Transcript: Nightly Business Report – December 19, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Record finish.  The market  closes at all-time highs.  With the S&P 500 breaking through 3,200 for the  first time ever, as the year-end rally rolls on.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Just do it.  Nike  (NYSE:NKE) tops profit and revenue estimates but sales in the biggest  markets slow down.  

HERERA:  Picking up speed.  Used cars are in demand and auto dealers are  cashing in.  

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this  Thursday, December 19th.  

GRIFFETH:  And we do bid you a good evening, everybody, and welcome.  
The Santa Claus rally, it continued on Wall Street today.  The market`s  major indexes all closed in record territory again.  There was more  progress on trade when the House passed the NAFTA agreement and the Senate  passed the massive spending bills to keep the government running next year.   And we`ll have much more about all of that in just a moment.  
In the meantime, consumer staples and technology stocks led today`s rally  as the Nasdaq recorded its seventh day of gains and the S&P surpassed a key  level.  The Dow itself finished today up 137 points now to 28,376.  The  Nasdaq rose by 59.  The S&P, now as Sue mentioned, above 3,200.  It added  14 today.  

HERERA:  Dow component Nike (NYSE:NKE) reported better than expected  quarterly revenue and profit but sales in its key North American market  slipped.  That`s because the world`s largest footwear maker has been facing  increased competition from the likes of Adidas, Vans and Skechers, even as  it has spent more on sneaker launches and celebrity endorsements.  The  company also said that tariffs weighed on its gross margins during the  quarter.  That news created volatility in the stock price in after-hours  trading.  

GRIFFETH:  But China does remain a key market for Nike (NYSE:NKE).  Doing  business in the country was a little tricky during the height of the China  trade war.  But Nike (NYSE:NKE) and a few other companies were able to  figure out how to grow their operations there despite all of the tensions.  
Seema Mody shows us how they did it.  

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Trade tensions and a  slowing economy have made China a challenging country to operate in this  year, despite these headwinds, a number of consumer companies have been  able to grow sales in the country, including Nike (NYSE:NKE) which has seen  its revenue from China grow steadily over the past five years.  

It`s not just Nike (NYSE:NKE).  Analyst point to Starbucks (NASDAQ:SBUX),  Proctor & Gamble, Marriott, luxury retailers like LVMH and Hermes.  
What these companies have in common is a laser focus on the aspirational  Chinese consumer that has an affinity to its Western brands.  Plus, they`ve  been expanding their retail operations as a way to strengthen their brand  name in the country.  Starbucks (NASDAQ:SBUX) currently has 4,100 stores in  168 cities across the mainland and is planning to increase its footprint to  6,000 by 2022.  Gucci and LVMH are using a similar strategy.  

Even though China`s economy is set to cool down next year, Marriott and  Hilton and Hyatt are aggressively expanding number of hotels.  For now,  these multinationals are betting that a combination of bigger investments,  key partnerships with local players will win over the Chinese consumer.   Experts say it appears to be working.  But strategists warn that increasing  their exposure to China could also make them more vulnerable to the ongoing  U.S.-China trade tensions.  

HERERA:  The Senate today passed two funding bills needed to avert a  government shutdown.  As we reported, the House has already approved the  $1.4 trillion appropriations package which increased spending for both  military and domestic programs.  It also eliminates a number of health care  industry taxes and raises tobacco buying age to 21.  That bill now goes to  President Trump for his signature.  

GRIFFETH:  And just one day after that partisan vote to impeach President  Trump last night, there was a bipartisan moment in the House today.   Lawmakers overwhelmingly backed the new trade agreement with Canada and  Mexico.  Of course, that`s the president`s signature deal to replace NAFTA.  

Kayla Tausche reports tonight on that from Washington.  

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A holiday gift from  House Democrats to the White House.  
UNIDENTIFIED MALE:  The yeas are 385 and nays are 41.  The bill has passed.  

TAUSCHE:  Approving President Trump`s USMCA deal with broad bipartisan  support, in stark contrast to the bitter politics of impeachment.  After  two years of closed door talks and press conferences and signings with  Mexico and Canada, the Trump administration and House Democrats spent  months ironing out their own compromising.  The results: higher wages for  Mexican workers that Democrats say will dissuade companies from  outsourcing, stricter rules for manufacturers to export products duty free.

The Congressional Budget Office says more companies will opt to pay the  tariffs than make more goods in North America, estimating the U.S. will get  $3 billion in tariff revenue as a result.  

One Rust Belt lawmaker says there will be unintended consequences.  
SEN. PAT TOOMEY (R), PENNSYLVANIA:  The really detrimental aspects are  concentrated in the auto sector.  The expiration date is a problem.  But I  think the net effect is, you know, a little bit of lost growth, marginal.  

TAUSCHE:  The International Trade Commission estimates the deal would grow  the economy a third of one percent once it`s implemented.  
Treasury Secretary Steven Mnuchin says it should be higher.  

STEVEN MNUCHIN, TREASURY SECRETARY:  We`re getting in excess of 50 basis  points of additional growth in GDP as a result of the agreement.  People  who say this is just NAFTA 2.0 just don`t understand the technicalities of  this agreement.  This is a whole new agreement that really brings the  trading relationship into the modern era.  

TAUSCHE:  Mnuchin says the pact will set a precedent for every trade deal  the U.S. does from here, including with China.  But first, the Senate must  pass it.  That`s expected to happen early next year.  
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche on Capitol Hill.  

HERERA:  Investors are the most optimistic they`ve been all year.   According to the latest survey from AAII, a growing number of investors  expect stock prices to rise over the next six months while bearish  sentiment fell to below its historical average.  The survey attributes the  upbeat outlook to the partial trade agreement with China.  

GRIFFETH:  And that increase in optimism seems to be helping the holiday  shopping season.  
As Steve Liesman reports, consumers are opening their wallets.  

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The American  attitudes toward the economy taking a turn upward.  Views on the economy  improving.  You can see the percentage saying that it`s fair or come down  by five points and a 5-point increase in those gauging the economy as good  or excellent.  Eight hundred Americans polled around the country.  

So, that`s the assessment of the current state.  The expectations for the  economy are also improving.  Let`s start over here.  Percentage saying it`s  getting worse or staying the same, oh, within the margin of error, call it,  but a pretty noticeable improvement in those saying the economy, in fact,  will improve.  

Why is that?  Well, we dug deeper in the survey.  Fifty percent of  respondents saying they expect their home price to increase.  That`s six  points better than the September swoon that we saw in the data.  Forty-nine  percent saying the take home pay will go up.  That`s 13 points better.   That`s one of the highest ones we`ve seen, by the way, since before the  Great Recession.  

And all of that, part of the underlying sense of the stock market attitudes  also going up, percentage saying it`s a good time to invest, 66 among the  financial elite.  Those are $50,000 or more in stocks, 45 percent among the  public as a whole.  

I will caution you or maybe I will advise you, each one of these peaks  coincides with a peak in the stock market.  This may be an excellent  contrarian indicator.  

So, anyway, put it all together, better prospect on the economy, better  prospect for jobs.  Home prices upbeat views on the stock market and then  ask about spending, 20 percent say they will spend more, 51 percent about  the same, 27 percent will say they`ll spend less.  This may not look like  much this 20 percent number here.  But it is the highest we have had in the  13 years of the survey.  And it`s why we`re over $900 in estimated spending  per individual for the third time.
Back to you, guys.  

HERERA:  Steve Liesman.  
Joining us to talk more about the economy, the Fed and financial markets is  Roger Ferguson.  He is the former Federal Reserve vice chair and currently  president and CEO at TIAA.  
Welcome.  Nice to have you with us tonight.  

ROGER FERGUSON, FORMER FEDERAL RESERVE VICE CHAIRMAN:  Thank you very much,  Sue.  A pleasure to be here.  

HERERA:  That was a very positive survey that Steve Liesman just laid out.   Give us your overall view of how you see the economy and the markets.  
FERGUSON:  So, I saw 2019 as a year in which the economy slowed.  As you  have pointed out, the markets tended to rally and do better than many of us  thought.  There is a risk that 2020 might turn slightly a different  direction.  So, the optimism Steve talked about may hold up for the economy  itself where perhaps growth starts to pick up in the U.S. and maybe other  parts of the world, as uncertainty recedes around the trade issue.  

On the other hand the climb may be harder for the markets because they`ve  been rallying so much for a long period of time.  Don`t expect necessarily  a dramatic drop off.  But I would say this is a time maybe to expect that  the — the increase in stock valuations may slow a bit from the pace we had  in 2019.  

GRIFFETH:  I think it`s pretty safe to say right now, interest rates aren`t  going anywhere in 2020 for the foreseeable future.  After the last week`s  meeting, Jerome Powell made it clear they don`t plant to do anything  through the summertime of next year.  

But do you worry?  You know, going back to the days as vice chair of the  Fed, do you worry that these prolonged periods of low interest rates while  they`re good for borrowers, they`re not good for savers.  

You are head of TIAA now, the retirement services industry.  People at the  — you know, rely on retirement income sometimes have to reach for that  much more risk to get the income through the door.  

FERGUSON:  Well, I think the answer is in these times the secret for  retirement savers is to think broadly about diversification.  So, you want  to have a retirement saver wants exposure to the equity markets because  that continued to go up.  In the fixed income space, maybe thinking much  more about focused on income, part of the fixed income story as opposed to  expecting interest rates to change and move in positive direction.  And  more importantly, thinking about alternative asset classes, real estate,  agriculture, timber.  

So, the answer for the retirement saver in a period of low interest rates  is think broad diversification.  And that`s not necessarily the same thing  as chasing risk.  It`s really perhaps spreading out risk a bit more by  thinking about different asset classes that have different cycles.  

HERERA:  You have also been a big supporter of what`s called the Secure  Act, which Congress has prioritized.  Tell us why you think that`s  important as we talk about people in retirement.  

FERGUSON:  Well, thanks for raising it.  Yes, I and my company and many  have been supporters of the Secure Act.  Part of the spending bill that was  signed passed today by the Senate and hopefully soon signed by the  president was the Secure Act.  It`s really important for retirement savers,  because it allows them to get an annuity in their retirement plan which  then gives them the opportunity for guaranteed income for life or private  pension.  It makes those annuities more portable.  

And importantly, it allows individuals to understand how big savings they  can expect out of the nest eggs they put aside through an income  illustration as it`s called.  So there are a number of components about the  Secure Act that I think would be very welcome for individuals and  businesses who are thinking about saving successfully for retirement.  

HERERA:  And we will be talking much more about that with you I think in  the future.  

Mr. Ferguson, thanks very much for joining us.  
FERGUSON:  Sue, thanks so much for having me on.  

GRIFFETH:  Time to look at some of today`s “Downgrades and Upgrades”.  
Johnson & Johnson (NYSE:JNJ) upgraded to overweight from equal weight at  Barclay`s.  The analyst there called the stock a good, defensive pick and  it said that litigation concerns involving opioids and its talcum powder  are already priced into the stock right now.  Price target, $173.  The  stock rose 1.5 percent today to $145.35.  

Barclays also upgraded Cisco (NASDAQ:CSCO) to overweight from equal weight.   The analyst cited the company`s recent product announcements.  Price  target, $53, the shares were up about 2.5, a little more than that, to  $47.88.  

And Colgate-Palmolive (NYSE:CL) was downgraded today to neutral from buy at  Bank of America (NYSE:BAC).  The analyst cited market share losses in its  toothpaste division and said that 2020 may be another year of investment  for that company.  Price target, $74.  But despite that downgrade, the  stock actually rose today to $68.34.  

HERERA:  Still ahead, supply is lean, demand is strong.  And that means  home prices are heading higher.  

HERERA:  Sales of previously owned homes fell more than expected in  November.  That`s the second drop in three months.  But it wasn`t because  of a lack of demand.  It`s because there is just very little supply.  
Diana Olick has the numbers.  

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  As demand for existing  homes surges, the shortage is only getting worse.  There were just 1.66  million homes on the market at the end of November, down 5.7 percent  compared to a year ago, and the lowest on record for the month, according  to the realtors.  

They began tracking this in 1999.  Supply is leanest on the low end where  the demand is strongest.  For homes priced below $100,000, inventory was  down 15 percent annually.  For those priced between $100,000 and $250,000,  supplies were 7 percent lower annually.  Supply is only growing on the  high-end of the market, where demand is weakest.  The housing shortage has  reignited home prices which had been cooling last year and into the first  months of this year.  

The median price for existing home sold in November was $271,300, the  highest November price reading since the realtors began tracking it.  

JESSICA LAUTZ, NAR VP OF RESEARCH:  The expectation is that prices continue  increasing especially at the lower price line.  At the high end, there is  supply but there`s not many buyers at the very high end of the market.  

OLICK:  Demand began rising just as mortgage rates began falling.  And now,  rates are a full percentage point lower than they were a year ago.  
Combine lower rates with a stronger job market and an aging millennial  population and the result will likely be even fewer homeless for sale comes  spring.  
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.  

GRIFFETH:  Consumers are munching on Conagra Brands, and that`s where we  begin tonight`s “Market Focus”.

With the Birds Eye and Healthy Choice topping Wall Street`s earnings and  revenue estimates, thanks to increased demand in snacks and its frozen food  units.  Now, this is the first time that Conagra has beaten sales forecasts  in the last six quarters.  Shares surged nearly 16 percent as a result to  $33.66.  

Darden Restaurants (NYSE:DRI (NASDAQ:TBUS)), the parent company of Olive  Garden, Longhorn Steakhouse and other chains, posted mixed results.  They  did topped earning estimates but fell short on revenue.  The company  however did reaffirm its full-year financial forecast for 2020.  But shares  still fell more than 6 percent today to $109.03.  

And drug store chain Rite Aid (NYSE:RAD) reported a surprising strong  profit which handily beat expectations helped by strong numbers from its  prescription business.  The company also says it plans to announce a  strategy to revitalize its retail pharmacy.  And shares rose an eye-popping  42 percent today to $11.84.  

IAC Interactive is spinning off its online dating service Match Group.  It  will be a fully separate company next year.  IAC shareholders will get  shares in the new Match company.  IAC expects that deal to close in the  second quarter of 2020 as a matter of fact.  Both IAC and Match Group rose  more than 7 percent in today`s trade.  

HERERA:  Accenture reported better than expected quarterly results driven  by the fast growing digital and cloud services unit.  The consulting firm  also raised the lower end of its 2020 earnings forecast.  Accenture rose  more than 1 percent to $208.30.

S&P global cut Boeing`s credit rating because of uncertainty over when the  737 MAX will be cleared to fly again.  This comes a day after Moody`s  (NYSE:MCO) also downgraded Boeing`s debt.  Boeing (NYSE:BA) shares, though,  were up a fraction to $333.50.  

Live Nation is reportedly settling with the Justice Department over the  entertainment company`s ticketing practices.  Reports say Live Nation will  extend the consent decree that was formed in 2010 when it merged with  Ticketmaster.  Terms will extend an additional five and a half years and  Live Nation will not retaliate against venues which do not sign up for  Ticketmaster.  Live Nation shares rose about 9 percent to $69.83.  

GRIFFETH:  All week, we have been getting you ready for the New Year by  bringing back some familiar market monitor guests.  And tonight`s guest has  three small cap names that he says you may not know about but could prove  to be timely investments.  Now, the last time he was on as a market monitor  guest back in February of 2017, he recommended these three companies: Tower  Semiconductor (NASDAQ:TSEM), which has risen 11 percent in the time, Knight  Swift Transportation, up 12 percent, Kansas City Southern (NYSE:SO)  (NYSE:KSU), up 78 percent since that time.  
Eric Marshall is back with us tonight, though, as the market monitor.  He  is a portfolio manager at Hodges Capital.
Eric, good to see you again.  Welcome back.  


GRIFFETH:  And we start an old name in iron ore, Cleveland-Cliffs goes back  to the 1800s here in the United States.  It`s had a very volatile history  of various names.  It`s a small cap now but it was ten times this size a  decade ago.  
Why do you like this right now?  

MARSHALL:  Well, we think this is an interesting situation.  The company  has really turned itself around over the last three or four years.  They  have reinvested heavily back into the business.  And we see profitability  benefitting from that over the next couple years.  

They also just announced a deal to acquire AK Steel, which we think will be  a great complementary fit and create additional profits and we think the  stock should be rewarded over the next year because of that.  

HERERA:  Tower Semiconductor (NASDAQ:TSEM) is second on the list.  Why did  you pick this one?  

MARSHALL:  Well, this is a company that we think has become very timely  again.  They are a semiconductor foundry really leveraged to the build out  of 5G wireless.  They make semiconductors that are used in a lot of the  equipment that`s used to facilitate 5G.  

And we think that they`re at the very beginning of a new growth cycle.  We  like the valuation there.  And we see substantial upside over the next year  in that stock.  

GRIFFETH:  Yeti just came public last year.  It`s had a pretty good year so  far, makes those innovative cups that keep things cold and so forth.  Why  do you like this one?  

MARSHALL:  Yes, this is a consumer product company that really has some  dynamic growth that we think is still ahead of it.  And the valuation on it  looks relatively compelling here to us.  And it`s one that is still very  much under-owned and still flying underneath the radar.  And that`s one  that we think will be a great consumer pick for us in 2020.  

GRIFFETH:  All right.  Let`s see what happens.  Eric, good to see you  again, thank you.  Eric Marshall with Hodges Capital tonight.  
And coming up, secondhand shift.  As new car sales slow, used car sales are  revving up.  

GRIFFETH:  General Motors (NYSE:GM) is recalling more than 814,000 pickup  trucks and cars in the U.S.  They are trying to fix problems with brake  controls and battery cables.  The recall affects Cadillac CT6 sedans, Chevy  Silverado and GMC Sierra pickup trucks.  There have been no documented  crashes or injuries though.  

HERERA:  If you recently bought a used car or truck, you`re not alone.  In  fact, the U.S. is on pace to have a record number of pre-owned vehicles  sold in one year.  And that has made 2019 a blockbuster year for many of  the publicly traded auto dealership chains.  
Phil LeBeau has more.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Talk about blowout  sales.  Americans are buying used cars at a record pace.  In fact, for the  fourth straight year, pre-owned sales are climbing to an all-time high,  topping more than 40 million vehicles.  

Why are so many people buying used cars?  Well for starters, the strong  economy and low unemployment means more people need a way to get around, or  at least a different model.  Meanwhile, new vehicle prices have surged to a  record high, averaging more than $37,000, making a used car far more  affordable and far more attractive.  

JESSICA CALDWELL, EDMUNDS:  So I think for a lot of savvy shoppers, they  are going to the used car market.  They`re looking for a low mileage good  deal.  And there are a lot of those to be had.  

LEBEAU:  Increasingly, auto dealers are buying three and four-year-old  model just traded in because the lease was up.  And those relatively new  models are in demand.  

CALDWELL:  So the vehicles with are well-contented.  If we wind back the  clock three years, those vehicles had a lot of the same amenities we see  today.  We haven`t had a quantum leap in amenities in the past three years.   So, tor a lot of car shoppers, that`s good enough.  

LEBEAU:  In short, the used business has been a great business for dealers.   As profits have surged, so have shares of publicly traded dealership  stocks.  Lithia and Sonic (NASDAQ:SONC) Automotive (NYSE:SAH) are both up  more than 120 percent this year.  While online used car retailer Carvana is  up more than 200 percent.  

Because people are looking to buy used cars, prices have gone up.  On  average, a pre-owned model goes for $20,000, pricier than a few years ago  but low enough to attract buyers.  

GRIFFETH:  And finally tonight, from cars to movies.  It could be another  big weekend at the box office as the ninth and final film in the latest  “Star Wars” saga hits theaters tonight.  And this one has Hollywood  Boulevard buzzing.  
Julia Boorstin is at the iconic El Capitan Theater in Hollywood.  

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  “Star Wars: The  Rise of Skywalker” opens around the world this weekend, the finale of the  nine-film “Star Wars” saga.  It`s expected to bring in about $200 million  in ticket sales at the North American box office this weekend.  That would  be the second biggest of the year and the seventh biggest of all-time, but  still behind the prior two “Star Wars” films openings.  
The last two films had rave reviews.  “The Rise of Skywalker” has just a 56  positive rating on Rotten Tomatoes.  

NIKKI NOVAK, FANDANGO CORRESPONDENT:  I think in terms of this holiday, it  just seems like one of the movies that`s going to have legs over the  season, where it might not have the same opening as “The Force Awakens”,  but I think it`s going to be one of those that people are going to be  talking about.  I think the fans will really like it and people are going  to see it several times.  

BOORSTIN:  “Star Wars” fans showing up in droves for the film`s debut.   This is one of 21 theaters around the country hosting overnight nine-film  movie marathons, ahead of “The Rise of Skywalker” showing tonight.  
The 500 tickets for this movie marathon at $125 apiece sold out within  minutes.  There is a lot of excitement for “The Rise of Skywalker” because  Disney (NYSE:DIS) won`t be putting another “Star Wars” movie in theaters  for another three years.  

But the media giant still has a lot riding on the franchise both as theme  parks and at its streaming service.  

Disney (NYSE:DIS) spent over a billion dollars on each of its “Star Wars”  lands, in Orlando and Anaheim, which opened earlier this year with slower  than expected launches.  

In “Star Wars” spinoff, “The Mandalorian”, is the flagship show of  streaming service Disney (NYSE:DIS) Plus.  And it has several other live  action and animated series in the works.  

But regardless of how “The Rise of Skywalker” performs, Disney (NYSE:DIS)  has dominated the box office this year, with about one-third of studio  market share, setting it up for some tough comparisons next year when it  doesn`t have a “Star Wars” or “Avengers” film.  

NOVAK:  It`s going to be interesting to see how they do, because the past  year, we have seen a lot of franchise movies that we`ve come to rely on,  and they are sort of breaking around next year.

BOORSTIN:  Next year, Disney (NYSE:DIS) is betting on Marvel`s “Black  Widow” and live action “Mulan” and “Jungle Crews” movies, as it enters a  galaxy beyond “Star Wars”.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.  

HERERA:  Before we go, let`s take a final look at the record day on Wall  Street.  The Dow gained 137 pinpoints, the Nasdaq rose 59 and the S&P 500  added 14.  

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.  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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