Transcript: Tuesday, February 24, 2015

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

(BEGIN VIDEO CLIP)

JANET YELLEN, FEDERAL RESERVE CHAIR: The committee judged, in December and January, that it can be patient in beginning to raise the federal funds rate.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: And with those comments by Federal Reserve Chair Janet Yellen and the keyword “patient”, stocks took off, sending the Dow Jones Industrial Average and the S&P 500 to new highs.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Raise the roof. Home Depot (NYSE:HD) shares hit a record on strong earnings as it heads into its busiest season of the year: springtime.

HERERA: Shutdown loom — this time for the Department of Homeland Security. And Republicans are trying a new tactic to keep the agency funded. But will it work?

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, February 24th.

MATHISEN: Good evening, everyone. And welcome.

We begin tonight with records on Wall Street, lots of them, and the woman who made them happen. Blue chip Dow index, the S&P 500, the small cap Russell 2000 all make new highs today. The NASDAQ has its third highest close ever and it was all because of one person, the Federal Reserve Chair Janet Yellen.

In testimony today on Capitol Hill, Yellen didn’t say too much about future rate hikes but didn’t say too little. The markets interpreted what she did say as just enough — just enough to keep the door open for a later than mid-year interest rate rise. She started to lay the groundwork, making it clear the Central Bank will consider rate hikes on a meeting by meeting basis, but she made no promises.

And with that, the Dow Jones Industrial Average closed in record territory with a gain of 92 points to 18,209. NASDAQ rose 7 points, tenth straight gain there, up five percent in that period, its strongest win streak since July 2009, and S&P 500 was up nearly 6.

Yellen’s comments sent the yield on the 10-year bond back below 2 percent.

Steve Liesman now with more on today’s testimony.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): In testimony before the Senate Banking Committee, Fed Chair Janet Yellen gave no hint on when the Fed rate hike in nine years might come. Her only definitive statement on the outlook for policy is that it depends on the data, and as long as the word, quote, “patient” is in the statement, there won’t be a rate hike for at least two meetings.

YELLEN: The FOMC’s assessment that it can be patient in beginning to normalize policy means that the committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings.

LIESMAN: It was an essentially neutral message that market still saw as dovish, confirming it says that the Fed won’t hike rates in June. But it could just as well have been seen as preserving the Fed’s flexibility to decide at the March meeting to signal rate hikes this summer.

Yellen maintained an upbeat view on the economy and said oil prices would be a net benefit for consumers, but she said there’s still room for improvement, citing slow wage growth and inflation running below the Fed’s 2 percent target. Yellen was grilled as expected by Democratic senator from Massachusetts, Elizabeth Warren. This time over the issue of what warren said were criticisms of a Dodd-Frank financial reform bill by the Fed’s chief council, Scott Alvarez.

SEN. ELIZABETH WARREN (D), MASSACHUSETTS: Do his criticisms reflect your criticisms or the criticisms of the federal board?

YELLEN: I think we — I personally and the board considers Dodd-Frank to be a very important piece of legislation that has provided a road map for us to put in place regulations.

WARREN: I appreciate that, Madam Chairman, but I need a yes or no here. Do his criticisms reflect your criticisms?

YELLEN: I’m certainly not seeking in any way to alter Dodd-Frank at this time.

LIESMAN: From the GOP, Yellen was strongly questioned by senators on whether Dodd-Frank is too tough on banks, reducing lending. It’s a prelude to possible changes that could come in the new Republican-controlled Senate this year.

Yellen likely faces an even tougher grilling tomorrow from the House, where there’s considerably more support for making the Fed conduct monetary policy according to rules dictated by Congress and for bills to audit the Feds making a monetary policy — both ideas Yellen strongly opposed today.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

HERERA: Josh Feinman joins us now for more analysis on today’s Fed testimony. He’s chief global economist at Deutsche Assets and Wealth Management.

Welcome, Josh. Nice to have you back.

JOSH FEINMAN, DEUTSCHE ASSETS AND WEALTH MANAGEMENT: Nice to be here. Thanks.

HERERA: Do you agree basically with the chairman’s assessment of how the economy is doing?

FEINMAN: I do. I think the economy is improving but I would emphasize, you know, the healing is not complete. I think there’s still a slack in the labor market, although we’ve made a lot of progress in whittling it down, particularly over the last year or so.

MATHISEN: Are you in the camp, Josh, that believes that the Fed will raise interest rates this year?

FEINMAN: I do. I think that it’s not a sure thing and I think the real takeaway from the Yellen testimony today is flexibility. I think what she’s doing is carving out as much room to maneuver for the Fed as possible to response to incoming events. So, she’s not committing to moving at a particular time, but she’s not closing the door to doing that either. I think it’s going to depend on how the economy evolves, particularly on their perception, their confidence in the ability to get inflation to rise back to target at least over the next couple of years.

HERERA: You know, one of the issues has been the income inequality that she feels and other members of the fed feel very strongly about. If the economy is improving, one of the disconnects is the fact that there’s so much income inequality. And that really seemed to bother the chairman today.

FEINMAN: Well, it’s an issue she mentioned there, both structural long-term that there’s really nothing the Fed can do about, but there’s also cyclical forces. A stronger labor market, a tighter labor market could help in that regard, help tilt things a little bit more towards labor. But no means would that offset all of the longer term structural trends.

MATHISEN: Would you expect to see wage growth this year, Josh? After years of basically declining or flat wages, now that the market is a little tighter, job growth is going up, we are seeing some signs. Do you expect it will accelerate?

FEINMAN: I do, but I think it’s going to be gradually. I think the improvement in the labor market, the tightening of the labor market will help, and I think over time, that will be the lift that we need, but it’s not likely to happen very quickly.

HERERA: You know, Josh, tell me where you think the growth in the economy is going to come from. Last year, we saw a lot of strength in technology, saw a lot of innovation in technology. What areas of the economy do you think are firing on all cylinders right now, if any at all?

FEINMAN: I think households are in better financial shape. They benefit from rising equity prices, recovering house prices, lower interest rates, lower oil prices. So, I think they’re well positioned.

I think housing has continued to recover. And business investment — we could get a little catch up there as well.

One area that may struggle is exports, of course, given the sluggishness abroad and the stronger dollar. But I think the domestic demand fundamentals are pretty sound and should carry the day.

MATHISEN: If the Fed does start to raise interest rates later this year, do you expect that it will be — that it will follow what I would accustom to as a usual historical pattern, and that is it might a quarter point at one time, one meeting, and then another quarter point, and then another quarter back, or will it be more irregular?

FEINMAN: I think it’s really going to depend on the evolution of the economy. I don’t think the Fed is going to map out a prescription and say, OK, we’re going to move points every so often. I really think there are going to be more responsive and reactive to that.

But I do think at least in the early stages, they’ll probably err on the side of moving gingerly and wanting to see how the economy reacts, looking for any signs of collateral damage when they do start raising rates.

MATHISEN: Thank you, Josh. Nice to have you with us.

FEINMAN: Great to be here.

MATHISEN: Josh Feinman with Deutsche Assets and Wealth Management.

Home Depot (NYSE:HD) helped push the Dow to that new high, after reporting results that beat estimates on the top and the bottom line. The retailer also announced the new $18 billion buyback program and it hikes dividends to nearly 62 cents a share. The stock rallied nearly 4 percent, making it the best performing stock on the index.

Courtney Reagan takes a closer look at what drove the chain’s earnings higher.

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COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The world’s largest home improvement retailer is going into its most important quarter on a high note. Home Depot’s fourth quarter revenue and profit handily beat analysts’ expectations and sales at stores open at least a year gained the most in six quarters.

However, Home Depot (NYSE:HD) executives are reluctant to attribute sales growth solely to broader housing market trends, saying the recovery still has room for improvement. When it comes to guidance for the coming year, Home Depot (NYSE:HD) points to broader economic growth as the key driver.

EFRAIM LEVY, S&P CAPITAL IQ: The housing market is improving both from starts of new construction, as well as sales of existing homes. The job market is improving, the stock market is strong. All of these things and housing prices go up. So, all these things make consumers feel wealthier.

REAGAN: While it may not be a retailer associated strongly with the holiday season, Black Friday was Home Depot’s biggest sales day in history. Plus, it saw a record online orders and traffic during its Cyber Week.

(on camera): Overall, it’s a good day to be a Home Depot (NYSE:HD) shareholder. Shares are surging, plus the retailer is upping the dividends and buying back stocks.

However, Home Depot (NYSE:HD) did provide a cautious forecast for the year, citing a strong U.S. dollar and said it can’t yet estimate the total cost of last year’s data breach.

LEVY: I’m a little bit concerned that we don’t have data or more quantification on the data breach cost. On the other hand, I’m not overly concerned because I think, you know, whatever level it will eventually come out to be, this company can surely afford to pay it.

REAGAN (voice-over): While there’s a tentative labor agreement at West Coast ports, Home Depot (NYSE:HD) acknowledges it’s uncertain how long it will take to get through the backlog. For the home improvement retailer, the spring quarter is the most important. So, getting merchandise to stores is a particular concern right now.

But Barclays’ analyst Alan Rifkin says said because of recent years of heavy investment in the supply chain, Home Depot (NYSE:HD) is less exposed to disruptions, though certainly not fully immune.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Job and wage growth plus overall economic confidence is having a positive impact on Toll Brothers (NYSE:TOL). The luxury home builders saw its profits nearly double as demand improved in January quarter. On that, the company lifted its guidance for 2015 and the shares moved up nearly 4 percent today.

HERERA: Home prices last year grew at the weakest pace in three years. The latest S&P Case-Shiller home price index today showed the prices were up 4.6 percent in 2014. In the month of December, prices accelerated slightly but full year growth lagged.

MATHISEN: Now to Greece where that country secured a four-month extension of its financial rescue package after Eurozone finance ministers approved Greece’s reform plans. Some of the measures include improved tax collection and reducing fraud. In a statement, the Euro group called on Greece to further develop and broaden the list of reforms. European Central Bank head Mario Draghi calls Greece’s proposals rather tepidly, a valid starting point.

HERERA: Still ahead, with running out, will lawmakers manage to avert a shutdown of the Department of Homeland Security?

(MUSIC)

MATHISEN: Had he lived, Apple’s cofounder Steve Jobs would have turned 60 years old today and his birthday comes on a day when shares of the largest publicly traded company hit an all-time intraday high. But the stock did lose steam later in the section. It finished fractionally lower at $132.17. But over the past year, shares of Apple (NASDAQ:AAPL) have rallied 75 percent.

HERERA: JPMorgan (NYSE:JPM) announced some changes at its annual investor meeting today. The firm defended the bank’s size and scale, countering calls for a break-up. It’s also aiming to reduce certain deposits by up to $100 billion by the end of the year, and it’s prepared to charge large institutional customers for some deposits with new regulations to cuts costs. JPMorgan (NYSE:JPM) will also close 300 branches over the next two years as more customers choose to bank online.

MATHISEN: The Justice Department is reportedly investigating whether some of the world’s biggest banks manipulated the price of some precious metals. According to “The Wall Street Journal,” at least 10 banks, including Barclays, JPMorgan (NYSE:JPM) and Deutsche Bank, are being probed. Prosecutors reportedly examining the price setting process for gold, silver, platinum, and palladium.

HERERA: President Obama vetoes the Keystone pipeline bill. The legislation arrived at the White House today where White House spokesman Josh Earnest earlier warned the president would veto the measure in private and without fanfare. Officials have a veto of the legislation was coming since it circumvented the State Department process to determine whether the project is in the best interest of the country.

MATHISEN: Also in Washington, the clock ticking down on a shutdown of the Department of Homeland Security and Senate Majority Leader Mitch McConnell is now offering to allow a vote on legislation to fund the agency, strip the provisions that would undo President Obama’s executive order deferring deportations of some individuals residing legally in the U.S. Funding for the department is set to expire midnight Friday.

John Harwood is in Washington with more on the latest developments.

What’s new, John?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: What’s new, Tyler, is that Senator Mitch McConnell, the Republican leader, came out of a meeting with members of his caucus today and said, OK, I’ll give in, I will allow a clean vote on a straight-up funding bill for the Department of Homeland Security, not insist on blocking President Obama on immigration as part of that vote and asked Democrats to cooperate with him.

Interestingly, Harry Reid, who’s been asking for just such a clean vote, says he won’t agree to go along with this approach at this moment until he gets some assurances from House Speaker Boehner that the House is going to pass a clean bill, doesn’t want to get involved in a back and forth. So, the stalemate is getting closer to being resolved but we’re not there yet.

HERERA: Yes, I was going to say, how do you think this would end up, John? Handicap it for us.

HARWOOD: I think what’s likely to happen is that the Senate will pass the clean bill. The house will send back some sort of temporary funding measure, the Senate will say, OK, and they’ll keep fighting in months to come.

MATHISEN: Let’s switch a little bit to the Keystone pipeline, which the president has vetoed, or expressed his intention to. Where does that stand and what’s next?

HARWOOD: It’s vetoed but the White House reiterated what they signaled earlier, which this is not a veto of the merit. This is about the process.

You alluded to that in the lead-in, Tyler. They’re saying this is circumventing the State Department review. Now, everything we know about the State Department review says that they don’t have any major objection to this as a matter of environmental impact.

So, I think really this is a political positioning by the White House to try to initiate some sort of back and forth negotiation between the White House and the Congress that may still end up, despite today’s veto, in an approval of the project.

HERERA: I was going to say, was that a softening of the administration’s position or it sounds like it’s a way to get back to the table and talk this thing through.

HARWOOD: I think the latter, Sue. It’s not new position to reiterating where the White House has been all along and I think because Republicans have been so insistent on this, President Obama doesn’t seem to have very strong feelings one way or the other. He’s holding back and saying, if you want this so badly, give me something on my agenda like alternative forms of energy.

MATHISEN: All right. John Harwood reporting tonight in Washington.

HERERA: We begin tonight’s “Market Focus” with disappointing sales and guidance from Macy’s (NYSE:M).

The department store chain offered a cautious profit outlook after reporting sluggish sales for the holiday quarter. The company also said sales and margins in the current quarter would be hurt by disruptions at the West Coast ports. Shares tumbled more than 3 percent to close at $62.10.

Hewlett-Packard (NYSE:HPQ) saw its profit fall as sales of desktop computers fell sharply from a year ago. Also revenue growth slowed across its different segments. The results come as HP prepares to separate its PC business from its corporate hardware business.

Along with its results, the company said it would take a charge of more than $1 billion because of that separation. Shares dropped off initially after the bell. Before the close, though, the stock was slightly higher to $38.49.

And Lending Club saw its shares crashed right after it reported earnings for the first time since going public. The online loan marketplace’s quarterlies were mostly in-line with estimates. But its profit forecast for the year fell below consensus. And as you can see on that chart, the stock fell initially after the bell. Before the close, the stock was off a fraction to $23.65.

MATHISEN: Comcast (NASDAQ:CMCSA) (NYSE:CCS), the country’s largest cable operator, posted higher fourth quarter revenue as it added new video and Internet customers. The company also increased its buyback program to $10 billion and hiked its dividend to $1 a share. The yield now: about 1.5 percent. Shares were almost $1 higher at $59.17. And Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of CNBC, which produces this program.

Domino’s Pizza reported earnings that missed Wall Street’s estimates. The company did see revenue rise as it benefited from stronger sales at home and a push to bring its pizza overseas. Now, those overseas deliveries do take longer. Still, shares fell about 1 percent to $103.53. You can wait forever.

All right. SunPower (NASDAQ:SPWRA) reported earnings and revenue that came in above estimates, but its guidance for the first quarter was below estimates. Still shares were way up on news it is in talks with First Solar (NASDAQ:FSLR) on a joint venture. First Solar (NASDAQ:FSLR) also reported today, its earnings easily topped estimates, but revenue and first quarter guidance missed. SunPower (NASDAQ:SPWRA) surging about 18 percent to $32.80. After the bell, First Solar (NASDAQ:FSLR) shares were little changed initially. Before the close, that company was up 10 percent to $54.70.

HERERA: Well, that joint venture between First Solar (NASDAQ:FSLR) and Sun Power could result in an entity known as a Yield Co, where the capital generated from the Yield Co is used for the power projects. It’s a new type of investment and growing trend in the industry.

But as Morgan Brennan explains, even though they’re relatively new and only a few of them, Yield Cos are getting a lot of attention.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWRA) said they’re in advanced talks to spin some existing assets out into a jointly held venture, shining light on a new type of investment, the Yield Co.

Yield Cos are a lot like a master limited partnerships but for power instead of energy. They consist of assets that produce income from long-term contracts with utilities, in many cases, the very ones they’ve been spun out from. In turn, the majority of the income paid out as dividends. One group it’s gaining popularity among investors and why First Solar (NASDAQ:FSLR) stocks soared on the news.

GORDON JOHNSON: Yield Cos are trading roughly two times what companies are selling projects into the market. So, if you do the simple math, it’s about $14 of incremental value to First Solar (NASDAQ:FSLR) stocks. And theoretically, people just do the simple math without disclosure. You’re going to get to roughly $63 stock.

BRENNAN: Unlike MLPs, which claimed a tax advantaged structure, Yield Cos are seed corporations, though many do enjoy tax benefits associated with alternative energy. Companies including First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWRA) are doing this because it’s an inexpensive way to raise capital for future projects and given the relative stability, these assets can command a premium.

NRG Energy (NYSE:NRG) was the first to spin out holdings in this way and to NRG yields in 2013. Since then, several others followed suit including Sun Edison, which took Terraform power public last summer.

Industry executives would like to see the concepts catch on even more.

AHMAD CHATILA: We need more investors to come into the space, so that we are more valued. As more people come in and there’s more floats of various Yield Cos, I think we’ll be recognized more and our stock will go up. MLPs, there’s like 130, 140 of them. I really would like to see around 20 to 30 Yield Cos in the space.

BRENNAN (on camera): But there are risks in the small floaters (ph). Lack of liquidity is one of them, so is the fact that Yield Cos, like utilities, are vulnerable to rising interest rates and growth is dependent on the future success of the parent company’s project pipeline.

Still, investors seem to have taken a shine. So far this year, Yield Cos from Next Era Energy Partners (NYSE:EPL) to Abengoa Yield, to Pattern Energy Group are all up double digit percentages.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: Coming up, things may be up and running at the West Coast ports, at least for now. But for some small businesses, the economic damage is still adding up.

(MUSIC)

HERERA: Some new details on that massive hack at Anthem. The second largest health insurer in the U.S. said as many as 18 million customers of non-Anthem Blue Cross Blue Shield plans were impacted by the attack, disclosed earlier this month.

The company found that nearly 79 million people in all had their information accessed by the hackers, slightly below the initial count of 80 million.

MATHISEN: And the Federal Bureau of Investigation is offering a $3 million reward for information leading to the arrest of a Russian hacker. The cyber fugitive is accused of creating a computer virus that allegedly stole more than $100 million from online bank accounts. The FBI believes the man is currently in Russia.

HERERA: And now to the West Coast ports, where it’s back to business, at least for now, as both sides adhere to the temporary agreement reached late last week. But for small businesses impacted by that slowdown, the damage may already be done.

Kate Rogers (NYSE:ROG) report.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Business owner Paul Cramer exports animal feed to the Pacific Rim from his parent California base Star Milling Company. He says he lost nearly $60,000 a week during the nine month slowdown at the West Coast ports, but that’s not even his biggest problem.

What Cramer is most worried about is losing customers for good.

PAUL CRAMER, BUSINESS OWNER: The biggest destruction that we have isn’t necessarily the money on a week to week basis, it’s the customers that we potentially lose because then they’re out of business in places we send stuff to.

ROGERS: A potential deal between the Pacific Maritime Association and the International Longshore Warehouse Union won’t bring back Cramer’s losses and he’s not convinced the agreement will stick either.

CRAMER: It’s great they’ve come to a tentative agreement. What that means and where it will end up in a week, I don’t know.

ROGERS: Jeff Williamson, statewide director for the Center of International Trade Development, says the group represents nearly 1,000 small businesses across California who have been hit in varying ways by the port dispute. Williamson says the center’s members have seen declines in their export businesses between 10 percent and 50 percent over the past six months due to the slowdown. And for some, that’s business that’s gone forever.

JEFFREY WILLIAMSON: We are hearing that some companies are losing orders, and the impact of losing an order or a particular sale, it really depends on the situation. If it’s a company that’s trying to land a new retailer, let’s say in Asia or another part of the world, and their initial shipment is delayed, that may not help them in the long run. They might have a lot of problems really securing that account for the long run.

ROGERS (on camera): A small trucking company Iraheta Brothers tells me they’re being hit with fines daily from steamships for being unable to return shipping containers to the port due to the backlog. They’ve amassed $50,000 in fines in the past six months. And the West Coast wine group in Napa says more than time and money, they’ve lost trust with clients in Asia who don’t quite grapple the effect the port standoff has had on smaller exporters.

For NIGHTLY BUSINESS REPORT, I’m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

MATHISEN: And finally tonight, what’s the best car money can buy? According to “Consumer Reports”, it’s the Tesla Model S. This is the second year in a row the Tesla Model S has been named the best overall pick by “Consumer Reports”. The ranking is based on reliability and safety data. Two other American cars made the list. The Buick Regal is the top sports sedan, and the Chevrolet Impala V6 is top large car.

HERERA: And that does it for NIGHTLY BUSINESS REPORT, I’m Sue Herera. Thanks for watching.

MATHISEN: And I’m Tyler Mathisen. Thanks from me as well. We’ll see you tomorrow.

END

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) 2015 CNBC, Inc.

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