Transcript: Thursday, October 16, 2014

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


Stocks seemed to find their footing following Wednesday`s big stumble and tumble. And tonight, one of Wall Street`s biggest bulls stands by his call
2,300 on the S&P 500 by year end. He`ll tell you why.

Google`s shares come in weaker than expected, and that could impact the trading day tomorrow.

MATHISEN: And your next move. If you`re looking to get aggressive or defensive, we have some investments you may want to make right now.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, October 16th.

GHARIB: Good evening, everyone.

Drama — it`s defined Wall Street these past few days. And tomorrow there could be more of it following disappointing late-day results from Google (NASDAQ:GOOG). We`ll have more on that in just a moment.

But first today`s drama, with stocks rebounding again from early losses before ending mixed and little change. Some encouraging economic reports out today helped to turn things around like a 14-year low and initial jobless claims, a better than expected boost in industrial productions last month and solid earnings before the bell from Goldman Sachs (NYSE:GS), United Healthcare and Delta Airlines (NYSE:DAL).

Here`s how the major averages close out today. The Dow down nearly
200 points this morning, lost just 24 points by the closing bell. The NASDAQ added two points and the S&P rose by a fraction. The yield on the benchmark 10-year note edged below 2 percent again before closing above that level.

Over in the oil markets, crude oil dipped below $80 a barrel this morning but closed nearly a dollar higher, lifting beaten down energy stock.

Bob Pisani has more on today`s market action from the floor of the New York Stock Exchange.


BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: What a difference a day makes. While volume was again heavy today, today`s activity wasn`t nearly as frenzy as yesterday`s, when we saw a huge volume of sloppy sell- anything trading right at the open.

Now, stocks did start down, but unlike yesterday, the lows were right at the open. We rallied immediately then dipped after 10 a.m. Eastern Time. The S&P 500 was down 27 points at its worst about 10:20 a.m., but it quickly turned around when St. Louis Federal Reserve Bank President James Bullard in a somewhat confusing interview said the Fed should consider delaying the end of its bond purchase program to halt the decline in inflation expectations. Bullard`s remarks were met with disbelief by most traders. Very few believe the Fed will delay ending its current QE program or back another round of quantitative easing, QE, unless there is some really disastrous deteriorations in the economy.

Regardless, these comments move the markets. They moved up. While the markets were stable today, two of the other issues roiling markets, weakness in Europe and concerns over Ebola are not close to being resolved.
So, nobody believes that volatility is going to go away.

Now, the European markets, particularly the peripheral markets, like Greece and Portugal and Spain, they were notably weak again today, with banks particularly hard hit.

On Ebola, there were no big headlines that move the markets, and sectors that were hard hit like hospitals were up today. But fear of new cases emerging are not far below the surface.

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


MATHISEN: Weeks of market turmoil with have sent scores of shares to fresh 52-week lows. Small cap stocks bore the brunt of the bruising until the past couple of days, when they bounced back smartly ahead of the blue chips.

But what about some of the most widely-held stock, shares you might own directly or almost certainly in some of the big mutual funds? How have they fared?

Dominic Chu takes a look.


DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The stock market has been on a wild ride, and whether you knew it or not, you may be holding some of the most popular stocks in America, chances are, if you got an IRA, a 401(k), a college savings plan or any other type of account that holds mutual funds, you got some exposure to these big companies.

According to the market data firm FactSet, the five most popular stock holdings among institutional investors like mutual funds are Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), ExxonMobil (NYSE:XOM), Wells Fargo
(NYSE:WFC) and Johnson & Johnson (NYSE:JNJ).

So, how have these mega-cap widely companies fared during the recent market down draft?

Well, since the market hit a record high, the Dow Jones Industrial Average has fallen by around 7 percent. The broader market S&P 500 has fallen by nearly 8 percent.

During that same time span, Apple (NASDAQ:AAPL), the maker of all things iPhone, iPad and whatnot, has fallen by about 6 percent. Microsoft
(NASDAQ:MSFT) has fallen by around 10 percent. Oil giant ExxonMobil
(NYSE:XOM) has dropped 8 percent. America`s biggest mortgage lender Wells Fargo (NYSE:WFC) has lost 10 percent. And drug and consumer products company Johnson & Johnson (NYSE:JNJ) has dropped by 11 percent.

(on camera): Basically, some of the most widely held stocks fell by more in the overall market, and that has some investors wondering whether or not the recent fallback presents a buying opportunity or if there`s more pain to come ahead as we head towards 2015.



GHARIB: So, where do stocks go from here?

Our guests tonight have completely different answers to the question.
Barry Bannister is chief equity strategist of Stifel Nicolaus, and Jack Ablin is chief investment officer with BMO Private Bank.

Gentlemen, thank you both for joining us.

Let me begin with you, Barry. You have a 2,300 target on the S&P by year end. It`s a very bullish forecast. And you`re sticking with that.
Tell us why.

450 points in 50 trading days?

GHARIB: Exactly.


GHARIB: How do we get there?

BANNISTER: Yes, we entered this year with a flat view of 1,850 for the first nine months and clearly I jumped the gun in front of this September, October, which is a slippery period for stocks. But keep in mind, you`ve got earnings growth continuing into next year, you`ve got very low risk-free rates, accommodated policy, a fairly bullish backdrop.

GHARIB: Look, all of that makes sense, I get it, but you have investors freaked out about Ebola, about weak economies all over the world.
Even though you make a lot of sense, they may be too fearful to buy stocks.
Where is that rally going to come from?

BANNISTER: Keep in mind a lot of countries had to be dragged in to the kind of policy maneuvers that we did. For example, Europe just devalued the euro. We did that with the dollar years ago. They just sampled into the QE, the form, and we did that years ago. The Chinese still have a restrictive monetary policy.

There is a lot of ammunition left to use. But you`ve got to keep in mind we`ve thrown a lot of bad news at the market. And if this is all we get, is a 7 percent to 10 percent, which we haven`t had in such a long time, we forgot what it was like, they`re not actually fairly bullish.

MATHISEN: Jack, let me get you into the conversation here and want to react to what Barry is saying. You have a somewhat more dour view of what may be ahead for the market, why?

JACK ABLIN, BMO PRIVATE BANK CHIEF INVESTMENT OFFICER: I call it sanguine view, Tyler, but what I would say is I agree with Barry on the economy. I do think there are a lot of good things going on. We got low energy prices. We got jobs being created.

But the problem is that market became untethered from the economy just about the time that the Federal Reserve announced QE3 toward the beginning of 2013. And so, as a result of that it`s like as if the Federal Reserve is like the older brother, and the — and we all have become so bombastic and aggressive because we`ve got someone protecting us. Well, now, as taper is ending, you know, older brother is graduating and we have to fend for ourselves.

So, if I look at valuation, pure simple valuation, you know, unfortunately, it looks like we`re still 20 percent over-valued. And again, I think the last six months have been fuelled by liquidity, and liquidity appears to be turning downward.

MATHISEN: You know, Barry is a stand up guy. He`s coming in here and defending his call.

Jack, you say you`re sanguine, you say you`re 20 percent over-valued.
I don`t get. If you`re sanguine, optimistic basically, is that a long-term optimism, but you think we might have a 20 percent decline?

ABLIN: Well, I would say there are a couple of ways we can close that
20 percent gap. I mean, we can continue to get liquidity into the market place and hold values where we are and have valuations, I`m sorry, fundamental earnings and revenues catch up. I mean, granted, you know, this quarter, for example, analysts are expecting roughly 5.5 percent earnings growth on 4.5 revenue growth. That should be pretty achievable.
If we keep chipping away like that and have stocks trade sideways we can close that valuation gap without much pain.

GHARIB: Barry, as recently as August you were very bearish, one of the most bearish forecasters about stocks. Could you see a scenario like what Jack is talking about, that stocks come back down 20 percent?

BANNISTER: Yes, it was kind of remarkable through August with having a flat view with the 1,850 year end 2013 was considered very bearish. But big up years like 2013 are usually not followed by large down years.

And one thing I would draw attention to is this whole concept of seasonality. The market is remarkable in the sense that the six months from November to April has historically been 30 times more rewarding on a cumulative basis than the six months, May to October. Mid-terms, especially second mid-terms and then 2015 will be the third presidential cycle year. Those returns have been twice as high as all the other years for the last 65 years.

So, it`s pretty hard to be bullish going into the later part of this year and early 2015.

GHARIB: All right. Well, two different views, we`ll see how it all plays out.

Barry and Jack, thank you very much for joining us. Barry Bannister, chief equity strategist Stifel Nicolaus, and Jack Ablin with BMO Private Bank.

MATHISEN: Well, more on the surprising third quarter earnings from Google (NASDAQ:GOOG) after the bell. Top and bottom line misses disappointing numbers on paid clicks per add. Earnings per share were 18 cents short of estimates after some adjustments. Revenues did top $16 billion, which is up from last year but just missed the more aggressive forecast.

Investors didn`t miss that. Class A shares were down initially as much as 6 percent after that report, but they have climbed back a bit as you see there since then.

Morgan Brennan joins us now with the one big take-away from these numbers.

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it`s paid clicks, which is the number you just mentioned and the fact that we`re seeing growth in Google`s core advertising business continue to slow down and how do you measure that, it`s paid clicks. Those came in at 17 percent increase versus this time last year, analysts had been expecting it to more like a 23 percent increase, in recent quarters we saw that number as high as 30 percent. So, that`s why you are seeing the stock move lower in after hours.

The one bright spot I would point out, though, is the cost per click.
The revenue that`s brought in on those clicks is actually only declined 2 percent. Analysts expected a decline of 4 percent which is closer to what we`ve seen in recent quarters. So, even though that was a negative number that was the one bright spot.

MATHISEN: Very quickly, what is a paid click? Just so I understand it completely.

BRENNAN: So, you`re talking about the total number of advertising clicks, what people are clicking on when they go to Google (NASDAQ:GOOG).

MATHISEN: They`re hitting the ads. They`re seeing the ads.

BRENNAN: And when that goes up, that`s good. And that`s Google`s core business. We talk about drones and health care, but that`s it.

GHARIB: It`s a search engine. That`s right, that`s right.

MATHISEN: Morgan, thanks very much, Morgan Brennan.

GHARIB: Well, here`s a completely different story over at Goldman Sachs (NYSE:GS), which reported blowout earnings before the opening bell today. Profits shot up 50 percent to more than $2 billion, thanks to a pickup in bond trading.

CEO Lloyd Blankfein says an improving U.S. economy helped the company`s performance.


LLOYD BLANKFEIN, GOLDMAN SACHS CEO: At this point, it is pretty much better in the United States and not better in very many other places. But still, the United States is an important market for us and that kind of confidence is creating more transactions. If you have more M&A, you create more financings. More financings, more securities. More securities, more securities trading.


GHARIB: But like a lot of banks over the past weeks, shares of Goldman were lower today, down 2 1/2 percent.

Also posting third quarter earnings before the bell, the Dow component United Healthcare, which beat forecasts on earnings per share, revenues, though, less than expected because fewer enrollees went to the doctor last quarter. But the company hiked its full year profit outlook, thanks to lower medical costs. And with that, shares of UNH closed today 4 percent higher.

Still ahead, is the Ebola crisis keeping travelers from flying and hitting the airlines where it hurts, in bookings for future flights. A report from Dallas/Ft. Worth Airport is next.


GHARIB: There was not the same kind of buzz you see for an iPhone as Apple (NASDAQ:AAPL) introduced the new thinner, faster iPad Air 2 tablet, which also has a fingerprint ID sensor instead of a pass code. Apple
(NASDAQ:AAPL) CEO Tim Cook unveiled the new device today, but he said he was most excited about next week`s launch of Apple (NASDAQ:AAPL) Pay, its new electronic payment system. Apple (NASDAQ:AAPL) says it`s already signed up 500 banks to set up Apple (NASDAQ:AAPL) Pay customer account.
Nonetheless shares finished the day lower.

MATHISEN: One of the biggest decliners in the market today was Netflix (NASDAQ:NFLX). Shares of the streaming video service plummeting 19 percent today, $86 a share. Yesterday, Netflix (NASDAQ:NFLX) earnings were above Wall Street`s expectations, but subscriber growth disappointed and HBO announced it`s entering the video streaming business.

Overall, though, CEO Reed Hastings seems nonplussed.

Julia Boorstin has more.


As Netflix (NASDAQ:NFLX) shares plummeted, Reed Hastings defending the number that most concerned investors, a shortfall in subscriber growth,
700,000 fewer than forecasts, saying it was not due to competition but a lack of big hits and $1 price increase in May.

REED HASTINGS, NETFLIX CEO: With a little bit higher prices, you have a little bit fewer subscribers. So, that`s our sense of it. But we can`t be 100 percent sure. We had benefit from “Orange” in Q2 and early Q3, but that`s what we think.

BOORSTIN: Hudson Square research analyst Daniel Ernst agrees.

DANIEL ERNST, HUDSON SQUARE RESEARCH ANALYST: Listen, I mean, I`m not going to pound the table today, during a market meltdown, when they actually missed subscribers, the subscriber growth is the key to the story, but they`re going to be fine.

BOORSTIN: Hastings was eager to talk about HBO launching a rival streaming service, saying it`s inevitable. Despite me pressing him on just how bad this competition could be for Netflix (NASDAQ:NFLX), he insisted he`s not concerned.

HASTINGS: You know, we compete with them like baseball and football compete. I mean, you know, people really in a sports like both, they are involved in both, we have different shows.

BOORSTIN (on camera): But if people have to choose between the two of them, do they think they`re going to choose HBO over Netflix (NASDAQ:NFLX)?

HASTINGS: No way. They`re going to choose Netflix (NASDAQ:NFLX).

BOORSTIN: I asked why Netflix (NASDAQ:NFLX), known for original series, is now investing so much in movies, with a four-picture deal with Adam Sandler and “The Crouching Tiger, Hidden Dragon” sequel debuting on Netflix (NASDAQ:NFLX) the same day it hit IMAX theaters.

HASTINGS: It`s important for us to give the consumers what they want.
And consumers around the world, they are tired of waiting. With TV shows, it comes on Netflix (NASDAQ:NFLX), I can see it right away, but I have to wait for months and months as it`s doing the theatrical run. And we wanted to provide consumers what they want. We`re not anti-theater.

BOORSTIN (voice-over): With the Netflix`s successful expansion to kids` programs and talk shows and stand up comedy, Hastings says movies are natural evolution, which bring content costs higher, but Hastings says they have plenty of cash.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin, in Silicon Valley.


GHARIB: Another content company cutting the cord, and that`s where we begin tonight`s “Market Focus”.

CBS (NYSE:CBS) is launching its own live-streaming service, which will offer episodes from current and older TV shows to customers without cable for about $6 a month, but it will not stream NFL games. This service is the first of its kind among the major networks. Shares rose slightly to $51.18.

Sales of Barbie continue to decline and that`s one reason Mattel
(NASDAQ:MAT) said it missed earnings estimates for its third quarter. The toy maker`s American Girl doll business is also struggling, which could also be an issue for the company heading into the crucial holiday season.
Shares fell 3 percent to $29.62.

MATHISEN: It was a different story for Winnebago. Maybe they should do Winnebago Barbie. That company saw its fiscal fourth quarter earnings jump almost 22 percent on higher motor home sales and improved profitability in its towables unit. The RV maker has seen sales improve in recent quarters as it has introduced new products to dealers. Despite that, though, shares were down a bit, 1 1/2 percent, $21.60 was the close there.

Shares of debt-laden Chesapeake, though, went the other day. They soared on news it is selling some oil and gas assets in West Virginia and Pennsylvania to Southwestern Energy (NYSE:SWN) for about $5.5 billion, one of its biggest divestment ever for that company. The cash-raising helped the stock. It surged 17 percent to $20.79.

GHARIB: On Capitol Hill today, lawmakers blasted the government`s response to the latest U.S. Ebola cases at a house hearing. Some even called for a travel ban from the hardest-hit countries in West Africa. Dr.
Tom Frieden, director for the U.S. Centers for Disease Control was the focus of much of the criticism and assured members of Congress that the virus can be controlled.

MATHISEN: Meantime, Delta Airlines (NYSE:DAL) which has more flights from the U.S. to Africa than any other U.S. Airline says there`s been no impact on bookings from the Ebola crisis so far. Delta`s CEO Richard Anderson says he is confident the U.S. government and his company are handling the situation the right way.


RICHARD ANDERSON, DELTA CEO: We monitor it on a daily basis and we have not seen any changes in the booking trends.


MATHISEN: The carrier says it has a lot of experience dealing with other virus and illnesses when it is cleaning its planes.

GHARIB: But the case of that second Dallas health worker flying on a commercial plane just a day before being diagnosed with Ebola has millions of flyers questioning if they should take more precautions while they`re in the air. The CDC says that flying is safe because Ebola is not an airborne virus. But travelers aren`t convinced.

Phil LeBeau has more.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Corbin Fawley knows a surgical mask and rubber gloves may seem like an over-reaction to the Ebola virus. But he says, you can`t be too cautious when you`re packed in a plane with dozens of other people.

CORBIN FAWLEY, FRONTIER PASSENGER: How can they sufficiently regulate something like this? I mean, that`s why I was taking matter in my own hands to protect myself from it.

LEBEAU: Fawley and other travelers are worried but not panicked by the latest Ebola case, which involved health care worker Amber Vinson who took a frontier flight from Cleveland to Dallas with an elevated temperature. The Centers for Disease Control gave Vinson the OK to fly because she was not at a stage of being contagious.

But other passengers on Vinson`s flight are not convinced they were safe.

BRITTANY WATER, FRONTIER PASSENGER: Was she sitting behind me? Is there a possibility that she sneezed on me? I at this point would like to hear back from the CDC, I called, I did what I was told to do.

LEBEAU: Frontier took the plane Vinson flew out of service, cleaned it and replaced some of the seat covers and carpeting. The CEO says, “These extraordinary actions went beyond CDC recommendations. These steps were taken out of concern for the safety of our customers and employees.”

Passengers say Frontier may be doing everything it can to protect them, but they doubt the CDC has a handle on how the virus is spread.

GREG POWELL, FRONTIER PASSENGER: I`m not too concerned, though, I do think the CDC is mishandling this. They didn`t have a grip on this from the start. They were very slow to react on it. So, that`s what I`m more concerned about.

BARNA WESLEY, FRONTIER PASSENGER: We will be trying to not touch anybody or get real close to anybody we don`t know. There is too many people getting it they`re not containing it at all.

LEBEAU (on camera): Despite travelers having concerns about the Ebola virus, airlines have not seen a drop in future bookings for future flights.
Welcome news for carriers preparing for a busy holiday travel season.



MATHISEN: Coming up, get aggressive or stay defensive? Investment pro Mike Holland has your tips to suit your in investigating mood.


MATHISEN: One question hanging over every investor right now is what do I do with my money?

Our next guest is a veteran fund manager and has suggestions no matter what your money personality or mood is. He`s Mike Holland, chairman of his own money management firm Holland and Company and here`s with some.

Mike, I apologize for calling you a veteran. They call me a veteran all the times. That means we`re old guys, you know?

Let`s talk a little bit. If I want to make an aggressive move here, if I think this may be the bottom of the market dive and I think better days may come, where would you consider putting money?

MIKE HOLLAND, HOLLAND & COMPANY CHAIRMAN: I you swing to swing for the fence, Ty, there is no better place to start than the social media stocks, companies like Twitter and Facebook (NASDAQ:FB). You can go, of all things, the Chinese Internet companies like Alibaba.

This is getting in the batter`s box and going for the fence. You can strike out.

Don`t want to try this at home. You want professionals to do it. But if you really want to go for the fence, the Chinese internet stocks like Alibaba, for example, and the carnage today did extremely well. These are the kind of companies if you say it is the bottom it will get better this time of year. These stocks tend to do better in that environment. You make a lot of money.

GHARIB: Mike, you know me, I`m really not one of those big, big risk takers. I`m a lot more cautious. So, if there were other investors like me that wanted to just play it safe a little bit, want some income. What would you recommend for their portfolios?

HOLLAND: You know in this market, Susie, it`s actually quite easy for the viewers. You can look at companies like Apple (NASDAQ:AAPL), Intel (NASDAQ:INTC), ExxonMobil (NYSE:XOM), JPMorgan (NYSE:JPM) — don`t turn the dial right now. These companies actually, if you put $100 into those four companies, as opposed to putting $100 into a 10-year treasury, you get 50 percent more income out of the companies almost than you do out of the 10- year treasury. And those companies grow their dividends faster than inflation.

So, for me, income investing right now is becoming easier as the days go by when the market goes down because the yields are going up.

MATHISEN: So, if I want — now, let`s flip the coin and say, I want to go play defense right now. I`m concerned.

Is my basic move to move into cash or are there other ways where I could be a defensive investor and maybe leave some possibility of profit even as I get defensive?

HOLLAND: That`s for most of us, Ty. When we`re nervous about the market. Most people are right now.

Most of the viewers, 2008 and 2009, this is a crazy business. When you say I`m really conservative, I really don`t want to lose any money, cash is absolutely a very good investment, particularly in low inflationary times. They`re not stealing your money because inflation is not eating it away. So, when you have low inflation, the Fed worry about deflation cash is a very superior investment in that environment.

But having 100 percent to me in anything, to me, you and I are survivors in this market, I don`t think you would have 100 percent. So, I would actually buy some of those dividend-paying stocks. I just talked about maybe 10 percent, 20 percent, 30 percent on that, and the rest in cash.

GHARIB: Mike, you just say survivors in the market. You`ve been a survivor. Years and years and years of managing money. How nervous are you right now and what`s your guiding principle?

HOLLAND: Susie, when things get this crazy I step back and take a type breath and say, what are the facts? The facts are, the world, as we heard from the two other speakers at the beginning of the program, things are slowing down. But they`re not awful. The headlines are always scary, we have had scary headlines since I`ve been in the business. You had lots of reason.

But the market psychology is already negative. Which means that people have already acted on the negativity, they may do more, but I would step back and say, don`t do anything crazy, don`t go all into cash or all in the stocks. I would take a very balanced approach. And if things go down, figure out something you want to own and buy at that price and say, if it goes tomorrow, buy some more.

MATHISEN: The veteran, Mike Holland, thanks a lot.


MATHISEN: Great to see you. Mike Holland of Holland and Company.

HOLLAND: Thank you, Ty.

GHARIB: And he says don`t do anything crazy, Tyler.

MATHISEN: I won`t. I won`t.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks for watching.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. 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 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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