ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Calm before the storm. The market is closing in on new highs. But will the slow and steady climb result in a year end rally, or a bout of volatility?
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: House rich. Today`s homeowners are sitting on a record amount of potential cash and they`re not tapping it.
GRIFFETH: Sudden shutdown. The world`s oldest travel company collapses and the impact is being felt in local economies around the world.
Those stories on much more tonight on NIGHTLY BUSINESS REPORT for this Monday, September 23rd.
HERERA: Good evening, everyone, and welcome.
As we start a new week, it may seem like the market is one step forward and two steps back. Yes, there have been bouts of volatility and head scratching moves. But overall, stocks have been on a slow and steady climb higher, now standing within reach of new highs.
Today, the gains were capped because of lingering concerns about the global economy. But both the Dow and the S&P 500 remain just 1 1/2 percent away from their records. The Dow Jones Industrial Average rose 14 points to 26,949. The Nasdaq fell five and the S&P 500 was flat.
Mike Santoli takes a look at whether this market calm will give way to something else.
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MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Despite several good excuses for skittishness this month, steadiness has been the rule on Wall Street. The S&P 500 remains within 2 percent of its record high and up nearly 20 percent this year, despite an oil spike on Middle East hostilities, ongoing trade frictions and the Fed meeting that failed to clarify the interest path forward. Markets that refused convenient reasons to sell off are typically seen as well-supported by resolute investors looking ahead to improving fundamental developments.
The rally from the August lows has been broad with investors apparently happy to bet that U.S. economic activity will continue to improve as it has recently along the housing, retail sales and industrial fronts. The markets valuation today is about the same as one year ago, which, of course, proved to be the 2018 peak ahead of a bruising fourth quarter downturn, yet one year ago, bond yields were more than one percentage points higher and the Fed was still in tightening mode while now the Fed is easing back on interest rates.
And investor expectations for growth have been reset lower which can help support stocks through short-term uncertainty.
Still, it remains September historically a tough month for stocks and the Fed might only keep cutting rates if the news from the trade policy arena turns bad and growth falters. This will keep investors on alert for signs of weakness, but if the market sneaks through September unscathed, the talk of a year-end rally will no doubt grow louder.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
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GRIFFETH: It was weak economic data out of Europe today that kept a lid on market gains and contributed to those concerns about the global economy that Sue mentioned. Manufacturing activity in the eurozone fell to a six- year low while services grew at their slowest pace in months and manufacturing in Germany, which is Europe`s largest economy, that fell to its lowest level since the financial crisis of a decade ago. Economists attribute the slow down to Brexit concerns and a decline in trade which the incoming head of the ECB today called a major hurdle.
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CHRISTINE LAGARDE, INCOMING EUROPEAN CENTRAL BANK PRESIDENT: Trade, instead of being that sort of big window of opportunities for those economies that want to compete with each other, it weighs like a big dark cloud on the global economy.
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GRIFFETH: Lagarde said the U.S. economy with its low unemployment is in a very good place right now.
HERERA: And we learned today that activity in the U.S. manufacturing sector was better than expected hitting a five-month high. The growth shows the U.S. is having an easier time withstanding the trade war than Europe, but that report also points to concerns about future orders.
GRIFFETH: As you know, the housing market looks like it`s starting to pick up once again. We had recent reports showing an uptick in both sales and home prices. And when you couple that with the conservative borrowing habits of many homeowners these days, the result is a record amount of home equity.
Diana Olick has more.
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DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Homeowners today are becoming wealthier. Those with a mortgage saw their home equity increase by almost five percent annually at the end of the second quarter. That`s a collective gain of nearly $428 billion, according to CoreLogic (NYSE:CLGX). Home equity is now at a record high.
Break it down by borrower, and the average homeowner with a mortgage gained $4,900 in home equity in just one year.
FRANK NOTHAFT, CORELOGIC: What it means for homeowners that have a high level of home equity is that really gives them additional flexibility. If they need to make investments in their home, they can tap into that home equity to get the proceeds they need.
OLICK: The amount of equity available for homeowners to tap also reached a record-high $6.3 trillion, according to a separate report from Black Knight. It defines tappable equity as the amount homeowners can cash out while still holding 20 percent equity in the home.
Homeowners, however, are sitting on their equity more than they have in the past, even with mortgage rates near record lows. Just $54 billion in equity was withdrawn in the first quarter of this year, less than 1 percent of what was available. That is the lowest volume in four years and the lowest share of available equity tapped since black night began tracking this metric in 2008.
NOTHAFT: Because of the housing crash, I think that`s in the memories of so many homeowners. It left a lot of financial scars on people. And so, I think they are a little bit more hesitant and even though we have seen homeowners tap into home equity for home improvement purposes, they`re not doing it at all at the pace that we saw in 2005, 2006, 2007.
OLICK: Home prices had been cooling off earlier this year, but now are heating up again. That means home equity will continue to rise and homeowners will continue to be in the money.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
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HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.
Chewy was upgraded to buy from neutral at Nomura. The analyst calls margin concerns overblown. The price target is $36. The stock rose 4 percent to $27.50.
Kimberly-Clark (NYSE:KMB) was upgraded to overweight from equal weight at Barclays. The analyst cites the potential for improved revenue growth. The price target is $152, and the stock rose 1 percent to $136.83.
GRIFFETH: But Barclays downgraded Clorox (NYSE:CLX) to underweight from equal weight with the analysts citing the potential for softer revenue growth that could impact earnings. Price target now $141, and that stock fell 1 percent today to $150.23.
Alcoa (NYSE:AA) was downgraded to neutral from buy at Goldman Sachs (NYSE:GS). The analyst cited lower aluminum prices in the near term. Price target, $25. The shares fell more than one and a half percent today to $21.30.
HERERA: Still ahead, the sudden demise of the largest travel group is being felt around the world.
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HERERA: General Motors (NYSE:GM) has furloughed another 1,200 workers as a result of the labor strike that has now entered its second week. The latest round is on top of an estimated 4,500 temporary layoffs the automaker and its suppliers handed out on Friday. Those affected are from an engine facility in Ohio and a power train plant in Ontario.
GRIFFETH: Meanwhile, European automakers are warning of what they call catastrophic consequences should Britain leave the European Union without a deal in place to protect trade. Twenty-three industry associations across Europe say that a so-called no-deal Brexit could have an immediate and devastating impact on the auto industry by not only disrupting carmakers but their suppliers as well.
HERERA: A dramatic collapse of the world`s oldest travel company. The tour operator Thomas Cook, a behemoth that ran its own hotels and flights, is no longer in operation, leaving hundreds of thousands of travelers stranded and setting in motion the biggest peacetime repatriation in British history.
Willem Marx is in London tonight.
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WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s the end of summer and the end of an era for Britain`s oldest travel agency.
PETER FANKHAUSER, THOMAS COOK CEO: Despite huge efforts over a number of months and further intense negotiations in recent days, we have not been able to secure a deal to save our business.
MARX: After a multibillion dollar rescue plan failed to take off this weekend, Thomas Cook simply ran out of financial runway. That left hundreds of thousands of its stranded customers feeling out-of-pocket and out of options.
UNIDENTIFIED FEMALE: We were told that all Thomas Cook flights canceled and the firm was no longer operating. So, we actually were told to go home.
MARX: Victorian entrepreneur Thomas Cook began selling railway excursions in the 1840s. A century later, the firm he`d built helped create the market for post-war package vacations. It grew until it was sending around 19 million passengers a year to their dream destinations. But no longer.
UNIDENTIFIED MALE: Nightmare, they mean stress, not what we wanted really what`s going on. So, but what can you do? All that people have lost their jobs. So, we`re not as bad as some other people.
MARX: The company`s overnight collapse has left hundreds of suppliers unpaid, from hotel owners in Bulgaria, two aircraft crews in Tunisia. And it sparked extraordinary interventions from governments across Europe especially the U.K.
GRANT SHAPPS, BRITISH TRANSPORT SECRETARY: People need to be back for work, for their families, all sorts of reasons. We can`t just leave, you know, Brits stranded abroad and we need to bring people home. A hundred and fifty thousand people, it`s the biggest peacetime repatriation this country`s ever known and we`ll try and do it as quickly and as smoothly as possible that when we`ll be plain sailing I know.
MARX: Critics say British authorities could have acted earlier to avoid vacation heartache and preserve thousands of jobs.
UNIDENTIFIED MALE: There should be some sort of legislation is in as much as if a – especially within this tourist industry, you face anyway, an operator can`t fulfill its commitments, or it doesn`t look likely to fulfill its commitments financially or to its customers, it shouldn`t be taken on more work.
MARX: The British government may now be on the hook for some pretty hefty costs, but it insists it was the right decision not to plow more than $300 million of rescue funds into a firm with $2.1 billion of debt. Ministers have argued Thomas Cook was not a strategic part of the U.K. economy and had simply failed to adapt to the travel industry`s changing landscape.
For those holidaymakers that went hunting for some September warmth, that kind of calculated analysis may prove cold comfort, as they now simply hope to get home.
For NIGHTLY BUSINESS REPORT, I`m Willem Marx in London.
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GRIFFETH: And as you can imagine, the collapse of Thomas Cook is rippling through the travel sector overall. Shares of cruise line operators we`re lower today, even though some analysts believe that the damage could be limited given the cruise operators` ability to source revenue from other places.
HERERA: So what kind of impact do these tour operators have on local economies?
Mark Ellwood is the contributing editor with “Conde Nast Traveler”, and he joins us now to talk about this.
Welcome, it`s nice to have you here, Mark.
MARK ELLWOOD, CONDE NAST TRAVELER CONTRIBUTING EDITOR: Thank you so much.
HERERA: Let`s start with Thomas Cook and then broaden it out to the industry overall. What kind of impact is the demise of Thomas Cook going to have on the local economies where it — where it functioned?
ELLWOOD: It`s good to be — it`s quite significant in the short term. Remember, you know, 20,000 people employed by Thomas Cook around the world, not just in Britain. So that will have an impact.
And then several holiday hotspots places like Crete, other areas in Greece, Florida, the hotels there will be paid in arrears. So, in other words, once the vacationers have left, the hotels received their money. So, at the moment, we`re not quite sure what will happen to those hotels, what monies will be forthcoming.
So you can see that there is quite a short-term shock in several economies. It shows how tourism is so interconnected around the world.
GRIFFETH: But it comes at a time when so many people are booking their vacations and holidays online using other services, digital services that the Travelocities and the Pricelines and so forth. So, from that standpoint, Thomas Cook was a bit of an anomaly or a throwback to the 20th century, right?
ELLWOOD: It`s strange to say throwback to the 20th century but exactly. I heard someone describe it to me and say, you know, Thomas Cook made a lot of missteps in the last 10 years or so, and it doubled down on bricks and mortar, had several mergers where it got more and more shops. And one person said to me, Thomas Cook doubled down on brochures when the rest of the world moved to barcode.
GRIFFETH: Right.
HERERA: Yes.
ELLWOOD: And I think it`s — I think it is important to remember, Thomas Cook is a very specific example. It`s an icon in Britain. The sell slogan: don`t just book it, Thomas Cook it” part of my childhood. But it isn`t necessarily representative of a wider problem. It is very specific.
HERERA: But given that, you mentioned Crete, you mentioned a couple of other places that are feeling the impact of Thomas Cook. What do they have to do now as local economies to make up for the gap that will be present and the lack of income and revenue that will be present with or without Thomas Cook?
ELLWOOD: That`s a great question. I know the Greek government has actually convened a cabinet meeting to discuss this because again, it`s a reminder that tourism is a very important economic driver. It`s not just that frothy fun thing we do.
The Greek government has posited it might actually enact some tax cuts to stimulate its economy in the wake of this. I think there are a lot of insurance — there are a lot of insurances and it look like Thomas Cook might follow through with some of the payments.
But longer term, they`ll have to turn to different markets. This was very much northern Europeans, Scandinavians, Germans, especially Brits, looking for warm weather destinations. They`re going to be looking for different sources of customers. They can look further to China, to America, to maybe to markets that they didn`t traditionally focus on to fill those rooms.
HERERA: Mark Ellwood with “Conde Nast Traveler”, Mark, thank you so much.
ELLMAN: Pleasure.
GRIFFETH: American Express (NYSE:EXPR) (NYSE:AXP) hikes its dividend and that is where we begin tonight`s “Market Focus”, with the company increasing its quarterly payout by 10 percent to 43 cents a share. It`s also buying back up to 120 million shares of its own stock. AmEx was up more than 1 percent today to $118.24.
Boeing (NYSE:BA) said today it plans to pay the families of those killed in the two crashes involving its 737 MAX plane about $145,000 each. The money will come from the company`s financial assistance fund. Family members will not be required to waive their right to litigate though. Those two crashes killed 346 people, and as you know, the 737 MAX has been grounded since March. Shares fell a fraction today to $377.03.
Three drugmaker Mallinckrodt said that it has met its goal during clinical tests of a synthetic human tissue to treat burns. Mallinckrodt plans to submit the therapy to the FDA next year for approval. That stock was up a fraction to $2.45.
And the FDA has approved drug maker Exact Sciences at home colon cancer screening tests for patients as young now as 45. It had been approved for patients who were at least 50 years old up to this point. Stock fell a fraction today to $103.77.
HERERA: Retailer PriceSmart (NASDAQ:PSMT) will be added to the S&P Small Cap 600 Index replacing Finisar (NASDAQ:FNSR). PriceSmart`s stock has run up nearly 40 percent over the past three months, and today, shares jumped about 20 percent to $72.38.
Take-Two Interactive says it sold more than 5 million units of its “Borderlands 3” video game in its first days on the market, while initial sales totaled — or top rather the company`s internal expectations. It was only in line with Wall Street`s forecasts. So take to drop nearly 4 percent to $125.73.
GRIFFETH: A number of Democratic presidential candidates have proposed new taxes on the wealthy as a way to pay for other programs. But one of Senator Elizabeth Warren`s proposals may have an unintended consequence. It may actually fuel divorces among the ultra-rich.
Robert Frank explains.
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ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some are calling it the million dollar marriage penalty and it could create a new incentive for the ultra wealthy to file for divorce. Elizabeth Warren`s wealth tax is a 2 percent tax on wealth over $50 million.
SEN. ELIZABETH WARREN (D-MA), PRESIDENTIAL CANDIDATE: Your first $50 million, don`t worry, you`re in the clear. But for your $50 million and first dollar, you got to pitch in 2 cents, and 2 cents for every dollar after that, just 2 cents.
FRANK: And tax analysts say that couples with a hundred million dollars or less could avoid the tax by divorcing, splitting that fortune in half, and putting each taxpayer below the threshold. A couple worth $100 million dollars would pay $1 million annual wealth tax, but if they divorce, they pay nothing.
Now, a couple could even divorce on paper and still live the same lives in the same house since the IRS does not challenge legal divorces for tax reasons. As Greg Mankiw of Harvard explained, the Warren proposal entails a $1 million a year marriage penalty. He said the divorce loophole is one of countless ways the wealthy would game any wealth tax generating far less revenue than the $200 billion a year that Warren is projecting.
Now one of the economists advising Warren on the wealth tax, Emmanuel Saez told me they could shrink this loophole by taxing single taxpayers for any wealth over $25 million, and he said that percent of top wealth holders are married, so they have not yet focused on the issue. You can bet that divorce attorneys are certainly already working on it.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
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HERERA: And from one break-up to another, if your investment returns are lagging even with the market near new highs, you may be rethinking the advice that you`re getting and there are certain things to consider before splitting from your financial advisor.
Our senior personal finance correspondent Sharon Epperson joins us with some answers.
So, what`s more most important to investors when they`re seeking that advice from their financial advisor?
SHARON EPPERSON, NIGHTLY BUSINESS REPORT SENIOR PERSONAL FINANCE CORRESPONDENT: Well, you know, the investment returns the portfolio value, that certainly provides the foundation. But vanguard recently did a survey of a hundred thousand of its clients who use the personal advisory services, and it`s not just the portfolio. They want financial planning. They want to find out whether or not their goals are being met and whether or not the advisors helping them set those goals.
And then there`s the emotional value do they trust this advisor and is there a connection there to help them reach their goals.
GRIFFETH: But that doesn`t always mean that they`re going to leave that advisor generally speaking. Why do investors end up leaving a financial planner or some kind?
EPPERSON: It`s usually because of a life change and that creates some type of financial change, whether they`re changing jobs, whether they are getting married, having a child, maybe they`ve received an inheritance — all these things paint a new financial picture for them and they want to make sure that the advice meets that.
When it doesn`t, when it`s the same advice they`ve gotten for the last ten years, then maybe it`s time to make a switch.
HERERA: Is that one of the warning signs and are there other warning signs about why you might want to consider changing advisors?
EPPERSON: Absolutely. Life changes and financial changes have to go hand- in-hand so make sure the advice that you`re receiving really reflects where you are right now in your life. Make sure that the advisor also is communicating with you regularly as practices grow, sometimes the advisor may take you for granted a bit. You might get a newsletter instead that phone call, or you only get a phone call if they`re trying to sell you something. That`s something also to be wary of.
And if they do not explain the fees — again the financial value should uphold a fiduciary standard, meaning they should put your interests first above their own ability to make a commission or make money off of you. So, if they`re not doing that, that`s a problem.
GRIFFETH: Quickly, what`s the best way to do this if you decide you want to leave?
EPPERSON: Get all the documents that you have, all the investment documents you have, tax returns as well, insurance documents. You want them to give you a full financial picture. Talk to your old adviser. And if you`re still not happy with it, close the account.
HERERA: Sharon Epperson, thank you so much —
EPPERSON: Sure.
HERERA: — as always.
EPPERSON: My pleasure.
GRIFFETH: Coming up, your order is being delivered like few have seen before.
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HERERA: Federal prosecutors in California have reportedly opened a criminal probe into e-cigarette maker Juul. According to “The Wall Street Journal”, the investigation is in the early stages and the exact focus is unclear. Juul has come under criticism for fueling a teen vaping epidemic. It has also been reported that the FTC is examining whether Juul used deceptive marketing and targeted minors.
GRIFFETH: Fake videos of House Speaker Nancy Pelosi, Facebook (NASDAQ:FB) CEO Mark Zuckerberg, actor Tom Cruise, they`ve all been going viral on social media recently, highlighting the power and reach of so-called deep fake videos. Artificial intelligence is making it easier for anyone with a laptop and simple web tools to create them.
So, technology companies and politicians are speaking out now about the potential for these videos to do harm especially as we near the 2020 election.
Aditi Roy takes a look at deep fake content and how social media companies are responding.
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ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: This fake video of comedian Bill Hader morphing into Tom Cruise went viral last month showing just how sophisticated and far reaching deep fake content has become.
The technology is also accessible and cheap the Chinese face swapping app Zao has become that country`s top smartphone app. But it`s also brought privacy issues to the forefront.
HANY FARID, U.C. BERKELEY PROFESSOR: We can literally carpet-bomb the Internet with misinformation.
ROY: U.C. Berkeley professor Hany Farid, a leading deep fake expert, has been hired by Facebook (NASDAQ:FB) to help weed out fake content.
FARID: So both of those sound like Joe Rogan. One of those is completely synthesized.
ROY: Other tech companies are also on the offensive. Twitter recently acquired Fabula AI to help detect manipulated content.
And Google (NASDAQ:GOOG) says it`s exploring and investing in ways to address synthetic media.
But Farid says the good guys are outgunned in this arms race.
FARID: We`re sort of playing catch-up. We`re going to catch up, but here`s what I can tell you is the end game. The end game is people like me will lose.
ROY: For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.
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HERERA: The SEC reached a deal with Nissan to settle allegations of underreporting compensation to its former chairman, Carlos Ghosn. The automaker will pay a $15 million fine to settle the civil fraud charges. Ghosn agreed to pay a million dollar penalty and did not admit to any wrongdoing. The settlement is the latest fallout from Ghosn`s arrest last November. He faces criminal charges in Japan where he is currently out on bail.
GRIFFETH: If you are someone who orders out a lot, here`s something you might see the next time your food is delivered, an autonomous vehicle bringing that meal to your door. It`s the future of home delivery.
Phil LeBeau tells us about the rush to make deliveries driverless.
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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: This may be the future of ordering out, a small autonomous rover bringing your food. Postmates — the on-demand delivery firm which has grown rapidly since 2011 — is testing driverless rovers that travel at low speeds and have the ability to maneuver down sidewalks. If there`s a problem, a Postmate`s employee back at the company offices can step in and take control.
The technology to monitor and drive Postmates delivery rovers is being developed by Phantom Auto, which has been working on teleoperation of vehicles for a couple of years. Drivers have a degree view of a vehicle. They can steer it as if they`re sitting behind the wheel.
Other delivery firms like DoorDash are also working on autonomous deliveries.
Meanwhile, the tech firm Nuro has partnered with grocery chains and Domino`s Pizza (NYSE:DPZ) on driverless delivery vehicles.
And automakers like Ford are also testing the waters.
But the key to autonomous deliveries rolling into more neighborhoods is having a way to ensure someone can monitor and if needed take control in certain situations.
For now, Postmates and Phantom Auto are testing autonomous deliveries on a small scale in Los Angeles and San Francisco. But as the technology develops, don`t be surprised if an autonomous rover is delivering the next meal you order.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
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HERERA: Finally tonight, the most powerful women in business. “Fortune” is out with its 22nd annual ranking.
In the top spot for the second year is Marillyn Hewson, the CEO of Lockheed Martin (NYSE:LMT), who saw sales grow last year on a record number of orders. GM CEO Mary Barra is number two, with a goal of having twenty new electric vehicle models on the market by the year 2023. In third place, Fidelity`s CEO Abigail Johnson, who saw a 20 percent increase in new client money last year.
And that is NIGHTLY BUSINESS REPORT tonight, I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.
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