Transcript: Monday, October 13, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Susie Gharib, brought to you in part by —


selling into the close of trading sends the Dow down more than 200 points –
– its worse three-day loss in almost three years.

Banks and technology companies, two of the most heavily weighted sectors in
the S&P 500 out with their earnings this week. So, how will a nervous
react with the results?

GHARIB: On the radar. What the Federal Reserve and global central
bankers are concerned about now.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Monday, October 13th.

MATHISEN: Good evening, everybody. And welcome.

Columbus Day was no holiday for stock investors. They sold off again
and hard again. The usual stew of recent worries gets the blame slowing
global growth, ISIS, Ebola, and now, corporate earnings. They start
flooding out in earnest beginning tomorrow. Today`s sell-off accelerated
in the final hour with no discernible trigger, but as the major averages
broke through some technical levels, investors pushed the indexes even

At the close, the Dow had tumbled another 223 points most of the slide
coming in the last 45 minute. The NASDAQ down 62, the S&P 500 down by 31.
Blue chip Dow stocks now at a six-month low, NASDAQ and the S&P 500 at
five-month lows.

Now, besides earnings season kicking into high gear, what else is
causing all that turmoil in the markets?

Bob Pisani takes a look at three things investors are watching closely
this week.


the heart of earnings season. About 75 percent of the companies in the S&P
500 will be reporting between now and the end of October.

Several banks report this week. For big nationwide banks like Bank of
America (NYSE:BAC) and Citigroup (NYSE:C), traders will be looking to see
if trading volumes for bonds and stocks have bounced back, but for the
average bank, the key to this quarter is loan growth. There`s been some
concerns that loan growth is slowing down particularly in commercial and
industrial loans, that drove a lot of the positive comments from bank
management last quarter.

Now, one disappointment for banks, is that interest rates still are
not moving up. Higher rates would help banks because they`d be able to
charge more for their loans but that isn`t happening yet.

The second event to watch is signs of more weakness or stability in
Europe where the economic data has been poor recently. We`ll get
industrial production numbers in the eurozone tomorrow. The good news is
that if Europe continues to get weaker, there`s little doubt the European
Central Bank will step in with an aggressive stimulus program.

Finally, and this is the biggest wildcard of all, further outbreaks of
Ebola could affect trading. The Center for Disease Control had said
they`re concerned about other infections potentially in the coming days,
especially following the infection of a health care worker who treated the
man who died from Ebola in Dallas. Even though there are only two
diagnosed cases in the U.S., there`s a very high sensitivity to this.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock


GHARIB: With so many firms posting earnings over the next few weeks
which ones have historically gotten the biggest bump up or the biggest
slide down after reporting?

Dominic Chu takes a look.


often drives volatility for the companies reporting.

Among the best performing stocks in the S&P 500 on earnings day is
beverage company Keurig Green Mountain. Over the last eight quarters, the
maker of single serve coffee pots and home brewing machines has risen an
average of 12 percent in the trading session immediately following its
earnings report. It was helped along by a huge gain earlier in the year
after announcing a big investment by Coca-Cola (NYSE:KO) alongside its
earnings report.

Among the worst performing stocks is office supply retailer Staples
(NASDAQ:SPLS), which has fallen an average of 6 percent after each of the
last eight earnings reports they`ve had. While those two companies are the
most volatile it`s the bigger sectors and stocks that will get a lot of
attention this week.

way the S&P 500 is kind of constructed its financial, info tech and
consumer discretionary, every one of those is expected to have very
powerful double digit earnings growth in the next quarter, which will be
kind of a really perfect situation for a broad-based strong market.

CHU: Tech and financials are especially important because they are
the two biggest sectors in the entire S&P 500. Large tech companies like
Intel (NASDAQ:INTC) and Google (NASDAQ:GOOG), as well as banks like
JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC) could help set the tone
for the rest of earnings season. Each reports earnings this week.

matter greatly. So I think it is something very important to watch not
just the earnings as they were for the third quarter but what the companies
propose for their outlooks year end and 2015.

CHU: Many experts believe earnings growth will be there but whether
it`s enough to carry the entire market higher remains to be seen. Bank and
tech earnings could go a long way in shaping things over the next few



MATHISEN: How much of an effect will earnings have on this already
volatile stock market? Let`s get thoughts from Joe Duran, he`s CEO of
United Capital Financial Advisers.

Joe, as between the actual numbers and as between as opposed to what
CEOs may say about the future, which has the greater potential to shake the
markets over the next three weeks, the numbers or the words?

I think what you`ll find is people really don`t care about what`s been
because it`s been and care a lot about what will be. And the stock market
is a gauge of the future. So, absolutely what they say about the future is
going to drive what happens for the next month or so.

GHARIB: Joe, tell us a little bit about these two big sectors we`ll
hear from this week, the financials, where we have Citigroup (NYSE:C) and
JPMorgan (NYSE:JPM) reporting, we have technology, Intel (NASDAQ:INTC) is
just one of them. What are they going to tell us about the health of the
sectors and the health of the U.S. economy?

DURAN: I think what they`re going to tell you, two things. One, are
they going to use all of the new macro things that have been happening from
Ebola to oil prices and the collapsing — the increasing dollar as an
excuse to prepare people for bad news. That`s the one big concern that
everyone has.

And second, are they going to sell through it? So, the banks, they`ve
had a very interesting interest rate environment, if they`ve been hedging
in their own way, that`s a problem. Intel (NASDAQ:INTC) derives half its
income overseas. The rising dollar could have an impact on its future

So, what they say about those two things in the future are going to
have a big impact on how the market reacts. So, those big bellwethers will
be telling about whether we should worry about the next earnings report.

MATHISEN: So, is the market vulnerable — let me pose it this way.
Do you think the CEOs will be very cautious in their forward guidance
because of all the things you just mentioned?

DURAN: I absolutely think they have reasons and ability — remember,
CEOs like to outperform.


DURAN: If they have a good reason and good set of excuse, for
example, Intel (NASDAQ:INTC) could very well say the weakness in China and
everywhere else allowed us to hit the numbers and we expect to hit them in
the future but open the possibility that there might be surprises that are
not positive. That tone, I think what you`re going to see is a wider range
of possible outcomes. As you become less confident in the outcome, you
become less certain and you get higher volatility. That I think is what
we`re seeing now in the market.

MATHISEN: Do you think investors are really going to be paying
attention to what the CEOs are saying in the sense that they already know
that Europe is a problem, they already know China is weak. The details
from each individual company, does it really matter that much? Or is that
already priced into the market?

DURAN: I think a lot of it`s priced in. That`s what we`ve been
seeing. But you have to remember we`ve had this very big stock correction,
the Russell 2000, the smaller companies down 13 percent, 14 percent. The
big caps have held up well.

And what we`re going to see now is how big is the impact going to be
across and are we going to have the first time for four years have 10
percent correction. I think earnings matter a lot, the words of the CEOs
matter more, what the Fed is doing is even more important and what happens
with the economy is even more important.

So, all of it`s intertwined and we`re at an inflection point clearly
with the Fed stepping away where earnings have to be able to keep up even
with the Fed stepping away.

GHARIB: You pose a question, are we going to have a 10 percent
correction? Is that the next big headline for us?

DURAN: I think it`s going to be very odd if we don`t get to 1,800 on
the S&P. I think it`s a natural progression point. There`s a lot of
support there. So, my suspicion is we`ll be probably flat by year end
which is not anything anyone wants to hear, basically slightly up, single
digits. But the volatility will be higher.

And what we tell everyone, especially our most — you know, we take
care of our clients` entire network. So, we tell them, look, we`ve had an
incredible goldilocks environment where the stocks have done OK, the Fed`s
been there to protect us. The Fed is stepping away.

We`re going to go back to a normal environment. Ten percent declines
every couple of years. It`s been four years since we had one. That
doesn`t mean you should have cash, it just means you should be prepared for
it in your portfolio.

MATHISEN: All right. Joe, very clear. Thank you very much. We
appreciate it, as always, you`re being with us. Joe Duran of United
Capital Financial Advisers.

GHARIB: One of the sectors responsible for the sharp losses in the
NASDAQ lately semiconductor stocks. The S&P semiconductor index has
tumbled more than 16 percent in the past month alone, putting the sector in
correction territory.

Morgan Brennan joins us now from the NASDAQ exchange with a closer
look at this key sector.

Morgan, just start off by telling us that, you know, they`ve fallen.
Why have the semiconductor stocks fallen so much since their height in

question. Semiconductors have dropped dramatically over the last month,
but really, we`ve seen the lion`s share of those losses in the past week
alone. This is on the back of micro chip technologies, one of the smaller
semiconductor stocks in this space relatively speaking. It`s got a $9
billion market capitalization.

The company coming out last Thursday and warning on revenue for the
third quarter citing weaker demand in China and the CEO saying the overall
industry is on track for a correction, on track for a pullback. That has
sent all the chipmakers down in response to that, including Intel
(NASDAQ:INTC), which is reporting tomorrow. That`s down another 1 percent
today, that`s down nearly 8 percent in the past week. Investors are going
to be watching that very closely because of those comments last week.

MATHISEN: Morgan, why should investors watch semiconductors as
opposed to any other industry?

BRENNAN: Well, semiconductors — we`re talking about the chips that
get sent out and put into other items, other industries, appliances,
smartphones, PCs, autos. So, September is the peak season for the chips
and for the semiconductors. When you have a, quote-unquote, “bellwether”
like microchip technologies warning on revenue at this time of the year, it
becomes very worrisome that we could be seeing slowing global economic
growth. That`s something we`ve been talking about, with the larger stock

So, when you see some of these companies come out and report weaker
than expected earnings, the effect there could be that we`re seeing —
going to see similar impact on other technology companies on other
industries as well.

GHARIB: And so, I guess you`re saying that this is going to have an
impact on the broader market as a result?

BRENNAN: That`s the worry. Wedbush came out — Wedbush analyst came
out and say that whenever microchip comes out and reports any kind of
guidance that they`re correct 70 percent or more of the time. That`s
definitely something to watch in technology and it`s definitely going to be
something to watch in these other industries, the smartphones, the autos,
appliances, so we could see seeing a canary in the coalmine, but it remains
to be seen with earnings.

GHARIB: OK. Thanks a lot, Morgan. Morgan Brennan at the NASDAQ

MATHISEN: But it wasn`t a very big decline, but the price of oil did
edge lower again today. Domestic crude closed 8 cents a barrel down.
That`s its lowest level since December of 2012. Those lower oil prices
driving gasoline prices down again.

Going to the Lundberg Survey, prices at the pump fell 12 cents per
gallon over the past three weeks to a nationwide average of $3.26 a gallon
for regular. That`s the lowest in the year.

And it`s those falling energy prices and the potential for deflation
that is grabbing the attention of central bankers from around the globe.
But what exactly is deflation and why are so many experts so worried right

Steve Liesman explains.


Global central bankers are starting to worry about inflation coming in
lower than the percent target. Right now, it`s a problem of disinflation
or slowing at the rate of inflation, but the real concern is deflation,
outright declines in prices.

In a rare interview, Bank of England Governor Mark Carney said low
global inflation would play a role in making monetary policy, and that
could make for a more dovish outlook for interest rates in England.

MARK CARNEY, BANK OF ENGLAND GOVERNOR: There is weaker global demand,
relative to global potential, that is reducing — that is producing a very
benign global inflationary environment, and that`s something certainly we
do take into account.

LIESMAN: Why are price declines a concern, first, it`s tough for
central bankers to fight. They know how to battle inflation by raising
interest rates, but getting out of deflation is harder because they don`t
like to cut interest rates below zero.

Second, in deflation, people hold off purchases because they think
goods will be cheaper tomorrow. That reduces overall growth. Finally,
asset prices and wages can fall in a deflationary world, along with
consumer prices. If wages fall faster than prices, that means standards of
living decline.

U.S. Federal Reserve Vice Chairman Stan Fischer added his concerns
over the weekend about the negative impacts of too low inflation and
economic troubles overseas.

STANLEY FISCHER, U.S. FEDERAL RESERVE: If foreign growth is weaker
than anticipated, the consequences to the U.S. economy could lead the Fed
to remove the commendation more slowly than otherwise.

LIESMAN: Right now, the source of lower prices is the decline in oil
and other commodities but the worry is it`s not from too much supply, but
from too little demand caused by weak growth around the globe.



GHARIB: It`s not just central bankers who are concerned about falling
oil prices, but also oil producers. That`s creating a divide among members
of OPEC, the global cartel.

Jackie DeAngelis has more.


continue to slide on concerns about global growth at a market that`s well
supplied. But in recent weeks many have been questioning how low oil can
go before producers are squeezed. The thought was that OPEC might make a
move to reduce its supply to the market to bolster prices when it meets
next month.

But the chatter out of conversations this weekend, after Venezuela
called for an emergency meeting indicates that the cartel isn`t making any
rash decisions. Middle Eastern OPEC members have a higher cost to produce,
many in the triple digits.

And with the price below $90 a barrel some are feeling the pinch. But
according to reports Saudi Arabia, one of OPEC`s most outspoken members, is
aggressively courting new customers in Europe is a comfortable with the
drop in prices.

Saudi Arabia is taking an every member for himself mentality. In other
words, we don`t really care about what we`re producing, what we do care is
our market share, and we want to keep it. It also signifies they have very
little control or no control over the non-OPEC oil that`s being produced
around the world.

DEANGELIS: Traders tell me there`s no need to panic at the moment.
They recall when crude prices dropped in 2008 because of market uncertainty
and dollar fluctuations. They say break-even prices were equally as high
then, and we`re long way from 33 right now.

But still, some look to crude pricing as a leading indicator of the
overall economy. Crude`s fall could mean worse things to come for the
stock market which has already been jittery.



MATHISEN: Still ahead, the big change coming to the department store
JCPenney and investors react.


MATHISEN: JCPenney`s long search for a new chief executive is over,
and that is where we begin tonight`s “Market Focus”.

The retailer has named Marvin Ellison, a Home Depot (NYSE:HD)
executive as its new CEO. He will take over in August 2015 from Interim
Chief Mike Ullman, who agreed to come out of retirement to help the company
rebuild itself after Ron Johnson was ousted from the top spot after he was
recruited from Apple (NASDAQ:AAPL). Shares were off by 3 cents, they
closed at $7.09.

Canadian Pacific Railway (NYSE:CP) approached CSX (NYSE:CSX) last week
about a possible merger, according to reports. But CSX (NYSE:CSX)
reportedly rebuffed that attempt that would have united two of the world`s
largest railroads. Shares of CSX (NYSE:CSX) popped almost 6 percent to
$31.70. Canadian Pacific fell by almost 2.5 percent to $184.97.

Another deal to report, General Electric (NYSE:GE) will pay about $1.8
billion for the helicopter leasing company Milestone Aviation. The Dublin-
based company will expand GE`s Capital Aviation Services unit, which rents
planes and offers loans for buying aircraft. Shares of GE were off 1
percent today to $23.95.

And Boeing (NYSE:BA) announced a massive order. An Indonesian airline
bought 50 jets from the company, worth about $5 billion. Despite that,
Boeing (NYSE:BA) shares down about $1 at $120.45.

Fiat Chrysler made its return to the U.S. stock market today. The
newly merged company`s stock began trading on the NYSE, part of an effort
by CEO Sergio Marchionne to elevate the company`s profile globally.
Marchionne says this day has been a long time coming and he wants to prove
naysayers wrong.


SERGIO MARCHIONNE, FIAT CHRYSLER CEO: Most people believe that the
thing cannot be resurrected and recovered. We look at reality today. Ten
years after the Fiat recovery story, five years after Chrysler. These are
both vibrant organizations that have come back.


GHARIB: Not much vibrance in the stock on its first trading day. It
lost about 1 percent to $8.92.

Shares of Lithia Motors (NYSE:LAD) plunged after the auto retailer
issued an earnings warning. The company said a drop in used car prices
hurt its third quarter profit and it also cut its fourth quarter earnings
forecast. The stock was down about 21 percent, closing at $64.01.

Luxottica, the maker of Ray Ban and Oakley sunglasses saw its shares
drop in today`s session. The company`s chief resigned. This after just
six weeks in the job, following the abrupt departure of the company`s long
time CEO last month. Shares fell 9 percent to $47 and change.

MATHISEN: It`s not your typical technology conference but Dreamforce,
billed as the largest software event ever, boasts a long line of
celebrities and entertainers to drum up support for the Cloud computing
services at the tech giant Salesforce.

Josh Lipton has more.


let the crowds and rock music fool you. This isn`t a music festival. It`s
Dreamforce. An annual event in San Francisco where Salesforce CEO Marc
Benioff and a who`s who of celebrities entertain over 100,000 people for
four days. There`s concerts, lectures, fireside chats and, of course, a
lot of networking about the trend of cloud technology.

That`s when companies offer web-based solutions sold as subscriptions
rather than licenses. Businesses are moving their IT services to the Cloud
because it can help them save costs and streamline operations.

Salesforce is a leader in the Cloud. The stock hasn`t done much over
the past 12 months given concern about its valuation, but bulls remain

SAMAD SAMANA, FBR & CO. ANALYST: It`s out top pick, outperform
rating, with stocks extremely undervalue here. There`s really a few
reasons why. One, they`re the largest Cloud company. They continue to be

You saw a new product announcement today, Wave. It`s their big
analytics platform. Massive extension of their end market, several billion
dollar opportunity. And we think it`s really transformative move for the

On top of that, they`re delivering margin expansion. We believe
they`re going to continue to be more and more profitable. That`s a big
positive for investors as well.

LIPTON: Salesforce competes against established players such as
Oracle (NASDAQ:ORCL) and SAP as well as smaller rivals like Netsuite
(NYSE:N). There`s a lot of money at stake. Global spending on public
Cloud services reached $46 billion last year according to research firm
IDC. It`s expected to be more than a $107 billion in 2017.

(on camera): There are all kinds of celebrities here from Hillary
Clinton to Al Gore and musicians like Neil Young and,
representing just how big and dynamic the Cloud industry has really become.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.


GHARIB: Coming up, home sweet shipping container? Why architects are
now thinking outside the box and making homes and business offices out of
unlikely materials?

But first, the bond market was closed for Columbus Day. Here`s how
commodities and currencies perform.


GHARIB: Fidelity Investments has a new CEO and it didn`t have to look
very far. Abigail Johnson will take over the position from her father Ned
Johnson who is 84 and has been CEO since 1977. Abigail Johnson is
currently president of FMR, that`s the parent company of Fidelity

Thousands of shipping containers enter the U.S. every day. Only a
fraction of them go back to where they came from. Instead they sit in
shipyards idle and empty. But a new trend in real estate is already
changing that. Developers are using these containers for everything from
retail shops to residential apartments. I`m not kidding.

Diana Olick has the story.


a beer garden, a clothing store, a bathroom. It`s anything the designers
at Charlotte-based Boxman Studios want it to be.

But, first, it was a shipping container that came to the U.S. on a
boat but never went back.

(on camera): Give us the possibilities of what these things tend to
come, because right now they kind of look like Lego pieces.

DAVID CAMPBELL, BOXMAN STUDIOS CEO: That`s a great description. It
is a Lego piece. How do you put them together in different capacities?

OLICK (voice-over): With a lot of imagination and a blow torch.

CAMPBELL: What we built the company was emerging markets experiences,
and what that means is creating environments that are iconic for the brand

OLICK: Working with brands like Hyundai, Under Armour (NYSE:UA), Nike
(NYSE:NKE), Boxman Studios repurpose container carcasses, breathing new
life into them as mobile marketing spaces. Hyundai`s man cave, for
example, at sporting events. Then they built on that — retail,
restaurants, apartments, even a hotel could be in the work.

(on camera): What`s tricky are the zoning regulations because there
really aren`t any on a national level. Developers have to work within each
municipality, which could in turn label the containers mobile, modular, or
permanent construction.

TRAVIS PRICE, TRAVIS PRICE ARCHITECTS: The real trick is going to be
not to disguise with some sort of phony traditionalism, but to begin to
embrace them and see all the variations that can happen.

OLICK: Price designed this container apartment building near Catholic
university in Washington, D.C. It took just four months to go from 18
metal boxes to home sweet home for these students.

NICK PELLI, NEIGHBOR: First, I thought it was a little crazy, but
when I saw it going up, I thought it was pretty cool.

HENRY RASWEILER: A lot of people have been coming by. Even the nuns
from the convent came down and blessed our unit the other day. There`s a
lot of buzz about it.

PRICE: This is prefabricated housing probably at its best because the
strength on these things is probably three times what a standard steel
building would be.

OLICK: Which could make them ideal for disaster relief, just another
idea in the works as these visionaries mold idle metal into prime real

For NIGHTLY BUSINESS REPORT, I`m Diana Olick, in Charlotte, North


GHARIB: And, finally, tonight the winner of this year`s Nobel Prize
in economics, Jean Tirole of France. The Royal Swedish Academy of Sciences
which award the Nobel prizes every year cited Tirole for his explanations
in helping to understand and to regulate industries that have just a few
powerful firms and showing how governments deal with mergers, cartels and
monopolies. The award and its more than $1 million prize will be presented
in Stockholm in December.

And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib.
Thanks for watching.

MATHISEN: And I`m Tyler Mathisen. Thanks for me as well. Have a
great evening, everybody. We hope to see you right back here tomorrow


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