TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Bracing for the banks. Earnings start tomorrow and investors hope this important group will be a bright spot for the market.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Payday. Why the heads of some of the country`s biggest companies are taking home even bigger paychecks.
MATHISEN: Ready to retire? Why most baby boomers are most definitely not.
All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, April 13th.
HERERA: Good evening, everyone, and welcome.
It`s here. Earnings season, and the focus is on the banks — the big ones, the ones that can move the market and give us insight into the health of the economy.
Before the opening bell rings tomorrow, we`ll hear from JPMorgan (NYSE:JPM), the largest U.S. bank by assets, and Well Fargo, the largest by market cap. The financials had a rough start to the year, the second worst performer behind utilities. And while most strategists aren`t expecting much from earnings season, many say the news won`t be all bad especially when it comes to the banks.
Dominic Chu takes a look at what to expect and why this group is so important to investors.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
There`s a reason why so many investors care about what happens in the financial sector, that sector is the second most heavily weighted one in the entire large cap S&P 500 index. And financials are expected to be a bright spot with the highest anticipated earnings growth of any sector out there.
There are a number of things working in their favor.
KRISTINA HOOPER, ALLIANZ: The key tailwind for financials is really rates and the expected rising rate environment. If you look historically at the last four rate hike cycles, financials outperformed the overall market. And that makes sense. In particular, insurers should benefit from a rising rate environment.
CHU: A host of big cap names will report later on this week and next, including JPMorgan (NYSE:JPM) Chase, Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C). And every analyst has their favorite.
BRENNAN HAWKEN, UBS: I really like Morgan Stanley (NYSE:MS), given the fact that they`re changing more to a wealth management-oriented business model. Only about half, a little less than half of their earnings is coming from institutional opportunities, as opposed to more like three quarters several years ago. So, you`re shifting to a more stable, more predictable and higher multiple-oriented business.
CHU: But it`s not all positive for the big financial companies in America. There are significant hurdles to overcome.
HOOPER: It`s clear that regulation, the increased regulatory environment we`re in really is a significant headwind for financials.
Obviously, it`s going to impact some financials more than others, but it`s certainly something that could be a speed bump for financials going forward.
CHU (on camera): Most of the largest financial institutions out there report earnings early on in the season. So, we`ll get a good idea of how the sector looks over the next few weeks.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
MATHISEN: Eric Wasserstrom joins us now with his take on what to expect when the banks start their first quarter earnings this week. He`s managing director and senior equity analyst with Guggenheim Partners.
Eric, welcome. Good to have you with us. We`re delighted you could join us tonight.
ERIC WASSERSTROM, GUGGENHEIM PARTNERS: Thanks, Tyler.
MATHISEN: Overall, you think that the bank earnings will be mezza, mezza, one part of those banks will do better than others. Which is it and why?
WASSERSTROM: Yes. Well, I think that the banks that are more concentrated in the carpal markets base are probably going to do better this quarter. As you point out, the quarter contains some good elements and some poor elements, but one of the stronger elements has been capital markets results. So, the brokers should reflect that, we think.
HERERA: So, who do you like as an investment strategy for the longer term investor who wants to play in the financial arena?
WASSERSTROM: Sure, so the — my topic in this space remains Morgan Stanley (NYSE:MS). Of course, it`s exposed to this quarterly trend. But I think the secular story there is pretty good. And we also like some of the other larger banks that we think are positioning themselves for better longer term growth such as Bank of America (NYSE:BAC).
MATHISEN: Bank of America (NYSE:BAC), Goldman, I assume would be one that you would like as well, because of its exposure to the capital markets?
WASSERSTROM: Yes, certainly this quarter, I think Goldman is very well-positioned. You know, the longer term story is a still bit tricky with the global economic outlook still somewhat cloudy. But for this particular quarter, I think Goldman`s going to do quite well.
HERERA: How much of this is predicated for some of the larger banks, not necessarily the Goldman`s of the world, but on higher interest rates.
Because now we know that the Fed — or we suspect anyway — that the Fed might take a little longer time after some weak data points before they start to raise rates.
WASSERSTROM: Yes. So, after waiting for several years, it looks like we may wait some more. You know, our outlook is not especially predicated on higher rates. Although I will say that I think that creates a risk for this group in terms of the consensus earnings outlook, which for next year is calling for a rapid acceleration in earnings growth. In the absence of higher rates, I don`t think that`s going to happen.
MATHISEN: Where are the weak spots, Eric, who do you — who are you watching?
WASSERSTROM: I think the weaker spots are among some of the regional banks where they`re rate sensitive, the hope or maybe the expectation was they would get that benefit, and also several of those names, particularly in the Southeast and Southwest have exposure to the energy industry which is coming under stress with the decline in the price of oil over the past two quarters.
MATHISEN: All right. Thank you very much, Eric. We appreciate you being with us. Eric Wasserstrom tonight with Guggenheim Partners.
WASSERSTROM: Thank you very much.
HERERA: And sticking with earnings, late today, Norfolk Southern
(NYSE:SO) warned its profit and revenue for the first quarter will not meet expectations. The railroad citing reductions on fuel surcharge revenue and reductions in coal shipments. The company is expecting overall volumes to recover in the second quarter, apart from coal. And that sent shares lower in afterhours trading.
MATHISEN: On Wall Street, stocks started the week with a dip, on continuing concerns about the rising dollar quarter and its impact on first quarter profits. The down day followed two consecutive weeks of gains. By the close, the Dow Jones Industrial Average was off 80 points to 17,977.
NASDAQ, which had been above 5,000 earlier in the session, ended up lower by 7. And the S&P 500 declined nine points.
HERERA: Disappointing data out of China today. China`s exports collapsed by an unprecedented 15 percent, reviving fears of a slowdown in the world`s second largest economy. Some analysts say the decline, which was the worst in about a year, could increase worries about how that country`s rising yuan has hurt demands for Chinese goods and services.
Domestic demand also lagged with the decline in imports.
MATHISEN: Back home, the budget deficit widened slightly during the first half of the fiscal year. A report from the Treasury Department shows spending on Social Security and health services increased, the total deficit of around $440 billion for six months up about 6 percent from the same period a year ago. As spending outpaced a revenue figure, and that means the taxes you paid.
HERERA: And despite that rise, deficits are still near their lowest level in six years, and that prompted Fitch to reaffirm the United States AAA credit rating. The agency cited the narrowing of the budget deficit from a peak of $1.4 trillion in 2009, as well as expectations that it will continue to shrink. Analysts also noted the strength of the nation`s economy and its capital markets.
MATHISEN: Off and running. Today, Senator Marco Rubio of Florida threw his hat into the presidential race, just one day after Hillary Clinton made her run official. And both have very different ideas on the economy and policy.
John Harwood usually reports for us from Washington. We`re happy to have him here in studio tonight.
John, good evening.
Let`s talk a little built about the economic approaches of the various declared candidates. Hillary Clinton yesterday seemed to make income disparity the middle class income growth her basic thrust. How would she compare with the others?
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, that`s exactly where she`s going. And she hasn`t laid out particular policies yet, but there was a report that came out from a think tank linked to Hillary Clinton that is suggestive of where she`s going. It involves spending money, education, infrastructure, job training, but also requiring business to do more to cut workers in to the profits that they`re making — profit sharing, ways in which people can buy stock in companies that they`re working for. A way to figure out to take an economy where corporations are making profit, but workers aren`t getting wages, make those two to go together — go together.
HERERA: And what about the Republican candidates that are out there and running? What can we expect to hear in terms of economy and the deficit and taxes and all those key top line items?
HARWOOD: Well, they`re also focusing and making a point of saying middle class incomes are stagnant, they`re going to focus on inequality much, much different solutions.
Marco Rubio, for example, getting in the race today has got a massive tax cut that he acknowledges would expand the deficit. He would eliminate the estate tax, eliminate the capital gains tax, lower the top rate to 35 percent, lower the business rate to 25 percent. And it would provide a lot of tax relief at the top, also for the middle class.
The question is, are people willing to accept an expansion of the deficit? He`s going to test that —
MATHISEN: Is he a classic supply-sider in that sense? In other words, lower rates concede that tax revenues are going to go down in the short term, but we`re going to get better growth out of it in the long term, and ultimately race tax revenues?
HARWOOD: The preferred term right now is a growth republic.
HARWOOD: Republicans are contrasting themselves with Democrats by saying, “We are going to be the party of economic growth. They`re the party of redistribution.”
You`ll see that throughout the republic field, and Marco Rubio has a chance to make a mark in this field.
HERERA: It was interesting. Josh Earnest, the White House spokesman, today said, don`t presume that President Obama will automatically throw his support behind former Secretary of State Clinton in this presidential race.
It was an interesting comment from him.
HARWOOD: Well, it`s hard for him to do that at this point when his vice president is still formally thinking about it, exploring it, playing with the idea. I think at the end, Joe Biden will not get in a race against Hillary Clinton. But until that`s made clear, President Obama is going to take some hands off.
MATHISEN: All right. John, great to have you here.
HARWOOD: You bet.
MATHISEN: John Harwood.
HERERA: Sure is.
All right. Now to executive compensation, a preliminary look at the CEO pay at some of the country`s biggest companies, finds the pay at the highest levels of corporate America keeps going higher.
Mary Thompson reports.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The biggest money for CEOs at big business companies these days is in tech and media.
ROBERT JACKSON, COLUMBIA LAW SCHOOL: With all the technologies and significant improvements they bring to American life, I think investors are willing to pay those folks.
THOMPSON: A preliminary look at the pay for the CEOs of the largest companies by revenue found Microsoft`s new CEO Satya Nadella taking home over $84 million in 2014, thanks to his $79 million stock grant.
Oracle`s founder, chairman and former CEO Larry Ellison pulling down
$67 million — a huge number, but 14 percent less than in 2013.
The numbers, courtesy of SEC filings, called by the executive compensation research firm Equilar, looked at firms filing their proxies by April 3rd.
The findings put Qualcomm (NASDAQ:QCOM) in the number three spot, with a more than $60 million paycheck tied to a big option award. Disney`s Bob Iger, number four with over $43 million in comp. While number five, CVS
(NYSE:CVS) Health`s Larry Merlo took home just over $24 million.
The early survey shows median CEO pay for some of the largest companies rose 5 percent last year to over $14 million, the average showing no change at close to $16 million.
Professor Robert Jackson saying the increase reflects the adoption of pay for performance and the company`s results.
JACKSON: American corporations have performed exceptionally well in the last two or three years for a whole variety of reasons.
THOMPSON (on camera): Missing from the list, some big names with big paychecks, CEOs of firms whose revenues are too small to be included in the top 100, or firms that filed their proxies too late to be included in the survey.
(voice-over): This includes Discovery`s David Sotloff, taking home
$156 million, he would have been at the top of the list. But with Discovery`s revenue just over $6 billion, it`s too low to put it among the
100 biggest firms.
CBS`s Less Moonves missed the cut as well, as the firm filed its proxy after Equilar`s deadline. Still, with the pay package of over $57 million, Moonves will sure to be at the top of the list when the final one is published in May.
For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.
MATHISEN: And still ahead, why the best rated airline among consumers may not necessarily be the best investment.
HERERA: Well, here`s something that may not surprise you, especially in you fly a lot. The performance of airlines has dropped once again. The latest airline quality ratings show carriers landed fewer flights on time, bumped more passengers and caused more flyers to file complaints with the federal government.
Phil LeBeau has more on the best and the worst airlines.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Flying frustration. The latest airline quality ratings show travelers in the U.S. are getting squeezed by cramped planes and more delays. And they don`t like it.
UNIDENTIFIED FEMALE: The experience isn`t always great because they keep putting more and more seating in there. And then some of the airlines charge you for a seat with more leg room.
UNIDENTIFIED FEMALE: I feel like everybody else, like we`re jammed in like a bunch of cattle.
UNIDENTIFIED MALE: I think the prices favor the airlines. That doesn`t really favor the passenger. The quality, it really doesn`t favor the passenger.
LEBEAU: Last year, airlines did worse in all four areas measured by the study, including on-time arrivals, mishandled bags and customer complaints. Why? Since merging a few years back, airlines have packed more seats into fewer planes, while charging passengers for services that used to be free, like changing a ticket.
This year, for the third straight year, Virgin America ranked as the top airline, followed by Hawaiian (NASDAQ:HA), Delta, JetBlue and Alaska.
At the bottom were regional carriers, Envoy, Express (NYSE:EXPR) Jet and SkyWest (NASDAQ:SKYW), right behind United and Frontier.
(on camera): Don`t expect this study to dramatically change how airlines operate. They`re profitable and investors like it. Take United, it may be the lowest rated major airlines, but over the last six months, its stock is up 48 percent.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
MATHISEN: The New York attorney general is taking aim at a handful of big retailers. Eric Schneiderman is examining how 13 major chains schedule their workers and whether their use of so-called on call scheduling violates labor laws. On call shifts require employees to call employers the day before or the day of a potential shift to find out if they`ll be needed to work. If employees are not needed, they don`t get paid.
Employers in New York are required to pay workers for at least four hours if they report to work, even if they are then sent home. We placed calls to all 13 of the retailers. Of the responses, Target (NYSE:TGT) and Sears (NASDAQ:SHLD) say they don`t really use on-call shifts. JCPenney is cooperating with the A.G.`s request for information, it says. Burlington Coat says its scheduling practices are fair for all employees. And the Gap
(NYSE:GPS) says it is committed to establishing, quote, “sustainable scheduling practice.”
HERERA: Protesters crashed an investor conference today in New York, demanding higher wages for workers at restaurants. The union group called the Hedge Clippers specifically called out activist investor Bill Ackman of Pershing Square, who until recently was an investor in Burger King, and Jeff Smith of Starboard, which owns a steak in Darden, for making money by investing in fast food companies. The protesters want $15 an hour pay for lower level workers.
MATHISEN: Well, an activist investor who attended that conference in New York is targeting Qualcomm (NASDAQ:QCOM) and that is where we begin tonight`s “Market Focus”.
Jana Partners held talks with the chip maker about potentially spinning off its chip unit from its parent licensing business.
Barry Rosenstein who`s a managing partner at Jana Partners says he sees a lot of value in the company.
(BEGIN VIDEO CLIP)
BARRY ROSENSTEIN, JANA PARTNERS: We made our biggest commitment to a company that has tremendous potential and tremendous value. I mean, this is an opportunity to invest in a market leader, high quality company, dominant company in its space, in a fast-growing cell phone, mobile — smart phone space.
(END VIDEO CLIP)
MATHISEN: Shares were off slightly to $68.73.
The Apple (NASDAQ:AAPL) Watch could spell trouble for Fossil
(NASDAQ:FOSL) and Movado. An analyst from KeyBanc today says Apple
(NASDAQ:AAPL) could sell more than 20 million Apple (NASDAQ:AAPL) Watches this year, which would be nearly half of the market for watches worth 200 bucks or more. That sent shares of Fossil (NASDAQ:FOSL) down 4 percent to $81.89. Movado was off 2 percent to $30.73. Apple (NASDAQ:AAPL), by the way, down, too, today. Down also, I should say, not too, down 25 cents to $126.85.
Builders FirstSource (NASDAQ:BLDR) is buying its rival building material supplier, ProBuild Holdings, for more than $1.5 billion. Last year, the two companies had a combined revenue of around $6 billion.
Shares of Builders FirstSource (NASDAQ:BLDR) soared almost 68 percent to $11.57. And ProBuild is privately held.
HERERA: Ty, another deal to tell you about: miners Alamos Gold and AuRico are merging. The transaction is structured as a merger of equals and will create a gold producer with a market cap of around $1.5 billion.
This comes as small miners are looking to offset a drop in gold prices.
Shares of Alamos popped nearly seven percent to $6.28. AuRico was almost 9 percent higher, closing at $3.25.
UPS plans to invest over $1 billion to expand its European package delivery network. That`s according to reports. This comes a few days after FedEx (NYSE:FDX) announced it will buy a Dutch package delivery company to expand in Europe. Shares of UPS were off a bit to close at $96.15.
And Sears (NASDAQ:SHLD) has struck a 50-50 joint venture deal with mall owner Simon Property Group (NYSE:SPG). The retailer will contribute properties valued at over $200 million and then lease them back from Simon.
It`s an attempt by Sears (NASDAQ:SHLD) to cash in on the value of its real estate. Sears (NASDAQ:SHLD) rose a fraction to $43.24. Simon Property off slightly to $190.33.
MATHISEN: Well, at the start of National Retirement Planning Week — you know, it`s National Retirement Planning Week, folks — a new report sends a warning about how unprepared many boomers are for their golden years.
Sharon Epperson here with a retirement reality check.
And, Sharon, the reality isn`t so good. Boomers between ages of 52 and 68 or so are really unprepared.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: They`re unprepared, they`re not saving enough. They`re — only 60 percent of them are saving something for retirement, 40 percent have no retirement savings.
And in terms of having $250,000 saved or more, there are only 19 percent that are doing that. So, a lot of them are really undersaving, and what they`re relying on, surprisingly, is Social Security because they haven`t saved enough on their own. They`re not looking at IRA`s or 401(k)`s really, for the bulk of their savings.
HERERA: You know, we`ve heard this for a while, but are there certain changes that they`ve been making that perhaps are going to help them or not? Maybe they`re not making any changes.
EPPERSON: The problem is they`re not adding to their savings. You know, people want to know what they should be investing in for retirement, rather than how much more should they be saving. And that`s really critical for many people, particularly boomers who may not have saved enough.
The other is they`re not necessarily working with someone, a financial professional, to help them along the way. And the other thing that we`re finding is that they`re thinking it`s still going to be enough. And it might be if they have a different style of living. But the realities with medical expenses, many are going to have to postpone retirement.
MATHISEN: Well, that`s — you raise two questions there. Are they going to have to work longer? And what does this mean for their lifestyle, presumably baby boomers have lived for the now. It has been the me generation, the now generation, and that`s why they haven`t said. So, what does that mean for their lifestyle?
EPPERSON: Well, there are a number of people who say, you know, maybe you`ve saved enough if you`ve already paid off your mortgage, if your kids are now grown and you don`t have to pay for college education for them.
You`ve already done that. Maybe you`re going to be OK if it`s just you and your spouse and you`re relatively healthy.
But the wild card is you don`t know. You don`t know for sure.
HERERA: Right. And you don`t know how long you`re going to live.
EPPERSON: You don`t know how long you`re going to live, and so, the key is really to save and save more than you think you`re going to need.
And even maybe once some of those big expenses are done with, you still might have to keep saving a little bit.
HERERA: We`re in trouble.
MATHISEN: We`re in trouble.
EPPERSON: I know, I know.
MATHISEN: Mortgage, kids, education.
Sharon, great to see you. We`ll see you back tomorrow night with some final tax tips with one day to go.
EPPERSON: One day to go, yes.
HERERA: Thanks, Sharon.
HERERA: And coming up, recovery in Ferguson — unusual signs of progress for small business owners in a city that was torn apart just months ago.
HERERA: And here`s a look at what to watch tomorrow — earnings season will be in full swing. JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), Johnson and Johnson and Intel (NASDAQ:INTC) all reporting, and we will have the details.
The latest retail sales numbers, we`ll see if consumers are actually spending that extra money that they`re saving on gas. Another data point, the produce price index is out, and it`s an important inflation indicator.
And that`s what`s on the agenda for Tuesday.
MATHISEN: Pepsi will replace Coke as the National Basketball Association`s official sponsor, this according to reports. Coca-cola has been the NBA`s partner for nearly three decades, but it has decided not to renew its contract with the league for the upcoming season. With this latest deal, Pepsi will have sponsorship deals with all the major sports leagues, including the NFL, MLB and the NHL.
HERERA: Months after violence and looting ripped apart Ferguson, Missouri, burnt out buildings still line the streets. But a few days ago, the city started tearing down those buildings that were destroyed. And that`s not a bad sign. It means that small businesses are one step closer to rebuilding.
Kate Rogers (NYSE:ROG) has more from Ferguson.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It may not look like it, but this is progress. In Ferguson, Missouri, small businesses are tearing down to rebuild. After months of unrest, following the shooting death of Michael Brown, 250 businesses were impacted in Ferguson and neighboring Dellwood, and now, burned out buildings are being demolished.
(on camera): This demolition is taking place thanks in part to a program from the St. Louis Economic Development Partnership. They`ve allocated half a million dollars to the raising and beautification of properties in the area.
(voice-over): For business owners like Juanita Morris, owner of Fashions R Boutique, this is an important step forward. Through crowdfunding, Mooris has raised $23,000 to open a new store in the city, but she`s committed to coming back to her old lot and keeping her new store.
JUANITA MORRIS, FASHIONS R BOUTIQUE: That was horrible when the feeling that I felt when I saw the building burn. But as I saw the building coming down, I felt like, OK, you`ve cried enough over this, so let`s move forward.
ROGERS: Hidden Treasures Antiques owned by Jeniece Andrews was also hit hard during the riots. However, months without a store hasn`t killed her spirit.
JENIECE ANDREWS, HIDDEN TREASURES ANTIQUES: I`ve been buying products to rebuild and having the faith that I will rebuild and still have my business. So, I`ve been working toward being able to open back up. So, the building coming down is just a step in the progress of helping me to realize my dreams again.
ROGERS: Once the demolitions are complete, many businesses plan to return to their locations in the coming months.
After so much pain and unrest, this is welcome destruction in Ferguson.
For NIGHTLY BUSINESS REPORT in Ferguson, Missouri, I`m Kate Rogers (NYSE:ROG).
MATHISEN: We know with sadness tonight, the death of veteran business reporter Ken Pruitt. Much of the past decade, Ken was a fixture on Bloomberg Radio in the mornings. Before that, he worked on television for CBS (NYSE:CBS) and ABC News and on radio in New York for WCBS. He was a friend, a flawless broadcaster and as Bloomberg founder Michael Bloomberg described him — always a gentleman. Ken died over the weekend in New York city of cancer at age 68.
I worked with Ken at “Money Magazine” back many, many years ago, I learned a lot from him.
HERERA: Absolutely, he was passionate about his craft and his trade, and I — you know, he was just —
MATHISEN: Very careful, absolutely —
HERERA: Fantastic editor, which is always important.
MATHISEN: Terrific guy.
HERERA: All right. That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for watching.
MATHISEN: And I`m Tyler Mathisen, have a great evening, everybody.
We`ll see you right back here tomorrow night.
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.