BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: So close. Investors kicked off the weekend in a buying mood. The S&P finishing just shy of a record and the NASDAQ sits at a 14-year high. Where is the enthusiasm coming from, and how long will it last?
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Winners and losers. It`s a big week for retail earnings, but just because Wal-Mart`s numbers were disappointing, it doesn`t mean others will follow suit.
GRIFFETH: New players. As the health care system changes, the insurers are facing new competition tonight. In the first of our three-part series, we`re going to focus on a hospital that`s not only offering care, but also insurance plans that cover it.
All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, February, the 24th.
Good evening, everybody. I`m Bill Griffeth, in tonight for Tyler Mathisen.
GHARIB: And I`m Susie Gharib.
Well, what a way to kick off a new week on Wall Street. Stocks rallied with the S&P 500 even setting a new intraday record high. Investors were in a bullish mood thanks to optimism over the latest round of corporate deal-making, and that includes Netflix (NASDAQ:NFLX) striking a deal with Comcast (NASDAQ:CMCSA) (NYSE:CCS) to use its high-speed broadband to get movies to customers faster. And we`ll talk more about that subject in just a few minutes.
Now, here is a look at the closing numbers on Wall Street today. The Dow rose 104 points. It was up almost 200 points but then pulled back. The NASDAQ added 29 and the S&P gained 11 points to 1,847.61, less than 1 point from a new record.
GRIFFETH: So, while the major averages are now on pace to end the month of February higher, the National Association for Business Economics is wondering whether stocks will continue to climb even if economic growth starts to slow down.
Steve Liesman has more on why those experts are worried about a possible slow down in the economy and what could happen next.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): An economy is like a car engine. When everything works perfectly, there is a certain speed that can careen the car down the road. But the latest thinking on the American economic engine is that something isn`t working right, that the potential of the economy to generate growth and prosperity over the next decade will be a lot slower than it had been. One reason, people out of work for years because of a recession means the quality of the labor force has declined.
DOUGLAS ELMENDORF, CONGRESSIONAL BUDGET OFFICE DIR.: This shows, I think, a very long shadow of having so many people out of work for such a long period of time.
LIESMAN (on camera): Elmendorf says the potential growth rate of the economy, that`s the speed it can travel at, has fallen to 2.1 percent from 3.3 percent the previous 60 years. That`s $200 billion less in growth.
(voice-over): Another problem, the ageing of the work force.
CHRIS VARVARES: As people age, they tend to not participate as much on the labor force, up until the time that they retire. So, the age and population will lead to slower growth of those folks who are looking and willing to work.
LIESMAN: Larry Summers, the former treasury secretary, and economic advisor to President Obama, says this is a clear case for the government to step in and increase spending.
LAWRENCE SUMMERS, HARVARD UNIVERSITY: Ask if anyone is proud of Kennedy Airport and then to note that if a moment when the long-term interest rate in a currency we print is below 3 percent, and the construction unemployment rate approaches double digits is not the right moment to increase public investment in general and perhaps to repair Kennedy Airport in particular.
LIESMAN: Whatever the solution, there is a pretty good agreement the economy will grow slower, unless some new technology can be found that will kick start the American growth engine.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
GHARIB: Gold prices soared today. Investors poured money into the safe haven asset, partly on those worries about slow growth in the U.S. that Steve Liesman just talked about and also, because of growing uncertainty in emerging markets and political turmoil in Ukraine and Thailand. The price of the precious metal rose by $14.40 to 1,338. That`s a four-month high.
GRIFFETH: More now on that crisis in Ukraine, which remains a divided country tonight. One that`s teetering between establishing bonds with Europe and the U.S. and another that`s leading toward returning back into Moscow`s fold.
Michelle Caruso-Cabrera reports now from Kiev on the latest news out of Ukraine and why it matters to all of us.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: The political situation in Ukraine is much calmer today compared to what we saw late last week, when there was terrible bloodshed as protesters rose up against the government. Although the situation is calmer politically though, financially, it is not. This country needs to borrow money and borrow it fast.
Right now, the government is running a deficit. That means every single day, it spends more money it takes in tax revenues, and in normal times, they could borrow from the international markets. The traditional lenders won`t give money now because the political situation is so uncertain, so they have to turn to someone.
They could turn to the European Union and the IMF and the United States has said they would help, as well, or Ukraine could turn to Russia, its biggest trading partner. And that is the core of the issue and why the United States is so interested in this. Where will Ukraine end up, in whose political satellite, the West or East?
Russia is very concerned about having a country aligned with the E.U. so close to them, so they`re probably going to be willing to do a lot, extend loans with very few requirements in order to keep Ukraine within their spear of influence.
However, the protest is on the ground why they rose up three months ago is that they don`t want their government to do that. They want their government to turn to the West, where there is better transparency, better governance, and a lot more clarity about how democracy works. How this all plays out is unclear. With a temporary government and over the next several days, they`re kind of try to hammer out some kind of agreement, political and financial.
The outcome is deeply uncertain.
For NIGHTLY BUSINESS REPORT, I`m Michelle Caruso-Cabrera, Kiev, Ukraine.
GHARIB: Here now to talk more about today`s market rally, Patricia Edwards. She`s managing director of investments at U.S. Bank Wealth Management.
And, Patty, nice to have you back with us.
PATRICIA EDWARDS, U.S. BANK WEALTH MANAGEMENT: Nice to be here, thank you.
GHARIB: Let me begin by just asking you that we know that investors are always worried about something, and, you know, all of a sudden today, we get this big rally. What changed? Is driving this enthusiasm? And will the rally continue?
EDWARDS: You know, I think there is a lot that went into today`s numbers. First of all, you had successful closing of the games with no issues over in Sochi, and I think that was not to be taken lightly.
On top of that, you got a little resolve out of the Ukraine. Nothing is absolutely clear, but there is actually movement and things seem to be calming down. That helps, also.
Then you add in there some mergers and acquisitions that are really helping to get the engines running here in the U.S. And earnings have been pretty good. All those taken together made for a very nice day today.
GRIFFETH: But what`s wrong with the logic that says if the Fed — if we believe the Fed`s easy money policy of the last few years has fueled a great deal of the rally we`ve seen in the stock market, when they start to remove that easy money policy, why don`t we see a decline in the stock market? That`s not happening yet.
EDWARDS: No, it`s not happening yet, and I think part of the reason for that is there has been so much stimulus over the past few years. And so, we`re starting to ease off on the throttle but our foot is still on the gas peddle. There`s still money going into the economy, it`s just not as much as it was before.
GHARIB: Well, speaking of the Fed, the new Fed chair, Janet Yellen, will be speaking in front of Congress on Thursday. What do you expect her to say? Is she going to be on message, or are we going to hear something new from her?
EDWARDS: We`re really expecting that she`s going to be charmingly boring, which will probably be a good thing for this market. Really what we`re expecting, at most, maybe a tweak maybe to put in some wording around some sort of an inflation floor, meaning that they won`t let things slow down too much.
But beyond that, she should be on message and we expect things to continue going forward the way they have.
GRIFFETH: We`ve seen a pickup in merger activity lately. A lot of deals have been announced in the last couple of weeks. There are a lot of deals brewing now.
Do you consider that a positive? And would you invest with that in mind right now?
EDWARDS: Well, it is a positive, bill. It`s one of the things we saw actually starting last year. If you look at the second half of 2013, there were more deals in the second half than there were in the first and now, we`re starting to get a little more traction with that.
We think there is a couple things going on there. One is that we need revenue growth in some of our major corporations. We`ve had huge earnings growth in the past five years, about 118 percent, but we`ve only had 7 percent revenue growth.
And so, given that, they`re going to be looking for different ways to get that revenue growth. We`re looking more for organic growth and to buy the growth.
So, that`s going to actually be support under some of the smaller and midcap companies, something that we are absolutely taking into consideration.
GHARIB: Patty, in 30 seconds, tell us about the Ukraine and what investors should do, if anything, about their portfolios.
EDWARDS: You know, the Ukraine situation is probably not going to affect your portfolio in the short run. The big issue here is going to be something like a connotation. We don`t think that`s coming. In fact, we think there`s going to be help from both Russia and the E.U. offered. We know that the U.S. has already stepped in. And so, we think that it will probably get itself up and you have to invest over the long run using fundamentals, and this is just a small thing.
GHARIB: All right. Lots of good information.
Thank you so much, Patty. Patricia Edwards, managing director out U.S. Bank Wealth Management.
GRIFFETH: Moving now to earning season. It`s winding down but not before we hear from some of the nation`s top retailers, and while some like Wal-Mart (NYSE:WMT) last week will partly blame weak sales on the brutal winter weather, all retailers are not created equal. Others may see the bad weather as a plus for revenue.
Courtney Reagan has more.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): While the world`s largest retailer blamed nearly every possible external issue on its disappointing earnings outlook, investors should be careful not to think all retailers will follow suit in this week`s earnings releases.
In fact, some retailers like those external factors, winter weather and higher home investment, at the expense of discretionary buying.
Barclays retail analyst Alan Rifkin thinks Home Depot (NYSE:HD) was a beneficiary of the winter weather, carefully positions those weather appropriate products on a region basis, with snow removal products at a particular high sales volume.
Plus, the upcoming spring quarter is the retailer`s most important, perhaps more so this year as homeowners are expected to continue investing in improvement in and outside the home.
Stifel Nicolaus analyst Richard Jaffe thinks the cold weather did help Macy`s (NYSE:M) sell winter apparel early in the quarter, but says the tight control on inventor didn`t leave much left to sell in January. Still, Jaffe has Macy`s (NYSE:M) as a top pick going into earnings season.
RICHARD JAFFE, STIFEL NICOLAUS ANALYST: Macy`s (NYSE:M) is a giant dominant force in the department store industry, and uses its strength effectively to have exclusive brands, to offer unique product and, yes, they do a great job on the channel or the Internet component, as well.
REAGAN (on camera): Macy`s (NYSE:M) remains a standout among an otherwise dollar department store sector, with dealers posting disappointing earnings, a shrinking Sears (NASDAQ:SHLD) and struggling JCPenney. Sears (NASDAQ:SHLD) and JCPenney report earnings this week. Neither are expected to inspire much confidence.
JAFFE: Looking at the fourth quarter results, you want to look at the inventory. I look for the balance between Internet and stores to make sure they`re both healthy, robust and growing. That you`re not growing one at the cost of the other.
REAGAN: Whether merchandise is purchased in store or online, compelling products remain the key success factor. As retail options swell, the most special product offering will win.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.
GHARIB: And still ahead on the program, Netflix (NASDAQ:NFLX) agrees to pay Comcast (NASDAQ:CMCSA) (NYSE:CCS) for faster access. Is the deal a game changer for the industry, and will more agreements like this one follow?
GRIFFETH: Billionaire activist investor Carl Icahn is at it again, in a note to eBay (NASDAQ:EBAY) board members and shareholders this time, he`s accused members of the board of what he called lapses in corporate governance. And he`s once again calling for the company to spin off its successful PayPal electronic payment unit. But eBay (NASDAQ:EBAY) was quick to respond to Icahn who owns about 2 percent of the outstanding shares. EBay says it`s not interested in separating its fastest growing from the parent company.
GHARIB: With one of every five people in the world owning a smartphone, tech companies are always looking to update their products with the latest accessories and services to boost sales. And this week all the big smartphone makers, social media giants and software firms are doing just that at a big tech conference in Spain.
It`s call the world, the Mobile World Congress.
Jon Fortt is in Barcelona and he has all the buzz of what`s new this year.
JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): This week in Barcelona, many top executives in wireless and tech from around the world are gathering to try and figure out what`s next.
(on camera): The smartphone revolution gets well underway, which means the new opportunities for profit probably won`t be in hardware so much in services. That`s going to be a key theme here at the Mobile World Congress.
Facebook (NASDAQ:FB) CEO Mark Zuckerberg is here, so is Jan Koum from WhatsApp, his latest acquisition, and IBM CEO Ginny Rometty, Cisco (NASDAQ:CSCO) CEO John Chambers and more.
For Facebook (NASDAQ:FB), the show is a chance to lay out its vision for getting more people in emerging markets online.
MARK ZUCKERBERG, FACEBOOK CHAIRMAN & CEO: All the data and studies that we`ve shown show that it will not only increase their opportunities to find jobs and health and education and all these things, it makes the economy better and if we do this as an industry, it will also for self-interest just increase the profits of all the different companies that involved here.
FORTT: Lots of new products are taking a bout here, including low-end android phones from Nokia (NYSE:NOK), new tablets from HP and Huawei, and an in app payment service from MasterCard (NYSE:MA).
But for the executives attending, lots of meetings.
JO LUNDER, VIMPELCOM CEO: I meet government officials, I meet customers, I meet partners, I meet my own employees, I meet competitors. It`s the meeting place to learn and be inspired and it`s also very effective because everybody is here.
FORTT: A big week for a very big mobile industry.
For NIGHTLY BUSINESS REPORT, I`m Jon Fortt in Barcelona.
GRIFFETH: We have more now on that deal we told you about at the top of the program with Netflix (NASDAQ:NFLX) paying Comcast (NASDAQ:CMCSA) (NYSE:CCS) to use its high speed broadband to speed up digital downloads for Netflix (NASDAQ:NFLX) customers.
Julia Boorstin has more on that agreement now, who benefits from it and whether this opens the door to similar doors with other content and Internet providers.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Netflix (NASDAQ:NFLX) and Comcast (NASDAQ:CMCSA) (NYSE:CCS) deal aims to be a win/win, giving better service to subscribers of both, addressing concerns customers have suffered from slowing broadband speeds from Comcast (NASDAQ:CMCSA) (NYSE:CCS), as well as Verizon (NYSE:VZ).
With this deal, Netflix (NASDAQ:NFLX) and Comcast (NASDAQ:CMCSA) (NYSE:CCS) will cut out the middleman. Netflix (NASDAQ:NFLX) paying Comcast (NASDAQ:CMCSA) (NYSE:CCS) to establish a direct connection to the Internet provider, improving infrastructure to make data transmission more efficient. It`s a valuable partnership between the nation`s largest Internet provider about to become much larger and streaming video behemoth, Netflix (NASDAQ:NFLX).
CRAIG MOFFETT, MOFFETT NATHANSON RESEARCH: You just have a company that represents one-third of the traffic on the internet strike a deal with a company that represents as much as third of the Internet subscribers in America.
BOORSTIN: Other streaming video giants like YouTube have similar arrangements to work directly with Internet providers, but this is the first time a content company like Netflix (NASDAQ:NFLX) has paid an Internet provider like Comcast (NASDAQ:CMCSA) (NYSE:CCS) directly.
(on camera): That doesn`t mean Netflix (NASDAQ:NFLX) will necessary face higher cost. It`s just paying a different company. Up until now, Netflix (NASDAQ:NFLX) has paid other companies to help deliver its data.
(voice-over): One of those intermediaries is Cogent (NASDAQ:COGT). Its stock is suffering on this news and concerns about other deals that could follow.
Verizon (NYSE:VZ) CEO Lowell McAdam saying on CNBC Monday morning he`s in talks with Netflix (NASDAQ:NFLX) and expects to close a similar deal.
LOWELL MCADAM, VERIZON CEO: The commercial model I think will work pretty well. So, to me, that shows that you don`t necessarily need a lot of regulation in a dynamic market here by doing these commercial deals, we`ll get good investments and good returns for both parties.
BOORSTIN: Internet providers hope this will give the FCC and others a reason to take a light hand when it comes to regulation, showing rivals can work well together without intervention and analysts Craig Moffett says it reflects well on Comcast (NASDAQ:CMCSA) (NYSE:CCS) as it looks for approval of its Time Warner (NYSE:TWX) Cable acquisition.
MOFFETT: It tells you if you`re the Department of Justice or FCC that Comcast (NASDAQ:CMCSA) (NYSE:CCS) is not going to engage in any competitive practices.
BOORSTIN: We`ll see this if this speeds along regulatory approval for Comcast`s big Time Warner (NYSE:TWX) Cable purchase.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
GRIFFETH: And we need to remind you that Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of CNBC, which produces this program.
GHARIB: BlackBerry lands two major deals and that`s where we begin tonight`s market focus. Shares of BlackBerry surged on news that its BBM messenger service will be available to Windows phone and Nokia (NYSE:NOK) X users starting this summer. Separately, Ford has picked BlackBerry over Microsoft (NASDAQ:MSFT) as its partner on its sync voice activated system in future car models.
Shares of BlackBerry rose 7 percent to $9.83.
Chip maker RF Micro Devices (NASDAQ:RFMD) says it`s paying $1.6 billion for its TriQuint semiconductor. The two companies get most of the revenue by supplying parts to device makers like Apple (NASDAQ:AAPL) and Samsung and the deal makes them a bigger player. Shares of both companies surged on the news. RF Micro up 21 percent, TriQuint by 26 percent to $11.64.
GRIFFETH: The suit saga continues. Mens Warehouse has now raised its offer for its rival Jos. A. Bank by over 10 percent, spurring hopes that this month`s long battle of back and forth between the two companies might finally be over. Men`s warehouse also said it might even raise its own bid further if it`s able to examine Jos. A. Bank`s books.
Shares of both companies up, as you can imagine. Mens Warehouse up to 7 1/2 percent to $48.51. Jos. A. Bank rose by 9 percent to close at $60.04.
And Pfizer`s pneumonia vaccine treatment for older adults showed that it prevented several kinds of community acquired pneumonia in a clinical study. The treatment is already on the market to treat childhood infections. Analysts say that they predicted the success of the drug on older patients would boost annual sales of the vaccine by $1 billion or more. Shares of Pfizer (NYSE:PFE) rose by more than 1 1/2 percent, closed at $31.99.
GHARIB: The Pentagon announced some deep spending cuts to the Armed Forces today. Defense Secretary Chuck Hagel outlined his vision for the military in the year ahead, and the changing priorities for our men and women in uniform.
(BEGIN VIDEO CLIP)
CHUCK HAGEL, DEFENSE SECRETARY: We are repositioning to focus on a strategic challenge and opportunity that will define our future — new technologies, new centers of power, and a world that is growing more volatile, more unpredictable and in some instances, more threatening to the United States.
(END VIDEO CLIP)
GHARIB: Now, among the proposed cuts, shrinking the army to the smallest size before World War II, closing some military bases, eliminating the Air Force A-10 and U2 aircraft, freezing pay for generals and admirals and a 1 percent across the board pay cut for all military personnel. Now, despite that, shares of some of the biggest defense contractors rose by more than 1 percent today including Northrop Grumman (NYSE:NOC), Lockheed Martin (NYSE:LMT), General Dynamics (NYSE:GD) and Raytheon (NYSE:RTN).
GRIFFETH: As the health care industry changes, insurers are facing new complications. And tonight, in a first of a three-part series, we`ll take you to a hospital branching out beyond care and into insurance.
GRIFFETH: Some of the shares of the biggest health insurers have been moving higher because Medicare reimbursement cuts proposed by the government for 2015 were not as bad as those companies feared. And that sent shares of Humana (NYSE:HUM) surging, closing more than 10 percent higher. Also making gains today, big names like WellPoint and Aetna (NYSE:AET).
GHARIB: Those insurers are not only bracing for reimbursement cuts and other changes in the Affordable Care Act but also some tough new competition.
Tonight, we begin with a three-part series on the changing health care insurance business. We begin with a look at how some hospitals are now offering their own health care plans.
Bertha Coombs reports.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Mike Perivolaris doesn`t have to offer his workers health benefits, but he always has.
MIKE PERIVOLARIS, BUSINESS OWNER: We target people that are stable, family people who expect at this point, you know, that the insurance is going to be taken care of by their employer.
COOMBS: This year, the Long Island small business owner is gambling on a brand-new insurance company tied to a big area hospital, North Shore LIJ. Its rates were lower and his staff is happy with the choice.
PERIVOLARIS: The people that accept this insurance seem to be the doctors that they already had. So it seemed natural.
COOMBS: The CEO of North Shore LIJ`s new care connect insurance unit says the hospital`s name recognition has helped them compete with large insurers on New York`s exchange and in the private market.
ALAN MURRAY, NORTH SHORE LIJ CARE CONNECT CEO: We are not a United Healthcare. We`re not Blue Cross and Blue Shield. We have a very narrow network, but it`s highly intense interactive network.
So, what you trade in choice, we hope you make up with in simplicity.
COOMBS: It means Care Connect will reimburse North Shore differently than other insurers.
MURRAY: I don`t necessarily reimburse in fee-for-service environment. What I do is I agree ahead of time that I will spend X number of dollars on health care, and it`s up to them to work with us to figure out the most efficient and best place for that health care to take place so that they are not trying to fight for every penny.
COOMBS: If they get it right, they will join the ranks of Kaiser`s health system in California and Geisinger in Pennsylvania, highly regarded hospital systems which hold down cost by integrating coverage and health care.
(on camera): Hospital systems first got into the business of insurance back in the `90s, when HMOs were popular but many found they couldn`t make financials work.
Analysts say this time could be different.
LISA MARTIN, MOODY`S INVESTOR SERVICE SVP: Since we moved through the 2000s and into the current day, the data capabilities are much greater, and many hospitals are much more closely aligned with their physicians.
COOMBS (voice-over): Moody`s (NYSE:MCO) Lisa Martin says having an insurance plan can help hospitals keep patients within their systems, as long as they don`t alienate other players.
MARTIN: The other risk for hospital running a health plan is really managing the relationship with the insurers that now the hospital is directly competing with in its own market.
COOMBS: So far, Care Connect has exceeded its enrolment expectations.
MURRAY: We thought we would probably have 3,000 to 4,000 individual members of which, let`s say, 50 percent to 60 percent of them would pay the bill. We had almost double that both on and off exchange.
COOMBS: Mike Perivolaris is hoping it pays to be one of their first members.
PERIVOLARIS: We try things every day. We`re business owners, so we have to be daring sometimes and make decisions.
COOMBS: Bertha Coombs, NIGHTLY BUSINESS REPORT, Long Island, New York.
GHARIB: To read more about how hospitals are getting into the insurance business, go to our Web site, NBR.com.
And tomorrow, our series continues with a look at how an insurance startup is attempting to shakeup the industry.
GRIFFETH: Finally tonight, good news if you invest in companies that pay a dividend. Last year, for the first time ever, the world`s largest public company paid out more than $1 trillion in shareholder dividends globally. That`s up more than $300 billion since 2009.
The research firm Henderson Global says research listed firms are by far the largest source of dividend income right now, increasing their payouts by an astounding 49 percent in just the past five years.
Financial firms paid out the most, no surprise. That was followed by technology companies. That is a bit of a surprise.
GHARIB: And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you tomorrow.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2014 CNBC, Inc.
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