>> announcer: this is "nightly business report" with bill griffith andhe sue ra. >> running in circles. nike misses wall street enings expectations for the first time in years as an increase in spending comes at a st. >> new uncertainty. the faa orders more changes to boeing 737 max after unc yet another issue. >> rare occurrence. a long-time marketatcher says something is happening that he hasn't seen before and it could result in a big rally in the second half. thoset stories and more toni on "nightly business report" for thursday, june 27. good evening, everyone. i'm contessa brewer in for s herera. >> i'm bill griffith. welcome back. nike's slogan, of course, is "just do it" and usually it

does. today it dn't. the world's largest sportswear maker misd profit estimates for the first time in years. the company ramped up product laches andped up product development in an effort to generate more demand. all of that costs a lot of money. its operations in china, well, many thought that would be the big ise. actually they saw sales rise there. that caused some after hours trading tonight. sarah ieisen starts us off. >> reporter: nike paintedlt another hhy picture of its conser in the report. from north america to china where there were questions about whether awf nd nationalistic attitude would hurt growth. did not do that. more than 20% growth. nike's home market continues to outperform peers up 9% on sales. the only weak spot in the nike report, profits came in a bit light. that was because nike is a big spender.

costs rose 10%. ni spends on everything from athlete and celebrity endorsements to bigvents like the world cup. it's also had to spend as it transitions its business more toward direct to consumer. focusing o itswn website, its sneakerspp which exploded in growth in just two years and its own stores versus a foot locker or oer third parties a. snapshot of a retailer performing well in what's been a tough macro environment and a tough retail environment thanks to innovations.ng everytrom air max to jordans to converse.>> now to marianne montain, a portfolio manager with gradient investments. thanks for being here. when we talk about nike it's not new. why did they miss analyst expectations in this particular quarter? >> well, contessa, as far as i

an tell they were putting more into the product pipeline, new products. we think theyre doing v well at that. so we are going to ride this along with management. we think it is a well control company. we saw that in inventory so as sales rose 11 inventories were only up 7%. we think this is probably a very stragic move coming in to really a peak back to school selling season. it's bigger thanchristmastime, i believe, for the apparel companies. this is a strategic decision-making on their part. we go along with that. >> why did the stock go down then, do you think? we talked about the confusion. the big expectations were how they were going to do in china.y ave long said that china is not a problem for them. but the stock still went down after the report came out tonight. >> immediately after the report

it did go down a bit. it's come back to the positives. urbelieve the strength in china was really aise to the upside. we have been seeing continued deceleration. you don't expect 35%-type growth consistently quarter after quarter on a year oveear basis. what happened, in fact, is that we goter a slight deceleration from 24% growth in the prior quarter to 22% growth. that's really a surprise to the upside. >> how much of an issue do you see the foreign exchange ad nds? again, the tariffs don't seem to be affecting nike much. they manufacture 25% of their products ichina, but only 10% of that is imported here to the united states. the foreign exchange issues, is that a headwind fornike? >> well, the way we see i is foreign exchange will be less of a headwind going forward. that's the gradient outlo on the u.s. dollar. so where it has been -- the

dollar has been surprisingly strong year todate, we think it will either flatten out or reverse itself so it may become a tailwind for the next six months. you're right about what they are doing in chinan terms of the tariffs. they hav many levers to pull. they could raise prices somewhere between 2.5 a 5% which we don't think would destroy sales. they could move more of their production out of china which they have done thsome. net effect is probably und curren estimates maybe 4, 5, 6% hit tohi earnings we think is not terribly relevant. >> okay. >> but inf terms those tariffs, that's when they come and if they come and we don't see those happening near term to the full extent. >> marianne, t ynk you forr

insight. >> that you can. elsewhere, nike's fellow dow component walgreens saw sales improve in the quarter but profits felle than 20% from a year ago. the decline reflects the challenges that walgreens faces, especially from prescription drugs. to counter thathe ceo stressed a new strategy, one that involves turning its stos into medical service centers aimed at customers with chronic conditions. th t seemed to pick u sales on the stock today, up by about 4% in today's session. >> boeing suffered another setback for theax 737 plane. the latest problem, a software issue the faa says must be corrected before the plane flies again. that wasn't all. a company official says boeing now expects to finish all fixes in the september time fram together, that sent the stock down nearly 3% in trading today. phil lebeau has more. >> reporter: more problems for the max and more doubts about

the parked planes flying any time soon. in fact, the comny now says it doesn't expect to hlle a fixes done until sometime in the september time frame. that means the three u.s.es airlhich fly the max will likely have to push back t september and october dates when they expect to put their max models back in the air. >> there's not a lot of cancellations. there aren't enough airplanes around to have made a big impact. >> the future of theax is murkier than ever after the faa found a new pblem with the plane's software. this one cou impact the ability to have pilots to control the max in certain situations. but this issue is different than the mcas flightbl control ps suspected of leading to two 737 max crashes. the faas it recently found a potential risk that boeing must mitigate. the questern is whe boeing can do that by tweaking software or if fixing the issue will be more complicated.

and how will that impact boeing's recertification? a critical step in getting regulators to declare the max safe to fly oragain. >> now what we are dealing with is the process of the faa recertifying it. international regulators recertifying it. a convergence of them coming together. >> the latest issue of theax goes well beyond pushing out the date when the max could retur to service. it also damages the reputation of boeing and its most popular model. that could make people think twice before they get back oth max when it is certified to y. phil lebeau, "nightly business report," chicago. >> the s&p 500 snapped a foude day s thanks to a rise in bank stocks. investors are hoping can be made on trade between the u. and china at the g-20 summit. more on that later in the program. first the closing numbers for the day. the dow fell just ten points to

26,526. the nasdaq was up 57 and the s&p rose by 11. with one trading day lt in the second quarter, investors will be focused soon on earnings. t whatsani takes a look to expect. >> market bulls are gearing up for the second half of the year and they have a playbook to push it higher. the hope is president trump and china's president xi jinping will reset relations and at worst existin tariffs will be in place but no new tariffs and the trade talksill continue. if this happens, investors will shift gears to focus on earnings and fundamentals next week. the good news is there is no sign of an earnings recession. two straight quarters of negative earnings, declines here. that's not likely to happen in 2020 either. more companies are buying back stock and boosting their earnings. that's t good news. here's the bad news. earnings estimates are flat for 2019 compared with 2018.

this puts investors in a tough position. it is hard to justify the stock market hitting record highs when we have almost no earnings arowth at all. now engs are slated to go about 2% for the full year. a lot of our hopes are on fourth quartrebound. it's fair to say 2019 earnings are why is this happening? you could blame it on global growth concerns. tech earnings in particular have been trending down thanks to tariff concerns and slowing global. expect a modest bounceback. the a bulls counting on the reserve. earnings scout says if we get a rate cut next month estimates for third and fourth quarter will pick up steam. that's what the market is betting on. the bottom line is aas lot to go right to prop up earnings and the markets in the second half. t"r "nightly business rep

i'm bob pisani at the new york stock >> let's talk about the economy now. gros domestic product increased at 3.1% annualized rate unchanged from last month. this was the third and final reading on first quarter growth. consumer spending was revised lower andnv businesstment was stronger than previously estimated. >> meanwhile the number of americans filing applications for new unemployment benefits, they rose more than expected last week. according to the labor department jobless claims increaseo by 10,000 a seasonally adjusted 227,000. claims are considered a proxy for layoffs across the country. despite the increase the number does remain near historic lows amid continuing hiring by ha businesses and low unemployment rape. >> meantiming home sales rebounded in may. the number of contracts signed to purchase previously owned homes increased by 1.1%, more than expected.

pending home contracts are seen as a forward-looking indicator health of the housing market. they become sales one to two mont later. >> let's take a step back and look at what's happening in the economy and the markets now. growth, as we mentioned, is decent. unemployment historically low and stock are near record levels. yet investors have been pouring money io so-called defensive sectors like utilities, consumer staples and real estate investment trust. that happens when the market is down. it's something our next guest said hasn't happened in decades. jim paulson, chief strategist, joins us. thanks for joining us. what do you think the market is trying to tell us? why are investors plowing in to defensive issues when theuearket cont higher? >> well, i think investors in general are getting a steady diet of things to worryabout. there's certainly a lot. we got a reminder how quick the

market can fall. declin 20% we are dealing with trade wars without end. we've got an inverted yield curve which is a bad omen typically for future recessions. we've got a slow t down in economy and earnings flat-lining. we have geopolitical risk with iran and maybe russia. have a lot to worry about and they are taking it to heart. i don't remember, to your point, being at a record high in the stock market with such concern about the market imminently going to fall. the behaviors, it isn't what they're saying but the behaviors are all conservative and cautious. >> right. >> to me that's a good thing for the market to move higher. if things turn out not good but better than feared the market could go up. you have a lot of portfolios under weighted so people have to

ldbuy more stocks which cush it higher. >> let me push for specifics. right now you have strategists on wall street predicting the s&p will hit 2912 which is essentially where it is. >> that reflects the cautiousness. even wall street strategists wafeel that i think there is room for valuation we are trading at a trailing p ice now which is slightly above average for where it's been in the last 30 years. it's certainly much lower than id traded above 20 timesni e over 2017 and 2018. you have got t consider the interest rates, by and large, are a lot lower than they were. we are down to 2% -- >> would you go with defensive stocks? >> i would. i would give those defensive stocks away to people that a nervous at elevated prices and lean toward more aggressive investments. i would look at the emerging

markets. i would look at some things tied to the trade war. the manufacturing sector, industals, materia and energy stocks in particular. >> all right. >> i would stick with technology here. >> back to tech there. jim paulson. good to see you. thanks for joining us tonight. >> thanks a lot. >> time to take a look at some of today's upgrades and downgrades. dow component travellers upgraded to sell from hold at deutsche bank. the analyst sites the potential for higher losses. the price target is .$1 despite the downgrade the stock rose a fraction to $149.20. nordstrom was downgraded to sell fromeutral at goldman sachs. the analyst sites the uncertain backdrop, pricing. the price target $30. the stock fell 2% to 31.45. >> kb home was upgraded to buy from neutral at buckingham with the analyst saying therebes er visibility in the home

builders near term earnings growth price target $30. the stock was up nearly 8% today to 25.39. trip adviser was upgraded to buy from neutral at da davidson citing proprietary data improving trenge. price t is $55. the stock rose more than 5.5% to 46.58. still ahead, a test for the trump administration's trade policy. >> i'm in osaka, japan, where world leaders are garthi ingath the g20 summit. can trump and xi reach a inal? that's cup on "nightly business report."

the feder reserve released the second part of the stress test result this afternoon. dll 19 banks passed. only the sec time it's happened since 2009. credit suisseidn't sail through. the fed wants them to fix problems in the capital planning processes by the end of october. in this test all banks had to show they could survive an economic downturn while also being able to make loans out dividends. speaking of which, as soon as the results were released this afternoon, almost immediately bankounced dividend increases and stock gaybacks. >> m stanley's ceo james gorman says the united states and china have to come to a trade truce because there's just too much at stake if they don't. >> we need a solution to this. there have been trade disparities between the countries..s the and china account for over 40% of global gdp.

nominal gdp is about $70 trillion. u. and china combined are $30 trillion. we can't have a trade war. it will have a devastating effect on the global economy. that doesn't cean there't be changes to the way the trade agreements are being written. that's what the negotiators are >> he doesn't think a solution will be reached at the g-20 meeting but the relationship between the world's two largest economies will be reset. >> we have heard from a number of companies and industries about t effect tariffs are having on their businesses. today we heard from the makers ofid game consoles. they say tariffs on imports from china could price a quarter of u.s. families out of the market to buy a gaming system this holiday season. their estimate is the cost would be about $840 million. >> on the eve of president trump's third g-20umt the stakes are higher than ever. china outlined terms for a trade deal before his talks with president xi. world leaders want o answersn

trump's foreign policy. kayla tausche reports tonight from osaka. >> reporter: president trump arrived in japan tonight with a packed agenda, including a dozen meeting with world leaders ontr e, middle east tensions, and north korea. kicking off with a working incident wer australia's prime minister. >> we even help our allies militarily. >> reporter: building up to a high stake one on one with xinp jiing who plans to outline the terms for a potential trade seal, reversing a ban on using h u uawei parts. in return china would offer help with i an north korea. two sources say president trump could reach a tce this week and agree to keep talking down the road. thequestion is how long truce would last with the top u.s. trade official, ambassador robert leitheiser wanting it open ended.

larry kudlow says if no deal is reached the president has an alternative. >> he's perfectly happy where we are inushe dions, the negotiations, the tariffs. our economy is strong. their econo very weak. he's perfectly happy with that. if the talks fail, he's said we'll go to plan b which is another round of tariffs. >> reporter: it's not just chinn trump's sites. tweetingss he'll dis india's unacceptable tariffs in a meeting on friday. theyto expect the presiden join the joint statement after criticizing protectionism was removed. this year's host, shinzo abe aske leaders to welcome, not clash with trump as they did at previous summits to help restore credibility to multilateral forums and try to get back toss busis usual. for "nightly business report" i'm kayla tausche in osaka, japan. >> ford cuts thousands of jobs in euro's. thhere we begin tonight's

market focus with the automaker sang it will cut 12,000 jobs and shut down six plants in europe by the end of next year to try to return to oofitability as it struggles with weak demand the continent. the company announced plans to build more electric vehicles in europe. shares rose nearly 3% today to $10.20. elsewhere conagra missed estimates and saw declining sales of tomato sauce, chef boyardee and marie calendar brands. they are dealing with rising ee itht costs and doesn't this year. it fell more than 12% to$25.43. real estate developer howard hughes corp. hired center vie partners to explore alternatives including a possible sale of the company due to the lack luster stock performance over the last threeyears. center view hopes to complete the review process by the end of

e summer as t bankers explore joint ventures or spin-offs as well. shareholders are clearly peful. ares rose more than 41% to 131.25. >> hope equity inc. is buying wage works in a deal valued at $2 billion. both companies say the acquisition should help health equity further its access to the health savings account market. wage works fell to $50.92 whi health equity rose 5% to $65.27. amazon teamed up with rite-aid launching a new pick-up option called counter that lows customers to pick up amazon purchases at more than 100 rite-aid drugstores. 1500 stores by year's end. the partnership helped amazon gain access to a nationwide delivery system while rite-aid hopes to gain more customer trafficre and ie store sales. amazon rose a fraction.

rite-aid was up more than 20% to 857. bio pharma made strong debuts. adaptive priced shares at $20 a share. brge biopharma priced at 7. in the end adaptive more than doubled while bridge rose to $27.55. >> strong ipos lately. coming up, one of apple's most influential executives is walking out the door. a very influenticu eve is leaving apple. you may not know the name johnny

eye but he's responsible for the design of some of the most icon nick productdi inc the iphone. we learned today he's leaving the company after nearly 30 years. that news sent apple stock lower in initial after hours trading tonight. josh lip ton joins us with more on what that could mean for apple. why is he leaving? >> here's what we know. johnny is chief design officer tim eports directly to cook. he surprised us. he's leaving and says he'll encreate an indnt business which sounds like his own design fiey. ade it clear he's going to keep working with apple, that appl will be a client of the firm. they are going to work together. tim cook saying in a statement on exclusive projects. projectsf what the could be. he is revered in the design mmunity. hisesigns played a part in some of apple's most iconic oducts. you mentioned a couple.

it's the imac, ipod, ipad, iphone, watch. not just the hardware. he played a role in designing apple's new corporate campus, the multi billion dollar campus cupertino. analysts say he deserves credit for a lot of apple's success, a lot of growth. of course a lot of products i mentioned are the very backbone of apple's hardware. >> josh, what does it mean for apple? >> it's interesting. i spoke with gene munster, analyst tha covered apple for a long time. there was nobody at apple beyon steve jobs besides johnny who eally by design cultured apple more in terms of simple creative clean aesthetic we associate with apple products. analysts wil say thiasn't totally expected. he's taken a step back.

but a big change. >> indeed. we'll seehat happens from here. >> thanks, josh. >> that's "nightly business report" for tonit. i'm contessa brewer. thank you for watching. >> i'm bill griffith. have a great evening. we'll see you tomorrow.

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