ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Phase one. The U.S. and China make it official. Agreeing to a limited trade deal, removing what many considered a big uncertainty for the market.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Market monitor. Looking for earnings growth to fuel your portfolio. Well, our guest has a list of names he says are buys.
GRIFFETH: New breed of banks. Tech companies, big and small, are getting into the banking business. But how do you know if they`re right for you and your money?
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Friday, December 13th.
HERERA: Good evening, everyone, and welcome.
U.S. and Chinese officials have agreed to a limited trade deal, halting the all out tariff war between the two largest economies? President Trump removed the threat of new tariffs that were supposed to go into effect on Sunday. And he rolled back some others as well, but not all of them.
Beijing made promising to purchase American agricultural goods. It`s an event investors have been waiting for. And while stocks rallied sharply yesterday on reports of agreement, today, they moved only slightly higher. But it was enough for a record close on the Nasdaq.
The Dow Jones Industrial Average added three points to 28,135. The Nasdaq was up 17. And the S&P 500 was up just slightly.
Both countries spoke about the phase one deal today, one offering up more details than the other. So, we have two reports tonight. Eunice Yoon is in Beijing, but we begin tonight with Kayla Tausche at the White House.
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KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: After nearly three years of negotiating President Trump today, hailing the first phase of a China trade deal as phenomenal.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I affectionately the farmers have going to have to buy larger tractors because it means a lot of business, a tremendous amount of business.
TAUSCHE: The U.S. says China has agreed to about $40 billion in additional purchases of agricultural purchases of products over the next two. China will buy another $150 billion of manufactured goods and energy.
There are also provisions on forced technology transfer, intellectual property and currency. In return, Chinese officials said the U.S. committed to remove tariffs step by step. The rate on a round of tariffs that hit in September will be cut in half. And tariffs on toys and phones set for this weekend will be shelved.
But the White House is keeping the rest of the tariffs as leverage.
TRUMP: Tariffs will largely remain at 25 percent on $250 billion. And we`ll use them for future negotiations on the phase 2 deal.
TAUSCHE: Ambassador Bob Lighthizer, the lead U.S. trade negotiator, told reporters he expects ministers, not leaders of the two countries to sign the deal the first week of January in Washington. It will take effect 30 days after that.
This process has seen many false starts before. As recently as October when President Trump touted a deal being reached before it was finished.
LARRY KUDLOW, NATIONAL ECONOMIC COUNCIL DIRECTOR: Really should believe it this time. This is a major development, large phase 1 deal.
TAUSCHE: As for what happened the last two months, Lighthizer says the countries had made notional agreement but needed time to work out the exact figures behind it. He hailed this deal as unprecedented. Even so, he said it`s wise to remain skeptical as to whether China can actually deliver.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
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EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese have agreed to a phase 1 trade deal with the U.S. At a late night Friday press briefing in Beijing, senior members of China`s negotiating team said that reaching a deal would benefit China, the U.S. and the world.
The key highlight was that the Chinese did not commit to a specific figure for purchases of U.S. goods, which was a key demand of the Trump administration. Instead they said China would buy more goods without a doubt but based on market needs.
Other interesting points, the Chinese said the U.S. agreed to keep its promise to cancel tariffs step by step, some existing levies and future ones. And the ministers stressed how both sides were making compromises and commitments to avoid having the deal appear unequal in the eyes of the Chinese public, with the U.S. imposing changes on China.
It appears there`s plenty of work left to do. The Chinese said that both sides still need today finalize the texts and take other steps before deciding when and where they would sign the deal.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
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GRIFFETH: Michael Farr joins us now to talk more about trade and the markets. He, of course, is the president and CEO of Farr, Miller and Washington.
Michael, always good to see you. Thanks for joining us tonight.
MICHAEL FARR, PRESIDENT AND CEO, FARR, MILLER & WASHINGTON: Thank you, Bill. Great to be with you.
GRIFFETH: Does this deal in any get you to look at the markets in a different way?
FARR: If we have a deal, Bill — I mean, so much of this negotiation has been loosely promising to hold the football for Charlie Brown and Charlie Brown trusting her and ending up flat on his back. There`s been a bit of that for markets.
When you hear Bob Lighthizer who is an old friend say that we`re really there, I feel better about it. What I like for stocks is it does seem to be removing more and more uncertainty even incrementally. So, I think it gives a more stable platform to the negotiations that`s going to quiet some of the noise. And investors are going to be able to focus a little bit more on the numbers, on earnings and on what makes stocks valuable.
HERERA: Michael, would you be stepping into some of the names that have suffered because of the length of the trade war?
FARR: I think so, Sue. But not necessarily with an idea that they`re going to rebound all that quickly because this still promises to be a long process. But I like to buy things when they are beaten up.
So, for those very good companies that have suffered, you know, you buy them when folks don`t like them. You try and buy them when cheap. A lot of them have become less expensive. There is opportunity there and yes I`m looking at those.
GRIFFETH: You`re getting phase one now of a trade deal. You`ve got the Federal Reserve which pretty much signaled this week they`re out of the picture for the foreseeable future and you got the stock market at all-time highs.
Is it too good to be true? Or what are you looking at into the New Year here?
FARR: You know, Bill, I`ve been doing this so long, any time everything feels good I get more nervous. But yes, at 17.5 times earnings, stocks aren`t cheap but they`re not awful. Earnings growth for 2019 may be 1.5 percent really, 17.5 times earnings, the economy is doing OK. The Federal Reserve says they`re going to be on the sideline for a while.
And we know in an election year the fed doesn`t want to do anything. So, you get past April and May, Fed is quiet, interest rates low. This is a constructive, bullish environment for stocks. So, yes, I think it could continue to go along not — I don`t expect another 25 percent year, but a positive year for 2020 — yes, I`m reasonably bullish.
GRIFFETH: All right. Michael Farr with Farr, Miller and Washington — always good to see you, Michael. Thanks. Have a good weekend.
FARR: Great to see you. Happy holidays to everybody. And as my friend Paul Kangas used to say, I wish everybody the best of goodbyes.
GRIFFETH: Very good.
HERERA: A handful of economic reports today give hints about the outlook for growth. Import prices rebounded in November, rising 0.2 percent, the fastest pace in six months. But the gain was tied to oil prices, meaning underlying inflation pressures remain muted. A separate report showed business inventories rose 0.2 percent, lifted by stocks at retailers, suggesting that inventory management could contribute to economic growth in the fourth quarter.
But retail sales not a as strong as expected in November. They also rose 0.2 percent but economists say the short fall may be because of the late Thanksgiving, which pushed the first big weekend of holiday spending into December.
GRIFFETH: In his first public comments since the Federal Reserve`s policy meeting this week, the president of the New York Fed said today that this year`s interest rates cuts have positioned the economy for solid growth in 2020.
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JOHN WILLIAMS, FEDERAL RESERVE BANK OF NEW YORK PRESIDENT: The economy is it in a good place. Unemployment is at 50-year low. The economy is growing. The economy is performing about as well as we have seen in decades.
The real issue is, you know, how do we keep the economy strong? How do we keep inflation at — back to 2 percent? And then, you know, what are the risks and uncertainties out there?
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GRIFFETH: Williams said he does expect the economy to grow about 2 percent annually over the next couple of years.
HERERA: Although much of the attention today was on trade relations with China, the trade fight with Europe is still brewing. Tonight we learn that the U.S. is considering tariffs of up to 100 percent on European products that were previously absolved from such duties. Those products include things Irish and scotch whiskeys, cognac, Spanish olive oil and French cheese.
GRIFFTH: And in the United Kingdom, Prime Minister Boris Johnson spent his day celebrating his decisive election victory. He pledged to unite his country and move forward with the U.K.`s exit from the European Union.
Willem Marx is in London for us tonight.
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BORIS JOHNSON, BRITISH PRIME MINISTER: I am forming a new government.
WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT: Boris Johnson came to power in 10 Downing Street over the summer promising that he would deliver Brexit by the end of October. When it looked like that wasn`t possible, he fought through an election to win a new parliamentary majority. After five weeks of a very divisive campaign, he`s ended up with a significant majority for his Conservative Party, the largest since the 1980s.
His opponent, Labour, led by Jeremy Corbyn, saw the most disappointing results since the 1930s and that allows Boris Johnson to move forward with his own divorce deal for the E.U., looking forward to the end of January when the U.K. will now move very likely, formally leave the European Union as part of that divorce arrangement.
The next challenge for the prime minister, of course, is how he forms a trading relationship with the U.K.`s largest trading partner, the European Union. He will face a huge amount of pressure to rush that through in terms of the negotiations to get approval from his own party and from other members of the parliament here in the U.K. And the challenge is he promised to do that by the end of next year, 2020. If he fails to do that, investors, businesses, voters concerned about the possibility that any will have a hard Brexit, U.K. will leave the European Union at the end of next year if there is no trade deal and return to WTO terms, something economists have said will be very damaging for the British economy.
For NIGHTLY BUSINESS REPORT, I`m Willem Marx outside 10 Downing Street in London.
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HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.
Bristol Myers Squibb was upgraded to buy from hold at Argus. The analyst cites the company`s drug pipeline after the completion — completed acquisition of Celgene (NASDAQ:CELG). The price target is $80. The stock fell a fraction to $63.82.
Snap was upgraded to outperform from market perform at JMP Securities. The analyst there cites the company`s ability to grow its user base and attract advertisers. The price target is $20. The stock rose 4 percent to $15.09.
GRIFFETH: Regeneron was upgraded to outperform from neutral at Credit Suisse. The stock was also named a top pick for 2020. The analyst cited sales of the company`s macular degeneration drug. And price target is now an even $400. The stock rose 1 percent today to $376.42.
Hanes Brand was downgraded to underperform from neutral at Bank of America (NYSE:BAC) Merrill Lynch. The analyst cited a slowdown of sales for the company`s Champion athletic apparel brand. Price target down to $13 now, and shares were down 5 percent to $14.40.
HERERA: Still ahead, a year`s long high stakes labor case and a big win for one of America`s biggest companies.
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GRIFFETH: A long running labor union case has finally come to an end. And it was a win for the world`s largest fast food restaurant chain.
Kate Rogers (NYSE:ROG) has the story.
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KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: A big win for McDonald`s in the big debate over the franchisee franchiser relations and how much responsibility franchisors like the restaurant giant have over actions taken at their franchise locations. The National Labor Relations Board instructing a federal judge Thursday to approve settlements to resolve complaints against McDonald`s (NYSE:MCD) and 29 of its franchisees in a case that`s been under way for three years.
UNIDENTIFIED MALE: What do we want?
ROGERS: Workers claimed they faced retaliation for participating in rallies calling for $15 an hour minimum wage and unions. The decision still has to be finalized. But it means McDonald`s (NYSE:MCD) escapes joint employer liability which would hold corporations accountable for violations at franchise locations. The settlement places liability on franchisees.
CATHERINE MONSON, FAST SIGNS INTERNATIONAL CEO: McDonald`s (NYSE:MCD), like all franchisers such as Fast Signs International puts together a brand, an entity, training, supply chain and everything. But our individual franchisees are the ones who hire, fire make the pay decisions, et cetera, do all the management. So, to finally have some closure on this vagueness of the expanded definition of joint employer is a really positive for Fast Signs and the entire franchise industry.
ROGERS: The International Franchise Association says that an expanded definition of the joint employer rule from 2015 has stifled industry growth and increased litigation against franchise businesses by 93 percent over that time period.
MONSON: It has reduced the addition of over 370,000 jobs in those five years and actually eliminated about $33 billion of economic growth because of the uncertainty. Franchisors have been hesitant to grow and franchisees really didn`t know what was happening to their business. So, this is a very positive, positive step for all of franchising, whether you`re a franchiser or a franchisee.
ROGERS: In a statement, McDonald`s (NYSE:MCD) said in part that the decision allows our franchisees and their employees to move forward and resolve all matters without any admission of wrongdoing. Additionally, current and former franchisee employees involved in the proceedings can now receive long overdue satisfaction of claims.
Workers rights group Fight for 15 and a union said it plans to forcefully appeal, adding: The settlement is not valid. McDonald`s (NYSE:MCD) is walking away with a get-out-of-jail-free card after illegally retaliating against low paid workers who are fighting to paid enough to feed their families.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).
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HERERA: A surprise FDA approval for Sarepta, and that`s where with we begin tonight`s “Market Focus”.
The biotech second drug for Duchene muscular dystrophy was given the green light by regulators. Sarepta already makes the first FDA approved treatment for the disease. And until now, it had been the company`s only commercialized therapy. Shares soared 31 percent to $132.05.
The CEO of Kate Spade is leaving her position at the end of the year, after less than two years on the job. Same store sales at the handbag maker have been falling since Kate spade was acquired by Tapestry back in 2017. Shares of Tapestry were down 1.5 percent to $25.94.
GRIFFETH: The Department of Justice is reportedly preparing legal action against live nation. According to the “Wall Street Journal”, officials are looking into allegations that the live entertainment company tried to strong-arm concert venues into using its Ticket Master subsidiary. Shares fell 7 percent on the news, down to $64.34.
And AT&T (NYSE:T) is also increasing its quarterly dividend by 2 percent. It`s going to be payable February 3rd to shareholders of record as of January 10th. AT&T`s dividend yield of course is a healthy 5.3 percent. The company also plans to retire about $100 million worth of stock in the first quarter of next year. The stock fell about a fraction today to $38.26.
HERERA: It is time now for our weekly market monitor. He likes three companies. He says the shares are industry leaders that could see strong earnings growth over the next 12 months.
Nick Giacoumakis joins us. He is president of the New England Investment and Retirement Group.
Nick, welcome. Nice to have you here.
NICK GIACOUMAKIS, NEW ENGLAND INVESTMENT & RETIREMENT GROUP PRESIDENT: Thank you very much for having me.
HERERA: And we start with the Adobe. You say that they basically have been innovative. They transformed their business in many sectors. That`s one of the reasons that you like it.
Why else do you like it?
GIACOUMAKIS: Sure, I mean, they have expansion of business in the artificial intelligence side of the business with their building that out. Also in addition to that the e-commerce side of the business has been lucrative and if you look at the earnings release that came out today, even the older line business such as Acrobat and Photoshop, they are really, really, you know, hit the numbers for the company to be that large and producing those types of numbers, 21 percent of revenue growth. That`s pretty fantastic. So, I think the train going forward should continue.
GRIFFETH: Next you have is retail — the furniture retailer now called RH. It`s the old Restoration Hardware. What a year this company has had, both earnings and stock-wise. Do you think they can keep up this momentum up going into the New Year?
GIACOUMAKIS: I think so, Bill. I think it`s a situation where creativity and innovation is kicking in where RH has decided to go into the brick and mortar side of the business and they have some beautiful, large creative gallery stores that really been drawing in the public and creating a lot of buzz.
For example, just recently they came out with the ski home lifestyle store, obviously right in time for the winter season. I think really they`ve differentiated themselves from the typical retailer that we see out there that`s just relying on online sales.
HERERA: And next, we finish with J.P. Morgan. And you make the point that it is basically executing to a gold standard here in the United States. And it has also had a nice one-year gain.
GIACOUMAKIS: Yes. And you know, between the leadership of Jamie Dimon obviously over the years, building the business to the gold standard that they are, even as large as J.P. Morgan is, they are continuing to reinvent themselves. More recently, they`re putting a thrust and drive towards the wealth management side of the business where they partnered up some of the Chase locations on the advisory side of the business for the high net weather and also ultra high net worth side of the business.
And this will help to not only increase revenue, but also to smooth out earnings if and when we see a slowdown in the more traditional side of the business such as commercial banking and lending.
So, for that reason, we really continue to see good things for J.P. Morgan.
HERERA: On that note, Nick, thanks so much for joining us.
GIACOUMAKIS: Thank you for having me. Appreciate it.
HERERA: Nick Giacoumakis with the New England Investment and Retirement Group.
GRIFFETH: And coming up, getting away for the holiday this season. Well, watch out for hidden fees on your hotel bill.
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HERERA: We all pay them. And we all get annoyed when we do. We`re talking about resort fees which are added to the cost of your hotel room. And while they`re annoying to travelers, they are a lucrative source of revenue for the industry. And they are expected to go up.
Seema Mody has the details.
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SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: As you prepare to travel for the holidays, watch out for the pesky resort fees that may be added onto your hotel bill at checkout. Hotels say the resort fee, which can range from $25 to $45 a night covers activities or specific amenities such as free Wi-Fi or access to the gym. It`s seen as an effective way for properties to collect more money from customers without raising the room rate.
PATRICK SCHOLES, SUNTRUST ROBINSON HUMPHREY: It`s been very challenging the last couple of years to push room rates higher. And one way that they`ve been able to at least make profits higher is by tacking on these resort fees.
MODY: Resort fees are quickly becoming a source of frustration for travelers who may not even be using any of the amenities that are included in the resort fee. Like complementary drinks at the bar, or a beach chair. And it`s not just hotels and travel distinctions like the Caribbean. Many hotels in cities are implementing an urban fee.
Research from hospitality firm Skift shows an increase in a number of urban hotels in cities such as New York, Chicago and Los Angeles that are charging fees even if they don`t have the swimming pools and other amenities that resort fees are normally supposed to cover. Other guests complaint they`re often not made aware of these fee when booking the hotel.
Lawmakers have taken notice. Earlier this year, the attorney generals in Washington, D.C. and Nebraska filed lawsuits against the two largest hotel operators, Marriott and Hilton, for not properly disclosing the fees. But experts don`t see the fees going away any time soon.
SCHOLES: I think for many hotels it`s been quite successful. And it`s not just the revenue. It doesn`t cost anymore employees to tack these fees on. And because of that, you have a high profit stream from them.
MODY: According to SDR Analytics, for the fifth year in a row, miscellaneous income which includes resort and cancellation fees was the biggest source of growth at more than 11 percent. If fees continue to rise, experts caution that may push more travelers to off to stay at a short-term rental over a hotel.
SCHOLES: You know, as people start to notice that more, yes, if something that`s costing more you may look at an alternative accommodation such as Airbnb or the like.
MODY: Depending on where you are staying, there may be a way to get out of paying the resort fee. Travel consulting firm TPG recommends booking hotels using awards or points and advises clients to check in with the hotel manager to see if the resort fee can be taken off the bill if you`re not planning to use the amenities or services it covers.
For NIGHTLY BUSINESS REPORT, Seema Mody.
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GRIFFETH: And finally tonight, they are called non-bank banks, among other things. And there are a lot of them out there to choose from these days. Big and small tech companies are getting into the banking business by offering credit cards and savings accounts and other services. But before opening an account with one of them, it`s important to think about how you bank.
Our senior personal finance correspondent Sharon Epperson is here with some tips on that tonight.
What — how does this differ from traditional bank?
SHARON EPPERSON, NIGHTLY BUSINESS REPORT SENIOR PERSONAL FINANCE CORRESPONDENT: Well, they are called challenger banks and they can be from big tech companies or smaller fintech, financial technology startups. And the purpose of them is to allow you to have easier access to banking with a branchless bank, digital bank, get checking account, savings accounts and then most of the time but you have to check on this, they`re partnered with a federally insured FDIC insured bank to actually provide you that kind of protection.
But there are a number of companies that are doing this from companies like Chime that has 6.5 million accounts, to other companies, SoFi, which is a refinancing company for student loans but now also has SoFi Money and has then there`s T-Mobile Money, as well as Betterment. So, a lot of companies that are in the mix doing this.
HERERA: What are the advantages if there are some for consumers?
EPPERSON: Well, they are lower cost because there may not have overdraft fees, there may not be a minimum balance, there may not be — may be higher rates that you can get on loans and there — and your savings accounts and then you may have greater access to credit because artificial technology making it easier to get more access. And then the specialized services as well, whether it`s checking or sayings, or payment options, you want that specific option, that`s for you and it`s right on the phone.
GRIFFETH: Disadvantages? What happens when the lights go out, for example?
EPPERSON: Exactly. So, there`s no human interaction. If you have an issue, there is nothing you can do to talk about it. If you want to go one place and get your mortgage and credit card and your checking, that`s not for you, because it`s going to be a specialized offering.
And then your data is out there. Any time that you`re doing something with —
HERERA: Yes.
EPPERSON: — technology like this, you`re putting your data out there. So, you may be at greater risk. You need to think about this. Basically ask how do I want to bank and then decide which is best for you?
GRIFFETH: As always, Sharon Epperson, thank you.
EPPERSON: My pleasure.
GRIFFETH: See you later.
HERERA: All right. Well, before we go, let`s take a look at the day`s final numbers for the Wall Street and also the end of the week. The Dow added three points to finish at 28,135. The Nasdaq was up 17 to close at a record, and the S&P 500 was up just slightly.
All of the major averages were also higher for the week. Pulled it off on this Friday the 13th.
GRIFFETH: It is. You know, I was just going to say Friday the 13th, but we still finish with these record highs.
HERERA: Yes.
GRIFFETH: And now we got a Fed behind us and we got a trade deal behind us.
HERERA: Yes.
GRIFFETH: What will come next week?
HERERA: What will come next — what I was going to say.
That does it for us tonight. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great weekend. See you Monday.
HERERA: See you Monday.
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