tv Nightly Business Report PBS January 15, 2019 5:00pm-5:31pm PST
>> announcer: this is "nightly business report" with sue herera bill griffeth. british drama on the prime minister's brexit plan suffers a crushing defhet and economic consequences are anything but clear. shutdown effect. the white house now estimates that the cost of the closure will be twice as steep as originally forecast. pricing power. netflix is charging more, so are some drug companies. and the ability to do that could separate the winners from the losers. those stories and much more tonight on "nightly business report" for this tuesday, january 15th. good evening, everyone, and welcome. we usually start the sho with news about the u.s. economy, american business, or the market. tonight we're starting overseas
in the united kingdom, and the biggest money sry of the day. british prime minister theresa may suffered an historic defeat. her plan to withdraw the from the european union failed, and it wasn't even close. tomorrow may faces a no-confidence vote. the deadline to leave the eu is the end of march, and there's irrently no plan on how to do that. creating uncertainty for investors, who fear global growth could aake a hita result of it, and that created volatility on wall street. the dow jones industrial average added 155 points to 24,065. the nasdaq w u 117 and the s&p 500 rose >27. weegin tonight with willem marx in london. >> the ayes to the right 20 2. the nos to the left 432, t so nos have it. the nos of it.
d reporter: theresa may suffered a majorefeat tonight, one that she had warned would ba cataclysmi it was certainly historic, the largest government defeat in the house of cmons since1924. rather than wait days for her reactiono this very but anticipated public loss, lawmakers had only to wait minutes. >> it is clear that the house does not suppo this deal, but tonight's vote tells us nothing about what it does support. nothg about how -- nothing about how or evensf it inte to honor the decision the british people took in a referendum parliament decided to hold. >> reporter: prime minister may had for months insisted the deal her governm the eu was the best option for brexit. buight there was for the first time an acknowledgement that she would seekdve and input from her political enemies. among those is jeremy corbyn, the leader of the labor opposition party.ui
he was to respond to the prime minister's setback. >> i have now tabled a motden of no cone. and i'm pleased -- i'm that motion will be debated tomorrow. so this housean give its verdict on the sheer tincompetence ofs government. >> reporter: and so tomorrow the uk will once again face a parliamentary moment of truth. it's clear lawmakers across the political spectrum are unhappy with the current set of brexit proposa propos but tomorrow we'f findin out may's conservative party are so dead set her plan they'd vote against the conservative government and potentially open the door to a new general election. may warned a defeat would increase the chances of a seconm referen eu membership and after this there are some mps t whol us they think she's right and they would welcome the chance to reverse brexit. i'm willem marx inlondon. >> with that defeat on brexit and the unknown economic
imeications, does this bec good time or not to invest in europe? joining us tonight,ndres garcia, founder and ceo of zoen ial. welcome back. >> thanks for having me. >> major averages in europe have been going down for about a year now. now you have the chaosn the uk over the brexit vote. is this the kind of opportunity that presents itself for investors, do you think? >> so the way that i would put this is if you are trying to invest for the long term, yng're tr to one day buy a house or you're trying to save for retirement or forge your col education, you should not dictatehose type of investment decisions based on geopolitical decisions. why? cause we don't have an edge on what's going to happen and tonight is a perfect example of that. so would take a step back and say are you globally diversified. es you have any exposure outside of the united st if the answer is no, that might be the wrong answer. obviously your risk taolerance
comes into play.s but the accounts for 50% of the global equity markets so there's a lot of stocksut there y need some exposure to, regardless of the situation when it comes to their >>politics. ut to bill's point, this has been unfolding for more than a year now, so it's a longer term political event than others that we have seen around the globe. shouou not take that into consideration when you'relo ing to divest your portfolio to european stocks? >> i guess twpart answer there. one is valuations matter. so in essence the marketen has pricing european stocks at a much lower valuation, for instance, than u.s. stocks because of a lot of what's going on. but two, longer term, if we look at what's happening in england with brexit and what we saw in italy with theio debt situ a lot of that is the result of the inability of europe to grow at a pace of the u.s., even though the u.s. hasn't been
growin investsvery fast. that creates polarization so it's a result of their inability to grow. >> before you go, and i suspect the answer, if you decide you do want tonvest in europe, do you pick a country, an industry, or just a mutual fundr or exchangeed fund and diversify it that way? very ould say we have little edge and tonight is an example of dictating what's going to happenn uk versus italy, so i would try to be diversified if you don't have specific knowledge base on that region. >> andres garcia, always good to see you. again, thank you for joining us tonight. >> thanks for having me. it's the economy in focus here at home, especially when it comes to the impact of the artial government shutdown. today on earnings conference call, jpmorgan's ce jamie dimon cited research that says g the shutdown extends through the quartewth could go to zero. he added that, quote, we need good government policy to help the economy and the shutdown is not going to help the economy.
we don't know exactly wha it is ing to do, but it is not a positive, end quote. and the o of delta today said his company is losing millions in revenue. >> we're seeing a reduction in revenues the month of tjanuary. huge, but about $25 million government act that contractors and some government officials are not traveling the way they would anticipate because of the shutdown. >> now, according to cnbc, the white house is re-evaluating the shutdown's effect. here's steve liesman. >> therump administration has doubled the estimated cost of the government shutdown. an administration official tells cnbc they now believehe shutdown will subtract 0.1 percentage points from the economy every week. it appears the estimate was 0.1 percentagents every two weeks. the increased estimate is bringing in more effectsrom ivate contractors who will be out of work and a greater impact estimated from the loss of other government functions.
so the administration now sees a half point bng shaved off first quarter gdp from the shutdown if itasts through january. >> it certainly presents a risk. i think the wte house's numbers make sense if you assume about a million federal contractors that are also not getting paid. >> the negative effects from the shutdown just adds to other worries about trade tensions and global economic weakns and the waning effects of stimulus. mark nzandy a research rort yesterday estimed a les severe impact. he said there could be a half point to gdp if the shutdown sts all the way through march. but ianaid it could cause gdp to go negative because the first quarter tends to be seasonally weaker than the other three. l some of thses could be recovered next quarter when back pay is remittedut to workers, not all of it. the irony? economists lack some of the data that show the shutdown's impact because of the shutdown itself. several key economic indicators
are not being published because the number crunchers have been furloughed. that means no retail report for the critical christmas holiday thason and likely no gdp report for the end of month. you don't need reports to know unpaid workers are pbad for the economy. latest estimate is that it will be worse thanll origi thought. i'm steve liesman. elsewhere a federal reserve official says now may be the time to pause when it comes to increang interest rate kansas city fed president esther george said today that the ntral bank should proceed with caution and be patient. she did acknowledg, thou that it's possible some additional rate increases might be appropriate and that the economy is overall doing well. inflation auge o that the federal reserve watches moderated in december. the producer price index, which is the measure of the prices esses receive for their goods and services fell 0.2%, mostly due to a steep
drop in energy prices. one economist said that faltering demand for new orders and market volatility could prevent companies from passing along price increases. but that is not stopping netflix, which today did hike prices for its streaming service by the most ever for millions of subscribers. investors cheered the move, though. they sent the stock up more than 6% today. julia boorstin has details. >> netflix is raising its prices by between 13% and 18% f its subscriberstreaming in the u.s. and more in latin america. the price increases start today new customers and will roll out in coming months for stexisting ers. the price for the lowest cost offering will increase by $1 to $9, it's first-ever increase in netflix'asic plan since launching online streaming in 2010. the price for the most popular plan has the biggest pcentage increase to $13 per month from $11. while thela highest cost is
increasing by $2. netflix telling us, quote, we change pricing from time to time as we continue investing in greatnttainment and improving the overall netflix experience for the benefit of our members. last year netflix spent about $8 billion on content as rivals amazon, hulu and hbo ramp up their spending. netflix will face nco etition from disney and at&t's streaming services set to unch later thi year. and nbc universal announcing just yesterday it willro ice an ad-supported free service in 2020. despite the range of coming rivals, investors and analysts are so far largely optimistic that the investment in content will pay off and the higher prices won't aliene subscribovs. >> their today to increase prices again i think shows what a value netflix is to the customer. we don't think they'll lose subscribers or even slow their subscriber growth, despite having somewhat of a meaningful
price increase here. >> since the last time netflix 2017, prices october 5th, the company's shares are up 90%. today's price hike speaks to the hit ny's confidence that films and shows such as "bird box" and "stranger things" will convince consumers it's worth paying a little more. i'mn julia boorstin los angeles. >> and that brings us to pricing power. what is it and why can some companies do it but others can't? we're joined right now by nancy tangler from tanglerealth management. good to see you, nancy. >> thank you, sue, you too. >> weasked you with coming up with a couple of companies that have that pricing power. first you say there a two components to that, brand and competition, correct? >> yes, i do. anyou see itith netflix. brand is driving -- is driven b the content. they know they have a great lineup right now. and competitively they were priced below their competition and k theyw that disney was
coming in shortly so they wanted to get that price increase before disney came in with their service. >> this is a favorite topic for woerch bu wabuff he loves to inves in companies that has pricing power. how does a company achieve pricing power, in your view? >> bill, good to see you too. listen, it is driven by brand and market share, which is a form of competition. just think back to coca-cola. they were able to raise prices consistently for decas, and then finally consumers pushed back when either the company forgets to innovate and add hovalue to higher prices. so s cokent years with no aow tndthheiay bri strategy. they shrunk packaging size and that solved consumers' problems about not wanting to have too much sugar intake and raised prices per ounce so they went from 3.5 cents to 5 and suddenly
sales took off again. so great companies with strong balance sheets an bnds are able to figure out the pricing theyem eventually and almost always go too far. >> all right, disney is one of your other picks. coke was your first, disney is your second. they certainly have -- i have three kids,w so i khey have pricing power when itomes to the theme parks. but maybe not in other areas. why do you like disney? >> well, and so you're right, sue. what they have demonstrated is that they ca pretty much with impunity raise prices at the theme park and people just keep coming. they had a 17% increase about a ar ago and now they're up -- 17 or 18. now they're up 7% this year. and at some point what we'll have to see is if consumers start to pull back. certainly they will during tim of recession. and that's usually then what brings the companies back around to innovation. but what we don't know is if they can stream as a competitor to netflix. we'll findi that out later this year. >> nancy,y thank you vch.
>> thanks for having me. >> nance tangler with tanglerge wealth mant. time to take a look at today's upgrades and downgrades. oracle was downgraded. a lack of catalysts drive the stock higher t year. the price target was cut to $53. that stock rose a fraction to $48.38 today. > citi was upgraded from outperform to market perform with the analyst citing the bank earnings andvaluation. the price target $92 and that stock was up 4% to $61.38. viacom was upgraded to buy from hold at pivotal thresearch. analyst says that the company's film studio, paramount pictures, will turn a profit this year, which in turn should lead to bette overall margins. the price target now $36 and that stock rose a fraction to $28 -- $29.99. coming up, remember all of
those big corporate buybacks? they're now showing up in profi, repoiving a boost to earnings p. two dow components were out with earnings first united health group, which reported better than expectepe results h by growth in its services business. but it also saw higher than expected medal costs. that didn't stop investors who sent the stock 3.5% higher. and then there was jpmorgan which posted quarterly profit below sanalysts' expectatior the first time in 15 quarters. the biggest u.s. bank cited softness in its bond trading operations, but its more than $7 billion in pfit was a record.
both stocks rose in today's trad it was a mixed quarter, though, for wells fargo. that caypany t reported better than expected earnings per share, although its profit fell compared to a year earlier, an revenue cam in a little lighter than forecasted. the bank continues to deal with at cap on its assets that was put in place by regulators insp se to the number of scandals that had plagued the bank. that cap is expected to remain in place through the end of this year. thstock fell about 5% in today's trade. wells fargo's better than ex pcted earnings share was helped by the bank's stock repurchase program. well fargo bought back more than $7 billion worth of stock in the fourth quter. buybacks reduce the company's share count, spreading the prits across fewer shares. if you recall, buybacks hit a record last year of more than $1 trillion. rob lambert, investment strategist at strategic wealth partners joins us toalk about that.
welcome, rob, nice to have you here. >> thanks for having me. >> do you e that record-breaking pace of buybacks to continue now that we're i new year and a different economic environment? >> i do. you see a lot of those in 2018 are going to trickle wto 2019. that number over $1 trillion in 2018, but let's remember that number is approved purchases. so a lot of that was in 2018. it was a record year for actual ses. that's going to continue into 2019 because a lot of taxn savings2018 were used for bonuses and paying down debt as well, so you'll see that continue into 2019 and 2020 as well. >> we went through a period where companies were just buying back at a rapid pace because they couldn't think of anything else to doith all the cash they had out there. at the same time, it also improved their bottom line because as s pointed out at the top here, they have fewer shares that spreadver the profitability there. so are we really growing when we
e improved profitability because of this financial engineering that it's known as? >> we are seeing strong eps growth. weeeing strong net income growth but not as strong as eps, so that's where your share buybacks come in. >> is that a red flag for you when a company is buying back their shares and improves their profitability statement? >> it doesn't necessarily become a red flag becau let's not forget buybacks are a good thing. you're increasing youut pa to shareholders, but investors need to know what they're paying a premium for as long as the p.e. stays the same, it's going to lift thep stock because as you said there's less shares. eo investors just need to focus on the quality of earnings. let's focus on strong revenue growth and strong net growth rather than that eps number that investors like to use to justify the price they pay for stock. am>> robrt with strategic wealth management. rob, thank you. >> tha>> you.
well, the air was let out of the tires at goodyear, and that's where w begintonight's market focus. the company cut its full year operatin guidance and placed the blame on conditions in china and in europe. goodyear also cited a decline in its tire unit volumes in the fourth quarter and a rise in raw material costs. shares fell lie 13% today to $19 even. sherwin-williams isni w that 2018 earnings will come in below expectations. the paint maker cited weak sales ceonorth america, but the says the demand decline was a blip, not a sign of broader economic troubles. shares fell by 4% today to 381.44. and private equity firm apollo global management is reportedly nearing a deal to buy an aluminum producer, arconic. the over would be valued at $10 billion and be one of the laest leverage youts we've seen in recent years. the deal could be announced this year.
arconic shares rose 3.5% to $20.07. walmart is splitting with cvs. the retailer's pharmacies will no longer be part of cvs'eah plans after a dispute over pricing. walmart i complaining of what it calls unregulated power of pharmacy benefit managers. shares of cvs fell to $63.74 while walmart rose to $96.25. walgreens is entering into a strategic alliance with microsoft. the drugstore chain will use microsoft's cloud computing services to gather datart in an efo improve health outcomes and lower the cost of care. financial terms n disclosed. walgreens rose more than 1% to $71.79. microsoft gained 3% to $105.01. united airlines reported profit that topped wall street expectations, thanks to an increase in the number of flights o of its hubs. the carrier also said it was
able to win back customers after a series of public relations problems. shares rose in initial after-hours trading and finished the regular season 1.5% higher to 81.20. coming up, putting together the retail puzzle one piece at a ti sears chairman eddie lambert reportedly presented a new bid for the retailer today to save the company from liquidation. according to "t chicago tribune" the new offer includes terms that are more favorable to thein c and its creditors. the overall value of lambert'sll deal is s pegged at more than $5 billion.
big questionre's a mark hanging over the retail industry right now. just last week macy'sts cut profit forecast after seeing weak holiday sales. ind today d a panel discussion, the company's ceo said that macy's needs to do a better job of focusing on the customer. >> i think the one word is experience. we've got to figure that out. we've got customers that have put us on notice. the better the experience the better we'll build their lifetime v >> as we told you earlier in our program, the retail sales number itself will not be released tomorrow because of the government shutdown. tried toey reagan piece together what we know ab t the state of theindustry. she's in new york for us >> the government shutdown is causing an economic data void. with no one able to work in the coheerce department to gat the data, there won't be aer decemb retail sales report tomorrow. without the commerce department's december retail
sales, the national retail federation can't give its final retail sales tally because it uses c categories of the government's numbers for november and december. while most metrics p the online sales growth over the holidays between 16% and 19%,t when iomes to the in-store nuovers and the all results, it gets a little murky. first data which processes payment when you swipe your card at check out say holiday sales grew und 2.5% in 2018. >> some people call it mixed. i'd say that's fair characterization. i'll call it varied. i would say s the seasonrted strong, as it typically does over thanksgiving, black friday through cyber and then as it usually does, it tapers off to kind of like a low single digit, even keel trajectory for mostf december. >> mastercard says it was the strongest season in sixar with shoppers spending 5% more in november and decemberhan the year prior. while credit card purchase volume crew at citi, jpmorgan
r,d wells fargo during the holiday quar all three banks said purchase volume from the prior quarter. the mixed messaging continues with the retailers results. even as most saw holiday salesv increase last year. target's strong h put it on trackin to havg its strongest sales results in 13 years. however, macy's holiday sales while up, fell short of expectations and the department store lowered its annual forecast as a result. kohl's saw its holiday sales grow similar to macy's and it increased part of its forecast. lulu lemon, american eagle and tillie's saw among the strongest sales growth. while men'snd warehouse joseph a. bank reported a drop in holiday sales along with j.c. penneynd a express. it's still hard to know how the out.on averaged for "nightly business report," i'm courtney reagan in new york eity. and before go, a final look at this day on wall street. of course affected by tha
historic brexit vote in the uk, the dow added 155 pointh. nasdaq was up 117, led higher by netflix, by the wat on t price increase. and the s&p 500 rose by 27. of course it would be very interestingo see how the european markets respond tomorrow to the brexit vote. wet may have t no-confidence vote in parliament as well. so another historic day could b in theffing tomorrow as well. >> and we will be here to cover it all for you. that does i for "nightly business report" tonight. i'm sue herera, thanks for joining us. >>if'm bill th. have a great evening. we'll see you