SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Whipsaw day on Wall Street. Stocks rallied out of the gate, then dropped midday, only to bounce back by the close. What’s causing the volatility? And will there be more to come in the weeks and months ahead?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Focus on safety. General Motors (NYSE:GM) creating a new group that will have a singular goal: safety. As Mary Barra answers questions for first time since those heated congressional hearings.
GHARIB: And setting the tone. The key takeaway in Intel (NASDAQ:INTC) and Yahoo’s earnings report that could determine the market’s directions tomorrow.
We have all that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, April 15th.
MATHISEN: Good evening, everybody, and welcome.
Do you own a neck brace? If not, you might want to consider getting one or visiting a chiropractor. Market watchers have not seen ups and downs like today’s in a couple of years. It was wild. Stocks were up early then down hard on Ukraine worries, then bungeed up into the close on lighter than normal volume because of Passover.
The Dow Industrials did finish 89 points higher. But that’s not the half of the story. That was its second straight-up day, NASDAQ up 11 points but had closed in on correction territory earlier in the day, only to bounce back, closing higher now four of the past six trading days. The S&P 500, it was up 12.
So, what accounted for today’s wild ride?
Bob Pisani explains from the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks rallied at the open but quickly sold off at a pattern that is by now very familiar. Selloff Internet and biotech stocks, and then the rest of the market follows along. Then, late in the day, the market reversed, a sign that traders are not sure where to price stocks.
A look at the IBB, this is ATF that represents biotech stocks. After rallying at the open, it dropped 6 percent in a few hours then rallied all the way back. That’s a little strange.
And this wimpiness is extending into the broader market. The Dow, for example, today went from flat to up 100, then dropped 200, then rallied 200 points, all at a few hours. That’s very strange.
What’s the problem? There is more going on than just over-evaluation issues with Internet and biotech stocks. There’s a lot of other issues that are weighing on the markets.
For example, tension in Ukraine was likely a factor in the midday selloff, but there were also China growth concerns. There is choppy U.S. economic data and there is tax selling from last week that is hard to quantify, but high bracket taxpayers have clearly had sticker shock this month.
Finally, there’s the effects of the Fed winding down its stimulus program. Is economic strength enough to offset the negative liquidity effect of the Fed’s taper?
There’s one more issue. It’s a big vacation week. We’ve got Passover, Easter and spring break. It all adds up to less participants in the market.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani, at the New York Stock Exchange.
GHARIB: And for more analysis on those escalating tensions in Ukraine that Bob just talked about, we turn now to Paul Christopher. He’s chief national investment strategist at Wells Fargo (NYSE:WFC) Advisors.
Paul, you know, we’re hearing from Russia’s Putin that actions from the Ukraine are, quote, “anti-constitutional.” The White House is warning more sanctions if — against Russia if they misbehave. At what point does this crisis become an issue for the markets?
PAUL CHRISTOPHER, WELLS FARGO ADVISORS: I think if we begin to see the events in Ukraine sort of cycle out of control. If the government in Kiev loses control in events in eastern Ukraine then the markets have quite a bit more to worry about. But, of course, between now and then the tensions will sort of simmer at a low boil and you could get an event like in the last couple of days that could give the markets pause as they try to discount the future.
MATHISEN: But today, Paul, sounded like a little more than a low boil. There are reports that Russian supporting factions that have taken over multiple government buildings in the eastern part of Ukraine. And Ukraine air power was being used to re-claim an airfield in that part of the country. It sounds like it is getting hot fast.
CHRISTOPHER: Well, it is getting hotter. But I don’t think that this is going to be something that necessarily spirals out of control.
Look, the Russians are probing here. They’re looking for weakness. They’re looking to shake loose some of the eastern provinces at as low a cost as possible, and I think they’ll continue to push this way until the Ukrainians push back with the force to neutralize the probing that the Russians are doing.
So we may see additional violence in the coming days and weeks, but I don’t think we should necessarily conclude that it’s the beginning of a civil war.
GHARIB: What we saw in the bond market today that treasury prices initially rose in those Ukraine headlines. But we didn’t see much action in the gold markets. In fact, gold prices fell sharply.
Why is that? You’d expect just the opposite.
CHRISTOPHER: Yes, that’s a good point. And if we were — if we were going to see more concern about Ukraine in the markets generally, we would expect the gold to be rising on that geopolitical risk. In fact, gold was off today.
I think gold was tracking something else. I think the gold was tracking the CPI (NYSE:CPY) and a modest improvement in CPI (NYSE:CPY), which indicates that the Fed does not have to worry about disinflation. The Fed can go ahead with its plans to continue tapering stimulus in the months to come. That’s going to mean higher yields, eventually higher interest rates, and lower gold prices.
GHARIB: All right, we’ll leave it there. Paul Christopher, thank you so much.
CHRISTOPHER: My pleasure.
GHARIB: Paul Christopher from Wells Fargo (NYSE:WFC) Advisors.
MATHISEN: And after the bell, two big companies, Intel (NASDAQ:INTC) and Yahoo (NASDAQ:YHOO) reporting their earnings of shares of both companies rose in the post-market session initially and that could possibly set the tone for tomorrow’s trading in the closely watched technology sector.
GHARIB: And here is more about that Intel (NASDAQ:INTC) report. The chipmaker’s first quarter profit beat analyst estimates by 1 cent, to earn 38 cents a share, revenue rose by 1 1/2 percent to $12.7 billion. But that was below expectations.
Still, investors brought up shares of the company. They rose as much as 3 percent initially in after-hours trading.
And Dominic Chu joins us to break it all down.
So, you know, we know that Intel (NASDAQ:INTC) has been challenged, Dom, over the last couple of months. So I mean, what did you see in the numbers?
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it’s no secret with intel that it’s about the secular PC decline, right? We know that personal computers are not in vogue anymore. Everybody is using tablets and smartphones.
Intel (NASDAQ:INTC) has been decidedly slow to the game in getting themselves up to speed. This time around, what we saw are signs that PC demand market is actually finding perhaps some signs of stabilization, that the declines aren’t nearly as fast.
But where Intel (NASDAQ:INTC) is making huge some gains are in cloud computing, they broke out their segment, this data segment that they had, rose by 11 percent in terms of revenues. And then the Internet of things, something that we talk about all the time — about connecting your Google (NASDAQ:GOOG) Glasses, your watches, your smartphones, everything in your house to the information super highway. That business at Intel (NASDAQ:INTC) has grown by about 32 percent from the same time last year.
Now, to put it in perspective, it’s about half a billion dollar revenue business for Intel (NASDAQ:INTC). The chip business for PCs is about an $8 billion per quarter business. So, it dwarfs the Internet of things. But still, if you can find some segment like that, like smartphones, to kick things off, that’s really where the growth is going to come from.
And that’s why investors at least for now are slightly optimistic.
MATHISEN: And the stock was up after hours initially today and it is up by about 24 percent over the past 12 months if I’m recalling correctly.
CHU: Yes, that’s big, too, because remember, smartphones will be big for them, too. They ship 5 million processors. This past quarter, they want to ship 40 million by the time this year is over.
GHARIB: Dominic, thanks for coming by and talking to us. Really appreciate it, Dominic Chu.
CHU: That was a pleasure, guys.
MATHISEN: And now on to Yahoo (NASDAQ:YHOO)!, which also managed a slight beat earning 38 cents a share and raising its second quarter guidance. Revenue grew modestly to $1.09 billion, compared with $1.08 billion a year ago, and that excludes fees paid to partner Web sites.
But the report excited investors, sending the stock initially higher.
Let’s bring in Josh Lipton to grill down on the numbers.
The key takeaway, Josh, is?
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, Tyler, I think one key takeaway, the key number that traders and investors are focused on right now, $3.1 billion. That is what Alibaba just reported for its Q4 revenue. Remember, Yahoo (NASDAQ:YHOO) bulls might be excited about CEO Marissa Mayer, her game plan for this company, buying talent and technology, improves products, attracting more investors.
But certainly there are a lot more traders and investors excited by Yahoo’s 24 percent stake in Alibaba, the Chinese e-commerce giant.
The reason you’re seeing some relief, Tyler, is because last time we got numbers from Alibaba, there was a concern on the street about a decelerating growth rate. But now, Alibaba coming up and saying, listen, Q4 revenue up 66 percent to $3.1 billion, net income up 110 percent to $1.4 billion.
Analysts at Macquarie just raised Yahoo (NASDAQ:YHOO)! to a buy in part because of all these enthusiasm about the upcoming Alibaba IPO, Tyler.
Alibaba, the tail that wags the Yahoo (NASDAQ:YHOO) dog.
Josh Lipton in San Jose, thanks very much.
GHARIB: The two best performers in the Dow today were Coca-Cola (NYSE:KO) and Johnson & Johnson (NYSE:JNJ), both releasing first quarter reports which were better than expectations even though Coke’s profit revenue fell. But Johnson & Johnson’s earnings easily topped forecast.
Here’s Bertha Coombs with all the details.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Coca-Cola (NYSE:KO) sales were flat in the U.S. this winter and fell in Europe. Strong growth in emerging markets helped to push the company’s global sales volume up 2 percent, edging past analyst estimates.
MUKTAR KENT, COCA-COLA COMPANY CEO: We are improving in key markets like China, double digits. Brazil is up for us, another key market. Russia and India were both up 6 percent in the quarter. So, we’re improving on the prior quarter.
COOMBS: That growth, despite a strong U.S. dollar which resulted in higher prices in the exchanging market. The exchange rates and growing pushback on sodas, in places like Mexico, which enacted a national sales tax on sugary drinks, will make it hard for Coke to grow sales this year and for the stocks to grow, according to analysts Caroline Levy.
CAROLINE LEVY, CLSA ANALYST: I think the sugar taxes are an issue to think about, but over the long haul, the distribution is second to none. And as long as they can sell water, juices, peas and other things, that helps.
COOMBS: For Johnson & Johnson (NYSE:JNJ), strong drug sales offset weak results in its consumer and medical device units. Global pharmaceutical sales topped $7.5 billion, well above analyst estimates, driven by double digit growth and high cost drugs to treat hepatitis C, prostate cancer and psoriasis.
J&J shares up 8 percent this year and other big cap pharmaceutical names have outperformed the market, even as other health care names have swooned. With more than $7 million people with new health plans under the Affordable Care Act, the drug industry could see a big boost in U.S. sales, says Federated’s Linda Duessel.
LINDA DUESSEL, FEDERATED INVESTORS SR. EQUITY STRATEGIST: The people who signed up for that are the ones who would be the sickest and using the pharmaceuticals. Arguably, the volume will go up and probably dramatically. And that should argue for some very good pricing power.
COOMBS (on camera): J&J raised its full year forecast based on strong drug sales and that’s what investors are looking for from S&P 500 firms. Expectations are for flat first quarter growth due to winter storms but stronger profit growth into the end of 2014.
Bertha Coombs, NIGHTLY BUSINESS REPORT.
MATHISEN: And despite today’s batch of strong earnings, our next guest says we’re in the weakest earning cycle in 55 years. He’s Jeff Kleintop, chief market strategist at LPL Financials.
Jeff, welcome. Good to have you with us.
JEFF KLEINTOP, LPL FINANCIALS: Thanks for having me on.
MATHISEN: You’re not saying the quarters’ earnings are the weakest in 55 years. Explain to me what you are saying.
KLEINTOP: Yes, take a look back. You know, you can measure earnings cycles from either the trough of one cycle to the next, to the peak from one cycle to the next. I’m looking back at this cycle from 27 quarters ago when it peaked, when the prior peak was back in the middle of 2007, to now. That growth rate is very poor. Earnings are only up about 21 percent, over that period of time.
Usually, every other earning cycle over the last 55 years, we have been up 60 percent to 70 percent at this point from the prior peak. This is the slowest in 55 years. Not only because the trough was deeper, but because the momentum over the last few years has been much softer than we usually see at this point in the earning cycle.
GHARIB: So, Jeff, what’s the takeaway from this headline statistic you’re giving us for investors? What do you want us to factor this in, in their investment choices? And what do you think of the latest batch of earnings? They have been pretty good this week so far.
KLEINTOP: Earnings are critical. We’ve seen the valuations rise. Now, we’ve got to see the earning’s growth accelerate to justify those valuations. And that’s why you’re seeing many of those high fliers in the markets. With those high P/Es, price to earnings ratios, have been the ones that have the biggest tumble here lately.
Fortunately, I think earnings growth appears to be turning around. What we heard today, Coke had good things to say about growth in China, Intel (NASDAQ:INTC) had good things to say about business spending coming back, we heard good things from J&J about they aren’t looking. CSX (NYSE:CSX) talked about things thawing up after that deep winter freeze. All that is good news and should suggest that earnings growth will rebound and justify these valuations and help to push the market higher.
MATHISEN: But you do seem to be suggesting that for those companies where the earnings come in a little light, a little bit shy, you think the prices for the stocks have gotten beyond where they ought to be based on those earnings.
KLEINTOP: That’s absolutely right and we’ll continue to see that punishing trend in the market for some of the higher fliers that aren’t meeting expectations.
And, look, you can see that, with the type of volatility we’re seeing even within a certainly day in the market you can see some of those stocks really getting taken out and hammered, while others rally to near new highs. That’s going to be a characteristic that we’ll continue to see.
GHARIB: All right. So, how are you playing it that the stocks are getting hammered, not just talking about the tech area. But when you see these big selloffs, how are you playing that? Are you buying on them? Are you sitting tight? You know, what’s your strategy?
KLEINTOP: Great question. I think this is an opportunity to buy. Many individual investors have only started to come back to the stock market based on money flows.
So, I think these are good times to buy. You want to take a look at those business spending oriented parts of the market. They’re likely to see that rebound and pent-up demand. I’m talking about industrials and I’m talking about old technology, not the consumer new tech maybe in the NASDAQ.
But other areas of old technology that stocks like Intel (NASDAQ:INTC), for example, or industries like semiconductors, industries like hardware, maybe the places to be as business spending rebounds, that may be one of the surest bets in what’s been involved all year.
MATHISEN: How much does Ukraine worry you, Jeff?
KLEINTOP: You know, not a whole lot, Tyler. I think if you look at what we’ve seen with Egypt. What we saw with Syria, is once the prospects for a military engagement by the U.S. appear to be well off the table the markets tend to look past the geo-political conflict, even if it accelerates to a potential civil war within that borders of that country.
So I don’t think this is going to be a major issue for the market, but certainly something to watch in the backdrop, were it to accelerate and begin to involve some type of U.S. action.
MATHISEN: All right. Jeff, thank you very much for being with us tonight. We appreciate your help.
KLEINTOP: My pleasure. Thanks very much.
MATHISEN: Jeff Kleintop is the chief market strategist at LPL Financial.
GHARIB: And still ahead on NIGHTLY BUSINESS REPORT, a General Motors (NYSE:GM) CEO answers questions for the first time since the congressional hearing. Did she say enough to soothe the concerns of both drivers and investors?
GHARIB: Tougher rules for big banks. That’s what the Federal Reserve says it’s considering as a way to keep credit flowing in case of another financial crisis. Speaking at a Central Bank conference today, Fed Chief Janet Yellen said additional capital may be required for some of the nation’s largest financial institutions.
Now, as you know, the Fed has been pushing banks to strengthen their balance sheets since that crisis.
MATHISEN: The bankrupt city of Detroit has reached a deal with its retired police officers and firefighters that would preserve current pensions, but retirees would see a reduction in annual cost of living payments or adjustments. Detroit had proposed a 6 percent cut and no cost of living adjustments. The deal is subject to a retiree vote and review by the bankruptcy judge, as well as the city getting funds promised by the state of Michigan.
GHARIB: Well, you think of Detroit, of course, you think of the auto industry. And late today at the New York Auto Show, the CEO of General Motors (NYSE:GM) announced a new initiative to focus on product safety. In her appearance since her congressional testimony on a huge ignition switch recall, Mary Barra said the new group called Global Product Integrity will involve a new way of developing vehicles.
Phil LeBeau has been covering this story all along and he joins us now.
So, Phil, you know, Mary Barra talked with reporters in a really quick Q&A session after that speech. What did she say? Anything stand out for you?
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nothing, really. And really, I think what stood out more than anything is that if Mary Barra thought the intensity of the public interest in both her tenure as CEO, as well as how the company is handling the recall crisis, if she thought it might die down at all, take a look at this scene.
After she gave a speech at this conference here, which is she held for auto dealers, she was supposed to address reporters for maybe five minutes, it was a zoo. There were dozens of reporters not only from here but from around the world, muscling each other and pushing each other. It was chaos there for a while.
We did have a chance to ask her a few questions. And the one question that I had a chance to ask her was how soon does she believe that the internal investigation that she has authorized by a former U.S. attorney, how soon does she believe that will be finished so that we can have some more concrete answers on what went wrong with these recalled prices? Here’s what she had to say.
(BEGIN VIDEO CLIP)
MARY BARRA, GENERAL MOTORS CEO: As I said, we will be transparent. So, that’s where we’re at.
REPORTER: How much longer for the investigation?
BARRA: Again, you know what I said when I was in Washington, we said 45 to 60 days, and we’re still on that path.
(END VIDEO CLIP)
LEBEAU: Altogether, Mary Barra answered maybe five questions, Tyler and Susie, and she hasn’t broken any ground in terms of making it clear to people that they are close to finishing their investigation, and the news she made today about this new global product integrity committee clearly overshadowed by the chaos after her speech.
MATHISEN: Is that too late, Phil, to really turn it around? Window dressing or more?
LEBEAU: I don’t think it’s window dressing, I think it’s another example where General Motors (NYSE:GM) — any strides they’re making right now, separate from this recalled crisis, completely overshadowed, because everybody wants to know exactly what happened over the last 10, 11 years.
GHARIB: All right. We’re going to be counting on you, Phil, to get answers to all those questions.
LEBEAU: You bet.
GHARIB: Phil LeBeau, reporting from New York City.
MATHISEN: CSX (NYSE:CSX) out with better than expected earnings and revenue after the bell and that is where we begin tonight’s “Market Focus”. The railroad operator said volume increased as merchandise and intermodal growth offset a drop in coal. Severe weather did impact volumes in many markets but the CEO says that CSX (NYSE:CSX) pushed through.
(BEGIN VIDEO CLIP)
MICHAEL WARD, CSX (NYSE:CSX) CEO: I think these are very solid numbers considering we had one of the worst winters on record, and, you know, it’s impacting all of the transportation. With those trucks and airlines we grew about 3 percent, and despite that winter weather. And since the weather has broken, we have been seeing a pace more like 10 percent.
(END VIDEO CLIP)
MATHISEN: The company’s board also approved a 7 percent increase in its quarterly dividend. The stock was up initially after the report. During the regular session though, shares were down slightly to $28.29, as you see right there.
Charles Schwab’s first quarter profits surge more than 50 percent. The discount broker’s earnings topped expectations, got a lift from rise in trading commissions and fees for managing client assets. The firm says its quarterly trade volume rise to the highest level in the company’s history. Shares were up more than 3 percent on the day to $26.11.
Shares of Best Buy (NYSE:BBY) fell at the news of the company’s president of U.S. retail stores is retiring. The chain’s executive, a company vet who was just promoted a few months ago, is being succeeded by the retailer’s chief human resources officer. Now, the stock which is going from winter last year to center (ph) in 2014, tumbled another 30 percent today to $25 even.
GHARIB: Zebra Technologies (NASDAQ:ZBRA) is buying a unit of Motorola Solutions (NYSE:MSI) for about $3.5 billion. Both companies offer bar code scanning and other technologies that companies can use to control inventory. Zebra will fund the deal with more than $3 billion in new debt. While investors didn’t seem to like that, shares plunged more than 10 percent to $61.30.
Twitter rose sharply on news it’s naming Daniel Graf as its new vice president of consumer products. Graph is the former director of Google (NASDAQ:GOOG) Maps. Separately, the social media company announced it was buying social data provider in Gnip for an undisclosed amount. Shares popped almost 11 1/2 percent to $45.52.
And Northern Trust (NASDAQ:NTRS) posted revenues and earnings that were up compared to a year ago but they missed analysts’ estimates. The Chicago-based banks said earnings rose more than 10 percent on the higher fees income, but the bank’s investment management services fees were hurt by lower interests, shares fell more than 2 1/2 percent to $59.63.
MATHISEN: My word of the day is now going to be Gnip.
Coming up, tax day is here. And while many are rushing to file on time, others are ready to fraudulently claim your refund. And the numbers are growing big-time. That story is coming up when we return.
MATHISEN: It was one year ago today that two bombs went off at the finish line of the Boston marathon, three people were killed, 260 were injured.
This afternoon, Vice President Joe Biden with a delegation of observers and first responders observed a moment of silence at that finish line at the instant the bombs exploded. A tribute to the dead and the living, 36,000 people will run the Boston marathon again next Monday, Patriot’s Day, and many thousands more will be along the route once again to cheer them off.
GHARIB: Here is another important date — it’s income tax day, and if you left your electronic filing until today, you could be in for a rude awakening. Not your tax bill but the fact that someone might have already claimed your refund. Identity thieves are still plaguing the tax system. And if you think you’re not at risk, think again.
Scott Cohn has our story.
SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): How brazen or tax identity thieves? Just listen to the U.S. attorney general.
ERIC HOLDER, ATTORNEY GENERAL: Identity thieves can target anyone. Something that I saw firsthand last year when two people attempted to get a fraudulent tax refund using my personal information.
COHN: They weren’t successful in the case of Eric Holder, but the two men from Georgia, Yafait TAdesse and Eyaso Abebe, admitted stealing more than a dozen identities, including dead people, and collecting thousands of dollars. “Remember that deceased person I let you look up a while ago,” Abebe asked in an e-mail, “well, it got processed and they’re sending the check. I guess deceased people work.”
(on camera): As many as 2 million people will fall victim to tax identity theft this year, according to government estimates. And while the IRS has made some strides, the fraudulent refunds it’s paying out this year are still into the billions of dollars. One private consultant says taxpayers in these ten states and the District of Columbia are the most at risk.
(voice-over): Even as the Feds try to get ahead of the crooks, our own reliance on technology like smartphones and tablets is playing right into the bad guys’ hands.
VIKAS BHATIA, KALKI CONSULTING CEO: It brings us more functionality, the e-banking, and social networking, et cetera. But we’re also increasing the attack surface as we like to call in the industry.
COHN: Experts say guard your personal information, especially your Social Security number like it is your most precious valuable. If you still get hit, call the IRS and everyone else you do business with to keep the damage to a minimum.
Scott Cohn, NIGHTLY BUSINESS REPORT.
MATHISEN: And on this day 60 years ago, Jackie Robinson broke the color barrier in baseball, becoming the first African-American to play in the Major Leagues. Today and every April 15th, ball players across the leagues will celebrate Robinson by wearing the number 42. And the market for Jackie Robinson memorabilia is still strong. Just this past February, a bat Robinson used at Ebbets Field in 1956, sold at auction for more than $158,000.
Last night, curiously, I was asking my son, Mackie, who his favorites were. He said Derek Jeter, and Jackie Robinson.
GHARIB: How did he come up with Jackie Robinson?
MATHISEN: The movie last year which he’s watched 42 times, I’m sure, was a real hit and it resonated with an awful lot of young kids.
GHARIB: That’s lovely.
MATHISEN: It really is.
The last person to wear number 42 in the Majors, Mariano Rivera. It will never be worn again.
GHARIB: And retire.
That’s NIGHTLY BUSINESS REPORT for tonight. I’m Susie Gharib. Thanks for watching.
MATHISEN: And I’m Tyler Mathisen, thanks from me as well. Have a great evening. We’ll see you back here tomorrow night.
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.