ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Rollback rally. Word of potential easing of tariffs between China and the U.S., and the Dow and S&P to finally new records.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Mighty mouse. Disney (NYSE:DIS) fires on all cylinders in the latest quarter. And with its streaming service just days away, can the mouse continue to roar?
GRIFFETH: And home buyer hesitation. Why more people are feeling the need to hold off on buying that new home.
All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, November 7th.
HERERA: Good evening, everyone. And welcome.
It was another record day for stocks. The catalyst: word that the two largest economies wrapped up in a trade war have agreed to roll back existing tariffs. The market may have interpreted that news as meaning the U.S. and China are closer to finalizing phase one of a trade deal.
Eunice Yoon is in Beijing for us tonight.
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EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China says the two sides have agreed in principle to roll back some of the existing tariffs in phases. The commerce ministry said that the negotiators have been discussing this the past two weeks. And the ministry stressed that for a phase one agreement to be reached, some of the additional tariffs have to go. Beijing wants the tariffs to be lifted at the same time by the same amount, though, how much could be negotiated. And a spokesperson said at the time and place of a deal signing has yet to be decided.
After the Commerce Ministry`s remarks, the state media has been laser- focused on the point that if tariffs are not removed, there is no deal. That`s been one of Beijing`s core demands. The papers also emphasized that tariffs need to be lifted simultaneously and indication to the Chinese that China and the U.S. are considered equals. Perhaps it`s the way to make it easier for the Trump administration to meet Beijing demands, Chinese authorities jailed nine people today, including one with a suspended death sentence for smuggling opioid fentanyl into the United States.
China`s narcotic commission worked with U.S. law enforcement in what Beijing says is the first such collaboration. The talk is that President Trump could use the outcome as political cover to lift tariffs, easing criticism that he is caving to Beijing and is a sign this could have been a calculated move with the trade talks in mind, the commission says the decision was made in accordance with the consensus reached between President Xi and President Trump.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
(END VIDEOTAPE)
GRIFFETH: Now, there was a report late in the day that the plan to roll back those tariffs faces strong internal opposition in the White House, and that no final decision has been made. But that wasn`t enough to derail stocks today. The Dow rose another 182 points, now at 27,674, Nasdaq rose 23 and did hit an intra-day high. The S&P added eight points at the close for a record there.
Bob Pisani has more on the day`s action.
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BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks continue their record run on Wall Street but ended well off the session highs. The markets rallied out of the gate, first on word from Chinese officials that the U.S. and China would both begin to roll back existing tariffs in phases and then took another leg higher when sources inside the Trump administration reiterated that same report.
Now, by the close — this is the problem. Stocks slipped on a “Reuters” report saying the plan faces fierce internal opposition in the White House and no final decision has been made. You see how tough it is figuring out what`s going on with tariffs.
So, big breakout, the trade sensitive sectors fueled the record run today. We have 52-week highs in industrial stocks, material stocks, financials, and technology stocks. Bank stocks in particular rode the rally to new highs because of the big spike in bond yields. The yields on the U.S. 10- year Treasury note spiked to its highest level since August, having its biggest move in terms of basis points since right after the 2016 presidential election.
On the flipside, more defensive rate sensitive groups, the retail estate, utilities, consumer staples, they lagged behind. That`s been the story all November. Home building stocks in particular. Lennar (NYSE:LEN), Pulte, D.R. Horton (NYSE:DHI), they all sank 2 to 4 percent. Home builders have had a stellar year, though.
The yield move could be a big deal for the markets because it might — might — signal a further shift out of bonds back to stocks. That would certainly put some real legs under this rally. We`ll see.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
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HERERA: With the launch of its streaming service just days away, Disney`s quarterly results topped Wall Street estimates, thanks to the box office success of the Lion King and more growth at its theme parks. Earning beat expectations by 12 cents a share.
And here`s a big number. The company`s revenue for the quarter rose 34 percent to $19 billion. Disney (NYSE:DIS) initially rose more than 4 percent following the news.
Julia Boorstin has the key takeaway for investors.
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JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: While Disney (NYSE:DIS) beat expectations across the board, the biggest take away from my exclusive interview with Disney (NYSE:DIS) CEO Bob Iger is what`s ahead for the company`s streaming business, with Disney (NYSE:DIS) Plus launching Tuesday.
Iger announcing that Disney (NYSE:DIS) plus has new distribution partners to help expand its potential reach.
BOB IGER, DISNEY CHAIRMAN & CEO: We have distribution deals with a number of different entities. We are pleased to announce today a deal with Amazon (NASDAQ:AMZN). We have deals with Apple (NASDAQ:AAPL). We have deals with Samsung, with Microsoft (NASDAQ:MSFT), with LG, with Google (NASDAQ:GOOG). So, significant, significant progress in terms of distribution deals, and Amazon (NASDAQ:AMZN) being the latest one.
BOORSTIN: Iger also announcing that premium cable channel FX will have a presence on Hulu. They`re creating a destination on Hulu for shows from FX`s cable network as well as originals from FX creators.
Iger says this will add a lot of value to Hulu which could drive subscriber growth. Iger wouldn`t give any updates on subscriber editions for Disney (NYSE:DIS) Plus but he says they are pleased with testing and ready to launch.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Burbank, California.
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GRIFFETH: Let`s turn now to Dave Heger for more on Disney`s earnings beat. He`s senior medium analyst at Edward Jones.
Dave, good to see you. Thanks for joining us tonight.
DAVE HEGER, EDWARD JONES SENIOR MEDIA ANALYST: Good afternoon.
GRIFFETH: Clearly, they`re having a good year especially at the box office. Do you think they can continue this momentum?
HEGER: Well, certainly the company has been having a great year at the box office and it looks like the current quarter is going to continue that with the new addition of the “Star Wars” movies coming out. Plus, we have the “Frozen 2” sequel coming out as well.
So, it looks like in the near term, we`ll continue to see strength in the studios. Then it`s going to be a question of other parts of the business such as the parks continuing to grow and then even the media business staying relatively steady in the near term.
HERERA: What about parks? Because they did report really solid results in their parks business and they`ve been raising ticket prices. So, they clear will I have pricing power.
HEGER: Yes, they certainly do appear to have pricing power. And we expect there could be some uplift in attendance especially here in the U.S. with the “Star Wars” galaxy edge attractions have roll out both in California and in Florida. And there is still more to come on that. The company talked about California has a larger area that attraction opening up next month. And then Disneyworld in Florida has the same happening in January.
So, we feel like that should help drive additional growth. It sounds like some people have been holding off on visiting those attractions until they`re really fully opened.
GRIFFETH: Right. And, of course, a lot is riding on Disney (NYSE:DIS) Plus.
It`s a money loser to begin with. How soon do you think before it starts to contribute to their top and bottom line?
HEGER: It looks like it will really be several years before that starts actually to contribute on the bottom line. Certainly, from a top line revenue point of view, Disney (NYSE:DIS) Plus we expect will start contributing pretty quickly. The company looks like it`s getting a running start with the relationship with Verizon (NYSE:VZ). And then, you know, come March, they`ll start rolling out more countries and Europe.
And, you know, the revenue ramp up should occur quickly but there is a lot of expense associated with the investment in content and in getting the business up and running. So it will be several years before we expect it to contribute to the bottom line.
GRIFFETH: Dave Heger with Edward Jones. Again, thanks for joining us tonight, Dave.
HEGER: Thank you.
HERERA: And with Disney`s new streaming service, Disney (NYSE:DIS) Plus days away from joining the long list of other subscription services, is it best for you to keep your current bundle or should you unbundle? That is the question.
Tuna Amobi, senior media and entertainment analyst at CFRA Research, joins us now to talk about that.
Good to see you, Tuna. Welcome back.
TUNA AMOBI, CFRA RESEARCH SENIOR MEDIA & ENTERTAINMENT ANALYST: Thanks, Sue. Good afternoon.
HERERA: You say that the bottom line is bundling is not going away. Why?
AMOBI: I think it`s hard to, you know, kind of imagine a scenario where you know the traditional bundle as we know it today is going away, just simply because it`s hard to replicate that synthetic bundle with the streaming offerings. What you are likely to see is consumers becoming more and more selective and focusing on those services that they watch the most. And also keep in mind that most of the offerings today we have are actually not offering live television. So, a lot of on demand content, sports, et cetera. You have a hybrid services like Hulu.
So, I think you are seeing more and more, you know, kind of shift towards these newer offerings, but not necessarily fully replicate the traditional bundle.
GRIFFETH: Reed Hastings, the CEO of Netflix (NASDAQ:NFLX), made an interesting point. He was a speaker at yesterday`s “New York Times (NYSE:NYT)” DealBook Conference, and he asked about all the competition out there in streaming and otherwise. And here`s what he said. Listen to this.
(BEGIN VIDEO CLIP)
REED HASTINGS, NETFLIX CEO: People subscribe to a couple of services the way they subscribe to news services. But then in terms of time, that`s the real competition. The tricky thing in this streaming war is, you know, Apple (NASDAQ:AAPL) and Disney (NYSE:DIS) is not breaking out revenue for the service. You`ll hear some subscriber numbers, but you just can bundle things in so that`s not going to be that relevant.
So, the real measurement will be time. How do consumers vote with their evenings? And do they end up watching what mix of all services?
(END VIDEO CLIP)
GRIFFETH: You know, we focus so much on price and whether people want to unbundle because of the high price of bundling at this point. But will people have enough time to watch all that they can subscribe to? He makes a good point, don`t you think?
AMOBI: He does. I`m sure he was making a lot of sense. You know, time is always going to be a constraint. But I don`t think that with the pricing that we have seen for some of the services — I think it really affords the consumer to option to kind of, you know, pick and choose and actually to mix it up.
We can foresee people subscribing from four to six offerings and still be significantly where the price of a traditional bundle is today. What they`re getting is the ability to in some ways create their own synthetic bundle.
HERERA: Uh-huh.
AMOBI: But they`re also able to significantly save from what they`re paying today.
A lot of those trends are also secular, broadband growth and international markets as well. That`s why you see a lot of companies looking internationally where the trends are just (INAUDIBLE)
HERERA: What — from what we see now, which companies do you think will be the winners? And which have more challenges?
AMOBI: Sue, I think the way we like to frame this streaming war is not necessarily playing out in one big battle. We see potential winners and losers across various fronts where we see, for example, subscription video on demand where Disney (NYSE:DIS) is at play, as well as Netflix (NASDAQ:NFLX). We peg them in that category. The sports, of course, Disney (NYSE:DIS) is going to be very formidable.
And then you have other areas like, you know, hardware and the streaming hub, of the likes of Roku and even Comcast (NASDAQ:CMCSA) (NYSE:CCS) —
HERERA: OK.
AMOBI: — playing in the advertising space, (INAUDIBLE) and might be a player as well.
So, it`s going to be compartmentalized streaming wars is what we like to think about that.
HERERA: Tuna, thank you very much. Tuna Amobi with CFRA Research.
AMOBI: Thank you.
GRIFFETH: And coming up, home buyer confidence is starting to buckle. We`re going to tell you why more people think this might not be the time to buy a home.
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HERERA: Shares of Toyota (NYSE:TM) climbed to a 4-year high as the Japanese automaker posted better than expected quarterly earnings.
More importantly, unlike other Japanese automakers, Toyota (NYSE:TM) is not cutting its profit outlook.
Phil LeBeau tells us why.
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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: With Americans driving more pickups and SUVs, these are tricky times for Japanese automakers who sell a sizable number of cars. But Toyota (NYSE:TM) has been able to ride out the shifting tastes of Americans, thanks to a full lineup of trucks and SUV. That helped the automaker post better than expected earnings for the most recent quarter, with global revenue rising almost 5 percent.
More importantly, Toyota (NYSE:TM) has not lowered its full-year profit forecast as have other auto makers. Meanwhile, Toyota (NYSE:TM) is partnering with China`s BYD, which makes electric cars and buses. The two firms will work on developing EVs.
While Toyota (NYSE:TM) pioneered hybrid cars with the Prius, it has not been a leader in pure electric vehicles. And as Tesla has grown its sales, with a plant in China about to start production, Toyota (NYSE:TM) CEO Akio Toyoda is now pushing his company to be more aggressive when it comes to electric vehicles.
Meanwhile, Toyota (NYSE:TM) is looking to grow its pickup sales here in the U.S. with a new plant about to begin production in Mexico. That will provide Toyota (NYSE:TM) dealers here in the U.S. with more Tacoma pickups looking to increase sales of trucks in this country.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
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GRIFFETH: No celebration for party city. And that`s where we begin tonight`s “Market Focus”.
The retailers results missed on both profits and sales and it cut its full- year forecast a second time this year. Party City also cited helium shortages and fewer Halloween shoppers in its stores as major headwinds. And look at that, the stock lost more than two thirds of the value today, ending at just $2 even. That`s an all-time low.
Ralph Lauren saw strong growth in China for its polo shirts and tweed jackets, and that helped the retailer top estimates. The company also said it`s raising prices to help offset rising costs from tariffs on Chinese imports. Shares spiked more than 14.5 percent today to $115.67.
And Teva Pharmaceutical posted mixed results. It topped revenue forecasts but slightly missed on earnings. The drugmaker also raised the lower end of its full-year forecasts. Separately, the CEO said today that the opioid related litigation against Teva could be resolved by the end of the year. Shares rose more than 4.5 percent to 8.47.
And then after the bell, booking holdings, which used to be called Priceline, they reported better than expected earnings but came up shy on revenue. Shares of the travel reservation company were volatile in after- hours trading tonight. They close the regular session down more than 8 percent to $1,849.93.
HERERA: Also after the bell, Activation Blizzard posted results that beating estimates, thanks to the recent launch of its “Call of Duty” games. But the videogame maker sees revenue in the holiday quarter below estimates due to increased competition from online and free to play games. Shares were volatile after hours. They close the regular session down more than 3 percent to $54.55.
GAP`s CEO Art Peck will be stepping down. The board`s current non- executive chairman will be taking over the reins of the company for the time being. Separately, GAP says its comparable sales were down in its third quarter. Gap (NYSE:GPS) shares initially fell sharply following the after-hours news. They close the regular session up nearly 2 percent to $18.06.
And Zillow`s revenue topped expectations driven by the real estate website, selling more homes and growth in advertising platform. Shares initially rose after-hours trading, but closed the regular session down a fraction to $33.44.
GRIFFETH: Meanwhile, mortgage rates moved higher as the bond market sold off. Just more bad news for home buyers who are already losing confidence in the housing market.
Diana Olick has more.
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DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Demand for housing is strong, but a shrinking share of Americans think now is the right time to buy, that according to a new survey from Fannie Mae. It found just 21 percent of people said now is the time to sign on the line. That`s down from 28 percent in September.
Why? Probably because of another data point in the survey. Fewer people say their household income is higher than it was a year ago, just 16 percent, down from 21 percent in September. Affordability is front and center and it`s getting worse.
DOUG DUNCAN, FANNIE MAE CHIEF ECONOMIST: The main source of the affordability problem is the lack of entry-level housing because boomers are not moving. Gen-Xers are not moving. And builders typically build for a move up buyer. So, the biggest affordability issue is simply lack of supply.
OLICK: Home prices which have been cooling off turned hotter in the last month due to that severe shortage of homes for sale. The realtors reported a nearly 3 percent annual drop in inventory at the end of September. But the drop is far more on the low end of the market. For homes priced between $100,000 and $200,000, it`s down 13 percent from a year ago. And that`s the range where most first-time buyers live.
DUNCAN: Our data on first-time home buyers showing they are the most conservative in terms of share of income dedicated to housing of several generations.
OLICK: Mortgage rates should be helping, but they actually ticked back up in September and jumped again today. Current buyers have very little wiggle room in the wallets and even small rate moves matter, not only in the affordability but in the ability to qualify for a mortgage. Fewer people think rates will go down further according to the Fannie Mae survey.
And adding to the supply pressure, fewer people think now is a good time to sell too. That`s why more are staying in homes longer, five years longer than they were just a decade ago. And the longer they stay, the less homes there are for sale.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
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GRIFFETH: Let`s turn now to Daryl Fairweather to talk more about the housing market and if you should be buying now or waiting until spring. Daryl is chief economist at Redfin.
Thanks for joining us tonight. Good to see you.
DARYL FAIRWEATHER, REDFIN CHIEF ECONOMIST: Thank you for having me.
GRIFFETH: I know you agree that affordability is the biggest issue facing the housing market right now, but do you see any relief coming in that regard going into the New Year?
FAIRWEATHER: Well, 2019, buyers still have a lot of challenges out there when it comes to affordability. Rates came down and the market slowed a bit, which gave buyers a better opportunity than they saw in 2018 or 2017. They`re facing fewer bidding wars. But the underlying problem is still prices.
HERERA: And what about mortgage rates? We saw them tick up today. But historically, they`re still really low. But consumers seem to be extremely sensitive to those small variations.
FAIRWEATHER: Mortgage rates are low from a historical perspective. Any time they tick up or down, it does impact how much you pay every month. But most buyers are looking for a home in their price range where they can afford the down payment. And that matter more than just the monthly mortgage payment changing by a few dollars.
GRIFFETH: Supply is, of course, a big issue. Home builders have been reticent about building new homes. But I was reading the first time in a while, home building contributed to GDP numbers in our economy.
That has to provide some hope, doesn`t it? Do you think that`s the beginning of a trend?
FAIRWEATHER: That`s right, home builders pay attention to interest rates too appear opinion and when they come down they can afford to build more. So, that`s definitely good news. Unfortunately, we have a really big housing shortage here in the U.S. that`s even larger in places like California and other expensive coastal metros.
So, I think it`s going to be a long time before building really puts a dent in home affordability.
HERERA: So what`s your take for those who are sitting there saying, well, I don`t know, is this a god time to go out and buy a house? Or should I wait for the traditionally stronger spring selling season?
FAIRWEATHER: It really depends on your personal situation. I think right now, it is a good time to buy a home, compared to next year. There might be even more competition prices might be even higher. So, I wouldn`t advise anyone to wait thinking that they`re getting a better deal later on. With this housing market and the lack of supply of homes, I only see prices going up.
GRIFFETH: Daryl Fairweather with Redfin, again, thanks for joining us tonight.
FAIRWEATHER: Thank you.
HERERA: Up next, how about a nice cup of coffee without the coffee?
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KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Coffee comes in a lot of forms — hot, cold, flavored. But have you ever heard of coffee made without coffee beans? I`m Kate Rogers (NYSE:ROG) in Seattle. And tonight on NIGHTLY BUSINESS REPORT, we`re going to tell you how and why one start- up is doing just that.
(END VIDEO CLIP)
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GRIFFETH: Finally tonight, the coffee industry has a sustainability problem. Most of it is grown in certain latitudes around the world. And potential climate change is forcing farms to continually move higher, where there is less land. But one company has set out to solve that problem by taking the bean out of your morning cup of Joe.
Kate Rogers (NYSE:ROG) is in Seattle to see what the buzz is all about.
(BEGIN VIDEOTAPE)
ROGERS: Coffee, it`s a ritual for many. The brewing of it, the taste, the smell, but one Seattle start-up says it figured out how to make a great cup of coffee without the bean. It`s called molecular coffee. And if you`re wondering why, you`re not alone.
ANDY KLEITSCH, ATOMO CO-FOUNDER AND CEO: Many don`t like the taste of coffee, you know? In fact, a lot of people add cream and sugar. Sixty- eight percent of people add cream and sugar to the coffee because they simply don`t like the taste. And so, one reason we thought, let`s just make a better tasting cup of coffee. But really what`s driving us is the whole deforestation and the long-term viability of coffee.
ROGERS: Atomo, based in Seattle, not far from the Starbucks (NASDAQ:SBUX) in Pike`s Place Market was founded by friends, Andy Kleitsch and Jarret Stopforth, who from the tech start-up and consumer packaged goods world.
The two say they`re coffee lovers but know that coffee production as it stands today may not be sustainable. Most of it`s grown in certain latitudes and climate change will force farms to continually move higher where there is less land. So, they reverse-engineered the coffee bean, making coffee from materials including sun flower seed husks and watermelon seeds.
KLEITSH: These are waste stream products that are normally discarded by farmers. And we take those ingredients, we find compounds in those ingredients that we can use to contribute the flavor and the aroma and the body and the mouth feel of coffee. So, we`re taking up cycle ingredients and naturally derived sustainable ingredients and using that as our base for our coffee.
ROGERS: And yes, it does have caffeine.
UNIDENTIFIED MALE: Give it a smell.
ROGERS: The project began on Kickstarter, raising $25,000. Then the venture capital world came in with $2.6 million from Horizon ventures, backer of Impossible Foods. And among Atomo`s advisers is the CEO of Soylent, which makes plant-based meal replacements.
BRYAN CROWLEY, SOYLENT CEO: This is not fad. It`s here to stay, because we have to do it. We have to find disruptive solutions to these issues that we`re facing from a sustainability standpoint.
ROGERS: Atomo plans to ship its first batch of cold brew to its Kickstarter investors this January as it continues working to get its coffee grounds right for hot brew. Atomo says the cold brew should be available at retailers mid-year.
So, we had to put the product to the test right here in Seattle up against another leading cold brew.
Which one did you like better?
UNIDENTIFIED MALE: This one.
UNIDENTIFIED FEMALE: I like this one better.
ROGERS: And the people liked it. Seven out of ten chose Atomo.
UNIDENTIFIED MALE: Amazing.
UNIDENTIFIED FEMALE: I really like that. It`s really good.
UNIDENTIFIED FEMALE: Can I finish?
ROGERS: Yes, please.
As it turns out maybe the perfect cup of Joe doesn`t need a bean after all.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG) in Seattle.
(END VIDEOTAPE)
GRIFFETH: Some of our staff tried that today and they said it was actually sweeter than traditional coffee. But I`m not sure you need to call it coffee if you`re not using coffee beans.
HERERA: True, that`s really true.
GRIFFETH: Call it something else.
HERERA: Something else. We`ll come up with a name.
GRIFFETH: Yes.
HERERA: Before we go, here`s a look at the day`s final numbers on Wall Street. The Dow rose 182 points to a record 27,674. The Nasdaq rose 23. S&P 500 added eight, for a record close as well.
And on that note, that will do it for us. We`ve got to go get a cup of coffee.
I`m Sue Herera. Thanks for joining us.
GRIFFETH: Or something else.
HERERA: Or something else.
GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you tomorrow.
END
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