Transcript: Nightly Business Report – December 25, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Good evening, everybody, and welcome to this special edition of NIGHTLY BUSINESS REPORT.  Sue is off tonight.  

With the stock market closed this Christmas Day and 2019 wrapping up, it`s a good time to take a look at the year ahead to figure out what may be in store for the markets, the economy and your money.  So that`s what we`re going to do tonight based on what we already know and what the experts believe are going to happen.  

So we begin with two reports on things we cover every day.  

Steve Liesman will take a look at the economy, but first, Bob Pisani has
the outlook for the stock market from the New York Stock Exchange.  


BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Oil stocks bounce, rates go up and the direct listing craze will peak.  

Here`s three predictions for 2020.  

First, against all odds, energy stocks will outperform the S&P 500.  It`s
been a lost decade for energy investors with oil stocks up to 6 percent in
10 years but a combination of high dividend yields and relatively low
earnings multiples will make several companies much more attractive in
2020.  Bank of America (NYSE:BAC), for example, believes ExxonMobil
(NYSE:XOM) could move up 50 percent to $100 as it sells assets, expands
production and doubles its cash flow by 2025.  

Second, lower rates in 2020?  Not necessarily.  Many central banks don`t
seem to want it.  Shifting political winds in Germany will lead to the
passage of large scale stimulus plans to boost the slower economy.  
European bond yields will move back towards positive territory.  That will
force money out of European bonds all while pushing European yields higher and keeping the bank rally here going.  

Finally, the direct listing craze will peak when Airbnb goes public during
the listing.  It`s all the rage right now.  Private equity investors
disappointed with IPO returns this year are pushing for direct listings to
cut costs and allow employees and private equity to sell shares.  

But no one asked the buy side.  Direct listings Spotify and Slack are both
underperforming the overall market.  And a disappointing Airbnb debut will convince many that allowing early investors to sell all at once may not be right for everyone.  

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



STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Nothing is more central to the outlook in 2020 than what happens to the trade war, but depressed growth here at home and around the world this year.  It led the Federal Reserve to reverse course and cut rates sharply in 2019.  

Here`s what to look out for in 2020.  

First, the trade war should improve somewhat or at least not get worse.  As
the year drew to a close, that seemed to be the case already with the
announcement of a limited U.S.-China phase one deal.  Uncertainties will
remain but businesses will learn to invest and prosper with a constant
rumbling of trade disputes.  

Second, assuming a lot of damage hasn`t already been done that should help to lead to improved global growth.  That can help U.S. global growth
towards 2.5 percent or a half point above where it likely close out 2019.  

But, third, the Federal Reserve should remain on hold while much of this
plays out.  It could consider raising rates if global growth, also firms
global inflation and other central banks start to hike.  



GRIFFETH:  And as Steve just mentioned, trade was one of the defining
economic issues this year.  And even though progress was made, there are
still a number of things yet to be resolved.  

Kayla Tausche takes a look at what 2020 might hold.  


KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The Trump administration rocks the trade boat in 2019 with unpredictable tariffs and short-lived truces.  In 2020, international trade will move back towards the status quo.  

First, China tensions return to a simmer.  Fireworks will fade when the
U.S. and China sign off on a phase one deal in early January.  A second
deal will remain far off.  But if China engages and enforces the first
deal, expect tariffs to be rolled back slowly.  

Second, farm finances will be in focus.  As planting season gets underway,
American farmers will size up the pain of a two-year trade war and the
salve of new business with China, Mexico, Canada and Japan.  Agriculture
Secretary Sunny Purdue says more financial aid will be warranted if the ag
economy doesn`t rebound quickly.  

Third, Europe will be back in the crosshairs.  As President Trump eyes re-
election, he`ll hone in on a new target, the E.U., with rising tariffs on
luxury goods, the president`s stamp speeches will be testing ground for new material on auto tariffs and energy sanctions.  But he`ll pocket those
fights until after November.  

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.  


GRIFFETH:  Joining us now to talk about what they see ahead for the economy and the markets next year, we have Jim O`Sullivan with us.  He is chief U.S. macro strategist at TD Securities.  John Lynch is chief investment
strategist at LPL Financial.  

Good to see you both.  Thanks for joining us.



GRIFFETH:  Jim, let me start with you.  I mean, we laid out here there were
so many walls of worry for the markets in 2019, trade, the Fed, you know,
on and on, slow growth overseas.  But many of those are starting to be
resolved right now.  

What is your outlook for 2020?  

O`SULLIVAN:  Well, I think there will continue to be some anxiety and
volatility along the way but in the end growth will remain modestly
positive.  So, the already record low expansion will continue at least at a
weak pace.  The unemployment rate is already at a 50-year low at 3.5
percent.  So, I think the unemployment rate stays low.  

But — I mean, I think we haven`t necessarily seen the end of the follow
through, the impact of weaker global growth or trade tensions.  So, for
now, the global backdrop is still pretty weak.  I think in the end the
economy will continue to grow at least modestly.  

GRIFFETH:  John, we`ve already seen a slowdown in hiring to begin with
going into 2020.  What other areas do you see that you`re going to be
watching carefully going into the New Year?  

LYNCH:  Well, I think the most important area — on the hiring thing, I
think we have to moderate a little bit, right?  Year 11 of the cycle.


LYNCH:  I think the most important thing is we get clarity on trade as to
whether or not business resumes investment, because that`s really the key,
I think, if you want to consider businesses investing, that enables
productivity to continue to grow and what the market translation for that
is, markets can be sustained, because last year, we saw price dramatically
outperform earnings.  So, to the degree we have a better year in the stock
market, we really need to see margins sustained.  And if we get further
clarity on business investment that helps productivity, which could
therefore lead to upward business earnings investment.  

GRIFFETH:  Jim, we went through — we`ve gone through a few cycles in the
market in the last couple of years here.  There will be a period of time
when money managers will want to look to growth stocks but then they
shifted to defensive stocks when the trade war was really heating up at
some point.  Now they`ve really migrated back to the growth stocks again.  

What do you think will be the better performers in 2020?  

O`SULLIVAN:  And — well, I wouldn`t — I talked more about the economy I
guess than the stock market per se, but I would say the backdrop is such
that the tone is certainly better in terms of people feeling less worried
about recession risks.  But that said, it`s not all clear sailing either, I
would say.  I mean, again, the global backdrop is still on the softer side.

And trade policy uncertainty hasn`t necessarily gone away either.  


O`SULLIVAN:  And — I mean, as far as the stock market and earnings go,
yes, the P was up a lot more than E, and E by many measures was actually
down a lot in the past year.  So, it may be harder to squeeze much earnings
growth out of the E and out of the economy at this point in the cycle.  

GRIFFETH:  But I guess what I`m getting at then is what does that mean for
those companies that are involved in international trade?  You know, those
multi-nationals based here in the United States that have been suffering to
some degree or did for a time because of the trade tensions with China?  
What happens now do you think?  

O`SULLIVAN:  Well, I mean, it`s a question of how quickly does global
growth come back or if it comes back.  I mean, certainly, it`s positive
that we have the U.S.-China trade deal.  There`s still uncertainty if
there`s follow through on that.  

And as Kayla mentioned in her piece, there`s some uncertainty about what
happens with Europe as well.  But the global numbers are still on the
softer side.  Certainly, the manufacturing numbers are still on the weaker
side.  So, it`s not as if the signing of the trade deal, assuming it
happens in early January, is suddenly going to cause global growth to snap
back.  I think the backdrop is still on the soft side.  

GRIFFETH:  And, John, where do you stand on whether you should look for the high growth stocks again in the New Year or stick with some of the value and defensive plays out there?  

LYNCH:  We`re pairing back on growth.  We`re looking at some opportunities in value.  So, it`s more of an equal weight right now.  

But to your point about those companies benefitting from the resumption of global trade, if you just look at the earnings forecast for 2020, we`re
looking at 15 percent earnings growth for industrials and the energy space,
two areas that have been affected quite a bit.  And they are two of the
leading sectors.  

And then if you factor in the potential for higher market interest rates,
that would also bode well for the financial sector.  

GRIFFETH:  Jim O`Sullivan with TD Securities, John Lynch with LPL Financial — thank you again both for joining us.  

O`SULLIVAN:  Thank you, Bill.  

LYNCH:  Thank you, Bill.  

GRIFFETH:  2020 also brings, of course, a presidential election, and the
final year of President Trump`s first term.  What should investors expect?  

Here`s Eamon Javers.  


EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  To paraphrase Winston Churchill, it`s either the beginning of the end of the Trump presidency or just the end of the beginning as the president ramps up his re-election campaign.  

Here, three things to watch in 2020.  First, the president survived
impeachment.  Conventional wisdom says an impeachment vote in the House will be followed by an acquittal in the Senate, meaning the president stays in office for all of 2020.  But just about everything about the Trump era has been wildly unpredictable.  So, watch this space.  

Second, legislative letdown.  The president began his first term with
efforts to repeal Obamacare which failed, cut taxes which succeeded and
slashed regulations which he has done.  But there`s not much left on the
president`s legislative agenda.  And Democrats aren`t likely to pass a lot
of the president`s priorities in an election year.  So, don`t count on a
lot of bill signings here in 2020.  

Third, it`s all about that base.  The president will campaign the same way
he governs and the same way he won back in 2016, with a laser focus on his political base.  For a chief executive who`s never top 46 percent in Gallup approval ratings, that means he knows he needs every voter he had last time and he doesn`t have much chance of converting those he didn`t.  That means we`ll see an emotional, divisive and dramatic election.  

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers at the White House.  


GRIFFETH:  Meanwhile, on Capitol Hill, lawmakers have a big to-do list for
the New Year and one of the issues topping that agenda is regulating big

Ylan Mui has been covering that story for us all year.  She`s back with a
look ahead.


YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Big tech was a big target on both sides of the political aisle this year, and the scrutiny will only grow as the 2020 elections get closer.  

Watch out for a Capitol Hill crackdown.  The House will wrap up its
antitrust investigation early next year.  Democrats still want the top tech
CEOs to testify, and a source tells me they`re working on new legislation
to ban mega (ph) mergers.  

Over in the Senate, Republicans are trying to build support for a federal
privacy law.  And both parties are raising red flags over Chinese companies
like Huawei and TikTok.  

Meanwhile, regulators are also taking aim, the Federal Trade Commission and the Justice Department will try to focus their antitrust investigations
into Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG). Texas and New York are leading states in building their own cases against the companies, and California`s strict new privacy law goes into effect.  

But the most heated rhetoric could come from the campaign trail where big
tech faces an election year tests after the fallout from 2016.  Facebook
(NASDAQ:FB) in particular is feeling the heat over political ads and fakes.  
But all the platforms are under pressure to prove they`re safe from
misinformation and from hacking.  They need to show they`ve learned a
lesson from the last election.  

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.  


GRIFFETH:  Still ahead, one of the biggest corporate stories of 2019 will
likely dominate 2020 as well.  


GRIFFETH:  It was another strong year for the labor market.  2019 brought
the lowest unemployment rate in 50 years, and one of the biggest challenges that companies faced was finding those skilled workers.  

Here`s Kate Rogers (NYSE:ROG).  


KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A hot economy led to a tight market in 2019, with education and health services, leisure and hospitality and professional and business services leading the pack when it comes to job gains.  

Here are the three predictions for the labor market in 2020.  

First, workers remain in high demand.  2019 was truly an employee`s market as companies across sectors named finding and keeping talent a top
challenge.  Expect the trend to continue next year as unemployment remains historically low.  Baby boomers continue to age out of the work force leaving an even smaller pool for employers.  

Second, incentives and training continue.  Upskilling or training workers
already employed by a company is a move many employers are making and the supply of available talent remains low.  Training programs along with incentives and more robust benefit offerings will be key in attracting and retaining workers.  

Third, tech continues to change the game.  From manufacturing to retail,
technology is becoming an increasingly important part of the equation for
workers.  Look out for technological advances continuing to shape where and how employees do their jobs.



GRIFFETH:  The real estate market went from hot to cold and then it started
to warm up again, but next year could be a whole new ball game for housing.  

Here`s Diana Olick.  


DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The housing market is a mix of highs and lows.  So, here`s what to watch in 2020.  

First, the housing shortage will get worse.  The number of homes for sale
is already low and demand is incredibly strong, thanks to improving
employment and the largest generation aging into its home-buying years.  
The demand, however, is mostly on the low end where supply is leanest.  
That will cause prices to continue to overheat at the entry level, while
prices ease on the higher end where supply is more plentiful.

Second, mortgage rates will stay low.  Mortgage rates dropped in 2019 and
will likely stay low through 2020 as uncertainty over a trade war and
presidential election year keep investors heavy in the bond market.  
Mortgage rates loosely follow the yield on a ten-year treasury.  

The only wild card is mortgage finance reform.  If major changes are made
to the rolls of Fannie and Freddie, rates could finally break higher.

And third, we`re bullish on the builders.  The combination of a major
housing shortage and low interest rates will keep demand from new housing high, but single and multi family.  The home builders have been ramping up production and in 2019, they finally started to pivot to entry-level homes.  

If they can afford to put up even more big sales numbers, we`ll follow.  
Their headwinds, though, continue to be high prices for land, labor and
regulatory compliance.  

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.


GRIFFETH:  And joining us now with her predictions for the housing market in the New Year, Daryl Fairweather is back with us.  She`s chief economist at Redfin.  

Good to see you again.  Welcome back.


GRIFFETH:  You know, in the last month or so, we got some pretty positive
news on housing.  You know, housing starts were higher.  The permits were
at a 12-year high.  Builders themselves saw more optimism going into the
New Year.  

Does that necessarily mean that housing looks up that much beginning in

FAIRWEATHER:  I think the housing market is going to be much more
competitive in 2020.  Right now, about 1/10 of offers submitted by Redfin
agents based competition.  I think that`s going to go up to 1 in 4, and
that`s going to push prices higher amid low supply.

GRIFFETH:  And therefore, you think we`re going to see the return to
bidding wars in many markets around the country, right?  

FAIRWEATHER:  That`s right.  Bidding wars kind of went away especially in places where they were really prevalent, like San Francisco, Los Angeles,
Seattle.  We`re going to see a return in bidding wars.  

GRIFFETH:  But that doesn`t help the low end, the starter home buyers right now where there has been just a dearth of supply in this market.  What`s the outlook for that do you think?  

FAIRWEATHER:  First-time home buyers are going to have a much harder time.  They`re more likely to lose bidding wars because based on its experience, it`s people who have been in the housing market, who have the cash to make all cash offers.  First time home buyers may face less favorable mortgage conditions that these Fannie and Freddie changes go through.  So, overall, I think first time home buyers are going to have a much harder time next year.  

GRIFFETH:  And the higher end of the market has struggled because of those higher prices where, you know, the affordability became an issue.  You`re talking about higher prices next year.  Won`t that still be a problem?  

FAIRWEATHER:  Home price growth won`t be quite as strong in the luxury end.  We`ve seen markets like San Jose where there are $1 million, $2 million homes really go down in price this year.  And they`re going to be in
recovery mode next year.  They`ll be looking a little bit stronger, but
days of like 20 percent price growth in these luxury markets are long past.  

GRIFFETH:  What are — you mentioned the San Jose market.  Let`s talk about some other local markets around the country.  Like in the Sunbelt, for
example.  Will we see better markets there, next year?  

FAIRWEATHER:  We`re seeing a lot of migration in our Redfin data.  People
looking on the coast into places like Texas, Arizona, other affordable
markets.  The Sunbelt is part of that.

So, we think those markets are going to be strong.  They tend to be more
affordable.  So, they should do pretty well in 2020.  

GRIFFETH:  And what about in the industrial base, in the northern part of
the country?   I mean, you know, there is a revival for sorts going on in
areas like Detroit and other parts of the northern parts of the United
States.  What do you see there?  

FAIRWEATHER:  Larger cities like Cleveland, Detroit, even Buffalo, those
markets will do well.  But some of the more rural parts of the Midwest and
the Northeast, we`ll probably lose people and those markets won`t be as

GRIFFETH:  Daryl Fairweather, again, with Redfin — thanks again for
joining us.  

FAIRWEATHER:  Thank you.  

GRIFFETH:  You bet.  

Now, one of the biggest corporate stories this year was Boeing (NYSE:BA)`s
737 MAX.  It`s most likely going to be big news again in the New Year.  At
issue, all of that uncertainty over when the troubled plane will be back in
the air.  

Phil LeBeau has more.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Next year, Boeing (NYSE:BA)`s 737 MAX will have three critical moments.  First, expect
recertification early in 2020.  The head of the FAA, Steve Dickson, has
said he won`t approve the MAX until he flies it himself.  And there are
still a number of hurdles to clear before the MAX takes off.  

But most believe it will be recertified in the first couple of months of
next year.  Once that happens, expect airlines to make a big push to
convince fliers the MAX is safe.  Southwest, American, and United have
parked their MAX planes for almost a year.  They know passengers may
hesitate or flat out refuse to board a MAX, so executives of those airlines
will be on MAX flights to reassure their customers the planes are good to

Once the MAX is back, look for Boeing (NYSE:BA) to slowly ramp up
production.  Yes, the assembly line will be down at the start of the year
but Boeing (NYSE:BA) will likely go to building 42 a month by mid-year.  
What about the MAX airplanes that have been built but not yet delivered?  
They will eventually take off and go to the airlines that have ordered
them.  But it will take all of 2020 and beyond for Boeing (NYSE:BA) to
clear out the inventory of more than 400 MAX airplanes.  




GRIFFETH:  Earlier this week, changes at Boeing (NYSE:BA) started with the
ouster of CEO David Muilenburg on Monday.  Current chairman David Calhoun will officially take over as CEO in January.  


GRIFFETH:  Coming up, why the great divide between retail`s winners and
losers may grow in the New Year.


GRIFFETH:  The consumer definitely powered the economy in 2019.  Spending was strong because companies kept hiring, but that doesn`t mean that all retailers reap the rewards.  

Courtney Reagan takes a look now on what the New Year might bring.


COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  2019 was a difficult year for retail with clear winners and losers.  Expect the
divergence to continue in 2020.  

First, the tariff divide.  While the country`s tariff schedule continues to
evolve, brands and retailers aren`t waiting to adapt and some will do so
easier than others.  Big retailers like Target (NYSE:TGT), Walmart, and
Best Buy (NYSE:BBY), you scale and influence to keep prices low for
shoppers by insisting the brands they buy from take on whatever higher
costs result.  It will hurt smaller, less powerful players.  

Second, old is new again.  As the retail resell market grows, watch for
more retailers to experiment with new ways of selling merchandise second
hand, as Gen Z focuses on more shopping, watch for retailers to deploy new
consignment options, giving old merchandise second life.  

And third, new CEOs, new strategies.  Many retailers have or will have new
CEOs settle in, in the New Year, including Bed, Bath & Beyond, Nike
(NYSE:NKE), Under Armour (NYSE:UA), Tapestry and Gap (NYSE:GPS).  Investors wait to see if the new leaders will dramatically shift the strategies in new directions and then decide if they`re willing to give them a chance to make change.  



GRIFFETH: And it`s hard to talk about retail without mentioning ecommerce and the changing way that people shop.  The fact that most consumers expect their packages to be delivered ASAP.  

Frank Holland has that story.  


FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT:  2019 is on pace to be another record year for ecommerce, with holiday online sales forecasts increase as much as 14 percent, according to the National Retail
Federation.  And the trend is expected to continue in 2020.  

Here`s what to watch.

First, e-commerce exceeds expectations.

The global e-commerce market could grow to $4 trillion in 2020 according to UBS, but has the potential to even larger as more retailers offer same day
and next day shipping, along with added curve side pickup options.  Also,
total sales made by smartphones are expected to increase by 32 percent next year, according to E-Marketer.  

Second, Amazon (NASDAQ:AMZN) acquisitions.  

Amazon (NASDAQ:AMZN)`s e-commerce empire is built on strong logistics on the ground and in the air.  Amazon (NASDAQ:AMZN) currently operates about 50 planes and expects to have 70 flying by 2021.  Look for acquisitions in 2020 as it continues to grow its capacity for ground logistics and delivery.  

And third, drone delivery.  

FedEx (NYSE:FDX) and USP are battling to be the leader in residential drone
deliveries.  Both companies are testing technologies with drug store chains
to deliver prescriptions and retail goods.  Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) also have their eyes on the skies when it comes to shipping.  2020 may be the year e-commerce takes flight in a whole new way.  



GRIFFETH:  And finally tonight, the changing way we all watch television.  
New streaming services are everywhere now with more and more content
available at the touch of a button.  What will 2020 bring to this fast-
chasing business?  

Well, sit back now and watch Julia Boorstin`s report.  


JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  In 2020, we`ll see the shifting power dynamic between media giants and tech titans battling for viewers.  

First, Netflix (NASDAQ:NFLX) will lose more subscribers in the U.S. as a
slew of new streaming apps gain traction.  

With NBCUniversal`s Peacock launching in April and HBO Max launching in May, on top of this year`s new additions of Disney (NYSE:DIS) Plus and
Apple (NASDAQ:AAPL) TV Plus, Netflix (NASDAQ:NFLX) will face stiff
competition for subscribers here in the U.S., putting pressure on it to
continue investing in content and to focus on international growth.  

Second, ad supported streaming.  With Peacock entering the fray will be the new front in the streaming wars.  With the ad free subscription business, Netflix (NASDAQ:NFLX) pioneered, now crowded, consumers, advertisers and content creators will shift focus to streaming ad supported content for free.  NBCUniversal`s Peacock is going up against Viacom (NYSE:VIA)`s Pluto and independent Tubi and Xumo.  

Third, the success of streaming video will eat into the box office which
will decline next year.  

All that streaming content raising the bar for going to the movies.  And a
declining box office, likely the big name franchises that broke records
this year is likely to put pressure on studios` bottom line.  

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin.  


GRIFFETH:  Thank you for watching the special edition of NIGHTLY BUSINESS REPORT.  I`m Bill Griffeth.  Merry Christmas, everybody.  We`ll see you tomorrow.


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