>> announcer: this is "nightly business repor with tyler tech's big night. the industry was put to the test and passed with flying colors, as alphabet, amazon, microsoft, and intel blew past earnings estimates. blockbuster deal. cvs health is reportedly in talks to buy aetna in what could be a transformsive deal for the health care industry. why your mutual fund may not be all it's cracked up to be, tonight on "nightly business repo" for thursday, october 26th. good evening, everyone, welcome. lots to tell you about tonight. a possible major deal in health care. a presidential push against

opioid addiction. and a report that questions how you probably pick mutual funds. we begin with major news about profits in tech-land. and they were good. expectations were high, and big tech did not disappoint. four major companies reported quarterlies that were much stronger than anyone expected. let's start with amazon. the story here, simple. revenue. up. profit, up. the stock, up. the company earned 52 cents a share. expectations were for three pennies. sales jumped 30% to $43 billion year over year. vers s were giddy, sending shares through the thousand dollar mark. jackie deangelis zeroes in on the biggest surprise in amazon's report. >> reporter: one of the key points of interest w how amazon's web services division did. the company delivered. that segment bringing in revenue $4.58 billion, handily topping

analysts' expectations. aws is amazon's version of the cloud. it's an emerging space where many companies are competing for share, amazon appears to be one of the winners. as business in the divisions grows, the high bar will be more difficult to top. for this quarter it was certainly a standout. for "nightly business report," i'm jackie deangelis. up next, google's parent alphabet. it has a similar story and one that any company wou envy. alphabet's profit grew more than 30%. revenue jumped more than 20%. its stock got an initial lift from upbeat shareholders after the bell. and josh lipton ex. >> reporter: it wasn't just a beat on earnings and revenue. it was also because google is showing better profitability. aaron kessler of raymond james says operating income came in better than what he expected. kessler pointing out that a concern for investors has been decl. they want to see unknown leverage for some time.

now with this report they got it. for "nightly business report," microsoft's demand for its cloud services business rose. revenue rose double digits, sending shares of the dow component up initially in after hours trading, you say see there. one more to tell you about. intel. it too was helped by growth in its cloud computing business. the world's largest computer chip maker topped earnings and revenue expectations and raised its full year revenue and profit forecast. revenue from its higher margin data center business was up as well. and that helped the stock in initial late day trading. even before all of those results, the busiest day of earnings season helped drive things today on wall street. better than expected results from the likes of twitter and ford early set the tone. more on those in a little bit. as for the major indexes, the dow rose 71 points to 23,400.

the nasdaq lost seven. the s&p 500 added three. health care was all abuzz late today on a report that took most by surprise. cvs health is reportedly in talks to buy aetna. as first reported by "the wall street journal," the takeout price is said to be $200 a share, much higher than aetna's current share price. that would put the deal's price tag at $66 billion, in what could be the largest health insurance deal on record. that sent shares of aetna much higher. cvs shares finished the day lower but this stock and other drugstores and pharmacy benefit managers' stocks were pressured by reports that amazon obtained its pharmacy license in a number of sets. meg terrell joins us onset to talk about it. where do we start with this story? >> let's start with this report from "the wall street journal."

this would be a gigantic deal, $200 a share. we'll note aetna's stock didn't trade up that high. it implies the market might not relieve this yet. that would be a 25% premium to where the stock was trading. thinking about what this means for cvs, they already are both a pharmacy benefits manager, so managing drug benefits for employers and insurers, and they're a retail pharmacy, of course. this would make them yet another thing, giving them more power to potentially offer to employers when trying to do services with them. we've seen this with unitedhealth, which also has a pbm in-house. these companies are getting bigger and bigger, trying to get more ability to offer things to their customers. >> there has been sort of a lot of sort of subcontracting. are we about to see a

consolidation, or maybe even a situation where not only do insurers merge with the pharmacy benefit managers merge with medical systems, health care companies, health care delivery companies, a kaiser model? >> all of that is probably in the air right now, especially because, going to our second story of the night, there is the threat of amazon coming in and disrupting everything. when a big player like that comes in, existing players will do whatever they can to get more power in the market. that might mean conglomeration. >> amazon has gotten licenses in a number of states. do you view that as more of a test as to how successful they could be, and then maybe try and get licenses all across the country? or is there something else to it? >> it's not totally clear what these licenses mean. this is reported today by "the st. louis post dispatch." it could mean it supports existing things that amazon already does. but a lot of people are very excited about seeing amazon get into this space, so interpret it as an initial move to get bigger

into perhaps drug distribution. we don't know yet, the company hasn't said. cnbc.com's christine farr has been reporting that they are probably looking closely on this. >> thank you, meg, great to have you with us. meg terrell. the health care industry paying close attention today to the president, who declared the opioid crisis a public health emergency. by doing so, the government will waive some regulations and give states more flexibility in how they use federal funds. president trump stopped short of declaring a national state of emergency, but he said he was going to go after bad >> i will be looking at the potential of the federal government bringing major lawsuits against bad actors, what they have and what they're doing to our people is unheard of. we will be bringing some very major lawsuits against people and against companies that are hurting our people.

and that will start taking place >> meantime, the fed chief, janet yellen, recently said the opioid epidemic may be tied to declining labor force participation. the billionaire founder of insys therapeutics was arrested today in an opioid-related case, charged with racketeering, conspiracy and fraud. the suit allegation is that he prescribed opioids to patients who didn't need it. last december, six other executives were indicted on federal charges. shares of insys fell by 22 2/3 percent. ahead, written in the stars, or is it? a new report says morningstar's star ratings aren't as predictive a

the economy now in the housing market pending home sales which account for homes under contract but not yet sold sank to the lowest level in three years, but not for a lack of buyers. diana olick explains what' the . >> reporter: a heavy hurricane season in the south may have kept homebuyers there out of the market last month. but in the rest of the nation, home sales are being hit by other headwinds. high prices and little for sale. >> the tight inventory conditions we've been talking about pretty much ad nauseam all year finally came to a head in september. we saw the third consecutive

month of year over year declines. the lack of affordable housing and huge increases in prices are tamping down sales. >> reporter: the index of pending home sales sat at the lowest level in nearly three years in september, while part of that may have been due to the heavy hurricane season, sales have been lower annually for five of the past six months and prices just continue to rise. >> the only way out is to build more. and right now, we are not nearly keeping up with the demand for home ownership or for the rental part of the market. >> reporter: maryland real estate agent eric murtau says there is definitely high demand. >> you have people who want the space, they want the more input on the finishes. we sell properties when they're under construction like this, so if a buyer comes along and wants to pick their kitchen, their bathrooms, or do other options like an elevator, we're set up to really help them with that.

>> reporter: the trouble is a lack of labor. subcontractors are heading south to rebuild after the hurricanes. that makes building everywhere else more expensive. >> that really comes into play when we're bidding out jobs, and you only have one contractor available to do the work, it's not a competitive environment. and so they're dictating what the cost of the project will be. >> reporter: with so little new construction nationwide and the labor shortage only getting worse, this housing market needs more sellers. but we're heading into the slow season for that. winter usually puts a chill on home sales. but this year they could be downright frozen. for "nightly business report," i'm diana olick in washington. the house of representatives narrowly cleared a budget blueprint that will allow a tax bill to pass congress wi any democratic votes. the final tally for the budget vote was a tight 216-212, in part because a number of republicans from states with high state taxes voted against the measure. the current tax outline calls

for the elimination of a popular deduction for state and local taxes to help pay for other tax cuts. >> the ways and means committee will be putting out the specific plan very shortly. and they're going to work with all of our members to look at and consider and address their concerns. i believe that the ways and means committee will be working with these members in particular to find a solution. >> the chairman of the house ways and means committee says he will introduce a bill on november 1st and begin deliberations on the 6th. how would a reduction in corporate taxes affect the stock market? steve liesman did some digging. >> reporter: it would make sense that with all the talk and all the apparent momentum towards cutting corporate taxes, that the market would be pricing in at least some possibility of it actually happening. corporate tax cuts will flow right to the bottom line of companies, especially the high tax companies. but cnbc looked at three different baskets of high tax stocks. the result, all three are substantially underperforming the broader market.

s&p global divided up into three different categories. the top 100 taxpayers return 4.8% year to date. the bottom 100 taxpayers returned 11%. and then you take out those companies that are paying no tax. they could be potentiall 2rub trou companies. they'r up 24% year to date. a basket of high tax stocks and performance in 100, it would eq the broader market performance. instead it topped last month when the tax outline was announced from the big six. it seems to have come off again with the spat between senator corker and president trump. that potentially diminishes the chance of passing the tax cut package. three reasons have been offered for this divergence. the market may not be appropriately pricing in the chance of a tax cut. second, it doesn't believe these tax cuts are good for the economy or earnings since they could accelerate rate hikes. third, the market doesn't think tax cuts will happen. da clifton thinks the market is

underestimating the chance of passage and thinks there's money on the table for investors. michael thompson, president of s&p global, points out the market is focused on growth stocks, many of which don't pay high taxes, so it hasn't really put a value on high tax companies. the market can sometimes be inefficient, especially when it comes to discounting political outcomes. for "nightly business report," i'm steve liesman. 4 million users flocked to twitter. that's where we begin tonight's market focus. the social media company added 4 million new users, reporting its lowest net loss in several quarters, and topped wall street's expectations. twitter said it overstated its monthly active user numbers since the end of 2014 but investors turned their focus to the company's upbeat guidance, which was that it may turn its first ever profit next quarter. shares rose 18% to $20.31. cost cuts and strong demand

s abo expectations at d lift ford. the automaker overdelivered on profits. ford says it's improving its financial health as the industry moves into autonomous technology. >> what we are working to do is improve the fitness of the business better, a strong foundation as we enter into a strong transitional period for the whole sector, not only the company, as we take advantage of new emerging technologies such as avs and evs and so forth. >> shares were up just about 2% to $12.27. celgene slashes its long term outlook. the biotech said difficult market conditions and some disappointments in its drug pipeline would cause earnings and sales in 2020 to be lower than initially expected. celgene did beat estimates in its latest quarter but shares touched their lowest level in 17 years, finishing down 16% at $99.99. tennant health care may no longer be for sale.

reuters says the hospital operator has scrapped plans to sell itself following the earlier than expected dispute really departure of its ceo this month. no options have been taken off the table, they say. shares are down to $12.87. after the bell, mattel, weak demand and the esu bankruptcy of toys "r" us. the toy maker said it would suspend its quarterly dividend. shares got crushed, they finished the regular session down a fraction at $15.37. profits came under pressure at ups, due to saturday delivery and recent natural disasters. but revenue climbed and the company issued positive outlook for the holiday shipping season. morgan brennan has more.

>> reporter: ups expects to deliver 750 million packages in holiday season. it would be another record, a 6% increase compared to last year. the delivery giant expects to handle at least 30 million packages or double average daily volume on 17 out of the 21 shipping days that would make up peak season. ups's cfo says it's crucial the return on all the investments it makes to keep up. >> we're creating different solutions for our customers during peak. as we do that, we're putting new resources in, creating temporary capacity. there are very few businesses in the world that can flex 100% of their average daily business for a four to six week period. >> reporter: according to a recent deloitte survey, for the first time ever, more people will buy things online this holiday season than in stores. companies like ups and fedex have been pouring billions into their next to expand capacity. a year-round process that will be put to the ultimate test in

the month of december. to repair, ups is hiring 95,000 workers, opening more facilities, putting three new boeing-made jumbo jets into the air, and ramping up saturday delivery. analysts are watching saturday delivery closely, since rising costs have been an issue during previous holiday season. >> i think the market is looking to see if ups can handle the scaling of its network to the degree they have to scale it every fourth quarter. every year e-commerce becomes bigger, every year ups has to do more to make sure christmas gifts are delivered on time. the market is trying to make sure ups can do that and do it profitably. >> reporte fedex is hiring 50,000 additional workers to handle its own volumes. the u.s. postal service says it too plans for a record, 850 million packages between thanksgiving and new year's eve. for "nightly business report,"

i'm morgan brennan. a five-star rating from the investment research firm morningstar has alys meant a seal of approval for mutual funds. implicit in its, id-- implicit its, the idea that a five-star rating is what you may think it is. with us tonight to discuss her findings, sarah krauss, a reporter with "the wall street journal," thank you for being with us. >> thank you for having me. >> tell us what you found. as i boil it down, it is that once a fund becomes a five-star fund at morningstar, not always a five-star fund in the ensuing one, three, five, ten years. boil it todown for me. >> sure. we spent a year going through morningstar's data. five-star funds did attract the

vast majority of investor flows. but very few of them failed to outperform longer term. for example, a five-star fund, take any five-star fund, only 12% five years later had performed well enough to earn that same top mark. and a lot of investors rely heavily on those stars, some entirely, to make their decisions. >> morningstar i think would argue that they're constantly looking at their data and their star system, and they've said they view it as somewhat predictive. is that correct? what response did you get from them? >> i would say that they've said a lot of things but the predictive powers of the stars. they've said they're not predictive. they've said higher rated funds are more likely to outperform longer term, that they have moderate predictive powers. they've said a number of things on that present. >> i want to play a sound bite from the head of research at morningstar. it challenges some of the

premises of your article. listen, and i'll get your reaction. >> sure. >> we strongly disagree with her conclusions. if you take a look at some of the findings that they themselves reported in exhibit to the study, what you find is that highly rated funds, five-star funds are about seven times more likely to succeed than low-rated, one-star funds, over a future ten-year horizon. to me that doesn't look like failure. that looks like a measure that's tilting the odds in the investor's favor. >> jeffrey says he disputes the conclusion, and he cites his data that the five-star funds are seven times more likely to be better performers down the road than the one-star funds. is it possible you both are right? >> yes. and we noted in the article that that was the case. but better is nearly average. the five-star funds we tracked over the 14 years in our study went on to become three-star performers.

one of the t that's important to keep in mind as we talk about this is the way the star ratings are used. morningstar licenses the ratings to fund firms who then include them in their advertisements. the implicit suggestion is this five-star fund will go on to outperform, and that's what our analysis shows is not the case. >> how is an investor, given what you found out and researched, how is an individual investor to use this data to the best of their advantage? >> it's a really important question. and the premise on all of this and why it's worth having this conversation is that investing in the markets is difficult. it's fraught with risk. i would say that yes, a rating and some of the metrics that morningstar provides can be used as a starting point. but what we found throughout our research and talking to investors is they rely very heavily on it. and morningstar knows they rely heavily on it. in fact in our piece, an executive that focuses on behavioral finance at morningstar stated that they know that investors misuse it and even questioned whether they need to do something about that.

>> it was really an amazing piece of work, sarah. whether you agree with it or not, it was hard, hard work. i recommend your article to everybody. >> thank you. >> thanks for being with us. instanci thanks for having me. coming up, the first glimpse of what a towering border wall might look l president trump's border wall may be taking another step forward. today was the deadline for six companies to finish building prototypes. aditi roy reports from the border in otay mesa, california. >> reporter: for the last 30

days, construction trucks have been humming. the cranes have soared. and workers have been buzzing around this otherwise desolate, dusty part of otay mesa, california. it's two miles from the border crossing with mexico. and the project they've been working on, building eight versions of the border wall of the future. >> we will build a great wall along the southern border. >> reporter: one that fulfills president trump's vision. he spoke so frequently about it on the campaign trail. the six construction companies behind these eight prototypes were awarded contracts betwe 3 and $500,000 and were chosen among hundreds of applicants. u.s. customs and border patrol spokesman carlos diaz says the rules were pretty simple. >> they had to have antidig,

anticlimb capabilities, antibreach capabilities and other capabilities including being able to see through. >> reporter: the reason? as of two months ago there were 290,000 border patrol apprehensions nationwide. last year there were more than 415,000. we got an up close look at the current border wall with holes in places it had been breached. those visible marks now guiding enforcement agents as they get ready to test the prototypes. >> we're going to be looking at the type of breaches that we see throughout the southwest border. we'll be looking at tech roa the prototypes are between 13 and 18 feet high. the existing wall is between 8 to 10 feet high. ultimately it's about making the most secure wall possible. >> we're always trying to find ways to defeat and to deter those folks from crossing to this side. >> repor border patrol officials say they have no deadline for making a decision.

they could choose one of these prototypes or aspects of all eight. the big question that remains is whether or not congress will foot the heavy price tag with some estimates put at more than $20 billion. for "nightly business report," i'm aditi roy, otay mesa, california. that is "nightly business repo" for tonight. i'm sue herera. thanks for joining us. >> and i'm tyler mathisen. thanks from me as well. have a great evening. we'll see you ba

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