Transcript: Nightly Business Report — February 27, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Fabulous February.
Stocks finished the month with solid gains of 5 percent or more. Will the
bulls continue their march into March?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Downsizing dilemma.
Pending home sales may have risen this month but the numbers still
relatively weak, and baby boomers could be part of the reason why.

MATHISEN: Tick tock. The House tries to avoid shutdown of the
Homeland Security Department but it is turning out to be no easy feat.

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday,
February 27th.

HERERA: Good evening, everyone.

The bulls came out of the cold in February and heated up the stock
market. The Dow Jones Industrial Average and the S&P 500 had their best
February since 1998. Both indexes closing at record highs a handful of
times this month, and the NASDAQ inched ever closer to what we thought we`d
likely never see again, 5,000.

And it wasn`t just stocks. Oil which had been on a downward
trajectory may have found a floor, scoring its biggest monthly gain since
2009.

So, for the month, blue chip Dow index rose more than 5 percent,
NASDAQ gained 7 percent, its best month since January of 2012, and S&P 500
rose about 5.5 percent and all this came despite a pullback today with the
Dow falling 81 points to 18,132. The NASDAQ down 24 points to 4,963 and
S&P 500 lost 6 points.

Dominic Chu takes a look at what was behind the February surge and
some of the big events that loom ahead.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
After a rough start to 2015 in January, the market staged a comeback. And
now, this is one of the best Februarys on record. At certain points, we
hit historic highs for both the Dow Jones Industrial Average and the S&P
500. Even the NASDAQ composite is inching closer and closer to records we
haven`t seen since the Internet stock bubble back in 2000.

So, does February`s positive momentum give some investors a better
feeling about the rest of the year?

KATIE NIXON, NORTHERN TRUST: Absolutely. I mean, I think in some
ways, February is the new January and, you know, having a great February is
a wonderful way to start the first quarter. We certainly expect the
momentum to continue.

CHU: Recent history is siding with the bulls. According to market
data and analytics firm, Kensho, March has been positive for stock
investors over the past 20 years. On average during that span, both the
Dow and the S&P 500 have gained north of 1.5 percent and have been positive
at least 70 percent of the time. But historical performance is no
guarantee of future results and big unknowns still remain.

NIXON: I think right now the biggest risk for the market is a policy
mistake on the part of the Federal Reserve. There`s so much attention on
the Fed right now, when they will raise rates, how quickly they will raise
rates. So, the communication strategy has to be spot on in order to set
market expectations around that. We have some good historical precedents
that suggest if we don`t get good communication out of the Fed, the markets
can get very volatile very quickly.

CHU: Interest rate policy isn`t the only worry. There are issues
like Greece`s financial woes, falling energy prices, and geopolitical hot
spots in Ukraine and the Middle East.

(on camera): So, if the rest of 2015 is anything like the first two
months of the year, we could be in for a very bumpy ride.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: Art Hogan here now to discuss what lies ahead for the
markets in March.

Art, good to have you with us.

Was January the anomalous month or was February? What do you think?

ART HOGAN, WUNDERLICH SECURITIES CHIEF MARKET STRATEGIST: Well, it`s
interesting, Tyler. When you look at the way we ended the year, probably
pulled in some of those gains that would have otherwise happened in
January, in the month of December. We`re really finished for the bang last
year. The most of November and December were very strong.

So, not surprisingly, we started off on our heels and really didn`t
quite get started until February. But what`s even more intriguing is how
much bad news or how many sort of concerns we worked our way through in the
month of February, and yet, the markets still had a really terrific month.

So, when you think of like a daily worry about Greece, Russia,
Ukraine, volatility in the energy markets, although we seem to be in a
bottoming pattern, but we certainly saw a great deal of volatility and we
had to work our way through an earnings reporting season that saw 13
percent of the S&P 500 really come under a lot of pressure. So, you know,
considering all the geopolitical concerns we had and the fundamental
concerns, February was a fantastic month for us and hopefully, we`re off to
a good start in February to kick back in next week.

HERERA: You know, but those concerns are not really going to go away
in March. So what do you think are the fundamental drivers of stocks as we
go into this new month?

HOGAN: Well, Sue, you bring up a good point, but I think some of the
hurdles are at least on page two of the new cycle. So, for example, we`re
not worried about Grexit (ph), right? We`ve got a deal that is put that
worry behind us at least for four months and hopefully for a while.

And, you know, when you think about Russia/Ukraine, the ceasefire
seems to be working. We hope that holds. But I think what`s really going
to kick in is we`ve already seen what happens with low energy prices on the
negative side. We`ve seen rig counts coming down, capex coming down,
energy companies reporting lackluster if not bad earnings.

What we haven`t really seen kick in to a great extent is that positive
influence which would be, consumer spending is going to continue to pick
up. It started in restaurants. It`s going to work into specialty apparel
and into the department store. We`re going to see things that we haven`t
seen in the first two months of this year, because consumers are getting
used to lower energy prices, there`s more of them working. And we have the
highest level of consumer confidence we`ve had in about ten years.

MATHISEN: Art, I saw some numbers today forecasting second quarter
corporate earnings and the comparisons to last year were not going to be
particularly good. Largely because as you pointed to a moment ago, energy
companies are not having favorable comparisons. Can the market keep moving
higher if the overall earnings growth isn`t there?

HOGAN: Well, I tell you this and I think that`s very true. If you
look at the downward revisions we see into the S&P 500 earnings, in large
part, it`s coming from two of the ten sectors. It`s financials, who still
don`t have managers` margins yet. We haven`t seen interest rates go up.
We have a very flat yield curve. So, it`s difficult to make money as your
typical regional bank or typical financial.

The other piece of the puzzle is energy and that`s going to continue.
Energy earnings are going to be a drag on the S&P. But remember, the
energy sector of the S&P is about 13 percent of it.

So, when you think about that, you`ve got the bulk of the S&P which
benefits in large part from the lower energy prices that we probably see
earnings estimates go higher as we work our way through the year. My guess
is we`re probably overdone in terms of the pullback and estimates for the
S&P 500 on balance.

HERERA: So, where would you put money to work, Art? I know that
consumer discretionary is one area that you`ve liked in the past. Do you
still like that and would you stay domestically oriented or would you
perhaps go overseas and maybe look at Europe as some are doing right now?

HOGAN: Sue, those are two great questions and we still like the
consumer facing stocks, restaurants like Sonic (NASDAQ:SONC), Jack in the
Box, Cracker Barrel, they`ve all reported great earnings. They continue to
have tailwinds. Consumer facing stocks like Dickers and Steve Madden Shoe.
We like the folks that are producing things in dollars and selling them in
dollars, versus people that are making things in dollars and selling them
in euros. So, we look at companies that have a lot of FX exposure to
Europe and tried to stay away from that.

And the other thing, in terms of European multiples, it looks very
attractive. So, for a balanced portfolio for the balance of this year, we
would say that if you have 65 percent allocated equities, look at 15
percent to 20 percent of that being put in European stocks.

They`re getting stimulus as we speak. Their QE kicks off in March.
Their multiples are very reasonable and probably want to do that on an ETF
basis versus a single stock basis.

So, I think Europe will make a great deal of sense this year. They`ve
already had some outperformance. They`ve moved about twice as much as U.S.
markets. I think there`s a lot more to come. So, I think it`s a rational
expectation to think you should be facing Europe a little bit this year.

MATHISEN: Art, always great to see you. Art Hogan with Wunderlich
Securities.

HERERA: This evening, the House tried and failed to pass a short-term
funding bill for homeland security. The wrangling continues as the clock
heads towards midnight when that funding runs out.

John Harwood has been covering the story for us from Washington.

And, John, as you correctly predicted last night, this one is going to
go down to the wire and it`s going to be very tense.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is, Sue. And
this is a stunning repudiation for House Speaker John Boehner from his own
members, more than 50 of which voted against the short-term funding
proposal that he had come up with as an answer to what the Senate has done.
There`s going to be more back and forth. The House is figuring out what
its plan b is going to be, but this is going to be very difficult and it`s
a bad sign for getting further things done in the Congress like corporate
tax reform.

Now, one of the things fueling Republican willingness to let this
happen is that the belief that Homeland Security isn`t really going to stop
because so many are emergency employees.

Here`s Senator Orrin Hatch, the chair of the Senate Finance Committee,
when I talked to him earlier today on the consequences of not funding this
department.

(BEGIN VIDEO CLIP)

SEN. ORRIN HATCH (R), SENATE FINANCE COMMITTEE CHAIRMAN: DHS will
completely run. There`s not going to be a loss of personnel or a loss of
time. Some of the executives will have to work and get paid later. But it
is essentially self-funded. So, anybody who wants to make a big fuss about
that doesn`t understand the budget, doesn`t understand the self-funding
mechanism of DHS, or Department of Homeland Security.

(END VIDEO CLIP)

HARWOOD: And I think, guys, that Orrin Hatch is right. This is going
to have more political repercussions than it does security repercussions,
which is why Republicans are trying to find a solution tonight.

MATHISEN: New Congress but it seems something stay the same.

John, you referenced a plan B you said the House is trying to come up
with it. Do we have any idea what the outlines of a plan B would be or do
they have them?

HARWOOD: They don`t have one. And the Senate has a plan which Mitch
McConnell put forward as a way out of the box they`re in, which is to pass
what they call a clean Homeland Security funding bill through the end of
the fiscal year, but if John Boehner couldn`t pass a three-week extension
of funding, he certainly can`t pass with Republican votes an extension
through the end of the year.

So, what that means is Boehner is, if he chooses to do that, and
that`s one out f him this evening if he chooses to take it, he`s going to
have to get Republican votes, count on Democrats to pass it and that would
be a further embarrassment.

HERERA: What about the president? He said that he won`t let the
Homeland Security Department shutdown, and if the bill does come to his
desk, he`ll sign it. But it seems as though this little bit of disarray on
Capitol Hill gives him some ammunition.

HARWOOD: There`s no question about it. And the bill he said he would
sign was that three-week bill, which has now gone down. So, that`s not an
option.

The only live vehicle at this moment is the extension through the end
of the year. Democrats want that. Mitch McConnell put that forward as the
leader of Senate Republicans. If the House takes it up, it will pass but
it will pass with Democratic votes and that`s something John Boehner would
like to avoid if he can avoid it.

HERERA: All right. John, thank you so much for walking us through
that. We appreciate it. John Harwood in Washington.

To the economy now, which slowed more than initially thought in the
fourth quarter as business investment decelerated and the trade deficit
widened. According to the Commerce Department, gross domestic product,
which is the broadest measure of goods and services produced across the
economy expanded at 2.2 percent annual pace. That`s revised down from the
2.6 percent pace estimated last month.

MATHISEN: The president of the Federal Reserve Bank of New York urged
caution on raising interest rates in a speech today. Bill Dudley cited
uncertainty about the sustainability of the economic recovery.

Meantime, Fed Vice Chair Ted Fischer in exclusive interview with Steve
Liesman said he sees a rate hike sometime this year.

(BEGIN VIDEO CLIP)

STANLEY FISCHER, FEDERAL RESERVE VICE CHAIRMAN: Yes, I think there`s
a pretty high probability that this is the year. We`re very close on
unemployment and inflation is in a situation where it`s low because of oil
prices, but we expect it to go up once this effect wears off, which it
should do in a couple months. So, it`s about time.

(END VIDEO CLIP)

MATHISEN: It`s about time. Fischer defended the Central Bank`s
stimulus program, saying it played a crucial role in turning around a very
weak economy.

HERERA: Some not to hot news of the Midwest. Economic activity in
that region unexpectedly contracted in February, tumbling to a 5 1/2-year
low. According to the Institute for supply management`s latest Chicago
purchasing managers index, the West Coast port strike and harsh winter
weather in parts of that country had a negative impact.

MATHISEN: Homes buyers came back to the market in January, signing
more contracts to buy existing homes than they have in a year and a half.
The National Association of Realtors monthly index of so-called pending
sales deal signed but not yet closed. It`s an indicator of future
closings, rose 1.7 percent last month.

Now, despite the gain, the numbers still roughly weak and one reason
is a lack of homes for sale. Supply is limited by several factors but one
directly related to downsizing baby boomers.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Betsy Friedlander and Mike Klipper had adored their light build 3-story
colonial in suburban Bethesda, Maryland, for nearly three decades. They
raised their two sons in it. But now with the boys grown and gone, they`re
looking for a new home as part of a lifestyle.

MIKE KLIPPER, BABY BOOMER: I think we want a more urban life. If we
could be downtown where we could walk to everything, I think that was a
preference for us.

OLICK: But after an exhaustive search of condominiums and town homes
in downtown Washington, D.C. and in downtown Bethesda, they learned a tough
lesson about this new lifestyle. It has become incredibly expensive.

BETSY FRIEDLANDER, BABY BOOMER: We were shocked because we thought,
well, you know, we would be able to sell our house, put a little money in
the bank and buy something we could be comfortable in.

OLICK: Everything she said was so tiny.

FRIEDLANDER: We couldn`t even figure out how Mike could watch TV and
I could be asleep at the same time.

OLICK: So, they gave up, like so many baby boomers are now doing
which is causing an even bigger problem.

(on camera): You see, downsizing baby boomers were supposed to fuel
the nation`s anemic housing supply dramatically, making way for much needed
new buyers. But listings are now down 9 percent from a year ago and there
are still too few of these coming on.

JANE FAIRWEATHER, REALTOR: So, the houses that were waiting to come
on the market for the young families who were trying to move into the good
school system and the neighborhoods aren`t coming on.

OLICK (voice-over): Real estate agent Jane Fairweather says at least
half of her baby boomer clients cannot afford to move and that is limiting
her listings.

FAIRWEATHER: They are looking at getting out of their 5,000 square
foot and going to 1,600 square feet and having to add almost a million
dollars to the price in order to buy less space for a lot more money.

OLICK: Boomers like Betsy and Mike are now aging in place.

FRIEDLANDER: I think we feel healthy now, but I don`t know, you know,
if ten years from now, if one of us has trouble walking the steps.

OLICK: They know all too well they can`t do that forever.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: And still ahead, two companies in the news this week are two
stocks monitors suggest you buy. We`ll talk to him about why, coming up
next.

(MUSIC)

MATHISEN: Former AIG CEO Robert Benmosche died today. Benmosche had
been undergoing treatment for lung cancer since 2010. He was the insurance
company`s president and CEO from August of 2009 until last September,
hoping to steer the company back to profitability after the financial
crisis. He was 70 years old.

HERERA: A lawsuit is filed against Apple (NASDAQ:AAPL) and that`s
where we begin tonight`s “Market Focus”.

Ericsson is alleging that Apple (NASDAQ:AAPL) infringed on 41 of its
patents. The Swedish telecom manufacturer has also asked the International
Trade Commission to block Apple (NASDAQ:AAPL) products in the U.S. Apple
(NASDAQ:AAPL) also filed a complaint against Ericsson last month.

Shares of Ericsson were up a fraction to $12.93 and Apple
(NASDAQ:AAPL), 1.5 percent to $128.46, to the downside there.

Sprint`s chief executive purchased more than 5 million of shares of
his company`s stock this week. According to a regulatory filing, the CEO
paid about $25 million for the shares, purchased at average price of $4.92.
Shares sprinted higher by more than 7 percent to $5.12.

Ty?

MATHISEN: One stock Sue with the hulking move, Monster Beverage,
after investors react to the energy drink maker`s strong earnings from last
night. The company attributed some of that strength to continuing
international sales growth. Monster also said that it and Coca-Cola
(NYSE:KO) have expanded some aspects of their strategic partnership. And
that boosted shares of Monster up 13 percent today. They finished at
$141.12. But Coca-Cola (NYSE:KO), Coke there owns 16 percent stake in
Monster. It was up 2 percent to $43.40.

And the publicly traded investment firm of Carl Icahn suffered its
first annual loss since 2008. Icahn Enterprises (NYSE:IEP) says the
collapse in oil prices was the main culprit. However, the performance of
apple shares which is the fund`s largest holding helped mute the impact of
falling oil. Icahn Enterprises (NYSE:IEP) off nearly 2 percent today to
$97.67.

And now to our market monitor who`s positive on equities and has stock
picks he says will benefit from the strong U.S. economy. He`s Erik
Ristuben, chief investment strategist with Russell Investment.

Erik, welcome back. Great to see you.

Talk to me about your view of stocks for the remainder of this year.

ERIK RISTUBEN, RUSSELL INVESTMENTS CHIEF INVESTMENT STRATEGIST: Look,
we like stocks. We think they`re going to be higher at the end of the
year. If you look to trade this, they may trade sideways until we see
first quarter earnings because the market is very concerned, particularly
by U.S. stocks. Ability to weather a strong dollar and it`s also worried
that some of the weakness economically outside of the United States is
going to actually affect U.S. companies more than anticipated. We don`t
think so. That`s why we think we`re going to be higher at the end of the
year.

HERERA: What about interest rates? You know, the debate this week
was whether or not we`re going to see a rate hike this year. Stanley
Fischer weighed in on that with our Steve Liesman, saying this is probably
the year.

Does that worry you or do you think the market has clearly factored
that in?

RISTUBEN: Well, no, it doesn`t worry me. It`s actually what we`re
expecting.

We think it`s going to be in the third quarter. We think that the
combination of better employment and wage pressure are going to start
pushing inflationary pressures into the marketplace. Mr. Fischer obviously
talked about the fact that the commodities, deflationary forces are
subsiding. We think the wage pressure is going to actually take over and
the Fed will move in the summer.

MATHISEN: All right. Erik, let`s get to some of your picks here.
You`ve got two out of the three, one, a cyber security company, the other,
a victim of a cyber security hack.

Let`s start with the security company and that is Proofpoint, PFPT at
$56.78.

RISTUBEN: Right. They`re a small company. They`re focused therefore
mostly on the U.S. market.

You talked about the cyber problems that a lot of companies have had.
Cyber security is a growing industry. Proofpoint is growing in market
share in that growing field, and we think because they`re domestically
focused, they don`t have any dollar effect on their earnings, we think
there`s a really rosy future and they`re probably a takeover target.

HERERA: Well, let`s talk about Target (NYSE:TGT), now that you
mentioned Target (NYSE:TGT), because that`s also on your list. Why do you
like it?

RISTUBEN: Well, one of the reasons is it didn`t have a great year
last year. A lot of stocks had a tough year last year.

We think that with a combination of lower fuel prices, giving the
consumer more spending money, along with the fact that more consumers are
employed, because employment is significantly better, that`s going to lead
to consumption. We think the target being, you know, domestically
primarily focused retailer is going to do well and is well-positioned for
the kind of people who are going to spend in 2015.

MATHISEN: Your third choice is Southwest Airlines (NYSE:LUV), in the
news earlier this week, for having missed or postponed some inspections on
its aircraft. Look a that run up, it is almost doubled, Erik, in the past
year.

Does that kind of price spike worry you?

RISTUBEN: Well, it came off a relatively low base. It obviously —
it was a better deal a year ago, but we still think it has more to run.

One, we think oil prices are going to — energy prices are going to
stay relatively low for a long time. Two, it`s clear consumers as one of
your earlier guests said are spending their money on experiences. Dining
out is one of them. Travel, we think, is going to be the other one. We
think a direct beneficiary is a major carrier that has again no dollar
revenue exposure to speak of.

I think we`re going to do well with that stock.

MATHISEN: All right. Erik, thanks very much — Erik Ristuben in
Russell Investments.

HERERA: And coming up, start-ups aren`t just flocking to San
Francisco and San Jose anymore. They`re finding less expensive areas and
where they go, the venture capital money follows.

(MUSIC)

MATHISEN: Well, we`re about a month into tax season and the average
federal tax refund — see if you can guess — $3,120. The Internal Revenue
Service says it has paid out $125 billion in refunds so far. That`s
roughly equal to last year`s pace, but the refund trend may not continue.
Statistically, it is the early filers who tend to be those expecting a
refund, so they get in early.

HERERA: It figures.

When you think tech start-ups, you probably think of San Francisco or
San Jose. But those cities are starting to see some new competition on the
other side of the Bay, and as Josh Lipton, where startups go, venture
capital money follows.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESONDENT (voice-over): The
real estate market is now so red hot in San Francisco that it`s motivating
start-ups to move to the city across the Bay, Oakland. The difference in
the cost to rent space is huge. In downtown Oakland, the average asking
rent the $34 per square foot. That`s nearly 50 percent less than downtown
San Francisco.

Property managers in the Bay Area say that difference is a big draw
for start-ups.

MICHELLE LANE, CBRE ASSOCIATE DIRECTOR: Definitely cost is a pro.
It`s an advantage. It`s less expensive here in Oakland. It`s sunnier in
Oakland. So, I think that`s a good advantage and it`s got a real authentic
feel. So we have a lot of open space, a lot of brick, a lot of old
buildings and I think the new start-ups tend to like that, that creative
space that Oakland has to offer.

LIPTON: And where start-ups go, venture capitalists follow. V.C. has
invested more than $1 billion into nearly 100 companies in Oakland last
year, according to the Moneytree report. That made Oakland the seventh
most popular spot in the nation for V.C. investment, right behind Seattle
and ahead of Chicago.

Start-ups like Catriscity (ph), which is headquartered in Oakland, say
that beyond the cost of doing business, there`s another attraction of
calling Oakland home, the camaraderie of the tech community here.

PAUL PATTERSON, CBRE ASSOCIATE VP SALES & ACCOUNT MANAGEMENT: You
also get a tight knit community. So we have parties here on our patio for
the local start-up scene, the mayor is very supportive of Oakland start-
ups. And you even have bigger companies in town like apps.com and Pandora,
which is just next door.

LIPTON: Still, Oakland faces real challenges before it becomes the
next tech hub. The most glaring problem, crime. Oakland has the highest
robbery rate in the state of California, according to the latest data
available from the FBI. So, no surprise, the pool of tech companies in
Oakland is still small.

(on camera): But economists think more startups are coming to Oakland
as surrounding cities become just too expensive. The average asking rent
in downtown San Francisco is now more than double the national average.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in Oakland, California.

(END VIDEOTAPE)

MATHISEN: Finally tonight, the dress made famous by the Internet.
Have you seen it, heard about it? It`s sparking a social media debate
whether it`s blue and black or white and gold. It`s now a hot seller for
the company that makes it.

The British clothing company said the 300 dresses on its Web site sold
out in a half hour this morning, but they were able to find other
inventory. Traffic to its site has soared, and this morning, they got 150
calls in 45 minutes. Is it white and gold or blue and black?

So, whether you think the dress is blue and black, or white and gold,
it is all green with a Birmingham-based retailer. I saw it as white and
gold.

HERERA: You did?

MATHISEN: I did indeed.

HERERA: I saw it as blue and black. How could you see it as white
and gold?

MATHISEN: That`s a beautiful orange vest —

(LAUGHTER)

HERERA: Well, to each his own.

All right. That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue
Herera. Have a great weekend. Thanks for watching.

MATHISEN: And the same for me. I`m Tyler Mathisen. We hope to see
you right back here on Monday night.

HERERA: How could you see white and gold?

END

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