ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: D.C. drama. Political turmoil in Washington whip saws stocks and Democrats launch a formal impeachment inquiry into the president.
Just do it. Nike`s quarter was better than expected, and for that, you can thank strong sales in China, despite escalating trade tensions.
Moon missions. Lockheed Martin (NYSE:LMT) is awarded billions of dollars to power the next lunar landing.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this Tuesday, September 24th.
Good evening, everyone, and welcome. Bill has the evening off.
Investors have largely ignored all of the impeachment talk in Washington. That is until today. Calls for President Trump`s impeachment gained steam and stocks hung on every headline during the trading session.
And then late today, House Speaker Nancy Pelosi announced a formal inquiry.
(BEGIN VIDEO CLIP)
REP. NANCY PELOSI (D-CA (NASDAQ:CA)), SPEAKER OF THE HOUSE: I`m directing our six committees to proceed with their investigations under that umbrella of impeachment inquiry. The president must be held accountable. No one is above the law.
(END VIDEO CLIP)
HERERA: An increase in uncertainty is never good for stocks, whether it`s political or economic.
And today, investors also grappled with weaker than expected economic reports and concerns over trade with China. As a result, the Dow Jones industrial average fell 142 points to 26,807, the Nasdaq was down 118, and the S&P dropped 25.
Bob Pisani walks us through today`s return of volatility.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: A toxic brew of economic data. Negative sentiment on China, trade and politics brought volatility back to the markets today. Stocks started positive but began weakening just after the open on weaker consumer confidence numbers. Remember, the U.S. consumer is hoping to prop up the world economy and shortly after 10:00 a.m. Eastern Time, President Trump emphasized the negatives on China trade at his U.N. speech, saying China had not adopted promised reforms and that it consistently stole intellectual property, citing Micron as an example.
Then, about 12:30 Eastern Time, impeachment talk got louder as Speaker Pelosi said she would make an announcement later today regarding impeachment. Markets came off the lows a little after 2:00 p.m. Eastern Time when the president tweeted he`d be released at a transcript of his conversation with the Ukraine president tomorrow but stocks drifted again lower into the closed.
This is the first day by the way the S&P has moved in a more than 1 percent range in the last three weeks.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: So why does Wall Street suddenly care about politics in Washington?
We`re joined now by Jeff Bush, strategist at The Washington Update.
Welcome back, Jeff. Nice to see you again.
JEFF BUSH, THE WASHINGTON UPDATE STRATEGIST: Nice to see you, too, Sue.
HERERA: Let me start, first of all, with the issue of trade. First of all, the president had some very tough words in his U.N. General Assembly addressed today to China. But, secondly, if in — as these proceedings, these impeachment proceedings, continue, might it put the Chinese at an advantage? Do they wait out this whole process?
BUSH: Well, I think that was the Chinese plan leading into that discussion as well. I think the president was using today`s speech at the U.N. to level-set that negotiation once again, to begin that process and building that relationship back up. But I think the Chinese were playing a little bit of slow ball to begin with.
HERERA: What about fiscal policy? Does anything get done as Washington moves through this process?
BUSH: Well, we`re already seeing the movement towards a continuing resolution. I think it`s very possible that we end up operating throughout fiscal year on a continuing resolution, which is disappointing. It means that spending stays the same and we can`t begin new projects and new programs, which is — you know, not good for our country. We should be able to move forward with those programs.
HERERA: There`s a lot of headline risk when any situation like this comes up. How vulnerable — I mean, we saw certainly a lot of volatility and reaction to every headline that came out today. But as this process continues, how vulnerable do you think the market is for headline risk?
BUSH: Well I think the markets been pricing in a lot more volatility. We`ve been speaking about it for about a year and a half, that we`re building in these areas of uncertainty within the economy and within the markets, and this is just one more to that list.
Today`s announcement of the impeachment inquiry, it really doesn`t fundamentally change where we were before we had this understanding of this Ukrainian situation. Jerry Nadler was already pursuing that direction, along with the other committee heads as well.
HERERA: But interestingly enough, we didn`t see a lot of volatility. Perhaps, it was simply that — you know, that the speaker putting forward the inquiry that made the difference to the Wall Street. But —
BUSH: That`s correct.
HERERA: — the odds though of the president actually being removed from office are extremely low.
BUSH: Very low.
HERERA: So, could this be a move perhaps by the Democrats to get the Senate back which would change the dynamic in terms of legislation, fiscal policy, et cetera?
BUSH: I actually would probably put forward the opposite opinion. And what I mean by that is it`s very hard for an incumbent presidency to motivate the base in the second term election and if the Democrats pursue an impeachment proceeding, that`s certainly going to fire up the Republican base. I would actually say that would lock in the Senate for the Republicans just may that based on that effort.
HERERA: So how do you see this progressing what might the fallout be for the economy and for the markets?
BUSH: Well, not dissimilar to the impeachment inquiries and impeachment process that we went through with Bill Clinton. I think the market will initially react. We saw a little bit of that today. We`ll probably see more here in the near term, certainly as new headlines hit. There`s a lot of things that are going to unfold over the next week with the transcript coming out tomorrow, the testifying on Thursday. All those things represent that headline risk.
The bottom line, I don`t think there`s fundamental difference at this point that the market needs to react to.
HERERA: On that note, Jeff Bush with The Washington Update, thank you again.
BUSH: Thank you, Sue.
HERERA: As Bob mentioned earlier in the program, the president`s tough talk on China during his address to the United Nations General Assembly also contributed to the downbeat mood on Wall Street.
Eamon Javers is at the U.N. in New York.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump took a harsh line on China today at his speech at the U.N., laying out his trade war as part of a broader campaign that he says is to bring an end to this process of globalization that he says too many leaders have engaged in over the past several decades. The president very specific about what he says China has been doing wrong in the global economy.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Not only has China declined to adopt promised reforms, it has embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers and the theft of intellectual property, and also trade secrets on a grand scale.
JAVERS: The president`s criticisms of China were expected. Less expected though was his criticism of social media giants which he laid into in this speech.
TRUMP: A small number of social media platforms are acquiring immense power over what we can see and over what we are allowed to say. My administration has made clear to social media companies that we will uphold the right of free speech. A free society cannot allow social media giants to silence the voices of the people.
JAVERS: The president also specifically named Iran as being responsible for those attacks on the Saudi oil refineries that we saw last week. The president not though specifying what specific action he wants to take to punish Iran for those attacks.
For NIGHTLY BUSINESS REPORT, I`m Ayman Javers at the United Nations.
HERERA: There was political drama in the United Kingdom as well. The British Supreme Court ruled that Prime Minister Boris Johnson illegally suspended parliament. The ruling was a setback for Johnson and it means that debate over how to leave the European Union can continue.
(BEGIN VIDEO CLIP)
BORIS JOHNSON, BRITISH PRIME MINISTER: I have the highest respect of course for judiciary and for the independence of our courts. But I must say I strongly disagree with this judgment and we in the U.K. will not be deterred from getting on and delivering on the will of the people to come out of the E.U. on October the 31st, because that is what we were mandated to do.
(END VIDEO CLIP)
HERERA: Johnson has pledged to see the U.K. leave the E.U. at the end of October, even if there is no deal with the E.U. about how exactly it will work.
And now to today`s mixed economic reports. As mentioned, consumer confidence fell more than expected in September. Americans` outlook on the economy grew more gloomy amid the trade war with China.
A separate report on housing showed a 3.2 percent gain in home prices in July, the prices are still cooling in some of the nation`s largest cities. As we`ve been reporting, lower mortgage rates have drawn homebuyers back into the market.
A solid quarter for Nike (NYSE:NKE). The athletic shoe and apparel company reported better than expected earnings and revenue amid a sharp increase in sales in China and despite rising trade tensions between the U.S. and China. Now, that sent the stock to a new high in initial after-hours trading.
Sara Eisen has more on Nike`s quarter.
SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nike (NYSE:NKE) optimists continue to be rewarded with another strong set of results, and the results were strong around the globe. But one particular highlight continues to be China. Nike (NYSE:NKE) saw 22 percent revenue growth in China. That would have been closer to 33 percent if not for the effect of the stronger U.S. dollar. That comes despite fears of a slowing Chinese consumer and trade tensions rising between the U.S. and China. Tariffs flying back and forth and concerns about the perception of American brands.
Despite that, China continues to be the bright spot in the portfolio. The other big takeaway, Nike`s going direct to consumer and that`s leading to higher growth from its rivals in places like North America, its home market where Nike (NYSE:NKE) saw growth of 4 percent. It means investing behind its sneakers app, its Website, and its own stores and relying less on wholesalers, department stores and Footlocker`s which aren`t doing as well. Digital is another big part of that strategy.
And finally, higher margins, higher than the street was expecting and continuing to rise, showing that Nike (NYSE:NKE) is able to charge more higher selling prices of its sneakers, delighting consumers with new innovations like VaporMax and get better margins for it.
Andy Campion, the CFO, summed it up in the earnings release, saying even amidst the increasingly volatile macro economic and geopolitical environment, we expect our unrelenting focus on better serving the consumer to continue to fuel strong growth across the global portfolio. The results from Nike (NYSE:NKE) showed that despite the stronger dollar, weakening global economy and rising geopolitical risks, Nike (NYSE:NKE) continues to speak to the consumer.
For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.
HERERA: And joining us now with more on Nike`s earnings is Mariann Montagne. She is a portfolio manager at Gradient Investments.
Welcome back, Mariann. Nice to see you again.
MARIANN MONTAGNE, GRADIENT INVESTMENTS PORTFOLIO MANAGER: Nice to see you, too, Sue.
HERERA: Sara gave us some of the takeaways from Nike`s report. But what really stood out to you?
MONTAGNE: There were several things that stood out. I mean, the strengths in China was phenomenal, but also the margin expansion. So we had a 1.5 percentage point gain in the gross margin and again, if that`s related to pricing. And then, we also had an expansion of the operating margin, which means they were able to leverage all their fixed expenses and their marketing. That was something that pulled back on the report on the prior quarter.
And so, it was nice to see that turnaround and they`re very strong back-to- school season.
HERERA: Did the strength in China surprised you and do you expect that to continue given the fact that there`s been very little progress made on the trade front?
MONTAGNE: Right, what I think it shows is that they`re so strong demand for their particular product. So we`ve heard reports about the Chinese trying to stay away from American brands and everything. I guess they don`t care when it comes to their kicks. They just like that Nike (NYSE:NKE) style and they`re going after it, in all of the greater China, greater Asia area and Latin America as well.
So, they`re taking share from others and I think that really speaks well of the company and how they`re designing product for the particular customers.
HERERA: Yes, the innovation certainly stood in the report. So did their digital initiatives. That seems to be paying off.
MONTAGNE: Yes. You know, everyone likes to have their own individual everything, and they`ve made it so easy to design your own shoes and get exactly what you want, what you need. So it`s awesome that they`ve been able to produce these results. We did not expect a 28 percent increase in earnings per share. We were looking for something more like 6 percent, in line with the consensus thinking.
HERERA: And that`s with a strong currency as well.
MONTAGNE: Right, right. So this has just been, you know, another demonstration of knowing their customer, being super flexible in terms of catering to their customers, and really taking share from others.
HERERA: What would you say — was it — was there anything that that worried you in the report or where you saw a weak spot?
MONTAGNE: I guess if there was any weak spot, it would be in North America where sales were only up 4 percent. But I don`t think that number is going to stay that low for long.
HERERA: Mariann Montagne with Gradient Investments — Mariann, thank you so much.
MONTAGNE: Thank you.
HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.
Apple (NASDAQ:AAPL) was upgraded to buy at Jeffries. The analyst says Wall Street is underestimating how much money Apple (NASDAQ:AAPL) will make from 5G. The price target is $260. Despite the upgrade though, the stock fell a fraction to $217.68.
Coverage of Disney (NYSE:DIS) was initiated with an outperform rating at Wells Fargo (NYSE:WFC). The analyst calls Disney (NYSE:DIS) the best name in media. As you know, Disney (NYSE:DIS) will soon launch its streaming service. The price target is $173. The shares were down slightly to $131.97.
Ralph Lauren was upgraded to overweight from neutral at Atlantic Equities. The analyst cites the company solid turnaround and stock valuation. The price target is $138, and the stock was down just a fraction to $92.60.
Still ahead, Senator Sanders says billionaires should not exist and proposes a new tax on the richest Americans.
HERERA: WeWork`s co-founder and CEO was forced to step down from his company. Adam Neumann will become non-executive chairman of the embattled shared office company which had been one of the most valuable startups of the last decade. The resignation is designed to win over investors after WeWork`s initial public offering was delayed and its value declined.
The governor of Massachusetts has declared a public health emergency and imposed a four month ban on the sales of all vaping products. The state will block sales of e-cigarettes used for tobacco and marijuana. On Capitol Hill, an official from the Centers for Disease Control today told lawmakers that consumers should avoid all vaping products until the cause of recent lung illnesses and deaths is identified.
(BEGIN VIDEO CLIP)
DR. ANNE SCHUCHAT, CDC PRINCIPAL DEPUTY DIRECTOR: It may not even be the THC or nicotine part. It may be additives or substances that may be common. It may be material that is not labeled appropriately. And so, we really do think consumers need to be quite unconscious right now.
(END VIDEO CLIP)
HERERA: The doctor also said hundreds of new vaping illnesses have been reported in the last week.
Facebook (NASDAQ:FB) is making an acquisition that sounds like something out of a science fiction novel. It`s buying a company that specializes in allowing humans to control computers using their brains. The size of the deal is reported to be between $500 million and $1 billion dollars. The startup will work to develop augmented reality smart glasses.
And Facebook (NASDAQ:FB) is one of the companies that`s under increased scrutiny from Washington due to privacy and competition issues. Today, the debate over the future of big tech took shape, with developments here and in Europe.
Ylan Mui is in Washington tonight.
YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: A big win for big tech overseas, but it`s still under siege at home. Across the Atlantic, the highest court and the European Union issued a landmark ruling in favor of Google (NASDAQ:GOOG). The court found that Google (NASDAQ:GOOG) does not have to apply the right to be forgotten to search results worldwide. E.U. users can only request that personal information be removed from searches that occur within the E.U.
In a statement, Google (NASDAQ:GOOG) said that it`s worked hard to implement the right to be forgotten in Europe and strike a sensible balance between the right to access information and the right to privacy.
Here in the U.S., California will be the first state to implement a European-style privacy law next year, a new state analysis finds that could cost businesses as much as $16 billion to comply.
That could all shape the debate on Capitol Hill over the need for a national privacy bill. At the same time, lawmakers are growing more worried about the potential for monopoly power in big tech.
At a hearing this afternoon, Republicans and Democrats took Internet giant`s and the regulator`s that oversee them to task.
SEN .MIKE LEE (R-UT), JUDICIARY COMMITTEE CHAIRMAN: Well, I`m encouraged that the FTC and the DOJ are investigating whether the tech giants have violated antitrust laws. I`m also concerned that we might overshoot the mark in our efforts to rein in those firms.
SEN. AMY KLOBUCHAR (D-MN), JUDICIARY COMMITTEE RANKING MEMBER: I`m more concerned that consumers are going to end up with a pie in their face if we don`t start taking action soon.
MUI: There`s no sign that either party is willing to let up.
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.
HERERA: Disappointing results for BlackBerry, and that`s where we begin tonight`s “Market Focus”.
The communication software provider posted weaker than expected revenue, citing softness in its enterprise software unit. BlackBerry also lowered its guidance. The shares fell more than 22 percent to $5.81.
Engineering and construction firm Fluor (NYSE:FLR) will be cutting its dividend in half and sell its government and equipment rental businesses. The company is looking to raise billion dollars from the asset sale as part of its strategic review. The shares dropped nearly eight and a half percent to $18.95.
Strong used vehicle sales helped CarMax (NYSE:KMX) top analysts expectations. The auto retailer has now beaten Wall Street`s estimates for six straight quarters, but the stock fell a fraction today to $86.74.
But AutoZone (NYSE:AZO) is warning customers it will be raising prices to combat tariffs. The company`s CEO says the increase could be as much as 25 percent. This comes as the auto parts retailer saw same store sales rise thank to ongoing demand after market car parts and accessories. The shares dropped about four and a half percent to finish at $1,096.63.
Electronic manufacturer Jabil topped estimates thanks to an increase in demand for 5G, cloud, energy and health care services. Separately, the company will buy back up to $600 million of its shares. Jabil rose about 5 percent to $32.85.
Taxing the wealthy has become a common call among some of the Democratic presidential hopefuls. Today, Senator Bernie Sanders released his plan which would hit multibillionaires especially hard.
Here`s Robert Frank.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Senator Bernie Sanders launching a new wealth tax proposal that would cut billionaire forces in half over the next 15 years. The plan follows Senator Elizabeth Warren`s own wealth tax that has helped lift her in the polls.
SEN. BERNIE SANDERS (I-VT), PRESIDENTIAL CANDIDATE: What we are saying to the billionaire class is stop the greed, stop the greed, stop the corruption, stop stepping on everybody in order to make more and more billionaires.
FRANK: Sanders` plan would affect taxpayers worth $32 million or more or about 180,000 households in the U.S. It`s a sliding scale starting at 1 percent but quickly rising to 8 percent for those with over $10 billion.
Jeff Bezos would pay about $9 billion in wealth taxes just this year under the plan, along with his income tax, property taxes and capital gains taxes. Bill Gates would face an eight and a half billion dollar tax bill, while Warren Buffett would pay around six and a half billion. Now, the top 10 billionaires in the country would pay nearly $60 billion in wealth taxes just this year.
The economists who advised Sanders on the plan estimated will raise four and a half trillion dollars in revenue over ten years, about twice the amount of Warren`s plan. They said it would have no exemptions, be vigorously enforced to keep tax evasion low, and, quote, entirely close the gap in wealth growth between billionaires and the average American family.
Polls show that more than 60 percent of voters including nearly half of Republicans support a wealth tax on the richest Americans.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
HERERA: Coming up, Lockheed Martin (NYSE:LMT) lands a mega deal to get mankind back to the moon.
HERERA: Executives at Volkswagen were charged by German prosecutors for allegedly misleading shareholders in the months before the emissions- cheating scandal. The indictment argues that the CEO and chairman along with former CEO martin Winterkorn withheld information about the scandal in an attempt to prop up the automakers stock price. Back in 2015, U.S. officials disclosed that V.W. had rigged millions of diesel-powered vehicles to cheat emissions tests for nearly a decade. Volkswagen is the world`s largest automaker.
One-point-three million more workers will be able to receive overtime pay. The Labor Department today finalized a rule expanding eligibility, which is effective January 1st. Under that rule, most salaried workers who earn less than $35,000 per year will be eligible, and that`s up from the current threshold of about $23,000.
And we finished the program tonight with a different kind of story, one that takes us far from politics and to the space race. There`s a big push to go back to the moon and NASA is letting Lockheed Martin (NYSE:LMT) lead the way, awarding it a major contract that could create a lot of jobs.
Morgan Brennan has more.
ANNOUNCER: Three, two, one —
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Another step closer to the moon, NASA awarding Lockheed Martin (NYSE:LMT) a contract. The deal valued at up to $4.6 billion to put Orion into production. The deal to buy six spacecrafts with an option to up that to twelve.
SHEILA KAHYAOGLU, JEFFERIES AEROSPACE AND DEFENSE ANALYST: So this was Lockheed contract to win. This is within Lockheed space segment which accounts for about 20 percent of revenues and segment earnings, and this is within their satellite sub segment.
BRENNAN: Orion was designed for deep space exploration with astronauts. Hardware belonging to the agency but built by Lockheed Martin (NYSE:LMT).
NASA plans to use Orion to send astronauts to the moon, a lynchpin in the Artemis Program to put boots back on the lunar surface in five years and then establish a permanent outpost.
Over the years, Orion has drawn criticism due to delays and ballooning costs. But this contract signals a shift and commitment to its production longer-term, cementing Orion`s place prominently in the Artemis program.
KAHYAOGLU: I think it sends a strong message that the U.S. is open to human exploration to the moon and potentially to Mars, and you know, that program was previously shut down in 2011, and Constellation was cancelled. So, this reopens that and it says that the U.S. no longer wants to use other countries` capacity to shuttle human beings back and forth.
BRENNAN: But it also speaks to the turf battle between states after another piece of the Artemis plan went to Alabama`s Marshall Space Flight Center, Texas lawmakers loudly voiced opposition.
Orion will be managed at Texas Johnson Space Center, getting to the heart of why space much like defense is seen as so crucial, not just because of national security and innovation but because space programs are jobs programs.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
HERERA: And before we go, here`s a final look at the day on Wall Street. The Dow fell 142 points, the Nasdaq was down 118, and the S&P 500 dropped 25.
And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for joining us. Have a great evening and we will see you here tomorrow.
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