ANNOUNCER: This is NIGHTLY BUSINESS REPORT
with Sue Herera and Bill
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Heating up. It may be cold
outside, but Wall Street`s January was hot. So hot it was the best month
for stocks in 30 years.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Record profit. Amazon
(NASDAQ:AMZN) earns $3 billion and posts a double-digit rise in revenue.
But was it enough?
GRIFFETH: Money 101. Are you smarter than a sixth grader when it comes to
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
HERERA: Good evening, everyone, and welcome.
The first month of 2019 is in the books. And it was the best January for
the S&P 500 since 1987. The snapback is a remarkable reversal from the big
December sell-off. Strong earnings and a shift in the Fed`s thinking
helped propel the market.
On this last day of trading in January, the Dow Jones Industrial Average
fell 15 points to 24,999. The Nasdaq was up 98 and the S&P 500 rose 23.
For the month, all of the major averages were up 7 percent or more. And it
wasn`t just stocks. Oil had its best January on record, rising 18.5
Now, you may be familiar with the old adage as goes January, so goes the
year. But will that be the case this time around?
Mike Santoli takes a look.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: January was a dream
for stock investors that almost fully reversed December`s nightmare on Wall
Street. After December`s brutal 9 percent drop, the worst for that month
since the 1930s, the S&P 500 logged the best January since 1987. And in
fact part of the explanation for the powerful rally to start 2019 is the
extreme weakness late last year. The fourth quarter meltdown in the market
depressed stock valuations and drove growth expectations so low that even
the earnings progress the last few weeks has been enough to assure
The Federal Reserve also reversed itself sharply. Fed Chairman Jerome
Powell in December spooked Wall Street by sticking to an expectation for
further interest rate increases in 2019, but in January, he has radically
shifted toward emphasizing patience in considering further moves.
An old maxim holds that a strong January tends to predict a strong year for
stocks. But there`s not too much behind the supposed rule. An up January
was followed by further gains the rest of the year about two-thirds of the
time since the 1950s. But over the past 15 years, the so-called January
barometer worked six times and failed the other nine. Most recently a year
ago when the S&P was up nearly 6 percent in January, but ended the year
with a loss.
The path ahead for stocks seems more tied to whether corporate earnings
growth slows to round 5 percent, as is now expected, rather than falling
outright. The market has now recovered more than half the 20 percent drop
from September to late December. It increasingly seems that December was
an overblown panic over imminent recession risks. But has the January
rebound been too much too fast?
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
GRIFFETH: So what do we expect from the market next month?
Joining us right now is Rob Sharps. He`s chief investment officer with T.
Good to see you, Rob. Thanks for joining us tonight.
ROB SHARPS, CHIEF INVESTMENT OFFICER, T. ROWE PRICE: Glad to join you.
GRIFFETH: What do you think? Does the strong January continue into
SHARPS: I don`t think so. The main catalyst for the strong January was a
change in Fed messaging, so that`s a catalyst that`s unlikely to repeat
itself. I think we probably ending the year higher from here but the gains
won`t be in a straight line. So my expectation would be that we`ll either
consolidate these gains or maybe even retrace them a little bit in
HERERA: What about the data we`ve been getting recently? It shows that
the economy is — with the exception of probably housing and other sector –
– a couple of other sectors, we`re doing OK. That doesn`t encourage you in
terms of continued stock performance to the upside?
SHARPS: Yes, I think the economy is doing OK, but it`s clearly slowing.
We`re basically going from double-digit year-over-year earnings growth to
low to mid-single digits as we work our way into the middle of 2019. We`ve
got slowing growth and rising interest rates, tends to generally make a
pretty challenging environment for stocks.
GRIFFETH: Now, with the expectation before yesterday that the Fed was
going to be raising rates a couple times this year, there were plenty of
money managers out there who were hanging their hat on the financials
feeling that they would benefit from higher rates and it would hurt the
housing market, just to name two industries. Now that the Fed seems to be
on hold for the foreseeable future, do you reverse that strategy? What do
SHARPS: Look, I think the Fed being on hold is good for stocks. I think
it reduces the risk of a policy mistake leading to recession. So I think
at the margin, sectors that do have a little bit more economic cyclicality
probably offer better risk/reward than they would in an environment where
the fed was persisting with rate increases.
HERERA: I see you like things outside of the United States, specifically
you like Brazil and emerging markets over developed markets, correct?
SHARPS: Yes, our view is that emerging markets` valuations are more
compelling than developed markets, particularly those in the United States.
And many of the things that would be good for the market overall will be
particularly good for emerging markets. The Fed being on pause should lead
to a weaker dollar, which historically has been good for emerging markets.
The resolution of trade war and avoiding an escalation in tariffs would be
good for emerging markets broadly but specifically for China.
GRIFFETH: All right. There`s been a lot of hope placed on the emerging
markets the last few years. We`ll see if maybe this is their year that
Rob Sharps with T. Rowe Price, thanks again for joining us tonight.
SHARPS: Thank you.
HERERA: And trade remains a hurdle for the market, but today, there were
new developments. The two days of trade talks between the U.S. and China
are being described as intense, and the White House says that intensity has
also led to progress.
Kayla Tausche is following this story for us from Washington tonight.
Good evening, Kayla.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good evening, Sue.
The U.S. and China touted tremendous progress in their discussions here in
Washington this week, edging closer to a deal by a March 1st deadline that
would avert tariff hikes or potentially remove tariffs on $250 billion in
U.S. goods and Chinese goods altogether. The president speaking from the
Oval Office this afternoon cited that tremendous progress and said he is
pleased with what China has delivered.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: It`s a very complex and a
very large — it`s the largest transaction ever made action to be perfectly
straight. We have to get this put on paper at some point if we agree.
There are some points that we don`t agree to yet, but I think we will
agree. I think when President Xi and myself meet, every point will be
(END VIDEO CLIP)
TAUSCHE: The Chinese side offered to purchase 5 million tons of U.S.
soybeans, but now comes the hard part. In a statement following the talks,
the White House put out a statement saying the United States is
particularly focused on reaching meaningful commitments on structural
issues and deficit reduction. Both parties have agreed that any resolution
will be fully enforceable.
To that end, the treasury secretary, Steven Mnuchin, and the trade
representative, Ambassador Rob Lighthizer, will be traveling to Beijing in
mid-February to further these talks. The agenda for that trip is still not
set, the ambassador told reporters this evening.
After that they will decide whether it is appropriate for president Trump
to meet with President Xi at some later agreed-upon date and location, but
Lighthizer said the president will make his own decision — Sue.
HERERA: Kayla Tausche at the White House — Kayla, thank you.
GRIFFETH: Elsewhere, speaking of which, China`s economy has taken a hit
from the trade war with the U.S. Today, we learned from a new report that
showed factory activity has actually contracted in the world`s second
Eunice Yoon is in Beijing with that story.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Today`s data showed
that China`s manufacturing sector shrank for a second month in a row. The
purchasing manager`s index for the manufacturing sector ticked up to 49.5
in January from 49.4 in December, better than the forecast of 49.3.
However, anything under 50 indicates a contraction. Production and raw
materials inventories both edged higher, but new orders, an important gauge
of future activity, declined. And manufacturers reported that they cut
Manufacturers are under pressure because of falling profits, decelerating
factory inflation and uncertainty over tariffs. The latest data is a
reminder for Chinese negotiators in Washington of why they need to end the
tariffs boy the March deadline. Businesses here are waiting to see if
Beijing will ramp up fiscal stimulus at the upcoming parliamentary session
in March or earlier.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
HERERA: Dow component DowDuPont is closely monitoring the ongoing trade
negotiations and the pace of economic activity in China. This after the
company said it is forecasting a slowdown in sales due to tepid economic
growth. The company said first quarter revenue will be in the mid-single
digits but did not elaborate. The outlook took investors by surprise and
that sent the stock down more than 9 percent.
GRIFFETH: Amazon (NASDAQ:AMZN), which is now the most valuable publicly
traded U.S. company reported its third straight record profit, easily
beating Wall Street estimates, but its forecast for the first quarter
sales, that wasn`t as strong as hoped for.
Amazon (NASDAQ:AMZN) earned $6.04. Expectations were $5.68. Revenue rose
by 20 percent from over a year ago to more than $72 billion. But the
outlook did create volatility for the shares in the initial after-hours
Deirdre Bosa has more on Amazon`s quarter.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Amazon (NASDAQ:AMZN)
reporting a strong holiday season on the back of record online sales and
its third record profit in a row. The company`s newer businesses, cloud
computing and advertising, continued their quick pace of growth and they
continued to offset lower margins from Amazon`s traditional commerce
Losses in Amazon`s international segment, they ticked up as it faces
competition and regulatory challenges in India, and slowing online sales in
Europe. Investors are focusing on its outlook for the current quarter,
which fell short of expectations.
NIGHTLY BUSINESS REPORT, Deirdre Bosa, San Francisco.
HERERA: R.J. Hottovy joins us now to talk more about Amazon`s earnings
beat. He is a consumer equity analyst at Morningstar (NASDAQ:MORN).
Welcome, R.J. Good to see you again. Welcome back.
R.J. HOTTOVY, MORNINGSTAR CONSUMER EQUITY ANALYST: Yes, thanks, Sue. Yes.
HERERA: What did you make of the report? As expected, they did make a
pretty good advance in its cloud business. Were you impressed or did you
HOTTOVY: Yes, I think the cloud business is one of the highlights here.
Not only the growth numbers which remain quite strong, but also the
profitability there, 29 percent operating margins for that segment. You
know, there`s been a narrative going around that this business while it
continues to grow, it`s going to continue to have that price cuts to
compete with the likes of Azure.
But I think there`s a lot more in the AWS story that doesn`t get enough
credit. There`s a lot of margin of creative services that maybe the market
doesn`t focus on. I think that was clearly one of the high points of the
fourth quarter results.
HERERA: But what about their core retail sales? Last year, overall, up 18
percent. The year before, 42 percent gain. International sales, a gain of
15 percent when the previous year they did 29 percent.
Do you think we`ll see this continued slowdown?
HOTTOVY: I think we will. I think investors also have to be aware there`s
other things going on. One of the big things is the company shifting away
from being a first-party marketplace to a third-party marketplace which is
actually a higher margin transaction. Instead of collecting the revenue on
that direct sale to consumers, it just takes a commission on the sale. So,
part of that is being distorted by that shift of being a third-party
But I do think we`re seeing a slowdown on a couple of international
markets. India obviously is an area that we`re seeing that, potentially
Europe as well. But I think if you look at the long-term picture here, the
ancillary services, the other things that the company is moving into, that
should give the company a chance to reaccelerate at some point. And,
honestly, I think the more important point is these are higher margin
businesses they`re getting into.
I think that`s the attractive part of the overall Amazon (NASDAQ:AMZN)
story. I think this 2018 was a transitional year where they moved away
from just purely a growth story to growth — a profitable growth story for
this company. Just a few years ago, putting up mid single digit operating
margins would have been a pipe dream, and here we have 5 percent and
looking at high single digits potentially over the longer horizon.
HERERA: This is the first report where we see year-over-year performance
from Whole Foods and that`s a slower growing business and fickle business
HERERA: What did you make of their numbers?
HOTTOVY: Yes, Whole Foods is something I think they`re still figuring out
what they have with that particular asset. I think it`s been — the
integration process has probably been a little slower than they would have
hoped there. Online grocery has still been a difficult thing for U.S.
consumers to buy into because it`s expensive, sometimes inconvenient and
frankly a lot of U.S. consumers just like to shop in store for those
And so, I think it`s something that they`re still developing a game plan
for. I think we`ll continue to see it, but it`s an evolving process, the
HERERA: All right. On that note, R.J., thanks so much.
HOTTOVY: Thank you.
HERERA: R.J. Hottovy with Morningstar (NASDAQ:MORN).
GRIFFETH: Time to take a look at some of today`s “Upgrades and
We begin with Dow component Pfizer (NYSE:PFE) that was upgraded to buy from
hold at Argus. The analyst cited the potential for some promising drug
approvals. The price target is now $55. That`s the highest on Wall
Street. Stock rose about 3 percent to $42.45.
Ralph Lauren was upgraded to outperform from market perform at Telsey
Advisory. The analyst cited improving sales and margin expansion for the
company. Price target, $155. And the shares fell a fraction to $116.14
And H&R Block (NYSE:HRB) was downgraded to sell from neutral at Goldman
Sachs (NYSE:GS). The analyst cited the new tax law and the doubling of the
standard deduction, which should reduce the number of filers who itemize on
their returns, which is what H&R Block (NYSE:HRB) usually does for people.
The price target, $22. Now, the stock fell 7.5 percent to $23.59.
Up next, G.E. shows some signs of life. So has the former bellwether
finally turned a corner? We will take a look.
HERERA: The Trump administration is proposing a plan that would end so-
called back door rebates as a way to lower drug prices. The White House
says this would encourage insurers to pass the savings directly back to
patients instead of the pharmacy benefit managers. Pharmacy benefit
managers are the middle men who negotiate the drug prices and receive
rebates, but they don`t necessarily pass those savings along. CVS
(NYSE:CVS), which owns one of those middle men, was the hardest hit in
initial after-hours trading.
GRIFFETH: Well, General Electric`s turn-around is making progress, at
least that`s according to the new CEO Larry Culp (NYSE:CFI), after the
company reported better-than-expected quarterly revenue this morning.
Strong results from its aviation division overshadowed problems at G.E.
Capital and its still struggling power business. But it was all enough to
send the stock up more than 11 percent today. It traded at $10.16.
And we`re joined tonight by Scott Davis, who`s the CEO of Melius Research.
And for you, a big part of the G.E. story right now is the credibility of
Larry Culp (NYSE:CFI), right?
SCOTT DAVIS, MELIUS RESEARCH CEO: Yes, that`s at least half of the story.
I mean, this — the previous management team lost credibility with the
street. They cut the dividend to basically zero, as we all know, and then
disappeared, you know, fired, and these new guys came in and are building
I think Larry is great. Larry is a very proven CEO and he`s a high
HERERA: And you say in your note, G.E., good is the new great. But to a
certain extent, that really rings true because the company still has a
couple of problems, do they not? Is Larry Culp (NYSE:CFI) the guy to solve
DAVIS: I think so. I mean, three months ago, it was a $6 stock. At that
point, we were talking about potential bankruptcy. Going out and having to
issue equity, all kinds of really bad rumors out there.
What Larry did today is he came out and calmed everyone`s nerves and said,
look, we have the balance sheet under control. We`re starting to generate
cash. We`re starting to turn things around.
And, quite frankly, they didn`t have to sell anything at a big loss. So,
and the liabilities that they had already booked, like long-term care
insurance, didn`t get sized up. Overall, I thought today was a great day
for G.E. But it was one good day. We`ve had some bad days.
GRIFFETH: They still have to right size G.E. capital and figure out that
puzzle. And now, they`re talking about selling a bigger piece of G.E.
health care in a spin-off maybe to help pay for the G.E. Capital problem,
DAVIS: You have — I mean, in the grand scheme of things, this is a
hundred billion dollarish market cap stock, call it 90. There`s about a
$20 billion hole in the balance sheet they need to fill. You will raise
$10 billion or so just from, you know, probably the health care IPO and
you`ll raise $10 billion from what was announced with the new app deal,
which is the locomotive business.
So, I think you`re going to plug the holes in the balance sheet and then
you`re fine. I`m not worried about G.E. Capital per se the way we were two
DAVIS: Because at this point, it`s half aircraft leasing and the other
half is project financing.
HERERA: Big gains today. Very quickly, what`s your price target on the
DAVIS: It`s $21. That`s a two-year target price. I think you can get to
$15 or $16 by the end of this year. Again, it was a $20 stock just a year
DAVIS: It`s not hard to imagine it getting back there. Just — you have a
Scott Davis with Melius Research, thanks again for joining us tonight.
DAVIS: Happy to be here.
GRIFFETH: You bet.
HERERA: UPS delivers for its shareholders. That`s where we begin
tonight`s “Market Focus”.
The package delivery company reported higher revenue in the holiday quarter
as earnings topped expectations. UPS said network upgrades will help
improve its bottom line this year and it is seeing opportunities outside
the United States.
(BEGIN VIDEO CLIP)
DAVID ABNEY, UPS CHAIRMAN AND CEO: We`re focusing on Europe, we`re
focusing on emerging markets. There are opportunities out there. They`re
in select markets. But that`s where we think that we can focus, and we had
very good success. And we think that will continue.
(END VIDEO CLIP)
HERERA: Shares rose 4 percent to $105.40.
Hershey`s earnings and revenue came in below analysts` expectations as it
faces higher costs and more competition. The candy maker did, however, say
it expects full-year profit and sales to be better than expected, thanks to
new products and packaging. Shares rose a fraction to $106.10.
ConocoPhillips (NYSE:COP) topped quarterly profit estimates. The company
saw a rise in output from its North American shale fields and said it sold
more oil at higher prices. The stock gained 3 percent to $67.69.
Shares of Charter Communications (NASDAQ:CHTR) soared after reporting
better-than-expected revenue for the fourth quarter. The broadband and
cable operator attracted more Internet customers, although it did lose
22,000 pay TV subscribers, but it also benefited from a 30 percent rise in
ad sales. The stock gained 14 percent to $331.05.
GRIFFETH: Northrop Grumman (NYSE:NOC) beat earnings estimates thanks to
higher sales in its aerospace and its mission systems units, but the
company did issue a downbeat outlook saying that 2019 profit and revenue
will likely come in below estimates. And that stock fell more than 1
percent today to $275.55.
Diageo reported a strong quarter thanks to demand from, ironically, China
and from India. The world`s largest spirits maker also increased its
dividend and said that industry trends are good for the company no matter
what the economic environment.
(BEGIN VIDEO CLIP)
IVAN MENEZES, DIAGEO CEO: We benefit from in the U.S. a trend where people
are moving to spirits and cocktails in a bigger way from wine and beer.
And people are trading up for more premium brands. That trend is very
strong and continues on a secular basis. So, while there will be some
impact from an economic slowdown, we`re not seeing it yet.
(END VIDEO CLIP)
GRIFFETH: Shares of Diageo rose about 5.5 percent today to $152.65.
Intel (NASDAQ:INTC) has named a CEO, ending a months-long search. Bob Swan
will take over the job after having been the chip maker`s interim chief
executive for the past seven months following the resignation of Brian
Krzanich. Swan had been the company`s chief financial officer since 2016.
He becomes Intel`s only seventh CEO in the past 50 years. The stock fell a
fraction today to $47.12.
HERERA: President Trump is reportedly considering Herman Cain for a seat
on the Federal Reserve board. Cain is the former CEO of Godfather`s Pizza.
He made a bid to be the Republican candidate in 2012 presidential election.
But he also served as a director at the Federal Reserve Bank of Kansas City
between 1989 and 1996. He reportedly met with the president yesterday.
GRIFFETH: Coming up, learning the value of a dollar at a young age.
GRIFFETH: Here`s what we`re watching tomorrow. Here comes the big one.
The government releases its employment report for January. Economists
expect an increase of about 170,000 jobs. We`ll find out how the swings in
the price of crude oil impacted Chevron (NYSE:CVX) and Exxon`s bottom line
and automakers release their sales for January. So another big day coming
up on Friday.
HERERA: General Motors (NYSE:GM), Ford and Chrysler have temporarily
suspended operations at some Michigan plants. This after a utility made an
appeal to users to conserve natural gas during the extreme dip in
temperatures and a recent fire at a compression station also contributed to
supply concerns. Production schedules are expected to be interrupted
GRIFFETH: 401(k) savers stayed the course during the rocky month of
December. According to new data from Fidelity, 401(k) balances dropped to
95,600 by the end of the year. That`s a 10 percent decline from record
levels. Balances fell along with the broader market last month. Fidelity
says it is an encouraging sign, though, that people continued to save and
did not have any knee-jerk reactions.
HERERA: But we all know spending money can be easy, but saving it can be
difficult, even for adults. And that`s why some schools are starting to
teach lessons about money at an earlier age.
Sharon Epperson is in Jersey City, New Jersey, tonight.
DANIELLE TRAINA, SCHOOL COUNSELOR: Hi, everyone.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: This sixth grade
class at Golden Door Charter School in Jersey City, New Jersey, may look
like many others, but the subject is not science or English.
TRAINA: Who can tell me what direct deposit is?
EPPERSON: These 11 and 12-year-olds are learning about money and the
basics of saving.
TRAINA: You`re writing that check. And that money is coming out of your
JONATHAN YOUNG, STUDENT: I heard you can get in a lot of debt due to
credit cards, so I will stick to cash.
EPPERSON: And the cost of borrowing.
FATIMA ALI, STUDENT: I heard of interest, like asking questions about it
and she would answer and I`m like oh.
EPPERSON: Some are sharing what they learned with their parents.
DEANNE MARIE COLLADO, STUDENT: I pay more attention to what they purchase
and what I purchase as well.
EPPERSON: And finding out for themselves how to secure their own financial
EMANI SANTIAGO-DELEON, STUDENT: It`s something that has to stick with you
for the rest of your life. It`s something that helps you.
EPPERSON: New Jersey had some financial education standards in place, but
a new law that goes into effect in September is taking those benchmarks a
step further, requiring all school districts to teach financial literacy in
sixth, seventh and eighth grades, including topics this public school
Most states have financial education standards in high school, yet a recent
report by the Brookings Institution founding that only 28 states have
financial education standards in lower grades, including middle school.
Yet, advocates say that it is essential to start teaching at a younger age
so that young people will be able to better manage their money as adults.
ANGELA MCKNIGHT (D), NEW JERSEY STATE ASSEMBLY: This is very important to
have it taught in school.
EPPERSON: New Jersey Assemblywoman Angela McKnight, who cosponsored the
bill which is now law, disagrees with skeptics who question whether
financial literacy can be taught in a classroom.
MCKNIGHT: They will not forget it. This is a life skill. You do not
forget a life skill.
EPPERSON: Danielle Traina agrees and looks toward to infusing financial
education into her curriculum and having more teachers across the state do
TRAINA: I tell my kids all the time I wish I had a teacher when I was in
middle school that prepped me the way they`re being prepped. And they`re
really doing well. I told them they should be proud of themselves because
not a lot of schools teach this course, so they`re ahead of the game.
EPPERSON: For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson in Jersey City,
GRIFFETH: Before we go, one final look at this final trading day of
January, a big one. The Dow was down 15 points, the Nasdaq up 98, the S&P
For the month, big gains, at least 7 percent. It was the best January for
the S&P since 1987.
HERERA: That`s amazing. We`ll see how the rest of the year goes.
GRIFFETH: We`ll see.
HERERA: That will do it for us tonight on NBR. I`m Sue Herera, thanks for
GRIFFETH: I`m Bill Griffeth. Have a wonderful evening. See you tomorrow.
About NBR“Nightly Business Report produced by CNBC” (NBR) is an award-winning and highly-respected nightly business news program that airs on public television. Television’s longest-running evening business news broadcast, “NBR” features in-depth coverage and analysis of the biggest financial news stories of the day and access to some of the world’s top business leaders and policy makers.
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