Transcript: Nightly Business Report – November 27, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Record run continues.  Stocks rise for a fourth straight day and hit more highs.  How are the markets set up for the year`s final stretch?  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  A toy-rrific return.  Just in time for the holidays, Toys “R” Us is back, this time with a twist.  

HERERA:  And drugs shortage.  Dozens of needed drugs are in short supply, and some say the problem is getting worse but the reasons may surprise you.  

All of that and much more tonight on NIGHTLY BUSINESS REPORT for this Wednesday, November 27th.

GRIFFETH:  And we bid you a good evening, everybody, and welcome.  
Stop if you`ve heard this before, but stocks ended the day at record levels once again.  With the S&P rising for a fourth straight day thanks to a slew of mostly positive economic data which we will get to in a moment.  To put this into perspective, over the past month alone, the major averages are all up more than 4 percent.  

As for today, the Dow rose another 42 points.  Nasdaq climbed by 57 with Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), and Netflix (NASDAQ:NFLX) among the outperformers there.  The S&P 500 added 13.  

HERERA:  And as Bill said, a lot of today`s sentiment was driven by some stronger than expected economic data, and there was a lot of it.  
Steve Liesman sorts through the deluge of data.  

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A pre-holiday deluge of data showing the U.S. economy operating a bit better than Wall Street had expected.  

But there was one warning sign about the holiday shopping season that for now bears watching.  The government revised third quarter GDP up two ticks to 2.1 percent.  That was also two ticks better than expected.  

Durable goods rising 0.6 percent in October, much better than the 1 percent decline expected, and a partial reversal of the sharp falloff in September.  A business spending measure inside the report also improved.  
Meanwhile, jobless claims came in below the elevated level of the past few weeks and that eased fears the job market could be weakening.  But a gauge of consumer income in October was unexpectedly weak registering no growth.  Spending growth was decent at 0.3 percent, but the concern is that if Americans don`t have money for the holidays in their pockets, they may not spend.  

Retailers are going to have to hope that the income numbers reverse in November and December and power consumer spending for the holidays.  

GRIFFETH:  And there was even more economic information to digest.  The Federal Reserve summary of economic conditions, better known as the Beige Book, said that the economy expanded modestly between October and mid-November.  Labor markets remain tight.  Manufacturing looked mixed.  But uncertainty over tariffs continued to weigh on business investment.  

Separately, the National Association of Realtors said that pending home sales which measures signed contracts, that fell nearly 2 percent in October from September.  One of the likely reasons was that there aren`t enough homes on the market right now to meet demand.  

HERERA:  So, good economic news helped the market reach record highs today, but can we expect this market to continue its climb higher for the remainder of the year?  

Kevin Caron is portfolio manager at Washington Crossing Advisers, and he joins us now to talk about this.  

Good to see you, Kevin.  Welcome back as always.  


HERERA:  You too.  

So, you do expect this market can move higher but a couple things need to be put in place.  One of them is business sentiment.  

CARON:  Sure.  There were three pillars we were looking for this year.  
Number one, we needed to see the central banks prime the pumps.  They did that, the United States and China cutting interest rates.  

Number two, we needed to see some improvement in the geopolitical climate.  Maybe we`re moving toward a deal with China, maybe some of the worry regarding Brexit has been pushed off, so that is an accomplishment or moving to accomplishment.  

And then number three, what we really need to see now is a pickup in business confidence, to show through as more business spending, because ultimately that can help generate more earnings growth next year.  And that earnings growth has really been the piece of the puzzle that`s been missing this year.  

GRIFFETH:  I said to a money manager the other night on the program, we were talking about, gee, how things look great and the market continues higher, that`s when I start to get nervous, when we`re all convincing ourselves why this market will continue to go higher.  
What do you think?  

CARON:  Yes.  So, the data that you were just talking about a couple of minutes ago, this improvement in the tone and the data the last few weeks is really important, because we`ve seen a slowdown in global growth, we`ve seen a slowdown in global manufacturing, earnings year over year have been essentially flat.  And what we`ve seen lately are just some initial signs that things might be firming up.  

And that would be enough to give the markets some more confidence as we move into the end of the year.  That`s what we hope to see.  But still, we`re late in the cycle.  We want to be careful.  

We want to own very good quality companies with good balance sheets, increasing in well-covered dividends, and ultimately buying things at the right price, then you should be able to get through whatever 2020 brings your way.  

GRIFFETH:  Very quickly, start thinking about energy for long-term value?  

CARON:  Yes, so energy is very — is very deeply hurt in terms of their valuations.  They`ve been a big drop in earnings.  It really takes some brave — some — you need to be brave to step in and buy the energy complex at this point.  But if you have a long-term perspective, that might be a good place to go.  

But mostly at this point, look for quality, consistency, durable and good balance sheets.  

HERERA:  On that note, happy Thanksgiving, Kevin.  Thanks for joining us.

CARON:  Same to you.

HERERA:  Kevin Caron with Washington Crossing Advisers.  

GRIFFETH:  Now to the other big story on this Thanksgiving Eve.  That would be the wicked weather snarling holiday travel across the country, a pair of storms have teamed up to wreak havoc as people head out for the busy weekend.  One is pounding the Western states with rain along the coast and reports in Oregon of wind gusts up to 100 miles per hour.  It`s also dumping heavy snow in the higher elevations in that area.  

The second storm is tearing through the Midwest.  It`s also bringing strong winds and heavy snow and some of that wind is going to reach the Northeast in time for the parade in the morning.  

HERERA:  Ah, yes.  As they say, timing is everything.  AAA estimates more than 55 million people are traveling this Thanksgiving weekend.  That`s close to a record high.  Most are driving.  But the airlines are also seeing more travelers.  

And this year, they`re finding planes and airports are packed.  
Phil LeBeau has more from Chicago`s O`Hare Airport.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The long lines at Chicago`s O`Hare Airport say it all.  The Thanksgiving travel rush is here.  With many hoping to hit the road before storms snarl flights and traffic across the country.  

UNIDENTIFIED FEMALE:  I`m a little worried.  My dad sent me a text saying look out for the weather reports but I haven`t heard anything from the airlines.  

UNIDENTIFED MALE:  We`re headed to Philadelphia.  I think we manage to escape the majority of the weather, hopefully.  

UNIDENTIFIED MALE:  Once we get out of Chicago, I don`t expect anything too bad.  We get back next Wednesday, hey, Chicago, who knows what the weather`s going to be.  

LEBEAU:  This year, thanks to a strong economy, more Americans are taking off.  The planes will be a little more crowded, in part because there are fewer seats than the industry once expected.  That`s because Southwest, United, and American are unable to fly more than 70 Boeing (NYSE:BA) 737 MAXes they originally had on their Thanksgiving schedules.  
While there are fewer seats than planned, the average domestic airfare remains close to its lowest price in years.  

JOHN HEIMLICH, AIRLINES FOR AMERICA:  We don`t see any marginal impact on fares, and in fact, the continued affordability we absolutely see as one of the ingredients of the record numbers this season.  

LEBEAU:  With more people traveling, more airports like New York`s LaGuardia are seeing the benefits of bigger redesigned terminals.  Even older airports like O`Hare are finding new ways to move travelers through the terminal quickly, with clear prescreened danger ID stations opening in time for the holidays.  

MIKE HANNA, UNITED AIRLINES:  I think this really helps the customer be able to get to the front of the line.  For us, congestion in our lobby and checkpoints are at a minimum.  

LEBEAU:  With storms across the country, especially the Upper Midwest and Northeast, this has not been the quiet start to the Thanksgiving weekend that airlines were hoping for.  And that`s important, because the more cancelations they experience, the more passengers they`ll have to rebook.  And the more that will weigh on their bottom line in the fourth quarter. 

GRIFFETH:  Coming up, you know, high drug prices can keep patients from getting the much-needed treatments their need.  But did you know that that can happen when they become too cheap as well?  We`ll explain.  

GRIFFETH:  As you see, farm equipment-maker Deere saw their shares down more than 4 percent today after the company`s latest earnings.  The company`s results were better than expected but its view for next year had investors concerned.  
Dominic Chu looks into why the investors were saying “oh dear.” 

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It was a solid earnings report for Deere.  The world`s biggest maker of farm and agricultural equipment beat analyst estimates for profits and revenues this past quarter.  But it`s the outlook for 2020 that had investors feeling less rosy.  Trade tensions and bad weather, that combination has taken a toll on sentiment among some of the year`s big customers — American farmers.  

CEO John May said, quote: Lingering trade tensions coupled with a year of difficult growing and harvesting conditions have caused many farmers to become cautious about making major investments in new equipment.  Now, as a result, Deere now says it expects profits of between $2.7 billion and $3.1 billion in the year 2020.  The high end of that range would still put the company`s profits below what it made in 2019 and below what analysts were forecasting.  

The more conservative forecast comes as Deere prepares itself for sale declines in key product areas.  Worldwide sales of agriculture and turf equipment are expected to fall between 5 percent and 10 percent, and construction and forestry equipment sales are expected to fall between 10 percent and 15 percent.  

While the story does sound downbeat for Deere, it could change relatively quickly and forcefully, depending how trade policies develop, not just on the U.S./China front, but also the progress of the U.S./Mexico/Canada trade agreement or USMCA.  

Deere says that over the longer term, business will be good.  A pickup in economic growth not just in the U.S. but abroad as well could shift sentiment more positively in the coming months and years.

HERERA:  More issues for Boeing (NYSE:BA).  And that`s where we begin tonight`s “Market Focus.” 

The FAA now will be inspecting and signing off on every new 737 MAX jet, individually, before Boeing (NYSE:BA) can deliver them to airlines.  That`s a new wrinkle in the long-delayed certification of the planes. 

Separately, “The Seattle Times” reported the fuselage of Boeing`s 777-X split due to a high pressure rupture during a stress test in September.  Boeing (NYSE:BA) fell nearly 1.5 percent to $368 even.  

Raymond James upgraded Under Armour (NYSE:UA) to strong buy from outperform driven by the apparel company`s new product sales and an upbeat outlook over its current federal accounting investigation.  Raymond James maintained its price target at $30.  Under Armour (NYSE:UA) stock gained more than 6 percent to $19.10.  

GRIFFETH:  The world`s second largest tobacco company, that would be British American Tobacco, is warning that a crackdown on the vaping industry is going to hurt its sales growth.  The company`s now forecasting its vaping revenue will be on the lower end of its earlier outlook range, but total revenue is still expected to grow.  And that helped shares grow today.  They rose more than 4 percent to $39.57.  

Apple (NASDAQ:AAPL) is reportedly asking its Chinese manufacturer to double production of its AirPods Pro earbuds.  “The Nikkei Asian Review” reports the tech giant would like to increase production for its less-expensive AirPods.  Shares rose more than 1 percent today to $267.84.  

HERERA:  The drug industry is under siege for prices being too high, but there is another problem brewing, and that`s what happens when prices are too low.  You get drug shortages.  Dozens of drugs from antibiotics to pain meds to therapies for childhood cancer are listed in shortage by the FDA, and the problem is getting worse.  
Meg Tirrell takes a look.  

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT:  To Karen Hay, her diagnosis with bladder cancer in her 50s came as a shock.  

KAREN HAY, BLADDER CANCER PATIENT:  Having cancer is not something I thought was going to happen.  Nobody does, but especially at my age.  And this cancer?  I had barely come to terms with that.  

TIRRELL:  Then after her initial treatment, she was dealt another blow.  The best drug to treat her disease wasn`t available to her.  

HAY:  That kind of took away the last little bit of strength I had for a while.  

TIRRELL:  The drug is called BCG, a decades-old treatment sought to stimulate the immune system.  

DR. JODI MARANCHIE, UPMC UROLOGIC ONCOLOGIST:  It was the first and still the most effective immunotherapy for cancer, and with BCG, we have about 70 percent success rate in obliterating hybrid cells.  

TIRRELL:  But there`s a shortage, one that`s been going on for years, originally made by Sanofi and Merck (NYSE:MRK), after a manufacturing issue at a Sanofi Pasteur facility in 2012, that company stopped making BCG in 2016.  And though Merck (NYSE:MRK) says it`s more than doubled production, BCG still isn`t available to everyone who needs it.  
That angers doctors like Ben Davies.  

DR. BEN DAVIES, UPMC UROLOGIC ONCOLOGIST:  To say to somebody, we don`t have that, I can offer you inferior products, is decimating.  It`s no question it`s caused deaths.  

TIRRELL:  BCG is just one of hundreds of drugs that have faced shortages, spanning antibiotics, pain medications, and childhood cancer drugs.  Even simple products like saline solution and sterile water.  Experts blame market failure.  

ERIN FOX, UNIVERSITY OF UTAH HEALTH:  In general, these are very inexpensive drugs so it`s not profitable to make them.  It`s also difficult to make these products.  In many cases, it doesn`t make economic sense for a company to make one of these old, cheap drugs when they could make something more expensive.  

TIRRELL:  Merck (NYSE:MRK) says it, quote, continues to work around the clock to get BCG to as many patients as we can and it remains firmly committed to patients and physicians where other companies have chosen to exit the market and where no others have invested in manufacturing.  The drug costs $157 per vial and patients get typically six vials over six weeks.  Some question whether a higher price could address the problem, something Merck`s CEO discussed in a June interview.  
By raising the price, could you then manufacture more of that?  Could you supply the whole market if you did raise the price?  

KEN FRAZIER, MERCK CEO:  I think this is the exemplar of a big problem that`s going to continue to be here for us going forward.  When the prices of drugs get too low, particularly drugs that are generic drugs, then you don`t have market incentive for people to put capital up to build facilities like we need for additional amounts of these BCG drug.  So, for Merck (NYSE:MRK), the challenge is how can we maximize the amount we can make for patients given the fact that the other two companies have now dropped out of the market?

But the moral of the story is, sometimes drugs are not available because the prices are too low, not because the prices are too high.  

TIRRELL:  For comparison, Merck`s cancer drug Keytruda which hit the market in 2014 and has dramatically changed the way melanoma and other cancers are treated is priced at more than $13,000 a month.  It drew revenue of more than $7 billion for Merck (NYSE:MRK) last year.  

DAVIES:  I don`t think it would be too much to ask for them to put a little bit of that money into a new facility, because they have a moral obligation.  They`re the only manufacturer of a product.  

TIRRELL:  For Hay, that`s the best drug for her cancer is unavailable is painful.  

HAY:  We`re perfectly capable of making enough of this substance, we just — our system chooses not to.  

TIRRELL:  For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in Pittsburgh.  

GRIFFETH:  And joining us for more on all of this, Andrew Hantel joins us tonight.  He`s an oncologist at Dana Farber Cancer Institute.  
Dr. Hantel, thank you for joining us.  I know unfortunately you have lost patients because of a shortage of drugs in the past.  

But in the interest of time, let`s cut to the chase, what are the solutions that you can think of?  Is it just as simple as taking the profit motive out of some of the drug production in this country?

ANDREW HANTEL, DANA FARBER CANCER INSTITUTE ONCOLOGIST:  I think we have to think about it both in the short-term and long-term view.  In the short-term, while all of these things like — while all of these things are happening in the private sector, like trying to incentivize companies to make more drugs and trying to pass legislation to both import drugs and to find greater solutions, we need to have research to figure out how both to allocate the drugs to patients when there`s not enough, and to manage shortages more generally.  

So I think it`s both that there needs to be research done and there needs to be these different profit incentives for companies to increase the manufacturing.  

HERERA:  So, what is the best way to achieve that?  Is it congressional action?  Is it — I mean, there`s disclosure as well —  

HANTEL:  Sure.
HERERA:  — I would think that has to — that has to be addressed.  
HANTEL:  Of course, yes.  

So I think from the private sector standpoint, there needs to be incentives in terms of contractual obligations, from hospitals who are buying medications like was mentioned in the report, for them to maybe be willing to increase the amount that they`re willing to pay for a medication.  And I think there also needs to be quality incentive.  Right now, the issue is both there is an incentive for companies to get into the market, but there`s also not incentive to produce high-quality medications.  

And so, very frequently, the supply chain and the quality of the medications is disrupted, and therefore, the one or two manufacturers for a medication aren`t able to continue making it.  And so, I think, you know, putting money forward for companies to continue to do that is important.  I think, yes, congressional legislation has happened.  It reduced shortages in 2011.  And further needs to happen to be able to reduce shortages further.  

GRIFFETH:  Sue mentioned disclosure.  I mean, if one hospital has a shortage of a particular drug, patients do have choices that they can make to go elsewhere for it, right?  

HANTEL:  They do.  And like the patient in your story mentioned, physicians very much want to talk to patients about it when it happens, when shortages really affect their care.  Shortages can be both of medications that we have very good alternatives for, and so, a shortage may not actually mean too much in terms of a patient and patient outcome standpoint.  But also, you`re right, from the hospital perspective, it`s not very nice to be the first person coming out and saying, our hospital`s dealing with shortages, when there`s a lot of competition in that market.  
So, I think there needs to be an onus on fits and hospitals to be able to say, this is a really big problem and there needs to be a lot done on our side, on the health system side, on the pharmacy side, and on the congressional side, to do things.  

GRIFFETH:  Dr. Andrew Hantel with Dana Farber Cancer Institute — again, thanks for joining us, Doctor.  
HANTEL:  Thank you.  
HERERA:  Coming up, what`s old is new again.  

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  I`m Courtney Reagan in Paramus, New Jersey, and a store that might look familiar, but it`s totally different.  Toys “R” us is back, kind of.  I got the story coming up on NIGHTLY BUSINESS REPORT.

GRIFFETH:  As we all know, Friday is Black Friday.  Long considered the granddaddy of all shopping days.  But this year, it`s not just retailers looking to cash in on the holiday shopping season.  Instagram and other social media platforms are also getting in on the act.  
Julia Boorstin has more.  

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  This holiday season, Instagram is trying to shift from being a place to follow brands and browse products like a magazine into a virtual mall, a new destination for shopping.  Now hundreds of brands are testing a new checkout feature that enables users to buy products right within the app, without having to open a retailer`s website, by inputting their credit cards, which Instagram saves.  

Instagram`s promoting this feature by running ads for holiday products from those retailers selling through checkout.  

BRENT HILL, JEFFERIES ANALYST:  Social commerce is super early.  This is really I think the big inflection point this year.  It`s going from a very low base.  We think over time, it can make up a much larger percentage of online commerce.  But yes, I think this year is a really inflection year.  

BOORSTIN:  The social platform is looking to tap into the fact that 90 percent of people follow a brand on Instagram, and 130 million Instagrammers tap on product tags each month.  

According to a new report, nearly half of U.S. consumers are considering purchasing products seen in social media ads.  So, in addition to Instagram, Facebook (NASDAQ:FB), Snap, and even TikTok are working to make it easier than ever to find and complete a purchase.  

This year, Facebook`s pushing its augmented reality ads like this one for Italian cosmetics brand We Makeup for its newest lipstick line.  Facebook (NASDAQ:FB) saying this AR experience drove a nearly 30 percent lift in purchases.  Snap`s dynamic ads which it rolled out last month enabled consumers to shop brands like Shady Ray sunglasses by loading companies` websites within Snapchat, and then Snap helps brands measure whether ads are driving sign-ups or purchases.  

HILL:  Snap has a great chance.  The challenge right now is they skew to a younger audience.  So, most of the younger audience that`s on it are using it as a communication platform, less as a transactional platform.  So, we think that there — as those users age up, there`s a great opportunity for them to transact.  It`s going to be a lower average selling price, but effectively the number of transactions could be high.  

BOORSTIN:  TikTok, which already runs shop ad blast (ph), is now allowing influencers to add links to ecommerce to their profile or within their posts, to make the social content more valuable for content creators.  
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.  

HERERA:  And the bygone name in toys has returned and just in time for the holidays.  A year after closing all its stores, Toys “R” Us is back, sort of.  It`s a very different version of the store we once knew, but familiar nonetheless.  
Courtney Reagan takes us inside.  

REAGAN:  Toys “R” Us is back, kind of.  It`s a new company but with that same familiar name.  The toy retailer filed bankruptcy in 2017, failed to reorganize, liquidated, closed all 800 stores last year.  But a new parent company, Tru Kids, now owns the Toys “R” Us, Babies “R” Us, and Geoffrey brands, using the well-known name to start over.  

UNIDENTIFIED FEMALE:  It`s different when you get to come here and experience it yourself and see the toys.  It`s so much fun.  

REAGAN:  This is the first new Toys “R” Us store under the new brand owner, in Paramus, New Jersey, at the Garden State Plaza Mall, opened just in time for the Black Friday shopping rush.  But you won`t find any doorbusters here.  

A second location is opening in Houston next week.  Only a total of ten stores will be open by the end of 2020, much smaller than the former 800 store footprint of the old Toys “R” Us.  Also, these stores are considerably smaller, only 6,500 square feet, compared to 40,000.  

UNIDENTIFIED FEMALE:  It`s more like a boutique feeling, a little more intimate, less so commercial, which I think it`s a great approach.  

REAGAN:  The new Toys “R” Us stores are done in partnership with technology firm Beta, powering both what shoppers see and the behind the scenes systems.  It`s meant to be more experiential with inventory base, with interactive displays and hands on toy play.  There are 40 brands here, including Hasbro (NYSE:HAS), Lego, Vtech and others, many with dedicated stop and shops.  

Tru Kids CEO Rich Barry was formerly the chief merchant for Toys “R” Us.  He had to convince toymakers that this time around, it will be different.  

RICHARD BARRY, TRU KIDS BRANDS PRESIDENT & CEO:  Nobody was happy with what went on and the fact that our partners were in a position where they lost money as a result of the bankruptcy.  The business model is different.  We have to convince brands about the business model.  But it was not difficult to get the store actually oversubscribed.  

REAGAN:  Another key difference, the new Toys “R” Us doesn`t have its own e-commerce business.  If you want to buy toys you see on, you`ll get redirected to Target (NYSE:TGT).com which fulfills the order.  Ironic, Target (NYSE:TGT) is one of the retailers that benefited most from the absence of Toys “R” Us and now its resurgence.  

Target (NYSE:TGT) added more space for toys in stores, increased toy inventory, including new Disney (NYSE:DIS) shops and it`s working.  Credit Suisse estimated Target (NYSE:TGT) grabbed 15 percent to 20 percent of the Toys “R” Us/Babies “R” Us share in 2018.  Toys were among Target`s strongest categories in the recent quarter with 21 straight quarters of sales growth.  

While the new Toys “R” Us is drastically different than the original, the joy the toy store brings to many is back in time for Christmas.  

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Paramus, New Jersey.  

GRIFFETH:  And before we go, a final look at the day on Wall Street.  Records all around, with the Dow up 42, Nasdaq climbing 57, the S&P added 13.  

HERERA:  And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks for joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have a great evening, everybody.  We will 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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