TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Shaky start. The shortened week begins with a triple-digit decline on the Dow. And now, some are wondering if the summer months will bring more of the same.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Cable consolidation. Charter swoops in and buys Time Warner (NYSE:TWX) for $55 billion, creating a new power house in the fast changing industry.
MATHISEN: Hacked. The IRS was hit by a cyberattack and taxpayer data was accessed by people who want to steal your identity.
All of that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, May 26th.
HERERA: Good evening, everyone, and welcome.
Investors return from a long holiday weekend to a selloff. Stocks stumbled on ironically some upbeat economic data, because that fueled expectations that a rate hike from the Federal Reserve could come sooner rather than later. Add Greece to the mix and that adds up would the worst decline for the blue chip Dow index this month. The Dow Jones Industrial Average fell 190 points to close at 18,041. NASDAQ was off by 56, and the S&P 500 finished 21 points lower.
Dominic Chu takes a look at whether market watchers think we could be in for more of the same this summer.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Traders and investors came back from the Memorial Day holiday from a sea of red on Wall Street. Not exactly the way many of the bulls want to kick off the summer season for stocks. A big part of the skittishness stems from worries about interest rates. It’s widely expected that rates will rise in the coming months, especially after last week when Federal Reserve Chairman Janet Yellen suggests we could see a hike if the economic data improved.
JULIAN EMANUEL, UBS: It’s very normal in this stage of the cycle when the Fed is about to raise interest rates for markets to become more volatile. So, in that respect, we’re not at all surprised by this. It’s just in a lot of people’s view, that was less likely to occur now than close to September or perhaps even December. But over the last few days Fed speakers, including Chairwoman Yellen have made it clear that the first rate hike is going to begin sometime in 2015.
CHU: Many market observers do note that while we have seen more volatility recently, we have yet to see any real stress for stocks or the U.S. economy, at least not enough to cause any real panic.
But as markets try to handicap when the Fed will move on rates, more of a roller coaster ride could be in store for the next months.
ERIK RISTUBEN, RUSSELL INVESTMENTS: I would expect this volatility to absolutely continue through the summer. I mean, you’ve got a point of decision on whether interest rates are going to be moved up in September by the Fed. They’ve indicated that September is the likely date. The closer we get to September, the more the market is going to be pricing in, the impact, the likelihood and the impact of that move and that usually creates volatility.
CHU: Even though we could see more ups and downs that’s not changing the longer-term investment thesis for some strategists, but it maybe a reason to look for opportunities in certain parts of the market.
EMANUEL: We think you should stay the course. You should have a little bit dry powder on the side, prudently people tend to think of things that way but we want to be buyers of sectors where there is cash on the balance sheet, cash to be used to cushion the volatility, whether it is share buybacks or M&A, and we think health care and technology are two sectors like that.
CHU: The bigger question is if this leads to a bigger pullback for stocks, something that hasn’t happened to a significant degree since the S&P 500 near 10 percent drop last fall.
For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.
MATHISEN: And investors and the Federal Reserve will also pay close attention to the housing market and today, two new reports show both home prices and new home sales are climbing. And while the latest numbers point to an improving market, housing still faces some major hurdles.
Diana Olick has more.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): At a new development in Silver Spring, Maryland, buyers are moving in. Sales of newly built homes are up there and nationwide as the prices of both new and existing homes. In the nation’s 20 largest housing markets prices rose 5 percent in March from a year ago according to the much watched S&P Case-Shiller home price index. They are however still about 16 percent off their peaks of the housing boom when there was plenty of supply. Now, prices are higher because there is so little to buy.
GLENN KELMAN, REDFIN CEO: Most of the buyers we’re talking to are really frustrated because they’re getting into bidding wars, not just with two or three other buyers, but with five, 10, 15 buyers. Some of our markets are saying this is crazier than we’ve ever saw in 2007, 2006.
OLICK: The nation simply needs more homes. Sales of newly built homes did rise in April from March, and they’re up 26 percent from a year ago.
(on camera): Sales may be rising, but they’re nowhere near historical norms because builders still aren’t putting up houses at a historically normal pace. They are however raising prices and that has to do with both millennials and land.
(voice-over): Millennials are not buying houses at the rate their parents did when they were young, and that means builders are not focusing on the entry level market. They also just can’t afford to right now.
JOHN BURNS: Land is extremely expensive and the developer is selling it for a lot of money and the only way to make money if you are a builder is to build a huge expensive home.
OLICK: New home prices are already up over 8 percent from a year ago and with interest rates expected to rise soon buyers who need to borrow want will want to jump fast, potentially pushing those prices ever higher.
For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Washington.
HERERA: Orders for long lasting goods slipped in April, durable goods such as aircraft, metals and electrical equipment fell 0.5 percent. That was pretty much in line with estimates.
But a key measure showed business spending rose for the second straight month, after an extended weak spell. And that’s a positive sign for the economy.
MATHISEN: Well, that business investment data from the durable goods report prompted the Atlanta fed to increase, albeit just slightly its economic forecast for growth in the second quarter. The Atlanta Fed now says the economy is on tract to expand 0.8 percent, whoop-de-do, up from 0.7 percent in their prior forecast.
HERERA: And the Dallas Fed reports the factory activity in Texas fell this month to its worst level in six year. And several business leaders in that survey say the state is still feeling the impact of declining oil prices, which has spread now to other industries. And they remain pessimistic.
Today, oil prices fell almost 3 percent to $58.03 a barrel.
MATHISEN: Concerns over Greece surfacing. The indebted country is now in talks with its creditors about a series of payments that are coming due, the next one in very early June.
But as Michelle Caruso-Cabrera explains, it’s not just Greece investors need to watch, but also Spain.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Once again, there are a new round of meetings and teleconferences scheduled this week in an effort to hammer out a deal between Greece and its creditors, a deal that would hopefully lead to a disbursement of several billion euros so that Greece can keep paying its bills.
Overall, though, the two sides remain far apart. Now, however, may not be the time to worry about Greece. Consider June to be the Cold War phase of Greece’s negotiations with its creditors. Lots of sniping back and forth, no real chance for Armageddon, though. That’s because Greece’s billion euro payments due in June go to the IMF, and there aren’t a lot of consequences to not paying the IMF on time.
The hot war between Greece and its creditors could come in July and August, that’s when Greece has to make more than 6 billion euros in payments to the ECB, and missing those payments would likely have consequences, perhaps leading the ECB to shutting off the taps for Greece banks. And that could lead to capital controls and possible exit from the euro.
Also hurting European shares, regional and municipal elections in Spain over the weekend in which the ruling party got clocked by smaller anti-austerity parties. Although these are only small local elections, investors worry they portend a similar outcome for the national election coming this fall in Spain. Could there be a leftist party in control there that would rollback spending cuts and other measures in that much larger and more important economy?
For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.
HERERA: From Greece to housing to the Federal Reserve, what does all of this mean for the markets in the days and weeks ahead?
Joining us now is Steve Auth. He’s chief investment officer at Federated Investors (NYSE:FII).
Steve, good to see you. Welcome back.
STEVE AUTH, FEDERATED INVESTORS: Good to see you, Sue. Thank you.
HERERA: Let’s start first of all with what happened today? I mean, we know the Fed is going to tighten up on race. We’ve known Greece is a problem. What made the selloff occur today?
AUTH: I think it was good news is bad news today, Sue. We’ve been starting the price in — the markets pricing in. The Fed might delay until December, maybe even next year. We had some weak economic data the last few weeks and then, boom, we’ve got some good numbers, you know, the core durable numbers you mentioned, the housing numbers and people started to pushback towards September and I think you got that selloff.
MATHISEN: Do you still believe that the underlying fundamentals of the U.S. economy, underlying financials, i.e. interest rates, strength of dollar, oil prices, et cetera, are favorable for stocks, for the remainder of the year?
AUTH: Yes, Tyler. I mean, we think good news is good news. Today’s numbers were exactly what we are hoping for. The industrial side has been the soft side of the economy. It looks like it’s coming back as we thought it was. We’ve got back the economic growth in the 3 percent range — we think that will be good for earnings. And we are less concerned about the Fed I think and the broader market is.
HERERA: So where are you putting money to work at this point, Steve?
AUTH: We’re staying overweight equities. Within equities, we almost like everything, frankly, so. I mean, you know, we particularly like consumer discretionary, the airline stocks, they are very attracted to us here, the beneficiaries of lower oil. We even like, you know, some of the interest rate plays like utilities, which we think oversold relative to Fed rate hike expectations.
MATHISEN: Is still money to be made in Europe, Japan?
AUTH: We think so. You know, Europe is actually recovering now finally. Japan needs to be doing some things right. We’ve been moving money back in there, Tyler, as I’ve told you over the last few months. We’re still not, you know, wildly bullish there, but we’re certainly close to neutral now in our European and Japanese allocations.
HERERA: You know, we’ve talked a lot about Greece and there are some deadlines that are coming up as Michelle just indicated in her report.
Does Greece factor into your investment strategy at all, Steve, or have you kind of put it to the side?
AUTH: We put it to the side, Sue. You know, as Maria point out, they owe the money to the European — I mean, they owe the money to the IMF and the ECB. It’s not a systemic problem at this point. That’s the only thing you need to worry about with Greece, and we don’t have that. You know, whether they work it out or not, I happen to think they might let Greece go. That probably be a good thing for everybody.
But either way we think it will be a short lived buying opportunity, but not one that I would prepare for in a very bearish way.
HERERA: All right. Fair enough. Steve, thank you. Steve off with Federated.
MATHISEN: Well, a $55 billion deal in the cable industry. Charter Communications (NASDAQ:CHTR) struck a cash and stuck deal for Time Warner (NYSE:TWX) Cable. The acquisition would make the cable company now the nation’s second biggest after Comcast (NASDAQ:CMCSA) (NYSE:CCS), which recently terminated its deal to buy Time Warner (NYSE:TWX) Cable. And Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent of NBR’s producer, CNBC.
Shares of Time Warner (NYSE:TWX) Cable and Charter both higher in trading today.
Julia Boorstin has more.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Charter’s acquisition of Time Warner (NYSE:TWX) Cable will build a power house, along with its purchase of Bright House Networks, the company would have 24 million customers. Second only to Comcast (NASDAQ:CMCSA) (NYSE:CCS). This just a month after Comcast (NASDAQ:CMCSA) (NYSE:CCS) pulled out its planned acquisition of Time Warner (NYSE:TWX) Cable, in the face of pushback from the FCC.
TOM RUTLEDGE, CHARTER CEO: What the FCC seeking I think is being developed by this transaction. It is not just about doing no harm, it’s about bringing better services to the country and to customers, and expanding the footprint upon which those services are delivered.
BOORSTIN: Rutledge is pursuing this deal not just because scale should yield to cost savings, but more important, he says the larger company would be able o sell better products and grow margins by reducing churn or the rate of customer loss. But some investors have raised concerns that Charter could be overpaying.
KEVIN O’LEARY: The idea that its churn rate, which is a huge number that we look at when we invest in the debt and the equity of these companies, is somehow going to go down because of paying nine times multiple or getting scale, I’m highly skeptical.
BOORSTIN: Growing charter scale will be especially beneficial when it comes to broadband, as customers shift away from traditional linear TV in favor of streaming video, which raises the risks of cord cutting.
RUTLEDGE: There are new over the top providers, like Netflix (NASDAQ:NFLX) and Hulu. And now, HBO, which was a traditional cable provider, moving into a different space, into broadband. And so, it’s become an essential part of a lot customers’ lives and doing that well and doing it fairly and efficiently is a public interest and so, yes, the nature of what our business is has changed.
BOORSTIN: Rutledge says he wants to give consumers more choice, which could include a direct to consumer broadband video service and alternative to cable TV. Now, we’ll see whether Charter’s interest in offering these new choices seems beneficial for consumers and wins the FCC’s approval.
For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.
HERERA: Shares of General Motors (NYSE:GM) fell today after reports the automaker will likely face criminal charges and pay a record fine for defective ignition switches. Those switches have been linked to more than 100 fatalities.
Phil LeBeau has more.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Almost a year after General Motors (NYSE:GM) CEO Mary Barra announced her company had shown a pattern of incompetence and neglect in the making and later failing to recall defective ignition switches, the federal government is reportedly planning to file criminal charges against the automaker.
“The New York Times (NYSE:NYT)” reports the office of U.S. Attorney Preet Bharara is moving to ramp up its case, perhaps as soon as later this summer. While G.M. could face criminal charges, it’s likely to include deferred prosecution, meaning those charges would ultimately be dismissed if GM agrees to certain terms and conditions. There are reports G.M. could also face a fine of close to $3 billion.
A spokesperson for G.M. would not comment on the status of the federal investigation. Just last year, federal prosecutors fined Toyota (NYSE:TM) $1.2 billion for failing to alert safety regulators of complaints involving the sudden acceleration of Toyota (NYSE:TM) vehicles. It remains the largest penalty ever imposed on an automaker by the federal government.
When G.M. CEO Mary Barra announced her company had uncovered a history of failure surrounding the ignition switches, she also said 15 G.M. employees had been fired for their role in the scandal. It’s unclear if any of those former employees will now face individual criminal charges.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
MATHISEN: Still ahead, the words no taxpayer ever wants to hear — the IRS has been hacked. Details next.
HERERA: Late this afternoon, the IRS said thieves used an online service provided by the agency to gain access to data from more than 100,000 taxpayers. How exactly did this happen and how many taxpayers might still be affected?
Eamon Javers has been following the story from Washington.
So, Eamon, what do we know at this point?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, Sue.
Well, we know that up to 100,000 Americans have had their personal information stolen now by these hackers who were able to impersonate them on the IRS Web site. A piece of the Web site that’s called the Get Transcript feature, they were able to answer very sophisticated and detailed questions about those taxpayers, including one, a security question that I love, which is, what was your high school team mascot? They already had that information when we went to the website to impersonate the taxpayer.
The IRS saying they got it from social media, Facebook (NASDAQ:FB), and the like. Once they got, they were able to get that personally, identifying information, including tax returns in many cases.
MATHISEN: So, they were going — these hackers were going to sort of one taxpayer at a time, because they had to research every one to get those kind of passwordy information.
JAVERS: You might think that by going to your Facebook (NASDAQ:FB) page and figuring out which high school you went to and then what the mascot was. But what the IRS said on a conference with reporters this afternoon is they are assuming that because of the large number of people who were impacted here that it was ultimately an automated process to gather all of that data about people into a massive data base and automatically answer all those questions as the IRS asked for them.
So, the IRS is saying they’ve now shut down that portion of the web site, and they’re offering counseling to some of the people who’ve been impacted here, but they’re trying to do a lot more to learn exactly who was behind this and how it all went down.
HERERA: Eamon, thank you very much. Eamon Javers in Washington.
JAVERS: You bet.
MATHISEN: In a case being closed by businesses, a federal appeals court has blocked President Obama’s immigration plan that will protect millions of undocumented immigrants from deportation. The court ruled in favor of 26 states that challenged the president’s executive action. The case could potentially make its way to the Supreme Court.
HERERA: Apple (NASDAQ:AAPL) is reportedly eyeing a big bond sale and that is where we begin tonight’s “Market Focus”.
The tech giant is considering issuing about 200 billion yen in bonds, which is more than $1.5 billion. They might do it as early as June. The company is trying to take advantage of the rock-bottom interest rates in Japan, and it will likely use the proceeds to increase shareholder rewards and maybe expand its Japanese operations. Shares fell more than 2 percent to $129.62.
Priceline will invest $250 million in Ctrip.com, a China-based online travel company. It comes as Priceline looks to have a larger footprint in the fast-growing Chinese travel market. This is the second investment Priceline is making in the firm. Shares of Priceline were off 1 percent to $1,195.78. Ctrip.com tumbled 3 percent to $81.99.
AutoZone (NYSE:AZO) reporting quarterly profits that topped Wall Street’s estimates as sales and inventory grew and the company continued to repurchase shares. Sales were off just a little bit from what Wall Street was expecting though. The stock fell a fraction to $688.43.
MATHISEN: The Israeli software provider Nice Systems is in talks to buy LivePerson (NASDAQ:LPSN), which what I can never get when I call a service provider. It’s actually a chat software company. The value of the deal could be as high as $650 million and could take several months to be finalized. Shares of LivePerson (NASDAQ:LPSN) popped 13.5 percent to $10.16.
Yum Brands (NYSE:YUM) announced plans to remove all artificial flavors and colors from its food at its Taco Bell and Pizza Hut chains by the end of the year. The company also says it hopes to remove additives like trans fats and other ingredients by the end of 2017. Shares unchanged at $91.54.
Another brand getting in on the natural trend is Hormel. The meat company is buying privately-held Applegate Farms, an organic and natural meat company for nearly $800 million. Shares of Hormel surged initially after hours. Before the close, the stock fell a fraction to $56.61.
HERERA: Coming up, why it is a tough time to be in the taxi business and what some drivers are doing about it.
HERERA: A disappointing start to the summer box office. It was the lowest grossing Memorial Day weekend since 2001, in part because of the performance of Disney’s “Tomorrowland”, which took in just $40 million and that was less than expected. Compare that to last year’s “X-Men: Days of Future Past”, which grossed $110 million. And a year before that, “Fast and Furious 6”, which grossed $97 million.
Brent Lang, senior film and media reporter with “Variety” magazine says it’s clear from these results that there is an underlying issue.
(BEGIN VIDEO CLIP)
BRENT LANG, VARIETY: It does show this problem that Hollywood has right now, which is diminishing star power. It used to be that a name above the title was enough to guarantee a big opening. And right now, with the possible exception of Brad Pitt, Robert Downey, Jr., even Will Smith is looking a little shaky. It’s a real issue.
(END VIDEO CLIP)
HERERA: He also says some of these big pictures are really suffering because of how much they cost to make.
MATHISEN: It’s a big weekend by contrast for car buyers. TrueCar reports that sales were up 7 percent nationwide this weekend as compared with last year. That puts the sales pace for May on track for more than 17 million vehicles for the year. Pickup trucks and small SUVs continue to be the hot sellers.
HERERA: It’s a tough time for the taxi industry. Ride hailing apps like Uber and Lyft are up-ending the cab business as we know it, taking away customers and deflating the value of those coveted medallions. But some taxi drivers are fighting back against the start-ups and doing what they can to survive the ride-sharing revolution.
Kate Rogers (NYSE:ROG) has more.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The taxi and limousine industry is hurting. Disrupted ride-hailing companies, Uber and Lyft, continue to take market share. It’s a trend, Gerhard Doetsch, vice president of Allstate (NYSE:ALL) Private Car and Limo has watched unfold.
GERHARD DOETSCH, ALLSTATE PRIVATE CARE AND LIMO: A company comes out and has an app and you push a few buttons and a car comes to your door.
ROGERS: Doetsch runs a fleet of 500 or so cars that service the tri-state area. In the past year, he says 15 percent of his drivers and customers left for Uber or Lyft, but the company has since recouped about half of that loss. They have an app of their own, iRide, and Doetsch said drivers and customers can count on them for a reliable experience when has helped bring business back.
DOETSCH: There was a huge advertisement on the Uber site, and pretty much going out to various drivers, and having various initiatives out there to large payments to join their fleet and everything else. So, that kind of hurt us in the sense drivers who are now going to over.
ROGERS (voice-over): Values for medallions, which are the city-issued fleets and seals that allow drivers to operate yellow cabs had fallen as well. According to recent data from the New York City Taxi and Limousine Commission, medallions had been sold for an average of $800,000 dollars in the first quarter of the year. Now, that’s 20 percent fall from 2011, when they first sold for more than $1 million a piece.
(voice-over): Safdar Iqbal, an independent medallion owner in New York City, bought his medallion for nearly $600,000 in 2009. he was thrilled to see medallions changed hands for millions of dollars, but now sees the car as a liability.
SAFDAR IQBAL, NYC MEDALLION OWNER: Investment in the long-term, OK, it would help me raise a family and take care of kids and pay the rent. And later on, it will work as my retirement. I will save enough by then, along with working, you know, really expenses. So, that was the plan.
ROGERS: But if that plan doesn’t work out, Iqbal says he may just throw in the towel and drive for one of his app-based competitors.
For NIGHTLY BUSINESS REPORT, I’m Kate Rogers (NYSE:ROG).
HERERA: And to read more about the challenges facing the taxi industry, head to our website, NBR.com.
MATHISEN: And finally tonight, the world’s 100 most powerful women. Forbes is out with the annual list, including 24 CEOs, 15 billionaires and eight head of state. Collectively, the women on the list control some $1 trillion in annual revenues.
Topping the least for the fifth consecutive year is German Chancellor Angela Merkel. Merkel oversees the largest economy in Europe and the fourth largest in the world.
Jumping way up on the list in number is Hillary Clinton, the probable, I guess, Democratic presidential candidate in the election in 2016. Last year, she was number six.
Third, Melinda Gates, co-chair of the Bill and Melinda Gates Foundation. And Federal Reserve Chair Janet Yellen came in at number four, while G.M.’s CEO Mary Barra rounded out the top five.
Sue Herera was number six.
HERERA: Oh, yes, right.
MATHISEN: Right, yes.
Now, I mean, Hillary at number two — I’m not sure where her power is. I get that she has high influence.
HERERA: Right. She does have high influence.
MATHISEN: But she holds no office no.
HERERA: No, she doesn’t and —
MATHISEN: But neither does Taylor Swift, who was on the list.
HERERA: She was on the list, right?
HERERA: Who knows?
That does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us.
MATHISEN: Tea and honey or something stronger.
HERERA: Yes, exactly —
MATHISEN: I’m Tyler Mathisen. Have a great evening, everybody. We’ll see you 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.