SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Global pain. The worldwide selloff started in China, spread to Europe, and battered stocks here in the U.S., sending the Dow Jones industrial average lower but nearly
Earnings on deck. Attention now turns to next week and what the flood of profit reports could mean for the market and your money.
Flagship fund. The man who runs the world`s biggest bond fund is outperforming his peers and shares his thoughts on the economy, fixed income and the Fed.
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, April 17th.
Good evening, everyone. I`m Sue Herera. Tyler Mathisen is off tonight.
Stocks got slammed. The major average is spiraled slower. And the Dow Jones Industrial Average plunging nearly 280 points, its biggest one day drop since the end of March, as global concerns took hold of stock markets across the globe.
The selloff started in China, with a regulatory move, and then spread to Europe on a new round of Greek worries and it found its way here to the U.S. By the close, the Dow Jones Industrial Average sank just about 280 points to 17,826, the NASDAQ dropped 76 points, and the S&P 500 gave back 24.
And it was pretty much a losing week for all of the major averages.
Bob Pisani looks at the issues unsettling this market.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: A crackdown by the Chinese regulators and continuing concerns about a Greek exit from the euro put pressure on stocks today. It was a fairly uniformed selloff on heavier than normal volume. All of the major U.S. indices were down more than 1 percent, as were almost all of the 10 S&P 500 sectors. Not surprisingly, the more volatile stocks in the Internet space and the solar space and semiconductors were down more.
European stock markets dropped roughly 2 percent to 3 percent, with the biggest down moves in peripheral countries like Greece, Russia, Italy and Portugal. Remember, all the European markets (ph) are up double-digits this year, as the European Central Bank has sought to weaken the euro and prop up the economies there. So, there`s a lot of profit locked up in Europe right now.
Today, a lot of the traders decided to lighten up. After the close in China, regulators instituted a crackdown on stock margin trading in over-the-counter stocks. Now, this is an issue because investors are pouring money into small cap stocks for a good part of the year. Of course, the market was close over there. The news was not reflected in the market there right now and the Shanghai index was up 2.2 percent. However, China e-chips traded lower by about 5 percent.
Finally, traders were looking forward a big week of earnings. The worries that earnings report are roughly in line, revenue is continuing to come in on the light side.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: Our market monitor joins us now to talk more about today`s selloff and also to prepare us for next week. He`s Michael Cuggino. He`s the president and portfolio manager of the permanent portfolio family funds, an investment firm with $5 billion under management.
Good to see you, Michael. Welcome.
MICHAEL CUGGINO, PERMANENT PORTFOLIO FUNDS PRESIDENT & PORTFOLIO
MANAGER: You as well, Sue.
HERERA: So, talk to me about what happened today. It wasn`t just a global selloff. You think a couple of key data points might also had had something to do with it?
CUGGINO: Well, sure. I think the one thing — obviously, the things that you and Bob mentioned are accurate. But also, I would say, the inflation data coming in today was getting awfully close or exceeding the Feds target of 2 percent. And I think you get back to the very big concerns in the U.S. about the closer the Fed gets to the inflation target, employment targets, the more likely they`re going to start raising interest rates.
And so, you know, whether you consider food and energy or not, you are getting around 2 percent or exceeding it, and that means the pressure on the Fed to act more quickly than normal is there.
HERERA: Are you one that believes the Fed will act in the second half of the year or any time this year, or not?
CUGGINO: Well, certainly, they could. Although I wouldn`t be surprised if they do nothing.
I mean, the U.S. economy is showing some weakness. We are still trying to figure out if there is sustainable there. Corporate earnings may have seen the pick of their cycle. They are being hurt by strong dollar issues and weakening global economic growth, and so, those factors are weighing or giving the Fed more wiggle room to delay.
On the other hand, arguably, a return to normalized interest rates I think would have been a good thing to do a long time ago. So, I`m in the camp that they should be something. But even if they do, I think there`s a limit to how far they can move. The U.S. economy isn`t strong enough to withstand an aggressive quick move. And so, an also an increase to the deficit if you start raising interest rate costs. So, I think it`s going to depend on how aggressive, how quickly they move and how much the economy can sustain.
HERERA: We certainly saw a lot of volatility about earnings. We have more earnings next week, and I want to get to some of your picks because they are all reporting next week. You like Facebook (NASDAQ:FB) at this point. Why?
CUGGINO: Yes, it`s a classic early stage growth story. They`ve got a tremendous intangible asset of information and they are still discovering new and better ways to monetize that information. I think they`re going to do that. We`ve seen it growing to its multiples. It`s not a cheap stocks.
But revenue growth, earnings growth, cash growth are all there, so we like it in the long-term.
HERERA: And you also like Janus.
CUGGINO: Yes. Financial services, asset management, a business we know well. There is a lot of operating leverage. Their funds are performing better.
Whether the Gross addition — Bill Gross addition succeeds in the long-term or not, they are still doing very well, the margins are improving and fund performance is better. So, we expect that stock to continue to outperform.
HERERA: And a play on commodities in Freeport McMoRan, energy and copper.
CUGGINO: Yes, an area that`s not too well-liked right now.
CUGGINO: But it is tremendously oversold. We think in the long term, supplies going to outstrip — I`m sorry, demand will outstrip supply, and you know, they are good dividend there. They`re in energy and copper primarily. We think those commodities that the world is going to need.
So, this is one of those classic buy low and ride the story if you have a strong stomach type of names.
HERERA: All right. Michael, have a great weekend. Thanks so much for joining us tonight.
CUGGINO: Thanks, Sue.
HERERA: Michael Cuggino with the Permanent Portfolio family of funds.
General Electric (NYSE:GE), the nation`s largest industrial company, reported better than expected profits in the face of a strong dollar and weak oil prices, and the results come just one week after unveiling its plans to dramatically shrink its finance business. Shares of GE started the day higher but were unable to hold on to those gains. Bu the close, it ended slightly lower.
Mary Thompson has more.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
While General Electric`s first quarter profits declined from a year ago, CEO Jeff Immelt`s kept a tight rein on expenses, driving a bottom line beat.
JEFF IMMELT, GE CHAIRMAN & CEO: GE had a good quarter in a slow growth and volatile environment. We`re seeing the world that we planned for.
THOMPSON: GE does business in over 170 countries, so the stronger dollar trimmed almost a billion dollars from the company`s revenue, while expense controls and strong performances by businesses making jet engines and locomotives fueled earnings that excluding the charge distinct (ph) G.E. Capital beat estimates by a penny.
STEVEN WINOKER, SANFORD C. BERNSTEIN VP: You saw gross margin expand, you aw operating margins expand, and it`s because they are on a billion dollar a year simplification program.
THOMPSON: Weeding out cost is ne reason GE sees industrial profits, tracking at the high end of earlier guidance for this year, along with the above trend results in its aviation business. This despite GE maintaining profits in its oil and gas business, once a growth driver, will decline by as much as 5 percent this year. Oil prices cutting into the units order, so GE is cutting the unit expenses by $600 million.
(on camera): The first quarter results is a testament to GE`s ability to drive efficiencies in its industrial businesses, which it says will generate 98 percent of its profits by 2018, all part of a new strategy to exit most of its finance business by selling billions in assets over the next two years.
(voice-over): It`s also the latest makeover by Immelt. One analyst Steve Winoker sees achieving the goal of creating an easier story for Immelt to sell, that of a high growth industrial firm.
WINOKER: The portfolio change, the cultural charge you are seeing coming out in the actual cost every quarter, these are indicative of truly I think a company that is transforming that is very different today than it has been over the last 15 years.
THOMPSON: And with stock down over 50 percent in the past 15 years, investors hope that difference generates a different return.
For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.
HERERA: And now to earnings from another big industrial, Honeywell.
The company reported a 5 percent drop in quarterly revenue primarily because of that strong dollar. The company also cut its full year revenue outlook but raised the lower end of its annual profit forecast, as market share gains are projected to offset declining revenue. The stock dropped more than 2 percent in the trading session.
And on to the economy which saw consumer prices tick higher, a possible sign of emerging inflation. The Consumer Price Index which measures what Americans pay for just about everything increased for the second straight month by 0.2 percent in March. But compared with a year earlier, core prices which exclude food and energy climbed1.8 percent.
Meantime, the yield on the treasury year bond, the tenure, remained solidly below 2 percent.
Our next guest runs the world`s biggest bond fund and he`s here with us now to share his analysis on the financial markets, the economy, the Fed, and what it all means for investors. He`s Scott Mather. He`s the chief investment officer of PIMCO`s flagship total return fund.
Good to see you, again, Scott. Welcome back.
SCOTT MATHER, PIMCO CIO: Good evening, Sue. Thanks for having me.
HERERA: We noted last night how well the total return fund has been performing. You are outpacing your peers by better than 90 percent and you`ve turned that fund around. How did you do it?
MATHER: Well, I`d like to tell you it is all myself but it`s really not. We have a process here that is a large team of people involved in designing the strategies and the individual securities that we`re selecting for the fund.
So, we have 260 portfolio managers and they`re all an integral part of the strategy-making process. So, it is using the same people and the same processes that have allowed us to outperform over numerous market cycles for decades. So, we are returning the fund back to where we spend most of our time, which is at the top of the league tables.
Where did you find the best trades and the best value in the market?
Because you`ve basically been looking around the globe, as well as in the treasury market. So, where did you find the most opportunity?
MATHER: Well there is a few important themes. One, we`ve been very focused on monetary policy divergence. That`s the them that there`s many different strategy implications, many different things we`ve been doing in the portfolio to take advantage of that. We do believe, for instance, that the Federal Reserve is going to be moving interest rates in the summertime, even while other central banks are actively easing monetary policy.
So, we have a number of strategies in place in the portfolio to take advantage of that and to prepare for that. Some of the things that have worked particularly well, our focus on European bonds, which have been outperforming U.S. bonds. Our focus on looking for other areas in the world where monetary policy and rates won`t be tied to the U.S. rate cycle, places like Mexico for instance for local rates. And, of course, there are many other — one of the follow-on themes from this is continued dollar strength and that has implications not just for the currency which has worked out well for us, but for the individual sectors we`re investing in in the corporate market.
HERERA: What about Greece? That seems to be roiling the equity side of the market and it`s sending money into fixed income on various parts of the U.S. yield curve, but also in Germany as well. There is a lot of talk, I`m sure you`re well aware, that we may see negative rates in Germany.
How big a factor is Greece at this point?
MATHER: Well, it`s an important factor and today it was one of the main things driving markets across the world. You know, Greece is certainly not a very significant portion of the global economy. Not even a very significant portion of the European economy.
But it is very important. There are all sorts of unknowns about what happens if the country does go down the path of exiting the monetary union.
And our best case expectation is that Greece finds a way to stay in the monetary union, manages to muddle through this. But with each day that passes, it is certainly getting worse and worse for the Greek economy, it means they are getting deeper and deeper into recessionary territory, they need more money from the Eurozone partners.
You know, the risk of a disorderly outcome certainly for Greece are rising and that will have implications for the economy through financial market channels and through confidence channels.
HERERA: You mentioned your forecast for the Fed. We saw the inflation figures come in this morning and that kind of upset the equity side of things. What about inflation linked bonds, is that part of your portfolio? Is that a strategy that you`ve been employing or not?
MATHER: Yes, absolutely. Inflation linked bonds started the year very cheap and so, we`ve had positions to emphasize owning inflation linked bonds over nominal treasuries, for example. Those positions are beginning to pay off contributing to performance of the fund.
We think there is more room to go though. The market was very preoccupied as we started the year, about disinflation and about the ability of a drop in energy prices to somehow filter in in a lasting way.
The market was pricing that the Fed would fail for the policy objective for ten years or longer.
So, it`s a very good opportunity. We think the inflation-linked bonds, they have bounced, they`re performing well. They have a lot further to run as it becomes clear that inflation is definitely headed up. It`s headed up because wages are headed up, and because the big drop in energy prices is going to pass and move away from influencing headline inflation.
HERERA: All right. Scott, we`ll leave it there. Continued success.
Thank you so much for joining us.
MATHER: Thank you.
HERERA: Scott Mather with PIMCO.
Still ahead, a major cable TV provider just made a big move that could further shake up the television industry.
HERERA: President Obama defended his pursuit of that sweeping trade pack we told you about last night. The president says the deal with 11 other Pacific nations is good for American workers in a global economy, dismissing opposition from his own party.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: What we are doing is negotiating the highest level, highest standard, trade agreement in our history, with strong enforceable labor provisions, strong enforceable environmental provisions, and I will be able to show when the final agreement is presented, that this is absolutely good for not just American businesses but for American workers.
(END VIDEO CLIP)
HERERA: But those opposed to the Trans-Pacific partnership say it will cost American jobs since global trade will make some positions obsolete and possibly damage the environment.
Attorneys at the Department of Justice may be close to opposing Comcast`s $45 billion proposed acquisition of Time Warner (NYSE:TWX) Cable.
According to a report by Bloomberg, lawyers in the antitrust division are nearing a recommendation to block the deal because of concerns consumers could be harmed. The review could be submitted as soon next week.
Shares of Time Warner (NYSE:TWX) Cable fell more than 5 percent. And Comcast (NASDAQ:CMCSA) (NYSE:CCS), the parent company of CNBC which produces this broadcast, dropped 2 percent.
And now to another company that is trying to keep up with the changing ways that people watch TV. Verizon (NYSE:VZ) is rolling out a new pay plan that is a big departure from the traditional model of cable bundling.
Julia Boorstin takes a look at how just this disrupting this could be to an industry already under going enormous change.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Verizon
(NYSE:VZ) wants to give consumers a new way to pay for TV. Fios` new custom TV packages will allow consumers to choose every month which channels they want to see.
TAMI ERWIN, VERIZON FIOS PRESIDENT: I think about millennials and how millennials are viewing videos today, for example. The plans that we`re launching, custom TV, gives the customers customizable package, content that they can then have the base and have local, which local is very popular, but then choose through genres that are specific to their taste and what they want.
BOORSTIN: The packages start at $65 a month for broadband service, plus 36 basic channels, and a choice of two of seven channel packs, including sports and kids programming. Additional channel packs will cost $10.
What makes Verizon`s new offering unique is the ability to swap out options every 30 days instead of locking consumers into long-term contracts
— the move to address consumer demand for a la carte options.
ERWIN: Increasingly, customers want to pay for what they use, and we`re not all the way there today in terms of a la carte, but we believe it is our opportunity when we sit with the content partners to represent what we hear from customers.
BOORSTIN: But with so many a la carte options out there like Netflix (NASDAQ:NFLX), Hulu Plus, Apple`s iTunes and now, HBO Now, many say that this kind of new option isn`t enough to prevent consumers from cutting the cord, with bundles from cable, satellite or telecom companies.
NICK BILTON, NEW YORK TIMES COLUMNIST: The cable companies still have not gone far enough and when you look at the trends with cable cutters, it is still low, it`s still in the single digit percentages, but I think that given the latest moves with HBO and other networks, you`re going to see that happen much, much quicker.
BOORSTIN: But in meantime, the questions is whether this helps the Verizon (NYSE:VZ) Fios, which is in sixth place when it comes to pay TV providers, make gains on its larger rivals like Comcast (NASDAQ:CMCSA)
(NYSE:CCS) and Time Warner (NYSE:TWX) Cable.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
HERERA: A giant drug merger might be brewing between Mylan
(NASDAQ:MYL) and Teva Pharmaceuticals. And that`s where we begin tonight`s “Market Focus.”
According to reports from Dow Jones, Teva is exploring a takeover offer for Mylan (NASDAQ:MYL), a move that would create a huge generic drug player, but Mylan (NASDAQ:MYL) responded to that report by saying it is fully committed to its stand-alone strategy and to the proposal that it made earlier this month to buy Perrigo (NASDAQ:PRGO) for about $30 billion.
Mylan (NASDAQ:MYL) popped 4.5 percent to $69.82. Teva also rose more than
2 percent to $64.91.
Shares of Seagate popped, despite a big decline in earnings. The data storage company blamed poor economic conditions. It still managed to top the Street`s profit estimates, but revenue missed. The stock was more than 2 percent higher to close at $57.43.
Reynolds American (NYSE:RAI) reported a beat on both the top and bottom lines. The cigarette maker saw declining sales and a smaller market share, but it was able to benefit from higher prices. Shares were up just a fraction to $74.70.
Procter & Gamble (NYSE:PG) is hiking its dividend to 66 cents a share. That will be payable to shareholders in mid-May. The yield on the company`s payout is about 3 percent. Despite that, shares fell 1 percent to $82.53.
The Department of Transportation wants to improve the safety of oil being transported by train. In a letter to the rail industry, the agency said train operators must have detailed information about the possible cargo risks and perform more thorough checks before moving on the tracks.
A comprehensive national oil train safety plan is coming in weeks.
The Obama administration is also proposing rules that could raise the fees to drill on federal land. The regulations would give the government more flexibility to set the fees. A low royalty rate encourages oil and gas exploration and any increase would likely raise concerns from the industry and potentially lessen production.
Schlumberger (NYSE:SLB), the largest oil field service company in the world, reported a sharp drop in profits and announce plans to cut thousands of workers. The results reflect a broad slow down in drilling for oil and gas.
And as Morgan Brennan tell us, this energy industry bellwether says any recovery will look starkly different from the ones that have come before.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Schlumberger`s results represented at almost 40 percent plunge in profit from a year ago. But as oil prices halve since last summer, that decline was still less than analyst had feared.
ROBIN SHOEMAKER, KEYBANC CAPITAL MARKETS: The earnings beat was attributable to very aggressive and proactive cutting of costs in the face of a major downturn in North American drilling and in the international arena as well.
BRENNAN: Part of the cost cutting, more layoffs, an additional 11,000, bringing the total number of job cuts at Schlumberger (NYSE:SLB) up to 20,000 or 15 percent of its global workforce. The energy giant also offered a cautious outlook, particularly for North America.
In the earnings report, Chairman and CEO Paal Kibsgaard said the company believe recovering U.S. land drilling will quote, “be pushed out in time as inventory of uncompleted wells builds and the refracturing market expands.”
While the number of active oil rigs in the U.S. has plunged by more than 50 percent just since the fall, some producers including EOG Resources (NYSE:EOG), Anadarko Petroleum (NYSE:APC), and Apache (NYSE:APA) Corp have drilled thousands of future wells before idling them. But with crude prices so low, they`ve also held off on actually fracking them, the final stage of drilling that releases the oil and gas from the earth. It`s that growing backlog of uncompleted wells that could slow the phase of an oil recovery.
SHOEMAKER: We are close to a bottom. As we start to see a recovery, it will be very gradual. And there is an inventory of drilled but uncompleted wells that will be the first priority for the oil companies.
BRENNAN (voice-over): For that reason, said Shoemaker, it won`t be until next year that demand for drilling rigs like Schlumberger`s begins to pick up in a meaningful way.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
HERERE: Still ahead, the big — very big business of boxing and all the money behind the match-up being called the fight of the century.
HERERA: Here is what to watch for next week, Dow`s Dupont (NYSE:DD), Boeing (NYSE:BA), McDonald`s, and Coca-Cola (NYSE:KO) will report their results. Also, some of the biggest names in tech will release earnings, including Yahoo (NASDAQ:YHOO), Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG), among others. And plenty of data with existing home sales, new home sales and durable good. And that`s what`s on the agenda from next week.
Bloomberg`s financial terminals went down around the world today, paralyzing a lot of investors. The blackout which started right out after the European markets opened caused the U.K. to postpone a multibillion dollar government debt buyback. The terminal is a software system used by market participants globally. It was restored a couple of hours after the market open on Wall Street.
The richest boxing match in history is less than three weeks away, and no matter who wins the Manny Pacquiao and Floyd Mayweather fight, a lot of money will be made, and the numbers are eye-popping.
Jane Wells has more.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): In the biggest prize money match ever, it`s the fighter who chews on dollars against the one known for pounds.
The Manny Pacquiao-Floyd Mayweather fight next month in Las Vegas could bring in $300 million, maybe half a billion if pay-per-view sales exceed expectations. The so-called fight for the century has been years in the making, with Mayweather, the undefeated favorite, needing convincing.
(on camera): Is the only reason this fight happened is because you were willing to take less than half?
MANNY PACQUIAO, BOXING CHAMP: Yes, 60/40 and I`m agreeing to what he wants.
WELLS (voice-over): Even at 40 percent, Pacquiao will make $80 million but win or lose, Mayweather gets a guaranteed $120 million which could higher, setting a record for an annual athlete`s pay day in no more than 36 minutes of work.
FLOYD MAYWEATHER, JR., BOXING CHAMP: It is a little bit about the money. It is about the fans. It`s a little bit of everything wrapped in one.
WELLS: Tickets on the secondary market are selling for as much as $65,000, even though last-minute haggling has prevented tickets from going on sale.
But could haggling prevent the fight?
BOB ARUM, TOP RANK CEO: In the documents, we have all agreed that if there is a dispute, Les Moonves, the chairman of CBS (NYSE:CBS), I kid you not, it is right in the document, is the arbitrator to settle all legal disputes.
WELLS: Both sides are sparring verbally, even when talking potential rematch.
FREDDIE ROACH, PACQUIAO`S TRAINER: It all depends on whether he knocks him out and so forth.
WELLS: Well, behind the scenes, the preparation continues. Dentist Lee Gause helps Mayweather put his money where his mouth is, with flamboyant mouth guards of gold or stuffed with $100 bills, so high-tech he breathes better with the guard in than out.
DR. LEE GAUSE, MAYWEATHER`S DENTIST: We charged Floyd roughly 25 grand, maybe a touch more.
WELLS: And for all of the talk that this is more about history than money —
LEONARD ELLERBE, MAYWEATHER PROMOTIONS CEO: Our focus isn`t about the money. You know, the money will come.
WELLS: Assuming nothing stops the fight from happening, everyone will go home rich.
REPORTER: How much money do you make on this fight?
ROACH: A lot.
WELLS: For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.
That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for joining us. Have a great weekend, everyone. And we`ll see you Monday.
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.