ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Inching closer. The Dow nears a new high and heads towards its best June in decades, but a critical meeting between the U.S. and China still looms.
Healthy prognosis? The Trump administration wants to make hospital and doctor fees public as part of its push to drive down costs.
And data disclosure. What`s your personal information worth to big tech? A new bill would put a price tag on your privacy.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this Monday, June 24th.
And we do bid you a good evening, everybody, and welcome. Sue is off tonight.
Now, don`t be fooled by today`s modest moves in the stock market. This month has been big for investors. In fact, it could be one of the very best for a long time. Optimism has been improving over the past few weeks, but today, there was some caution ahead of the trade talks between the U.S. and China which are set to take place later this week at the G20 summit in Japan.
So, today, the Dow Jones Industrial Rose just eight points to 26,727. Nasdaq was down 26. The S&P was down 5. And today, despite these small moves, recent rallies have sent the major indexes close to new highs.
But does this month`s move higher have staying power?
Mike Santoli takes a look.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: This trip to a fresh record is perhaps the most confusing in terms of how it happened and what comes next. It`s come with treasury yields anchored near 30 month lows, recession fears slowing and manufacturing stalling. The rally has been driven by defensive stock sectors such as utilities and gold has broken out to a multi-year high. Investor sentiment has been quite cautious, which has a way of boosting stocks in contrarian fashion.
Purely based on the historic probability, the market at a new high ended up more than 17 percent not quite halfway through the year are reasons to believe more upside lies ahead. But also are cause to keep expectations in check. The Dow Jones Industrials have made a record high in the month of June and 33 previous years, second half performance in those years is roughly at historical average for all years. That`s a gain of more than 4 percent.
And the S&P 500 is on pace for the strongest first half since 1997 and one of the five best in recent decades. All years with similar returns by this point finished the year with further gains. Such historical studies provide context but no clear course of action, of course. The big picture is the market has been in a wide swinging but ultimately side swinging in the year and a half. It`s now stretching the top of the range. Earnings have flattened and the market fully expects the Federal Reserve to start cutting rates next month.
The initial market reaction tends to be quite positive but the strength only lasts if recession is averted. So, have stocks already priced in this Fed effect? And will the second half confirm the market`s implicit belief that the economy can keep outrunning a sharper down turn?
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
GRIFFETH: So what is the market expecting from the upcoming trade talks between President Trump and China`s President Xi Jinping at the G20 Summit later this week?
Joining us, David Lebovitz. He`s global market strategist at J.P. Morgan Asset Management.
David, good to see you again. Welcome back.
DAVID LEBOVITZ, J.P. MORGAN ASSET MANAGEMENT: Thanks for having me.
GRIFFETH: So, here we sit near these all-time highs as Mike was pointing out here. Does that mean a deal with China is already priced in? We don`t get much more upside if there is a deal and downside if we do — or if we don`t? What do you think is going on?
LEBOVITZ: So, I think that this is a little bit of a buy the rumor and sell the news. I think that the market`s assumption all along is that we will see a deal done with China. And, frankly, at this juncture, I think the market would be comfortable with no escalation in the current state of affairs with China. So, as long as we don`t put tariffs on the additional $300 billion of imports, I think the market will be able to handle that.
But I don`t really see a ton of upside here stemming from a positive resolution to these talks, maybe if some of the existing tariffs are rolled back, you would see markets melt higher. But I don`t think that, you know, investors are expecting that. I think they`re just expecting no big changes going forward.
GRIFFETH: Add to the mixture, the geopolitical problems in Middle East with Iran. Oil had a spectacular gain last week and it`s up a little bit again today. Gold is moving higher as well.
What do you think is going on here?
LEBOVITZ: So, I mean, the oil point I think is relatively clear. People are worried about supply chain disruption, and that`s putting upward pressure on the price. The gold move has been more interesting. And, you know, frankly, over the past couple of days, couple of weeks we`ve seen less traditional assets, whether that be gold, cryptocurrency begin to move higher.
What that says to me is there`s an expectation of central bank easing further. There will be a need for investors to find returns and previously uninvestigated corners of the market. And you`re seeing people re-embrace these trades that have frankly struggled over the past couple of years as people have prepared for a Federal Reserve and global monetary policy stance which is a bit tighter than it looks where we`re headed today.
GRIFFETH: And along those lines, our treasury yields have been close to three year lows. The ten year still hovering just above 2 percent right now.
LEBOVITZ: Yes, it`s interesting to see that because the stock market and bond market are clearly seeing two very different things at the current juncture. I think you have the stock market per our conversation earlier pricing, you know, in some sort of resolution on trade, obviously an easier Federal Reserve. Earnings growth, which is relatively solid over the next 12 to 18 months whereas you have the bond market looking at things and saying the economic data is beginning to deteriorate. There is no inflation no matter where we look outside of financial asset prices.
So, I think that this, you know, dichotomy between the bond market and stock market will need to be resolved. But from where I sit, I think the stock market has got this one right.
GRIFFETH: David Lebovitz with J.P. Morgan Asset Management, always good to see you, David. Thanks again.
LEBOVITZ: Thanks for having me.
GRIFFETH: Elsewhere, President Trump today signed an executive order prescribing what`s hard-hitting new sanctions on Iran. They are in response to the downing of that unmanned U.S. drone last week. President Trump said that his administration will increase pressure on Tehran until the regime abandons its dangerous activities.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: America is a peace-loving nation. We do not seek conflict with Iran or any other country. I look forward to the day when sanctions can be finally lifted. I look forward to discussing whatever we have to discuss with anybody that wants to speak.
In the meantime, who knows what`s going to happen. I can only tell you we cannot ever let Iran have a nuclear weapon.
(END VIDEO CLIP)
GRIFFETH: These new sanctions deny Iran`s supreme leader and his office access to key financial resources but Iran said today that the sanctions show the U.S. has no respect for international law and order. It is something the energy markets are watching and today the price of domestic crude did settle slightly higher after last week`s huge 9 percent rally.
President of the Dallas Fed said it`s too soon to decide if interest rates need to be cut. Robert Kaplan called on his fellow policymakers to be patient and wait and see how economic events unfold. Those events include, of course, the trade war between U.S. and China, as well as decelerating global growth.
President Trump signed a second executive order today. This one pushes for transparency in health care prices. The goal is to lower prices that patients pay. Hospitals and insurance companies say that they will fight this order. Their shares fell in trading today.
Bertha Coombs puts it all together for us now.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump`s latest executive order is aimed at providing transparency on hospital prices, so that patients know what they`ll pay before they`re treated, not after the fact when they get a sky high bill.
TRUMP: Patients face significant obstacles shopping for the best care at the best price, driving up health care costs for everyone. With today`s historic action, we are fundamentally changing the nature of the health care marketplace.
COOMBS: Earlier this year, the administration required hospitals to post their list prices but insured patients don`t pay those prices. Under the new executive order, the government will require hospitals to make their negotiated insured rates public and require insurers to provide members with out-of-pocket cost estimates for procedures ahead of time.
Analysts say the price transparency rules could help increase competition on services like MRIs where consumers have alternatives and can find scans with lower out-of-pocket costs. But with high-cost procedures like surgery, some say the move could actually backfire.
CRAIG GARTHWAITE, KELLOGG SCHOOL OF MANAGEMENT: If this is about a knee replacement or any other kind of surgery, the cost is so higher on your deductible, the deductible is not really a feature of your shopping decision. Then you might start thinking that price is a substitute for quality and you just go to the high price place because you want to go to the highest quality place.
COOMBS: Some analysts worry transparency could encourage collusion, helping hospitals keep prices sky high in some markets.
PAUL KECKLEY, THE KECKLEY REPORT: The bigger question might be in the long term will that drive prices down? Doubtful.
COOMBS: The executive order is just the beginning. The administration now has to draft the rules and give the industry time to comment. New rules on changing Medicare drug price rebates initiated last year still have not been finalized, but it`s clear the pressure is on the health care industry from Washington and from consumers to do better on prices.
For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.
GRIFFETH: The Supreme Court has agreed to hear an Affordable Care Act- related lawsuit where insurance companies — health insurance companies say the federal government owes them $12 billion for losses they sustained under that law. One facet of the Affordable Care Act was designed to encourage insurers to cover riskier, previously uninsured people which the government would then reimburse them for.
But two years ago, Republicans blocked those payments, saying that they were a bailout for the insurance industry. Insurers allege the government pulled a bait-and-switch and withheld the money that they are entitled to.
Elsewhere in Washington, they continue to bear down on big tech. The latest push came today. A proposal was introduced that would force well- known companies like Google (NASDAQ:GOOG), Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN) to tell users what kind of data they are collecting on you and how much it`s worth.
Ylan Mui has more.
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: There`s a new bipartisan effort to put a price tag on privacy. Democratic Senator Mark Warner and Republican Josh Hawley want big tech to calculate the value of all the data they collect and disclose that number to their users. The new rules would apply to companies with more than 100 million active monthly users and the FCC would be in charge of creating the formulas that determine the value of that data. And companies would have to file a report every year that includes contracts with third parties that collect data and allow users to delete their information.
In a tweet, Senator Warner said social media companies have told the public that their products are free, but that`s not true. He said you`re paying with your data instead of your wallet and you have a right to know what that information is worth. Tech groups are fighting back. One think tank, the Information Technology and Innovation Foundation argued that the premise of the bill is all wrong.
Unlike with money, you don`t have less data and often the more data you share, the better your service. They say that trade helps consumers come out ahead.
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui, in Washington.
GRIFFETH: Time to take a look now at some of today`s “Upgrades and Downgrades”.
We begin with United Technologies (NYSE:UTX). Shares were upgraded to outperform from market perform at Cohen, with the analyst citing the company`s merger with Raytheon (NYSE:RTN). The price target is $150. That stock rose 1 percent to $130.18.
Deere was upgraded to buy from hold at Jefferies. The analyst cited the improved sentiment in the farm economy right now. And price target raised to $190. That rose to 1.5 percent to $166.80 today.
Dunkin Brands was upgraded from outperform from neutral at Wedbush. The analyst cited the potential for new growth in same store sales and improved operations. Price target, $92. Shares rose more than 1 percent to $80.98.
And Hostess Brands was upgraded to buy from neutral at UBS. The analyst cited accelerating sales trends and the company`s new breakfast product line. Price target $17. Those shares rose more than 2 percent to $14.26.
Still ahead, a new kind of food fight.
(BEGIN VIDEO CLIP)
RAHEL SOLOMON, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Rahel Solomon for NIGHTLY BUSINESS REPORT. Coming up, what does the aerospace industry have to do with tariffs on specialty foods? I`m at a specialty foods convention in New York City and I`ll have that answer.
(END VIDEO CLIP)
GRIFFETH: Home Depot (NYSE:HD) is watching the tariff situation closely even though 70 percent of the goods it sells are made domestically. The CEO of the home improvement retailer said today that there are ways it can minimize the potential impact of tariffs on customer prices.
(BEGIN VIDEO CLIP)
CRAIG MENEAR, HOME DEPOT CEO: The first step that we`ll do is try to protect the customer in the project. We`ll do everything we can to try to take other costs out of the business working with our suppliers, whether that`s opportunities in supply chain, other elements of the business and then we`ll try to protect the customer on the project.
(END VIDEO CLIP)
GRIFFETH: Stocks fell in today`s session.
Well, there`s another potential tariff fight brewing these days, but this one is not with China, it`s with Europe. And it could result in higher prices for specialty foods. As you saw, Rahel Solomon is in New York with that story tonight.
SOLOMON: For European companies at a global specialty foods convention, there is a looming threat — tariffs proposed by the U.S. and because of aerospace.
PHIL KAFARAKIS, SPECIALTY FOOD ASSOCIATION PRESIDENT: This is the political gamesmanship that`s going on around the world. We just — we just came out of it with Mexico. It has to do with immigration policy. We have a problem with China when we talk about soy beans and what happened there. So, it seems that agriculture and food products are becoming a little bit of a weapon as it relates to policy that have nothing to do with food.
SOLOMON: For nearly 14 years, the U.S. has maintained the European Union has provided illegal subsidies to Airbus, unfairly giving them advantage over American companies, mainly Boeing (NYSE:BA). The E.U. claims the U.S. indirectly subsidizes Boeing (NYSE:BA) with defense purchases and tax breaks. In April, U.S. Trade Representative Robert Lighthizer issued a list of imported foods that could be subject to retaliatory tariffs if the E.U. does not stop subsidizing airbus. Foods like cheese, meats and jams.
ARIANE DAGUIN, D`ARTAGNAN CEO: Our annual revenues are $150 million and I think out of that, if 10 percent is affected, it would be devastating for our business.
MARIA LOI, LOI ESTIATORIO EXEC. CHIEF: It`s not only me, it`s the whole team, you know, that works for that. And yes, they are like can we make it? I said, yes, of course we will make it, but it will be more expensive for the consumer and I say, yes, for the homes.
SOLOMON: French, Italian and Greek companies are most at risk, although according to a U.S. major importer, the impact will be felt across the food industry. Possible tariffs could be 100 percent of the product`s cost, according to the specialty food association.
TOM GELLERT, ATALANTA PRESIDENT: Feta cheeses, parmesan Reggiano, imported Gouda, imported Asiago, any fine cheese that you buy, and, you know, these are not just at Whole Foods. You find imported cheeses from anywhere from whole foods to Aldi, Walmart, Wegmans. So, it turns the gamut.
SOLOMON: The WTO was expected to weigh in again soon, perhaps this summer. That`s what everyone is waiting for. If a decision isn`t favorable to the U.S., that`s when we could see those tariffs. But businesses here tell me this is a food fight they don`t want anything to do with.
For NIGHTLY BUSINESS REPORT, I`m Rahel Solomon in New York City.
GRIFFETH: Eldorado rolls the dice on Caesars. And that`s where we begin tonight`s “Market Focus”, with Eldorado Resorts buying Caesars for more than $17 billion in cash and stock, plus the assumption of debt. The merger will put about 60 casinos and resorts in 16 states under a single name, Caesars, making it the largest gaming operator in the country. Eldorado shares fell 10 percent to $45.77 while Caesars rose to $11.44.
FedEx (NYSE:FDX) is reportedly offering big discounts in an effort to have online merchants to its express delivery services. “The Wall Street Journal” says the carrier is trying to win over shippers from rival UPS by offering guaranteed two-day air service for the same price as shipping by ground. The stock was down nearly 3 percent today to $160.90.
Bristol-Myers said that its planned $74 billion merger will now close later than originally planned. The deal is now expected to close by the end of the year or the start of 2020 as opposed to the third quarter of this year. Bristol will divest Celgene`s most profitable drug Otezla which treats psoriasis, to help ease concerns of antitrust regulators. Bristol-Myers fell more than 7 percent on this news today to $45.68 while Celgene (NASDAQ:CELG) dropped 5-1/2 percent to $93.47.
Amazon (NASDAQ:AMZN) is opening a beauty store for professionals that will offer stylist and barber supplies typically found in salons and spas. Amazon (NASDAQ:AMZN) shares rose a fraction to $1,913.90. But the news sent shares of competitors like Sally Beauty and Alta Beauty down today. Sally fell almost 17 percent to $12.30, while Alta dropped more than 2.5 percent to $346.54.
The fire at that Philadelphia refinery last week that we told you about on Friday was extinguished over the weekend. Now that the blaze is out, the investigation into the cause is set to begin. And right now, many questions remained unanswered.
Brian Sullivan traveled to that facility which is the largest on the East Coast.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The fireball, 4:00 a.m. Friday morning here at the Philadelphia Energy Solutions refinery in Philadelphia, Pennsylvania, could be seen from space. It was felt miles away but luckily the worst was avoided from a human perspective.
Only a couple of workers were injured. They were treated on scene despite the blast which was simply incredible to behold. You can see in background there, the burnt out hooks (ph) of one of the refining units, that what was burning on Friday morning. The fire was put out over the weekend.
That cause is still being investigated. At least three different federal agencies as well as local officials will be involved in that investigation.
What the current status of this refining plant, the largest on the East Coast is unknown. The company has been tight lipped about exactly how much gasoline and other products are currently being refined.
But there was a separate fire two weeks which shut down one of the complexes. This is actually two separate refineries in one, that refinery is supposed to come back online last Friday, the day that this refinery actually exploded. The status of that refinery and both are currently not known.
What we do know is this, the worst of the human toll was avoided. This is one of the largest refineries in the United States that still uses hydrogen chloride, a toxic and often deadly chemical used in the mixing of gasoline.
A clean energy fund lawyer explained what could have happened had hydrogen chloride been released from the explosion.
ALEX BOMSTEIN, CLEAN AIR COUNCIL SENIOR LITIGATION ATTTORNEY: Philadelphia itself is in the worst position within the country with the most number of people living close to hydrogen fluoride-using refinery. This refinery is right next to residential neighborhoods throughout South Philadelphia and Southwest Philadelphia. If it had hit those homes, those neighborhoods, those people would, first of all, be burned and they could die very quickly. It`s a horrible scenario.
SULLIVAN: Thankfully, that did not happen, but now, the toll turns to the economic side. This refinery, 27 percent of all mid-Atlantic gasoline supplies. From now on, other refineries will be able to make up that lack of supply.
However, the longer this factory is offline, the tighter factories could get and the higher the prices could go. Some estimates say it could take more than a year and possibly $100 million to get this refinery, the oldest operating refinery in America back on line and that the if they ultimately have the money, because they will not be refining anything here on any large scale, at least through the summer.
For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan, Philadelphia, Pennsylvania.
GRIFFETH: And coming up, did Disney`s “Toy Story 4” go to infinity and beyond at the box office?
GRIFFETH: Here`s what we`re watching tomorrow.
FedEx (NYSE:FDX) reports earnings. The company`s results are often viewed as a barometer for the health of the global economy. We`ll find out if lower mortgage rates helped fuel new home sales and report of consumer confidence will tell us if sentiment is holding up amid rising geopolitical tensions. So, an interesting day coming up tomorrow.
Senator Bernie Sanders has a plan to wipe out the $1.6 trillion of student debt owed by more than 40 million Americans. It will also provide $48 billion in funding for free tuition at state colleges and universities. The Democratic presidential candidate would pay for his plan by taxing Wall Street transactions like stock and bond trades. His campaign estimates that the taxes would generate $2.4 trillion over a decade.
Meanwhile, 19 billionaires have released a letter asking all 2020 presidential candidates to support a tax on America`s families with the largest fortunes. The bipartisan letter says the next dollar of new tax revenue should come from the most financially fortunate, not from middle income and lower income Americans. The letter was signed by George Soros, Abigail Disney (NYSE:DIS) and members of the Pritzker family among many other billionaires.
Toys “R” Us could make a comeback this year. A new company called True Kids reportedly plans to open two Toys “R” Us stores, which would be about a third of the size of the old ones. True kids won the rights of the Toys “R” Us brand last year. It also took over the rights of other assets, including Babies “R” Us, Jeffrey the Giraffe and Imaginarium. More than 700 Toys “R” Us locations were closed last year.
Well, we are entering a critical time of year for Hollywood. This year, the entertainment industry is betting on a hot summer box office with hopes that the return of Disney`s “Toy Story” franchise would lead the way.
Julia Boorstin has more from Los Angeles.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Woody and Buzz light year return to the big screen after nine years. Disney`s “Toy Story 4” flew into the theaters around the country this past weekend. The film brought in $118 million at the domestic box office, the biggest ever opening from the franchise, with $120 million coming in from overseas.
This film gives Disney (NYSE:DIS) the four biggest opening weekends of the year and more than 1/3 of box office market share year-to-date.
JESSICA REIF EHRLICH, BANK OF AMERICA MERRILL LYNCH: We figure there`s 20 percent upside in the stock driven by, of course, films. While this film, “Toy Story 4”, may have under performed initially expectations, it`s still the best debut of all the four franchise, of the four films in the franchise.
BOORSTIN: But the film fell far short of expectations. The studio projecting about $140 million opening weekend while some analysts expected as much as $200 million at the domestic box office.
The shortfall could be contributed to a number of different factors. Disney`s skipped its usual Father`s Day slot which is considered better for drawing families.
Last year`s Father`s Day weekend release of “Incredibles 2” smashed records. The box office is also suffering from weak momentum following last weekend`s disappointing performance. And kids` movies seldom have huge debuts, more likely to have steady performance over time.
But Disney (NYSE:DIS) is expected to profit and not just from ticket sales but also from its inclusion in the company`s streaming service Disney (NYSE:DIS) Plus, which is launching in November.
ED LEE, NEW YORK TIMES: Ultimately, this will be redound back to Disney (NYSE:DIS), right? It will be on Disney (NYSE:DIS) Plus streaming service. I mean, that`s where you`ll be able to watch these things as a family. You missed it. You want to catch up later on. You want to watch all the “Toy Stories” in one. That`s where you`re going to have to pay for it. So, eventually it will come back and make up whatever shortfall.
BOORSTIN: And Disney (NYSE:DIS) is expected to continue to dominate with the studio`s “Lion King” remake, hitting theaters in July.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
GRIFFETH: And before we go, a final look at the day on Wall Street. Kind of a wait and see day as the market anticipates the G20 Summit later this week. The Dow rose just eight points. Nasdaq was down 26. The S&P down five.
That is NBR for tonight, I`m Bill Griffeth. Thanks so much for watching. We`ll see you tomorrow.
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