing industry have been taking
note for a while. This morning`s housing start showing slow downs hinted
at for months at this point.

For now, hard economic data points are still supporting the thesis that the
American economy is doing better than its peers around the world.
Unemployment stands at multi-decade lows. The economy is not booming but
it`s still growing. And many indicators for services and manufacturing
activity still signaling expansion.

Now, the question is whether the hard economic data starts to catch up to
the slowing confidence numbers or vice versa.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA: The selloff in oil deepened today. Prices touched their lowest
levels since August of last year on speculation that Russia increased its
output by a record amount this month. Concerns over global growth also
raised doubts about future demand. Today, domestic crude settled 7 percent
lower to $46 a barrel. Prices have now fallen about 38 percent since early
October.

To Capitol Hill now where Senate Majority Leader Mitch McConnell is
predicting there will not be a partial government shutdown despite some
back and forth between the two parties today. Funding for the government
expires Friday.

Ylan Mui is following the story for us tonight.

Good to see you, Ylan.

So, where does thing stand and are we any closer to reaching a deal?

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: So, the odds of a
government shutdown have decreased dramatically today and that`s because as
you mentioned, Senate Majority Mitch McConnell has said he is sure
lawmakers will be able to avert a shutdown. Now, the current thinking is
that they would pass a short-term spending deal likely to last through
February. Democrat haves said they would support such a deal.

The big question is, will President Trump support it? He said we will see
when asked about this today around the White House. But certainly
Democrats and Republicans now are in agreement on what they want to see to
move forward. President Trump just needs to get onboard.

HERERA: We`ll see, indeed.

Let`s turn to next year, 2019. The Democrats will then control the House.
So what are their plans for challenging the Republican tax law?

MUI: Well, one of the big criticisms the Democrats have of this law is
that to it primarily helps large corporations at the expense of workers.
So, not only are they upset about the decline in the corporate tax rates
and that not turning into higher wages for workers, they`re also unhappy
with some of the provisions that lower the rate that companies pay on
foreign earnings. They`re pointing to layoffs at places like GM and AT&T
(NYSE:T) as proof that these companies aren`t sharing the gains of the tax
bill with their employees.

You better believe that there is going to be plenty of hearings about this
in the New Year.

HERERA: I`m sure there will be.

And the ever popular, not, caps on state and local tax deductions, very
unpopular in blue states.

MUI: Yes, so one Democrat from New Jersey, Bill Pascrell, is right now
preparing legislation that he plans to introduce in the new year that would
get rid of this cap. And basically, this limits the deduction that
households can take on state and local property income taxes to $10,000,
that`s hitting blue states like California, New York and New Jersey really
hard.

A lot of Democrats in those states ran on that unhappiness over this cap.
They won seats. They expanded their majority in the House and now they`re
going to have to make good on promises once they take control of the House
in Congress.

HERERA: There also was a move by the Treasury to take away the ability to
kind of donate those property taxes to charities. Is there any movement do
you think in the new year on maybe moving that back?

MUI: There had been a lot of consideration in some states about ways to
work around this provision. I think that what you are seeing on Capitol
Hill is Democrats trying to focus on getting rid of the cap altogether.
The big challenge they face is that it`s really expensive to that. This is
estimated to raise something like $830 billion over the next ten years.

So, if Democrats have been hitting Republicans for the cost of their tax
plan, adding another big tax cut is really not going to help with our debt
and deficit situation.

HERERA: It all means you`re going to be very busy in the New Year, Ylan.

MUI: Absolutely.

HERERA: Thanks so much. Ylan Mui in Washington.

It is time to look at some of today`s “Upgrades and Downgrades”.

Phillip Morris was downgraded to underperform from neutral at Credit
Suisse. The analyst saying earnings growth will face challenging. The
price target $74. The shares fell more than 7-1/2 percent to $75.17.

Kansas City Southern (NYSE:SO) (NYSE:KSU) was downgraded to neutral from
overweight at JPMorgan (NYSE:JPM). The analyst there cites heighten
political uncertainty in Mexico. The rail operator gets half of its
revenue from that country. The price target is $118. Shares fell a
fraction to $95.65.

That same JPMorgan (NYSE:JPM) analyst upgraded Norfolk Southern (NYSE:SO)
to overweight from neutral. The analyst sees about $600 million in
potential productivity gains. The price target is $203. Shares were up
slightly to $148.36.

Still ahead, the sector that`s outperforming the broader market for the
first time since 2015.

(MUSIC)

HERERA: FedEx (NYSE:FDX) is cutting its earnings forecast for next year,
citing weakness in Europe and signs that global trade is softening. The
package delivery company earned $4.03 a share, which was above
expectations. Revenue was up from last year and slightly better than
estimates. But it was the outlook that investors focused on, sending the
stock initially lower in after hours trading.

Eric Chemi has more on FedEx`s quarter.

(BEGIN VIDEOTAPE)

ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The big takeaway from
FedEx (NYSE:FDX) today was the fact that the company lowered earnings
guidance for the rest of its 2019 fiscal year. The company said while the
U.S. economy remains solid, its international business weakened during the
quarter, especially in Europe. As a result, the company will be installing
new cost-cutting initiatives to mitigate that softness.

Some of that cost-cutting includes a buyout for employees. Cutting back on
variable compensation and limiting certain staff hiring. FedEx (NYSE:FDX)
did say, though, that it is in the midst of another record holiday season.

For NIGHTLY BUSINESS REPORT, I`m Eric Chemi.

(END VIDEOTAPE)

HERERA: To China now where that country`s president talked up the Chinese
economy. President Xi pledged to continue its path of reforms, which
includes boosting private companies and strengthening state owned
enterprises. But he did not offer specifics on how to tackle China`s
weakening growth, rising debt and the ongoing trade war with the U.S.

The Chinese telecom giant Huawei is facing challenges around the globe.
First, the arrest of the company`s CFO in Vancouver that we`ve been telling
you about. And now, a number of key markets are either reviewing purchases
of Huawei equipment or have ruled out using its 5G network products. And
that has the company going on an all out PR blitz.

Eunice Yoon has more.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chinese telecom gear
maker Huawei is in a global PR campaign to convince the world that its 5G
technology can be trusted. Today, at its campus in southern China, one of
Huawei`s most senior executives held a rare two-hour press briefing with
foreign journalists.

Rotating chairman Ken Hu challenged doubts led by the U.S. about the
security of its products. He said: Over the past 30 years, hundreds of
telecom operators have used Huawei`s products and there have been no major
cybersecurity incidents and almost zero Huawei equipment has been used in
the U.S. So, where is the evidence to say Huawei is insecure?

The Shenzhen-based company is now embroiled in a trade dispute between the
U.S. and China after its CFO was detained in Canada at Washington`s behest.
Hu wouldn`t comment on the CFO`s case but suggested that the international
pushback against using Huawei gear is political. He pointed to strong
sales as proof that customers are sticking by Huawei, saying it won 25
commercial 5G contracts and expect to rake in $100 billion revenues this
year.

Today, the company opened certain research labs to the media for the first
time, showcasing its latest technology, some of which they estimate could
be 12 to 8 months ahead of its rivals.

Despite the PR effort, Huawei faces concerns that the Chinese could make
demands that the company wouldn`t be able to refuse. Hu addressed that
issue, reiterating that no law in China requires companies to install back
doors and added: In the past, we have never received any such requests to
provide information. In the future, we will also in strict accordance with
the law deal with similar situations.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Shenzhen.

(END VIDEOTAPE)

HERERA: Navistar keeps on trucking and that`s where we begin tonight`s
“Market Focus”.

The truck maker topped Wall Street earnings and revenue estimates of the
most recent quarter. The company says increased demand helped push up
sales nearly 40 percent. The stock popped 15 percent, to $27.57.

Darden beat analyst earnings estimates by one penny. Same store sales rose
2 percent, which was above expectations. And the restaurant chain raised
its forecast for 2018. The shares rose 5 percent to $103.85.

Rent-a-center ended a deal to be bought out by a private equity firm, this
after the deadline to close the deal was not extended. The FTC has raised
anti-trust concerns about the deal. Shares of the small cap company
dropped 9 percent to $13.03.

And Micron Tech reported revenue that was weaker than analysts had hoped
for. The chip maker says a supply glut pushed prices of its memory chips
lower. And that sent the stock lower in initial after hours trading. The
stock rose slightly in the regular session to $34.11.

Real estate investment trust otherwise known as REITs are beating the
broader market for the first time since 2015. The benchmark index for the
sector has a total return of 2.6 percent, compared to the 3 percent decline
for the S&P 500.

But will this trend continue?

We are joined now by James Sullivan, REITs analyst at BTIG.

James, nice to have you here. Welcome.

JAMES SULLIVAN, REITS ANALYST, BTIG: Yes. Good to see you, sue.

HERERA: You picked three sectors for us to low back at and a number of
names on each one of them. We kind of broke it out into malls, apartments
and hotels.

`Tis the season to go shopping. So, let`s start with malls. You have two
names you like there, Simon and Macerich (NYSE:MAC).

SULLIVAN: Sure, we think the consumer is a in good shape. We have very
low unemployment. We have upward pressure on wages and we have relatively
high consumer confidence.

We`re seeing sales surprise to the upside in the holiday season so far. We
think that position portfolios for mall REITs very well for 2019. So,
Simon, which is the largest REIT with a $55 billion market cap, great
balance sheet, very well-positioned to outperform for the next several
quarters we believe.

And Macerich (NYSE:MAC), which is focused in the West Coast primarily.
Strong portfolio we like how they are positioned. They have underperformed
year to date we think that makes the value proposition especially
attractive.

HERERA: Let`s move to apartments. And, you know, the recent housing data
showed growth in apartment buildings but not in single family homes. So,
it seems to me as though the apartment builders, they have pricing power.

SULLIVAN: That`s right. What has been bad for home builders has been
relatively good for apartment owners. Lease turnover rates are at all-time
lows, i.e., renters staying in longer, that`s allowing apartment owners to
raise rents on new leases at a higher rate than many of us expected they
could at this time, versus our expectations at the beginning of the year.

HERERA: Um-hum.

SULLIVAN: As we look out to 2019, even though we saw a sizable increase in
starts and permits today, we think demand is going to be more than healthy
enough to absorb that increase in supply that we`re going to see.

HERERA: And —

SULLIVAN: And strong momentum in terms of top line.

HERERA: I just want to get to your — you have three picks: AvalonBay
communities, Essex Property Trust (NYSE:ESS) and Camden Property Trust
(NYSE:CPT). Which would be your favorite out of those names?

SULLIVAN: Well, I would say at this point probably AvalonBay. They have a
portfolio that`s pretty much concentrated on the West Coast and the East
Coast. So, they will benefit from strong job growth in those major gateway
centers. They are a successful developer. And we like their ability to
create value through development.

HERERA: OK. Let`s move on to hotels and in the 30 seconds we have left.
You like Host Hotels and Pebblebrook Hotels. Why?

SULLIVAN: Yes, Host is the larger cap name. It had sold off, in fact,
with concern about growth in the economy next year. We think it`s
attractively priced, well below its — its 12-month high. And Pebblebrook
is a smaller cap name, very well-positioned to benefit, especially with a
focus on the San Francisco market, which should do very well as the Moscone
Center comes on stream in the coming quarters.

HERERA: All right, James. Thanks so much for those picks. We`ll see you
again soon.

SULLIVAN: Thank you.

HERERA: James Sullivan with BTIG.

Coming up, Kentucky`s big bet on a growth industry.

(BEGIN VIDEO CLIP)

FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here in Kentucky,
they have high hopes this plant but it`s hemp, not cannabis. Coming up,
I`ll explain how president Trump can turn this into a cash crop.

I`m Frank Holland. I`ll have the story coming up on NIGHTLY BUSINESS
REPORT.

(END VIDEO CLIP)

(MUSIC)

HERERA: Here a look at what`s what for tomorrow.

As we reported, the Federal Reserve will issue the decision on interest
rates at the end of one of the most controversial meetings in recent
memory. Existing home sales for November are due. And this report follows
a string of weaker reads on housing. And weekly mortgage applications tell
us if the recent dip in rates led to more buying or refinancing.

That`s what`s to watch for on Wednesday.

The move towards gender equality stalled. According to the World Economic
Forum, fewer women are joining the workforce and up and coming industries
like artificial intelligence are dominated by men. Women did make gains in
income over the past year, but saw declines in access to health care,
education and political involvement.

SpaceX is reportedly raising $500 million in its latest fundraising round.
According to the “Wall Street Journal”, that puts the space venture
valuation at more than $30 billion. The company founded by Elon Musk will
reportedly use the new cash for a satellite Internet project.

HERERA: The surgeon general issued a rare advisory about e-cigarettes.
He`s urging pushing for things like new taxes and indoor vaping bans to
combat teen use which he calls an epidemic.

(BEGIN VIDEO CLIP)

DR. JEROME ADAMS, SURGEON GENERAL: We know that nicotine exposure during
adolescence can uniquely harm the developing adolescent brain, impacting
learning, memory and attention. We know that exposure during this critical
brain period can lead to further addictions.

(END VIDEO CLIP)

HERERA: Just yesterday, a new report showed that more than 20 percent of
high school seniors say they vaped a nicotine product within the past 30
days. That`s about double the number from a year ago.

Cannabis company Tilray inked a global supply and distribution agreement
with Novartis. Tilray calls the tie-up the first deal of its kind with a
big pharma company. That sent shares of Tilray higher by 16 percent.

One variety of the cannabis plant is hemp. When the president signs the
farm bill, hemp will become legal in the U.S. and Kentucky could be center
for this new budding industry.

Frank Holland is in Lexington for us tonight.

(BEGIN VIDEOTAPE)

FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: These are hemp
flowers, the raw material for cannabidiol better known as CBD which is
being touted as a treatment for a number of conditions. It is a budding
business that generated $590 million in U.S. sales this year and is
projected to blossom into a $22 billion industry by 2022.

BILL HILLIARD, ATALO HOLDINGS CEO: We already know the demand is there for
the CBD. Basically, this market is exploding. And it will be — it will
be growing astronomically or just geometrically in the next two or three
years.

HOLLAND: Bill Hilliard is the CEO of Atalo Holdings, a company that is
banking that hemp will replace tobacco as the cash crop of Kentucky. It
depends on President Trump signing the farm bill, making it federally
legal.

BRENT CORNETT, HEMP FARMER: The profit margins are on the average hemp
crop far exceeds an excellent tobacco crop.

HOLLAND: Growing hemp for Brent Cornett and other farmers in the Bluegrass
State has been legal since 2013 under a state program. Hemp is a plant
similar to marijuana but it doesn`t get you high.

HILLIARD: Hemp growers will tell you they can make the same amount of
money with average hemp crop as they used to be able to make with a
successful tobacco crop.

HOLLAND: Here at Atalo`s warehouse, they have enough seed to make about
$250 million worth of CBD, but the company is exploring other commercial
uses for hemp.

HILLIARD: The floral material can be used for CBD and somewhat
cannabinoids. The grain or the seeds can be for super foods, high protein
powders and hemp seed oil. And the stalk can be used for building
materials.

HOLLAND: The plant already has a wide range of consumer uses with Estee
Lauder, Home Depot (NYSE:HD), and GNC, putting it into products.

CORNETT: The fact that we got a crop that can benefit people and still
make a living from it, it`s just really exciting.

HOLLAND: For NIGHTLY BUSINESS REPORT, I`m Frank Holland in Lexington,
Kentucky.

(END VIDEOTAPE)

HERERA: And that will do 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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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

 

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