Transcript: Nightly Business Report – October 28, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  New high.  The S&P 500 kicks  off a big week of earnings at a record, and it may be because of what  companies are not saying on their conference calls.  

ABC of earnings.  Alphabet`s profits disappoint but revenues rise as higher  expenses take a toll on the company`s bottom line.  

California on fire.  From the North to the South, wildfires are spreading  and once again the state`s biggest utility is at the center.  

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday,  October 28th.  

Good evening, everyone, and welcome.  Bill has the evening off.  
A new week, a new record.  The S&P 500 closed at an all-time high extending  its gain into the fourth week as investors cheered corporate earnings.   According to LPL Financial, today is historically the best day of the year  for stocks and it starts the best six-month stretch for the market.  
And today did not disappoint.  The Dow Jones Industrial Average was up to  27,090.  The Nasdaq added 82 and the S&P 500 rose 16.  

And as you know, earnings can often drive rallies, but this move higher  appears to be driven by what`s not being said on all of those earnings  conference calls.  
Bob Pisani explains.  

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  We`re coming up on the  halfway part of the earnings season.  So far, there`s one big word  investors are not hearing and that`s recession.  There`s plenty of issues  still out there, but the U.S. consumer which is the engine of global growth  is still holding up.  We`ve been scanning the conference calls.  And out of  roughly 200 companies that have reported over the last month, just 32 of  them have mentioned the word “recession”, and that, along with hopes of a  trade deal is the major reason the S&P is hitting record highs today.  

The consumer`s holding up.  Bank and credit card CEOs in particular have  painted a healthy picture of the consumer.  Zions Bank Corp CEO said: We  don`t see any indications of a broad-based recession on the horizon.
Richard Fairbank, CEO of Capitol One, said the U.S. consumer is in good  shape thanks to its strong labor market, rising wages and last year`s tax  cuts.  

Home builders have also touted strong consumer spending.  Stuart Miller of  Lennar (NYSE:LEN) said despite all the talk of a recession, customers don`t  seem to be viewing it that way and the housing market in general seems to  be strong.  

Then there are the autos and industrials.  That`s a far less rosy outlook.   Graco`s CEO said the trade war and the slowdown in automotive in China is  really some putting some strain on industrial activity across the board  over there.  

The bottom line is this: it`s unlikely a recession will become a self- fulfilling prophecy.  That`s very good news.  The economic narrative has  shifted from recession earlier in the year to slower but more stable  growth, a far less dire scenario for 2020.  

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

HERERA:  Global markets are also in rally mode.  Japan, France, Germany and  Italy all hitting new 52-week highs in trading today.  
So let`s turn now to Larry Adam to talk more about this record-setting  market.  He is the chief investment officer at Raymond James.  
Larry, nice to have you back with us.  Welcome.  


HERERA:  Is this move in the S&P 500 and the broader market sustainable in  your view?  

ADAM:  I do think it`s sustainable for a couple of reasons.  As you  mentioned earlier in the show, there`s no recession.  And as long as  there`s no recession, that tends to be very positive for the equity  markets.  
The second reason is that I do think you`re going to see an acceleration of  earnings growth going into next year.  When you have better earnings  growth, that tends to be supportive of higher equities.  And then, third, I  do think you`re going to see some positive seasonality.  

As Bob said earlier, this tends to be the best time of the year.  The  fourth quarter tends to have the best performance of the four quarters.   Positive seasonality tends to extend into next year because when you have  an election year, that tends to be very good for the equity markets — 90  percent of the time, you have a positive equity market, and that`s  regardless of whether or not the incumbent or the challenger wins.  

HERERA:  And what about the trade situation?  Because that has created so  much volatility both on the up side and the down side for investors.  But  you think the language or at least the optics have changed a little bit?  

ADAM:  Yes, I think very — if you looked earlier, there was a lot of  hardball discussion that was taking place.  I think when you look at this  upcoming meeting in November 14th and 15th in Chile where you`re going to  see President Xi from China and President Trump from the U.S. get together,  I think they`re going to want to play ball and get something done because  both of them understand the importance of getting a deal done to help  support the economy of both countries going forward.  So, I think they will  work very closely to get a deal and that will be a positive catalyst for  the equity markets.  

HERERA:  We mentioned the fact that the overseas markets were all higher in  today`s trading session.  Would you be putting money to work in the  overseas markets or do you think it`s better to be domestically invested?  
ADAM:  I still prefer the U.S. equity market over the international  markets.  

First of all, if you do look at economic growth, it is still better here  than in the U.S. than what you`re seeing overseas, because those economies  are struggling.  That`s bleeding through to earnings growth.  When you look  at earnings growth of U.S. companies, right now, they tend to be much  better than what you`re seeing overseas.  

And then the other thing that`s very important is you have to understand  what you`re buying.  And when you look at the U.S. equity markets, we have  a lot more technology exposure.  That happens to be one of my favorite  sectors.  And you`re going to see that during this earnings session, that`s  an area to be in.  That`s why I continue to favor the U.S. equity markets.  

HERERA:  On that note, Larry Adams with Raymond James — Larry, thank you  so much.  
ADAM:  Thank you, Sue.  

HERERA:  An earnings miss for Google`s parent company, Alphabet.   Aggressive spending on marketing and hardware development hit its bottom  line.  The good news though, revenue was strong rising 20 percent.  But  investors focused on the weaker than expected earnings and the stock was  volatile in initial after hours training.  
Josh Lipton has more.  

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  When Alphabet reports,  they make a beeline for what`s called Google (NASDAQ:GOOG) Properties.   That`s the bread and butter, the properties that the company owns and  operates like Search and YouTube.  That grew 19 percent to $28.7 billion.  

Aaron Kessler of Raymond James says that was above his estimate, and that  was the good news.  On the other hand, Kessler notes that operating  expenses came in higher than expected during the quarter, $13.7 billion.   However, Alphabet`s CFO Ruth Porat did note that there were some unusual  items in the quarter explaining some of that.  For example, a $545 million  expense related to a legal settlement.  
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.  

HERERA:  There were reports that Alphabet is interested in buying Fitbit  and made an offer, though it`s not clear if negotiations may lead to a  deal.  That report, though, was enough to send Fitbit shares up more than  30 percent.  

To the economy now and a new survey that shows hiring has hit a seven-year  low.  The survey from the National Association of Business Economists also  found that fewer employers are raising pay.  More businesses are reporting  slower sales and profit growth in part because tariffs have raised prices.  

Federal Reserve policy makers begin a two-day meeting tomorrow.  A decision  on interest rates will be announced on Wednesday.  The market views the  outcome as critical in part because it comes with the S&P 500 at new highs.  
Mike Santoli has more.  

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  With a break to a new  record high in the major indexes just ahead of a Federal Reserve meeting,  Wall Street finds itself in a pretty familiar spot.  In fact, the past five  Fed meetings going back to march have come as the S&P 500 was approaching  or was sitting at an all-time high and each time stocks began to dip or  pull back anywhere from 2 to 7 percent in the days surrounding that Fed  meeting.  The most severe setbacks came after the May or July meeting which  came in the thick of a reassuring corporate earnings season.  

Investors are now asking whether this pattern will strike again with the  Fed widely expected to deliver its third rate cut in four months coming  this Wednesday.  But there are reasons to think the market is a bit less  vulnerable leading up to this Fed move.  For one thing, the rally lately  has been unusually broad and has beaten the beaten down cyclical stocks and  the financial, industrial and transportation sectors.  

This is a sign the market is no longer acutely fearful of a recession  starting very soon and investors are not seeking open-ended help from the  Fed the way they were in past months.  Treasury yields as well have begun  to rise, especially longer term bonds which is the market`s way of  suggesting it believes the Fed can pause after one more rate cut  potentially and to see if a soft patch in global growth firms up.  

And, of course, the calendar helps.  November and December are two of the  year`s best months for stocks, at least historically speaking.  
Now, of course, with stocks up some 7 percent since their August low, they  might be expected to settle back on almost any excuse or headline, but the  market might also be in a better position to handle the Fed`s message this  time around than it was in the spring and summer slowdown scare.  

HERERA:  The European Union agreed to a potential three-month Brexit  extension.  The new date is January 31st.  U.K. Prime Minister Boris  Johnson vowed to deliver Brexit on October 31st but was forced to request a  delay after he was defeated in parliament.  The European Council president  reluctantly accepted the postponement saying he had no choice under the  law.  

Boeing`s CEO will make his first appearance on Capitol Hill tomorrow to  testify on the 737 MAX crashes which killed 346 people.  His testimony was  released today and in it he will acknowledge mistakes and tell the Senate  Commerce Committee that improvements have been made to ensure that  accidents like these never happen.  

It is time to take a look at some of today`s “Upgrades and Downgrades”.  
Travelers was upgraded to buy from neutral at MKM Partners.  The analyst  cites higher policy rates which are expected to persist next year and into  2021.  The price target is $160.  Despite the upgrade, though, shares of  the Dow component fell to $129.30.  

JetBlue was upgraded to overweight from neutral at JPMorgan (NYSE:JPM).   The analyst cites a more upbeat earnings outlook.  The price target is $24.   The stock was up 2.5 percent to $19.23.  

Lululemon was downgraded to neutral from buy at Citi.  The analyst cites a  pickup in promotions which could have weaker than expected margins.  The  price target is $205.  The stock finished right around that level, $205.97.  

Microsoft (NASDAQ:MSFT) was the best performing stock on the Dow today.   This after landing a big defense modernization contract late Friday.  The  contract is called JEDI, but it has nothing to do with “Star Wars” and  everything to do with the cloud.  
Here`s Morgan Brennan.  

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  After competition  that stretched almost two years and was ripe with controversy, Microsoft  (NASDAQ:MSFT) emerging victorious for the Defense Department`s JEDI  Program.  The Joint Enterprise Defense Infrastructure or JEDI is a large  winner-take-all cloud contract to unite the entire U.S. military within a  single data framework and up to ten-year contract valued at $10 billion.  

Amazon (NASDAQ:AMZN), which had been viewed as the front-runner, Microsoft  (NASDAQ:MSFT) and earlier on in the competition, IBM and Oracle  (NASDAQ:ORCL) all vied for the opportunity.  Analysts say this outcome will  have a big impact on the broader market for cloud. 

KIRK MATERNE, EVERCORE ISI ANALYST:  I think for Microsoft (NASDAQ:MSFT),  it`s really a validation of its broader cloud strategy in terms of trying  to go deeper with the enterprise customers they already have from a public  cloud perspective.  I think in terms of what it does for the numbers, it  really doesn`t move the numbers in any, you know, in a big way.  

BRENNAN:  Microsoft (NASDAQ:MSFT) responding, quote, we will forge  expanding our long-standing partnership with DOD and support our men and  women in uniform, at home, abroad and at the tactical edge with our latest  unique, differentiated Azure cloud abilities.  

And in a statement, Amazon (NASDAQ:AMZN) saying, quote, we`re surprised  about this conclusion.  AWS is a clear leader in cloud computing and a  detailed assessment purely on the comparative offerings clearly led to a  different conclusion.  Amazon (NASDAQ:AMZN) can protest the outcome but it  hasn`t said whether it would.  

Experts think it may have grounds to in part based on some of the, as  analysts at Cowan put it, animus between President Trump and Amazon`s CEO  Jeff Bezos that, quote, raises the level of intrigue.  
One shareholder notes AWS has been slowing but that Amazon (NASDAQ:AMZN) is  still the market leader.  

ALEX MOAZED, APPLICO CEO:  Still Amazon (NASDAQ:AMZN) has a lot of head  space beyond Microsoft (NASDAQ:MSFT) number two Google (NASDAQ:GOOG) cloud  number three in the space.  I mean, I think the one part about the JEDI  versus the difference about the general kind of AWS or Azure business is  this idea of a network effect of these kind of app ecosystems, right?  So  that means that there`s a winner take all dynamic if you look at an AWS or  an Azure and Amazon`s still the clear leader in that.  

BRENNAN:  For its part, the Defense Department issuing a lengthy statement  addressing some of the very concerns that have plagued procurement since  the start.  Quote: The process cleared review by the GAO and Court of  Federal Claims.  At the outset, the competition included four different  offers.  All offers were treated fairly and evaluated consistently with the  solicitation`s stated citation criteria.  

But as big as JEDI is expected to be, it`s still just one piece of  modernization efforts and the Pentagon says it does anticipate additional  cloud contracting opportunities.  
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan at the New York Stock  Exchange.  

HERERA:  Still ahead, California burning.  

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  I`m Jane Wells in  Healdsburg, California.  We have fire and destruction north and south.  The  governor has declared a state of emergency.  And the state`s large utility  companies are trying to stay one step ahead of the flames.  We`ll have that  story coming up.  

HIERERA: California is scorched.  Destructive fires are sweeping through  the state and the winds are high.  Power has been shut off for thousands of  people and the utility PG&E today said that its power lines may have  started two wildfires over the weekend in the San Francisco Bay Area.  PG&E  shares fell sharply again today as the Kincaid Fire in the north casts  doubt over the bankrupt utility`s future.  

Jane Wells reports from Wine Country in Healdsburg, California.  

WELLS:  From north to south.  
UNIDENTIFIED FEMALE:  They want to get people out of there safely.  They`ll  worry about the structures later.  
WELLS:  California was on fire again.  In southern California, several new  fires broke out including one along the 405 Freeway which forced  celebrities who live on L.A.`s west side to flee.  

MAYOR ERIC GARCETTI (D), LOS ANGELES:  I personally saw five homes on tiger  tail that have been lost but I saw them holding the lines there and that  has not spread further in the last couple of hours.

WELLS:  And up north in Sonoma County, the Kincaid Fire doubled in size  overnight to over 66,000 acres.  Over 180,000 people remain evacuated and  more than 2 million people have been without power.  PG&E turned off the  power intentionally to avoid disaster but disaster came anyway.  

The winds were calm and the temperatures cold which slowed the progress of  the fire, but a new wind event is expected to start Tuesday and PG&E is  telling a lot of people it`s not going to be worth it to turn the power  back on from many of them until after that second event blows through.  

RYAN WALBURN, NATIONAL WEATHER SERVICE:  What we`re starting to get ready  for, though, is another red flag event.  Right now, it looks like that`s  going to start sometime midday Tuesday and push us into Wednesday morning.   So, we`ve got kind of a quiet 24 hour and then we`re going into another  critical period.  

WELLS:  A map of PG&E outages shows how widespread the blackout is in the  northern part of the state.  Well, down south, SoCal Edison warns its  current intentional outage areas could increase as the winds kick up.   Edison reports earnings on Tuesday, which will give investors the first  idea of what fires and blackouts are causing.  

PG&E, which is in bankruptcy, reports next week.  But its shares continue  to have their own sort of power failure.  

Governor Newsom is reportedly floating the idea that Warren Buffet buy the  utility out of bankruptcy.  And even though cutting the power is supposed  to cut down on the chances of a fire and may be it has, the fire which  destroyed winery may have been started by a power line which was not turned  off.
For NIGHTLY BUSINESS REPORT, I`m Jane Wells in Healdsburg, California.

HERERA:  Tiffany (NYSE:TIF) gets a proposal.  That`s where we begin  tonight`s “Market Focus”.  

The jeweler confirmed it received a possible acquisition offer from French  luxury goods maker LVMH.  The financial details were not released but  reports say the offer is for about $120 a share.  Tiffany`s says it`s  reviewing that offer.  Its share sparkled up more than 31 percent to  $129.72.  

Walgreens will be shutting down about 160 in-store clinics as the drugstore  chain looks to cut costs and bring in outside providers to help deliver  medical services.  Walgreens quarterly results also topped expectations,  thanks to higher prices for patented drugs and prescription volumes.   Shares were up a fraction to $55.80.  

Spotify posted an earnings beat that surprised Wall Street, driven by  strong monthly active user and premium subscriber numbers.  Separately, the  company`s CFO will be retiring in January after overseeing Sotify`s direct  listing last year.  Spotify rose more than 16 percent to $140.20.  
And the chicken processor Sanderson Farms (NASDAQ:SAFM) rose today thanks  to China lifting its ban on American poultry imports.  “Reuters” says this  is part of the phase 1 of the trade deal in which the ban will be lifted.   Sanderson Farms (NASDAQ:SAFM) rose nearly 16 percent to $155.71. 

After the bell, Beyond Meat topped estimates as the company received new  partnerships with restaurants seeking more plant-based products.  Beyond  Meat also raised its full year outlook.  The shares were initially volatile  after hours and they closed the regular session up more than 4.5 percent to  $105.41.  

Also after the bell, Mirati Therapeutic said its experimental drug helped  reduce tumors in about 40 percent of patients with advanced lung and  colorectal cancer in early stage trials.  Mirati shares initially rose  following the news and they closed the regular session up a fraction to  $81.47.  

AT&T (NYSE:T) reported better than expected earnings and reached a truce  with an activist investor.  The company agreed to focus on its bottom line  and not enter into any big takeovers in the coming years.  Activist  investor Elliott Management called into question AT&T`s strategy of making  big acquisitions.  As part of the truce, AT&T (NYSE:T) also committed to  stock buybacks.  It will appoint two new directors to its board and will  conduct a review of its portfolio and it will pay down debt.  

When you think of activists, you may think of investors who pressure a  company to aggressively cut costs, but that`s not always the case.  
Leslie Picker did some digging.  

LESLIE PICKER, NIGHTLY BUSINESS REPORT CORRESPONDENT:  When defending  against activist investors, companies like AT&T (NYSE:T) often argue that  the outside input may not be best for the long run.  Elliott had been  pushing AT&T (NYSE:T) to focus more on the bottom line and cut out  unnecessary acquisitions.  

But what if so-called corporate raiders were actually corporate innovators?   That`s the case that researchers from Duke, Columbia, Yale and a host of  other schools are seeking to make in a Journal of Financial Economics.   Their findings contradict conventional wisdom that activist investors slash  and burn companies in favor of short-term profits, the academics found  instead that activists actually make companies more innovative.  

They analyzed publicly traded companies that were targeted by hedge funds  between 1994 and 2007.  The academics found that while research and  development spending dropped significantly in the five years after a hedge  fund gets involved with the company, the number of patents and citations  for patent actually increased.  The study argues that outside intruders  make companies more efficient when it comes to innovation.  
Elliott hopes that its involvement in AT&T (NYSE:T) can help move the  company forward during this pivotal time in the telecommunications  industry.  

HERERA:  Coming up, why even those with health insurance are avoiding  seeking care.  

HERERA:  For more than 200 million Americans who have employer-based health  insurance or by their coverage through the federal marketplace, it`s time  to pick your plan for next year.  But what type of insurance should you  choose during open enrollment and how can you save money?  
You know who`s here.  Our senior personal finance correspondent Sharon  Epperson joins us with some answers.  

It`s always great to see you, Sharon.  


HERERA:  All right.  I was looking through some of this.  It literally is  an alphabet soup.  There`s a PPO, an HMO and one I had never heard HDHP.  
So, what do people have to learn?  

EPPERSON:  The first thing you have to know is know when open enrollment  starts, November 1st for the federal marketplace, and for many companies,  the beginning of November as well.  They know what they stand for.  

HMO is a health maintenance organization.  Know that that`s something  that`s going to — you pay less probably out of pocket but you have to stay  in that network so that`s more constricting.  

The PPO, which many employers offer and many people get in their employer  plan, will have a higher deductible, higher premium but more flexibility.   You may not have to declare a primary care physician.  A health — a high  deductible health plan is increasing in popularity.  And that is key, if  you can afford to pay that high deductible and also if you want a health  savings account attached to it.  

HERERA:  OK.  So, now that we know what all of those things stand for,  what`s the first step in open enrollment, in approaching it?  
EPPERSON:  Well, the first step in approaching it is kind of understanding  what health insurance needs are and what health insurance is.  And,  unfortunately, many people don`t know that.  A new report out from policy  genius which is an online insurance marketplace found that one in four  people avoided care or treatment because they were unsure of their  coverage.  

Many of these people already have health insurance but they`re still not  sure what it`s covering.  Twenty-nine percent, only that number, was able  to correctly identify what a premium is, what a deductible is, what a copay  is.  These are the key expenses involved with your health insurance and you  need to know what they are and what you`re paying for.  

HERERA:  All right.  We went over some of the plans.  You mentioned a  health savings account.  What`s the difference between a health savings  account and what`s called an FSA?  

EPPERSON:  These are two ways you can save money for health care expenses.   And it`s important to know that with a health savings account, you must be  enrolled in a high deductible health plan to do it.  Also know that any  money that you put into that will roll over year to year.  
So it can be an investment opportunity.  You can invest that money.  It is  portable.  It is yours.  

The difference between that and a flexible spending account, the flexible  spending account is only really offered through your employer.  So, if  you`re getting coverage through the individual marketplace, you can`t get  an FSA.  

The other thing to keep in mind is that it is not portable.  It`s not an  investment option for that one.  If you don`t use it that particular year,  or by the grace period, you`re going to lose that money.  

HERERA:  Well, that is good to know.  

EPPERSON:  That`s important to know.  

HERERA:  All right.  When open enrollment comes, you`re sitting at my desk,  we`re going through it together.  Thank you, Sharon.

EPPERSON:  Just review it.  You just got to review it.  

HERERA:  Absolutely.  Sharon Epperson.  

EPPERSON:  Sure.  

HERERA:  Well, the New York Stock Exchange had an out of this world moment  this morning when the first space tourism company began trading.  The  company was created from the merger between Richard Branson`s Virgin  Galactic and a publicly traded shell company.  That allowed Branson`s space  venture to side step the traditional IPO process.  

SIR RICHARD BRANSON, VIRGIN GROUP FOUNDER:  I think it`s a very big  milestone.  If the public wants to take a little, you know, dabble a little  bit in the space, own a little bit of a spaceship company, they can now do  so.  We`ve managed to completely fund Virgin Galactic through to when it  breaks even.  

HERERA:  The shares rose for most of the session but drifted lower and  ended the day down just a fraction.  

Before we go, here`s a look at the day`s numbers on Wall Street.  The Dow  is up 132.  Nasdaq added 82 and the S&P 500 rose 16 to close at a record.  

And that is NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera.  Thanks for  joining us.  Have a great evening.  We`ll see you tomorrow.  


Nightly Business Report transcripts and video are available on-line post  broadcast at The program is transcribed by ASC Services II  Media, LLC. Updates may be posted at a later date. The views of our guests  and commentators are their own and do not necessarily represent the views  of Nightly Business Report, or CNBC, Inc. Information presented on Nightly  Business Report is not and should not be considered as investment advice.  (c) 2019 CNBC, Inc.

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