TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: State of denial. Stocks climb, ignoring last week’s dismal data. Why is bad news for the economy so often good news on Wall Street?
Dollar downer. Why the stronger dollar spells pain for some smaller companies with “Made in America” on the label?
And strained relationship. The growing backlash big business faces from some of its biggest defenders.
All of that and more on NIGHTLY BUSINESS REPORT for today, Monday, April 6th.
Well, good evening, everyone. Sue is off tonight.
Wall Street returned from the holiday weekend and seemed to be in a buying mood. Investors shrugged off Friday’s weak jobs report and powered the Dow to a triple-digit gain. One the reasons, the hope that the poor showing on the jobs front would be the reason for the Federal Reserve to delay raising interest rates until later in the year. The sentiment also improved when a reading on the services sector came in, in line with estimates, and still showed growth.
And then New York Fed President Bill Dudley said, chill. When the Fed does raise rates, he said, it won’t be that bad.
(BEGIN VIDEO CLIP)
WILLIAM DUDLEY, FEDERAL RESERVE BANK OF NEW YORK PRESIDENT: Now, for financial markets, the likely task of short-term interest rates after liftoff is just as important as the timing of liftoff. Here, I anticipate the path will be relatively shallow. The headwinds in the aftermath of the financial crisis are still in evidence, particularly the diminished availability and the tough returns that we see for residential mortgage credit.
(END VIDEO CLIP)
MATHISEN: Add it all up and the Dow Jones Industrial Rose 117 points. It closed at 17,880, the NASDAQ was higher by 30, and the S&P 500 was up 13.
Well, now, that’s how Wall Street felt. But there’s no way around the fact that the jobs number last Friday was not a good one.
As Hampton Pearson tells us, Wall Street and Main Street often see the economy very differently, and for good reasons.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): In March, the government says the economy produced only about half the jobs expected. And when combined with revisions for January and February, job growth for the first quarter of this year now stands at 197,000 per month compared to 269,000 for all of 2014. Now, the guessing game about the economy begins.
DUDLEY: It’s going to be important to monitor developments to determine whether the softness in the March labor market report that we saw on Friday, whether that foreshows a more substantial slowing in the labor force than I currently anticipate. The March labor market report is another indicator that the first quarter is likely to be quite weak.
PEARSON: Weather and the slowdown on the West Coast ports are most often cited in cuts in economic forecast for the first quarter. But many of those same analysts are predicting a rebound in the second quarter.
DAVID KELLY, JPMORGAN CHASE FUNDS CHIEF GLOBAL STRATEGIST: I don’t think the economy is that fragile. First of all, we should not overreact to one missed unemployment report. This is an estimate of the seasonally adjusted change in the magnitude of 140 million people. You know, to miss by over 100,000, that does happen from time to time.
BRUCE KASMAN, JPMORGAN CHASE CHIEF ECONOMIST: What’s going to happen here is the economy is going to rebound, and I do think there are questions about how much it rebounds. But I think the idea that the economy’s going to do better in the second quarter is pretty clear on a number of fronts.
PEARSON: For now, it appears market concerns over a faltering economy are taking a back seat to expectations of the first quarter slowdown, further postpones a rate hike from the Fed.
DIANE SWONK, MESIROW FINANCIAL: The Federal Reserve is, they traded off something called patience in their verbiage for caution. They are going to be treading lightly because they are figuring we’re still on thin ice and they’ll continue to try to tread (ph) on thin ice even as the ground beneath us firms. So, they’d rather hedge against to moving too soon and postpone raising rates than do it too soon and have to retrace their steps — reverse course and retrace their steps.
PEARSON (on camera): In the coming weeks, earnings reports, the value of the dollar, and the price of oil could all change both Fed and market expectations.
For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.
MATHISEN: And as if all of that wasn’t bad enough, the energy sector will be front and center in the one thing that’s definitely going to get Wall Street’s attention over the next few weeks. That would be corporate earnings.
And while energy earnings are probably going to be bad, Bob Pisani tells us they’ll have plenty of company. And that’s not a good thing.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: This week starts earnings season for the first quarter, and we’ve got a big problem. There’s an earnings recession going on. Earnings growth for the S&P 500 is expected to be down more than 4 percent, compared to the first quarter a year ago. And earnings expectations for the second quarter are negative as well. The third quarter is just barely positive, and it’s dropping fast.
Now, this is not good news. That’s why a disappointing jobs report on top of other disappointing economic stats recently is a cause for concern. Companies cannot cut costs to keep earnings growing forever. We need the economy to grow, to support higher revenues, that’s the top line, and higher earnings, that’s the bottom line.
But Wall Street is not optimistic about this. Not only is earnings growth negative, but revenue growth is now expected to be negative for the S&P 500 for the next three quarters. Yikes!
It’s well known that energy companies are the main problem. We all know this. There’s a huge decline in earnings expected this year. But they’re not the only ones. Six of the 10 S&P sectors are expected to report negative earnings growth, including technology in the first quarter.
That’s why weak job growth numbers are so worrisome. Even if the Fed doesn’t raise rates until late in the year, it suggests choppy, sideways action for stocks in 2015. That is unless the recent weak data is just a blip.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.
MATHISEN: Well, as Bob just pointed out, one area that has been of particular concern, of course, has been and is the oil patch, the reason falling oil prices were leading to layoffs. And that manifested itself in last month’s jobs report, and in a big way.
When it comes to labor pain, Morgan Brennan tells us this might just be the beginning.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Crude’s price collapse has been taking a toll on jobs in the oil patch. Energy companies have been laying off tens of thousands of workers. And those cuts were particularly steep in March. A big reason for Friday’s disappointing jobs report.
According to the Labor Department, the mining category which includes oil and gas shed 11,000 jobs. It was the third straight month of losses, bringing the total for the first quarter up to 30,000 jobs lost. To put that in perspective, mining added 41,000 additions in 2014, meaning roughly 3/4 of last year’s gains have already been erased. Economists expect those losses to continue.
NARIMAN BEHRAVESH, IHS (NYSE:IHS) CHIEF ECONMIST: I suspect in April, May, June, we’ll continue to see sizeable losses — you know, 10,000, 20,000 jobs lost per month. It will be a bit of a drag on the overall picture. But I think there’s still a fair amount of underlying strength in terms of job growth in the U.S. that it won’t derail things.
BRENNAN (on camera): As the number of U.S. oil rigs have rapidly dropped, oil and gas industry payrolls have followed suit. But oil field services companies like Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL) and Weatherford International (NYSE:WFT) making some of the biggest cuts.
(voice-over): Among the state’s hardest hit, Texas, Oklahoma, and North Dakota, which has a February no longer touts the country’s lowest unemployment rate, the first time since 2008. The effects of the energy downturn are beginning to ripple out to other industries as well, particularly manufacturing.
BEHRAVESH: Employment growth in manufacturing steadily decelerates over the last few months. We had about 45,000 jobs plus positive in November. And then last month, it was a minus 1,000 jobs. You know, that could be further in negative territory in the next few months.
BRENNAN: The fracking boon had been a bright spot for U.S. manufacturers, fueling demand for oil and gas equipment and metal piping. But the drop in demand coupled with stronger dollar is now causing companies like U.S. Steel to idle plants and lay off thousands of workers.
For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.
MATHISEN: John Manley joins us now to talk about the latest jobs report, upcoming earnings season, what it all means for your money.
John, welcome back. Always good to see you.
JOHN MANLEY, WELLS FARGO FUNDS MANAGEMENT CHIEF EQUITY STRATEGIST: Thank you.
MATHISEN: We’ve had a long sort of series there of packages that lays out a lot of the issues that the economy is facing. Do you think we’re in just a soft patch, or do you think that we are in a phase where we have to ratchet down our expectations for growth, for corporate profits and hence for the stock market?
MANLEY: No, I don’t think it’s the latter. I think it’s a soft patch. I think it’s caused by the dollar. It’s caused by the oil. Those are things that are ephemeral, they go up and down.
I still think the economy is getting better on balance. I think we see that within a couple of quarters.
MATHISEN: So, let’s turn to earnings. A lot of people have very sort of dismal outlooks for first quarter earnings, even negative numbers in front of earnings growth. In other words earnings would be down from where they were a year ago. What do you think?
MANLEY: I think it’s a low hurdle rate. I think that we are very concerned about earnings. The market is very pickle though. Sometimes, we look at earnings right now sometimes we look out three to six months from now. I think what they’re doing because the Fed is still accommodative, they’re starting to look out, and when they look out, they’re going to see that this is probably as bad as it gets right now.
MATHISEN: If you take energy out of that earnings picture, it will be a lot nicer to look at, won’t it?
MANLEY: It will be a lot nicer. But you can’t take it out. It’s there. But, you know, once oil goes down, at some point in time, we start to get the earnings back in other sectors. So, what we give away today, we get back hopefully in spades a few quarters from now.
MATHISEN: So, how do I make money in an environment like this, John?
MANLEY: I think you own stocks. It’s a very simple thing.
I think you want to own technology. I think the technology earnings are affected by the strong dollar. That won’t go on forever. I think you want to own financials. They lagged a little bit, but actually, whenever the Fed raises rates, they won’t do it in such a manner to tighten it for a while, and that’s good for financials.
And I actually think you want the bottom fish some of the big energy companies, the big multinational integrated aren’t that crude sensitive.
MATHISEN: If I get a tax refund in the next few weeks, where would you put it? In those technology shares?
MANLEY: I would — I also buy Europe. I should have said something like that. You know, things in U.S., and that is things stay good. They keep on getting better. There’s a term going on in Europe, the fundamentals are changing over there. And the stocks have been cheap for a while.
So, I’d buy a little bit of Europe. A little bit of developed Western Europe if I don’t own it already.
MATHISEN: So, what I hear you saying here is not to worry folks, we’re in a soft patch here. We may not have a blockbuster kind of year, but this is not the time for you to reorient your portfolio from a normal stands to a very defensive stance.
MANLEY: I don’t see what’s going to make it go down. The Fed is not stupid. They are — the Fed is not going to raise interest rates until the economy gets better. It’s as simple as that. And they’re not going to tighten until well after they’ve raised interest rates for the first time.
They know what the problems are. And as long as they’re there, that’s a tailwind for the market going forward.
MATHISEN: You just made an interesting distinction there. It’s going to be different — you made a distinction between raising interest rates and tightening. Explain what you mean.
MANLEY: Well, they tighten when they want to restrain the economy. As the economy gets stronger, it can handle higher interest rates. Our first mortgage was 12 percent. I thought it was such a great deal.
Rates go up and down, but the economy being stronger allows for higher rates. It’s still stimulus. So, I think all the Fed does at the beginning I think is just chase the neutral or natural rate of interest higher as the economy gets better.
Only when things start to show inflationary tendencies that they really tighten and try and restrain things. That’s bad, but not until.
MATHISEN: I had one of those 12 percent mortgages, too, John. It didn’t feel that good.
MANLEY: Tell you what, we’d ever see rates like that again.
MATHISEN: Yes, thank goodness.
All right. John, thank you very much. John Manley with Wells Fargo (NYSE:WFC) Funds Management.
Now, the area of concern for Main Street is the strong dollar. It’s been one of the subtexts we’ve been talking about. Currencies run over the past six months or so is starting to take its toll on smaller manufacturers. In particular, some companies that export their products that are made here in the U.S. to countries abroad.
Kate Rogers (NYSE:ROG) had been looking into it and has more.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The dollar’s run up over the past six months dominated much of the first quarter headlines. And for smaller U.S. manufactures who export their goods, the stronger dollar has put a squeeze on their business.
When the dollar moved higher against foreign currencies, big manufacturers have the ability to ship production to offshore facilities where labor is cheaper, or to cut prices and absorb lower margins.
For smaller companies, that’s not always an option. Since October, the dollar is up more than 15 percent versus the euro, and nearly 10 percent versus the yen. And for manufacturers like Garrett Blake, the dollar run-up is already affecting his orders.
Blake makes carbon fiber bike stands at this Chapel Hill based company. Thirty percent of his business comes from exports with customers in Japan, Singapore, Thailand and Greece.
GARRETT BLAKE, THE UPSTANDING BICYCLE CO. OWNER: I’ve heard from my distributors, let’s say in Japan, that because of the strength of the dollar, it is making it more difficult for them to be profitable with our products.
ROGERS: In an effort to keep their business, Blake says he’s trying to accommodate overseas customers by cutting shipping costs.
BLAKE: We’ll do what we can. I mean, we’re all in this together if we want to be successful.
ROGERS (on camera): The Census Bureau’s preliminary data shows that in 2013, 95 percent of all identified U.S. exporters were smaller/medium size businesses. That’s about 300,000 exporters, accounting for nearly half a billion dollars. And while that dollar amount may be small in terms of the larger economy, the number of businesses and workers impacted by exports is wide ranging.
(voice-over): Lisa Chissus says she’s also concerned about losing customers to cheaper competitors due to the strong dollar. She exports engine cooling products and incubation systems for fish hatcheries from her business CFM Consolidated near Seattle.
LISA CHISSUS, CFM CONSOLIDATED OWNER: We have competitors out of China that have mimicked our product. So, the more strong the dollar becomes, the more expensive it is for them to buy our product. So, if we can’t offer them a deeper discount, they’re going to take more of their business to offshore competitors.
ROGERS: Chissus isn’t far off with those fears, either. Analysts and trade groups have already said U.S. manufacturers face stiffer competition overseas because of the dollar. And while the companies we spoke with say they’re committed to keeping business here in America, the question is: just how much it will cost them.
For NIGHTLY BUSINESS REPORT, I’m Kate Rogers (NYSE:ROG).
MATHISEN: Up next, the possible rift between big business and one of its traditionally strongest constituencies. What does it mean for corporate America, and possibly the country?
MATHISEN: Big business is starting to feel some backlash from some of its historically staunchest supporters, social conservatives. And there could be some big ramifications.
Eamon Javers joins us now from Washington with more.
Eamon, what’s going on?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, hi, Tyler.
Well, the alliance between social conservatives and big business has really been a key to the success of the Republican Party over the past number of years. And now, in the wake of the big fight in Indiana over gay rights, gay marriage, and religious freedom, we’re starting to see a bit of a rift now between social conservatives and big business, which largely stood on the side of the gay rights movement in this recent fight.
Take a look at some of these quotes that we’re starting to see in the media now, starting with Senator Ted Cruz. You get a sense of the kind of feeling among social conservatives. Ted Cruz quoted in “The New York Times (NYSE:NYT)” saying, “The Fortune 500 is running shamelessly to endorse the radical gay marriage agenda over religious liberty.”
Take a look at Tony Perkins. He’s of the Family Research Council, the conservative group. He said in “The New York Times (NYSE:NYT)”, “You want to roll back religious freedom, goodbye Walmart, hello conservative grocery.”
And this one from conservative columnist Matt Lewis saying, “Big businesses like Apple (NASDAQ:AAPL) and Walmart helped sink laws meant to defend religious liberty.”
So, Tyler, a clear schism here now emerging between those social conservatives and big business folks. Social conservatives saying, hey, they don’t necessarily worry about the values that we hold dear in the social conservative movement.
MATHISEN: (AUDIO GAP) already recognized domestic partnerships and providing benefits and so forth. Do we think this is a permanent split?
JAVERS: Well, that’s going to be one of the key questions going into 2016. It is a fraying of the relationship this week. We’re definitely seeing that. Whether that can be — those ties can be mended over the course of the next couple months, is going to be the big question for 2016. Republican candidates for president were going to have to pick sides in this fight.
MATHISEN: What does it mean for businesses? One of the quotations you cited there is “good-bye to Walmart, hello neighborhood grocery.”
MATHISEN: Do those kinds of exhortations or threats have teeth?
JAVERS: Well, that was the quote about Walmart. Fascinating now to see Walmart being criticized from the right for so many years, Walmart was the target of people on the left who disliked Walmart for what they saw as an anti-union stance. Now, you’re seeing folks on the right who are upset about Walmart’s weighing into this religious liberty and gay marriage debate down in Arkansas. That debate has flopped entirely. And that’s going to mean very tricky navigation now for CEOs of these big companies.
What we saw in Indiana, a lot of the big CEOs of Indiana companies coming out strongly on the side of gay marriage, and marriage freedom in that state. So, that’s something that those CEOs have decided is right for their businesses in that state.
MATHISNEN: It will be fascinating to watch, and a fascinating presidential campaign.
Eamon, thank you. Eamon Javers in Washington.
JAVERS: You bet.
MATHISEN: Du Pont on the offensive against activists, and that is where we begin tonight’s “Market Focus”.
The company says the activist investment firm Trian Fund’s proposal to break it up would cost $4 billion and diminish the chemical company’s research capabilities. This estimate comes as Du Pont is still trying to resist Trian’s efforts to replace four of its directors. Trian is run by the activist Nelson Peltz. Shares rose a fraction to $72.
Hudson City Bancorp’s planned merger with M&T Bank (NYSE:MTB) Corp is delayed, which weighed down shares of both companies today. The combination has been delayed before and the Federal Reserve says it still doesn’t have its decision. Shares of Hudson City off almost 7 percent to $9.77. That made it the worst performing stock in the S&P 500. M&T fell almost 3 percent to $123.76.
Shares of Mattel (NASDAQ:MAT) went the other day, they’ve got a rough ride lately, on an analyst upgrade. The toymaker is now rated a “buy” at B. Riley, with the note citing confidence in the ability of a newly appointed CEO to restore the company’s fortunes. Shares popped almost 6 percent to $24.
Duke Energy (NYSE:DUK) is going to buyback $1.5 billion worth of its stock, under an accelerated stock repurchase program. Now, if you got Duke in your stock market bracket, you’re happy today: shares were up about 1.5 percent to $78.24.
TrueCar impressed investors with news that it added 840 new dealers to its car buying service. That’s a Web site, in the first quarter. That is the best quarterly total ever, bringing all of its dealers now, the total, to an all-time-high of more than 10,000. Shares up 2 percent to $16.08.
And Viacom (NYSE:VIA) announcing that it will take a $785 million charge in its latest quarter. It’s also going to lay off employees, do some restructuring. The charge is a result of write-downs of some under performing TV shows. The media company will also suspend its buyback program for now at least. Shares initially reverse-course. Before the close, the stock was 1.5 percent higher at $68.60, but you can see what happened after 4:00 p.m.
3D Systems (NASDAQ:TDSC) is buying easy way. That’s a Chinese-based 3D printing sales and services provider. The terms of that deal not disclose. Shares were up more than 4 percent to $28.67.
And the health care real estate investment trust Ventas (NYSE:VTR) will buy Ardent, a hospital operator, for nearly $2 billion. The company also says it will spin off its nursing facilities into a separate REIT. Shares there up 4 percent to $76.90.
Preet Bharara, the high-profile prosecutor trying to clean up Wall Street, suffered a potential setback late last week. And it has the potential to under do other insider trading aces he thought he’d won.
Kate Kelly now with more.
KATE KELLY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A big loss for Preet Bharara, New York’s powerful United States attorney, whose string of more than 80 inside trader convictions in eight years is now in jeopardy. On Friday, New York’s second circuit appeals court refused to re-hear appeals on the U.S. versus Newman, a landmark insider case that it had recently overturned.
In December, the Second Circuit ruled prosecutors trying the Newman case had relied on an interpretation of the insider trading codes that was simply too broad. This meant that not only was Bharara’s winning streak now in question, but other comparable cases around New York, including one with four men accused of insider trading in IBM, and another where a junior level hedge fund manager was accused tipping off his roommate to Bill Ackman’s bet against the nutrition company Herbalife (NYSE:HLF) were also affected.
Bharara, a colorful and outspoken prosecutor who recently indicted State Assembly Speaker Sheldon Silver and once said if he was a Kardashian, he’d be Kanye West, has not taken this lying down. In January, he asked for a second shot at appealing the Newman case, a shot that on Friday was rejected.
And now, I’m told he’s pursuing a Supreme Court review. That’s a move that will require solicitor approval at the Justice Department, however, and it may take some powerful internal lobbying to make that happen.
For NIGHTLY BUSINESS REPORT, I’m Kate Kelly in New York.
MATHISEN: Coming up, why the latest Hollywood blockbuster could be on track to break $1 billion at the box office and why it bodes well for Hollywood this year.
MATHISEN: Here’s what to watch tomorrow. More employment data, the jobs opening and labor turnover survey, it’s called JOLTS. Also on the data front, we’ll have the latest consumer credit report and we’ll hear from another Fed president tomorrow. That is what to watch on Tuesday.
“Fast and Furious 7” racing ahead of the pack in its box office debut this weekend, bringing in nearly $400 million worldwide. Nearly $144 million right here in the U.S. this could be a big deal for Hollywood. Certainly a big deal for the movie’s producer, Universal (NYSE:UVV), which is part of NBC Universal (NYSE:UVV), which produces this program.
Julia Boorstin has more.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: “Fast and Furious 7” is not only the biggest opening weekend in a year and a half, it’s the biggest debut ever for a film not based on a comic book or young adult novel.
PAUL DERGARABEDIAN, RENTRAK: “Furious 7” is already closing in on $400 million after its first weekend, and could be the first in the entire franchise to hit $1 billion worldwide. These are staggering numbers.
BOORSTIN: It’s a huge win for Universal (NYSE:UVV) Pictures. The studios already working on yet another sequel hoping to have it ready for theaters by 2017, and it builds the audience for new “Fast and Furious” attraction, said to open at Universal (NYSE:UVV) Studio’s Hollywood in June.
Hollywood’s taking note that “Fast 7’s” diverse cast drew a big and diverse audience. Here in the U.S., it was 37 percent Hispanic and 24 percent African-Americans.
And the film’s success shows that audiences are willing to pay up for an event film from an established brand, which bodes well for a summer full of familiar franchises.
The summer box office is jam-packed with big names, like Marvel’s “The Avengers”, Warner Brothers’ “Mad Max”, Universal’s “Jurassic World”, and Paramount’s “Mission Impossible: Rogue Nation”.
TUNA AMOBI, S&P CAPITAL IQ: Last year, obviously, we saw the box office decline. There was a lot of questions raised about what a kind of a secular decline. Clearly, I think we’ve seen the pace this year rebound in “Fast and Furious”. There’s a major reason for that.
BOORSTIN: At this rate, this could be the first year the North American box office hits $11 billion, and the worldwide box office hits $40 billion.
For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.
MATHISEN: And, finally, there was a game last night, but today’s really opening day in Major League Baseball.
And on cue, Disney (NYSE:DIS) is investing $250 million in the fantasy sports Web site “Draft King”. The site lets fans play fantasy sports using real money. The fantasy sector is starting to gain a lot of attention. The venture arm of Comcast (NASDAQ:CMCSA) (NYSE:CCS), the parent of CNBC, which produces this program, owns a stake in the biggest player in the fantasy space, fan duel. By the way, the Disney (NYSE:DIS) deal values “Draft Kings” at just under $1 billion. And, boy, that gives a whole new meaning to the phrase play ball.
And that’s it for NIGHTLY BUSINESS REPORT for tonight. I’m Tyler Mathisen. Sue Herera is away for a few days. Thanks, everybody, for watching. We’ll see you right back here tomorrow.
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