♪ this is "nightly business report" with tyler mathisen and sue herera. there's no place like home. but are there enough of them? why builders are having a hard time keeping pace with the strong demand. playing defense. why the defense sector may be a good place for your money now. big blues, big gamble. ken watson, famous for his win on jeopardy in the hot field of artificial intelligence. those stories and more tonight on "nightly business report" for wednesday, october 26th. good evening, everyone. and welcome. we begin with america's housing market. what the economist magazine calls the world's largest asset class. and today we learn that more americans than expected bought new homes last month. a sign that demand is strong, despite a dwindling inventory of

profits to buy. new home sales rose more than 3% in september, to their second-highest level of the recovery. still, builders are struggling to keep pace with demand. production is up, but not by enough. diana olick has more now on housing's big challenge. >> reporter: the autumn leaves are mostly changed, but the market for newly built homes is still in something of a holding pattern. sales figures rose in september, but only after the readings from the summer were revised down sharply. the overall trend is higher, but not by much. >> really struggled to take off. they're nowhere near where they need to be. if you think about a normal market, where supply is meeting demand, they presently probably need to be about 800,000 to 1 million so quite a bit higher. >> reporter: the supply of existing homes for sale is still very low, as millions of entry-level properties were bought by investors during the housing crash, and now service

still vibe rant rental markets. buyers are desperate for new construction, but they need it to be affordable. the median price of a newly built home in september did not give them what they wanted. it rose to the second highest level on record. >> the market is really tough out there for entry-level buyers, first time buyers. the inventory of existing homes in the market is tighter than it's been almost ever. >> reporter: builders say they want to get into that all-important entry-level market, but their costs are too high. land, labor, materials, make it impossible, they say, to build cheaper homes. price gains were easing earlier this year, but have now turned in the opposite direction, rising far faster than incomes due to tight supply. that has led to more and more frustration among buyers who are showing less and less confidence in the housing market. for "nightly business report," i'm dianeal olick in washington. stocks stalled and investors

analyzed profit reports to gauge the health of corporate america and the economy. the dow jones industrial average gained 30 points to 18,199. the nasdaq fell 33 and the s&p 500 lost 3. boeing was the biggest gainer on the dow today. its profits rose, cost-cutting help offset a decline. it will deliver more jetliners than originally planned and held off cutting production of its very profitable 777 plane. shares got a lift up 4.5%. coke reported better than expected quarterly profit and plans to reduce the amount of sugar in its beverages. the largest beverage maker helped by higher prices for sodas and strong demand for water and sports drinks. shares of coke, though, fell fractionally in today's session. defense companies are blowing past earnings expectations. bucking what's been an otherwise down beat season for many in the big industrials. general dynamics, the latest to

report better than expected results and issue upbeat guidance. morgan brennan explains why the defense sector is on the offensive. call is a great defense. investors have seen double the returns of the broader stock market this year. and that could continue on the heels of solid earnings results for lockheed martin, northrop grumman and general dynamics. wes bush telling analysts, strong demand for a wide variety is being driven by beyond a reasonable doubt eventualities. >> if you look broadly across the classes of the threat profile, that range all the way from competitors to the world of cyber. it's clear to me, we're seeing a growing support, and i would say this as -- across both sides of the aisle. a growing support for the need for the nation to really reinvest in its defense capabilities. >> reporter: northrop's earnings

beat what's helped by higher sales in the aerospace segment, which makes the center fuselage for the s-35 fighter jet. more buying in top-secret programs and autonomous systems also con attributed to a higher 2016 forecast, the third such resligs this year. the results after lockheed martin, the world's defense contractor trounced estimates, as well, sending the stock to multiyear highs. the s-35 is the costliest arms program and lockheed produces the fighter, which despite challenges, did enjoy higher sales last quarter. a third defense name, general dynamics, also raised guidance and reported a profit beat. but the maker of the striker combat vehicle and nuclear powered submarines did see sales fly. adding to the defense deluge, overall, a new wave of government spending is propelling the entire defense

industry, as american allies beef up security and the u.s. is poised to do the same. no matter which presidential candidate takes the oval office. for that reason, some analysts argue defense stocks could be a good place to park cash, and that the strong results could drive up earnings for the broad are stock market overall. for "nightly business report," i'm morgan brennan. and now to apple, which was a drag on the broader market today, following its earnings result last night. as we reported, the world's most valuable company posted its third straight quarter of revenue declines and as investors focus on where the company will find its next leg of growth, there is one big obstacle standing in its way. josh lipton has our story. >> reporter: last quarter, apple sold fewer phones than it did in the previous year. and made less money. but the company is hoping the new iphone 7 introduced in late september will turn that around. apple's ceo, tim cook, says that he could not be more excited

about customer response to the new iphone 7 and iphone 7 plus models. but there is a problem. demand right now for some models is actually exceeding supply. in other words, consumers might want that new iphone 7 plus, but that doesn't mean there is one to buy. analysts on the company's conference call asked cook when will he be able to meet that demand by the end of this quarter? cook says it isn't totally clear, at least right now. >> it's hard to say. i believe that on iphone 7, we will -- iphone 7 plus, i'm not sure. i wouldn't say yes at this point, because the -- the underlying demand looks extremely strong on the -- on both products, but particularly on the iphone 7 plus, versus our forecast going into the product launch. >> the challenge of not being

able to meet demand right now is evident in apple's q1 guidance. the tech giant expects revenue between 76 and $78 billion. gene munster says that is unit growth of about 1%. that does suggest an iphone business that is stabilizing and even growing, all be it very modestly. but after the stock jumped 20% in the past three months, modest wasn't good enough for some investors. there are two ways to look at apple's challenge. if apple remains supply-constrained, that has a negative impact on overall growth. the company can only sell what it has to offer customers. on the other hand, analysts say what's important is that there is demand for these new iphones. >> the good news here is that iphone 7 and iphone 7 plus demand is really, really high. and that makes sense, because apple essentially didn't leave a stone unturned when it came to

the phone. and the reason why that's important is because without demand, you can't meet it with supply. >> apple bulls are now making the bet that tim cook will figure out this production problem eventually, and when that happens, so they argue, the iphone franchise will return to much stronger growth in the quarters ahead. for "nightly business report," i'm josh lipton, san francisco. apple does face some challenges as josh pointed out. it remains the world's most valuable company, and the country's most profitable. just look at some of the numbers. apple, as josh mentioned, expects to bring in as much as $78 billion in just one quarter, folks. its market value, more than $600 billion. the company sits on a mountain of cash, more than $200 billion. yet those numbers were just not enough for investors. shares fell more than 2% in trading today. so why does wall street want to see more? walter missek at btig.

as far as apple goes, it feels like it's a glass half full, glass half empty sort of argument here. where are you on it? >> it is. we're in the glass is half full, because the company a couple months ago, there was concerns of whether there was enough change in this phone, even to deliver that very small growth expectation for the december quarter. now they have, and we can start looking at to the december quarter, and to the march quarter and into next year where they might have a more exciting product. but all this really does, for a company that is attractively valued at 14 times earnings, is buy time for a potential new product. they have been investing a lot of money, $10 billion last year alone in r & d for what everyone hopes is new products to drive additional growth. >> or maybe an acquisition. they're sitting on an enormous amount of cash. >> not only the $10 billion are indeed, but they're also buying $6 billion worth of stock back, the quarter before that, 10.

and they still have $150 billion of net cash, let alone the excess cash. so whether the r & d investments can deliver a new product to deliver some extra growth, or using that cash can provide an acquisition to find growth, investors keep giving the company additional time. and by delivering, even on even small growth for their very core product, the iphone, i think the investor will continue to do that the next couple quarters. >> apple has not not made deals, but they haven't made big ones. is there a big deal you see fitting with them? >> there's a lot of areas of interest that the company has talked about in the living room, as a point of frustration for people. obviously, the auto industry is potentially going through a major transition, as we look for ways to have automated cars. so i think in those two areas, if you look at the leading companies today, that might change, obviously, in the next year or two. those would be very expensive acquisitions. but something that only a company like apple could actually afford.

>> so walter, is wall street simply spoiled? because for so long, apple was such a consistent performer, and outperformer. and was such an -- and is such annin aggravative company. is wall street not used to a decline in business or revenue? >> the irony here, we have had excess volatility. bright years of 30 or 40% growth. but other years like last, where it was a decline. now when the company just beats earnings a little bit or delivers guidance that's just above consensus, while maybe the initial reaction today was not so great, actually, lower volatility and tighter expectation -- tighter performance against expectations is ultimately something that investors would actually prefer. >> walter, thanks, as always. with btig. and still ahead, a year after chipotle's food scare. why aren't its customers coming back?

♪ republican presidential candidate, donald trump, went to washington today, for a ribbon-cutting ceremony for his new hotel in the nation's capital. but the bigger question for his business, is whether this campaign season is damaging the trump brand. robert frank has more. >> reporter: donald trump has made the most of his political campaign to market his company.

the event at the hotel marks the 312 hnld time he has held a campaign event at a trump property. >> we're very proud of our company. we have built one of the greatest in the world, but seems insignificant to what we're doing now. >> rather than helping his company, trump's political run may be damaging the brand. new data from brand keys, the brand research group, found that while the early stages of his campaign gave a boost to the trump name, that value has fallen quickly. the premium for the trump brand, or the added value of his name, last october was 43% in entertainment and tv. 40% for golf courses, and 30% in real estate. all of those numbers have fallen this month. more than 300 residents at the trump place buildings in manhattan's west side have signed a petition asking for the name to be removed from the building. the building's owner saying, they, quote, will assess the use of the name when the contract trump expires.

trump's name has already been taken off a golf development in dubai. the developer of the trump tower in toronto is trying to strip the name from his building, and the mayor of vancouver is pressuring top officials to rename the new trump hotel. the trump organization itself is dialing back on the name. it's launching a new brand of hotels that will be called scion, the name referring to trump's children who are taking a growing role in the company. the d.c. hotel largely the brain child of trump's daughter, ivanka, and her brand holding up. some women boycott her products for supporting her father. brand key finding more than half of millennial shoppers are very or extremely likely to buy ivanka's branded shoes or clothing. trump saying the hotel shows he can build things on time, and under budget, but it also shows his talents for leverage. he used a 60-year lease from the federal government for a $170 million construction loan from deutsch bank to help fund the

$200 million renovation. he also received a $40 million tax credit from the national park service under its historical preservation program. as trump always says, no one knows the tax code better than donald trump. for "nightly business report," i'm robert frank. less than two weeks before the election, leaked e-mails from hillary clinton's camp surfacing on one of the most controversial issues of the campaign. trade. and specifically, the transpacific partnership. eamon javers has details. >> reporter: while the battle on the stage has officially concluded, there's a different battle still plaguing the clinton camp behind closed doors. newly released e-mails illegally obtained by wikileaks showing the conflict on the transpacific partnership, something donald trump made sure to highlight in the debate. >> now she wants to sign transpacific partnership. and she lied when she said she didn't call it the gold standard. she totally lied.

>> when i saw the final agreement for tpp, i said i was against it. i'm against it now, i'll be against it after the election. i'll be against it when i'm president. >> the e mails show that hillary clinton advisers were concerned about the back and forth on this agreement. ron klain, an adviser for the clinton campaign, in an e-mail to foreign policy adviser jake sullivan, says in part, quote, she has to be for tpp. she called it the gold standard of trade agreements. i think opposing that would be a huge flip-flop. >> i'll be against it when i'm president. >> reporter: in another e-mail released last week, chief strategist joel benenson also concerned, e-mails clinton adviser. the reality is, hrc is more pro trade than anti, and trying to turn her into something she is not could reinforce our negative around authenticity. for "nightly business report," i'm eamon javers in washington. tesla reports its first quarterly profit in more than three years. that's where we begin tonight's "market focus." the automaker swung into the

black in the latest quarter with results driven by an increase in deliveries. the company also said revenue rose and maintained its forecast to deliver 50,000 cars in the second half of this year. shares initially surged after hours, but finished the regular session down about a dime to $202.24. southwest airlines set a technology outage experienced in july hurt sales, resulting in lower than expected quarterly revenue. the airline also saw profit fall, but those results edged past analysts' estimates. southwest revenue fall to between 4 and 5% in the current quarter, and announced plans to trim capacity growth. shares were off more than 8% to $38.40. glaxosmithkline posted higher profit as the drug maker had a flu vaccine. shares up a tick today to $40.34. a surge in new users helped the food delivery service, grub hub, top earnings expectations.

the company also gave revenue guidages for the quarter above expectations. investors may be concerned with grub hub's growth, win has been slowing. shares were crushed today, down nearly 13% to $37.88. and despite launching more promotions and a loyalty program, chipotle failed to attract more customers in the latest quarter. after the bell last night, the burrito chain said its profit and revenue fell more than expected, along with same-store sales. shares off a big 9% today at 368.02. it has been a year since the nationwide e. coli outbreak made hundreds sick at chipotle and the brand is still struggling to recover. but restaurants like taco bell in 2006, sizzler in 2000 and jack in the box back in 1993 all suffered similar foodborne illness outbreaks and they bounced back. so why can't chipotle? let's turn to dean crutchfield with the dean crushfeld company.

welcome back. >> good to be here. >> >> i guess that is the question. why can't chipotle seem to bounce back the way other brands have been when they have been in a crisis? >> well, i think it starts from actually when the crisis, you know, happened. it was a really bad response, very unprofessional. we nearly had to drag steve els out of his office to respond to the public's concern. and then the whole deluge of public concern. that's dragged on. never got over that. that's been partly the problem. >> one other problem i've thought about, the idea that chipotle really marketed itself as clean, fresh, sustainable. fast food that was good for you, too. this really damaged that. it might have had quite as much effect if it were a different kind of company. >> well, absolutely. i mean, one of the things about chipotle is that it's all about fresh food. and that totally changes the dynamic of its food supply. it's kind of all over the place as opposed to a big chain like

mcdonald's. theirs is centrally sourced food. you don't have that with chipotle. so a lot of mismanagement can happen. and by the fact it's fresh food opens it to issues that are, you know, foodborne pathogens like the neuro virus. so basically, if that's your business model, it's part of its problem, because it's very hard to manage and get out of the issue it had. it's all about quality and ethics and morality and living a healthy lifestyle. that all came crashing to an end. so, yes, in a sense, its own brand caused its own problem by the very nature of what it was. >> can they repair it? and how? >> well, i think they can repair it. i would hate to push this, but i do believe that they say a fish begins to rot at its head. so maybe there is a need for new leadership. >> hmmm. >> so it's taken a long time. are you surprised that it's taken a long time for them to bounce back? i mean, but really, what you were just talking about, it called into question the entire brand premise. >> yes. everything is up for question. and don't forget, a lot of

people were dismayed by what it did. they were concerned about what it did. and it's a reputation they think that's been hard for them to shake off. and, again, i think it's because their initial response and those weeks that followed was really abysmal. for such an important company with a responsibility to its customers. who were genuinely concerned. they just handled it really badly. and i think that caused a bad reputation, and that meant people voted with their wallets and went elsewhere. >> yes, they did. well, you know what, we will see where there is a chains at the top and if there is, you heard here first. thank you very much. dean crutchfield with the crutchfield company. cutting edge technology. can ibm turn into a dominant player in the artificial intelligence business? ♪

the epipen is about to get some competition. the avu cue reintroduced in the first half of next year. the ceo of the company that makes it says it will come at a very, very low cost to patients. last year, san fee, which licensed it, had concerns about incorrect dosing. apparently that problem has been fixed. big blue is making a big gamble on artificial intelligence. the technology is considered a game-changer for computing and ibm wants to lead the way with watson. and as dierdre bosa explains, watson uses are expanding. ♪ >> reporter: five years ago, watson earned fame with its "jeopardy" victory. now there is an entire event

dedicated to the applications in the real world. it's called world of watson and brought thousands of businesses here to vegas. watson is ibm's big bet on artificial intelligence, which experts say is the next battleground for computing. the ai industry is expected to grow from $8 billion this year to $47 billion by 2020, according to research firm, idc. and ibm wants to be the dominant player. as part of that push, ibm is building partnerships to bring watson to a wide range of companies and industries. general motors will integrate watson into its existing onstar offering. messaging platform slack, will use watson to power the next version of its virtual assistant. ibm is also building on existing partnerships with apple, glaxo smith kplin decline, 1-800 flowers and american airlines. >> they are tapping into the insights of what consumers are really feeling in the moment when the first symptom strikes.

>> and if you come to us today and let's say you're a previous customer of mine, looking to send something for a birthday today, we look in our database and realize it's your mother-in-law's birthday next week, we will remind you. >> watson is already making major leaps in medicine using big data analytics to boost personalize cancer therapies. beyond the enterprise applications, developers and designers are experimenting with watson. like this cognitive beer stabbed that chooses a brew based on your personality. and feedback on social media. >> it gives us a platform and i think this can only help excite our customers to really respond to their wants and needs. and i think what was exciting about watson, we can feed in information and really get a read on the emotional response of our consumer. so, yes, i think it only enhances designers. >> reporter: ibm faces competition as tech giants like facebook, amazon and google invest heavily in artificial

intelligence, but ibm is unique in opening up its ai platform to the broader business world. ibm will have to demonstrate that it can make money with that approach, and soon. after 18 straight quarters of declining revenue, ibm's ai business still makes up a relatively smaller portion of its total sales. for "nightly business report," dierdre bosa, las vegas. and that is "nightly business report" tonight. i'm sue herera. thanks store joining us. >> and thanks from me, as well. i'm tyler mathisen. see you back here tomorrow night.

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