Transcript: Nightly Business Report — June 10, 2015

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

SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR: Stocks surge. The Dow shoots higher, having its best day in a month. But there’s one sector that investors are paying close attention to right now.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Pay raise. Will millions of American workers become eligible for overtime pay? New rules expected soon, but businesses are already issuing a warning.

EPPERSON: Not so sweet. Should ads for sugary drinks have a warning like alcohol and tobacco? A major city says yes.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, June 10th.

Good evening, everyone. I’m Sharon Epperson, in tonight for Sue Herera.

MATHISEN: And good evening for me as well. I’m Tyler Mathisen.

Well, what a Wednesday on Wall Street. Stocks took off at the open and they didn’t look back. The rally was broad. All ten sectors in the S&P 500 were higher, and nine out of ten stocks in the S&P 500 were for the day.

The Dow Jones Industrial Average once turned positive for the year, seeing its biggest one-day gain in a month’s time. At the close, the blue chip Dow index soared 236 points. It finished at 18,000 on the button. The NASDAQ rose 62 points and S&P 500 added 25.

This even as bond yields keep climbing, sitting now at eight-month highs. There you see it, the yield at 2.48 percent.

Bob Pisani at the New York Stock Exchange takes a look at the three reasons today for rally.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks opened strong and they closed strong, with more than three stocks advancing for each one declining.

Why the rally? There were three primary catalysts. First, stocks were due for a bounce. The S&P 500 has been down nine of the last 14 trading sessions. Many sectors like transports and interest rate sensitive groups like REITs and utilities have already entered correction territory, down 10 percent or more from their recent highs.

Second, mid-morning, German Chancellor Angela Merkel signaled she was willing to meet her Greek counterpart in Brussels in a bid to restart the stalled Greek talks. Though it’s unclear what compromises both sides are willing to offer.

Finally, an auction of ten-year treasuries was well-received. Bond yields were down a bit on that.

This rally was very broad based. All ten sectors in the S&P 500 were up. Eight of the ten were up 1 percent or more. That’s a fairly rare occurrence.

That oversold bounce was particularly evident in tech stock, which had a very rough month. Despite strong up mode of roughly 2 percent today, big names like Texas Instruments (NYSE:TXN), Akamai, Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC), they’re all still down on the month.

The rally extended into the commodities, as a weaker dollar drove prices higher for copper, iron ore and oil. And that drove a rally in materials and energy stocks.

Another sign of strength, stocks advance even though interest rates continued to advance. Normally, a negative for stocks, but even sectors that might be hurt, by higher rates, like utilities and REITs and home builders, they rallied as well. Now, one factor missing from this great day was volume. It was just average, indicating that much of the move up was due to a lack of sellers, rather than enthusiastic buyers.

For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

EPPERSON: Well, financial stocks have been getting a lot of attention from investors recently and with good reason. Since that group tends to do well as interest rates rise.

Dominic Chu has more on the sector that’s been a standout.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It’s still early in the summer and too early to put June in the books, but a real standout in the stock markets so far this season has been the financials. It’s the best performing sector among the ten in the large cap S&P 500 index. Some of the nation’s largest banks are helping to power the gains.

Take mortgage lender, Wells Fargo (NYSE:WFC), or diversified banking giant, JPMorgan (NYSE:JPM) Chase, or regional bank PNC Financials — all three are trading at/or near record high levels, and there are reasons to be optimistic.

BRAD MCMILLAN, COMMONWEALTH FINANCIAL NETWORK: If you look at absolute lending volume, it’s picking, it’s growing and it’s poised to grow faster, OK? Second of all, with the spreads rising, each of those loans is going to be more profitable to the banks. So, they’re getting benefits on both ends. They’re not just making more loans. They’re making more money on each of those loans.

CHU (voice-over): The overall environment for interest rates plays a big role in how many traders and investors go to the banks. As interest rates rise, the conventional wisdom is that it’s good for the banks and that’s because banks can lend out money at higher rates and hopefully generate more profits. But the path forward for bank stocks is anything but clear with investment risks lingering.

MATTHEW RODDY, ROCKLAND TRUST: I do think that there are banks out there and other companies and parts of the financial markets who might be taking additional risks as far as credit quality goes. It’s okay for a bank to lose business. If they’re losing it because they’re not willing to price out higher risk credits, and, you know, I think that that’s the risk.

CHU: Financials haven’t been getting a lot of attention over the past couple of years, as other sectors, like health care, utilities and energy have been grabbing a lot of headlines. But with a 16 percent waiting in the overall S&P 500, financials are the second biggest sector trailing only technology, so it could have a bigger than average impact on the direction of the overall market.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: Let’s turn now to two market pros for their views on what’s next for stocks and bonds after today’s big moves and what it means for your portfolio.

Bob Browne is chief investment strategist at Northern Trust (NASDAQ:NTRS), and Kathy Jones is a fixed income strategist with Charles Schwab.

Welcome to you both.

Kathy, let me begin with you. The move in bond yields over the past 30 days or so is really something. We’re pushing up at 2.5 percent on the 10-year bond. Is the rise in yields mostly now behind us or do we have more to run?

KATHY JONES, CHARLES SCHWAB: Well, I think this phase, it’s probably behind us. I think U.S. yields have been pulled by European yields. So, from April lows in Germany, the German blend is up about 90 basis points, plus, and U.S. yield are up about 65 during that time.

So, really saw shift in the whole global bond market when we started to see signs of improvement in Europe and when we got that big move off of near zero interest rates or negative interest rates in Europe and that’s just lifted the whole bond market globally.

MATHISEN: All right, Bob, let me turn to you. You know, equities seem to be hanging in there very nicely in the face of rising interest rates. The conventional wisdom is that when rates go up, stocks are generally not going to go along for the ride. Can this sort of divergence continue?

BOB BROWNE, NORTHERN TRUST CHIEF INVESTMENT OFFICER: Yes, absolutely. In fact, if you look at history, stocks can do very well in a rising environment when rates are higher because of growth, as opposed to inflation. So — but as Kathy said, we think we’re nearing the end of this increase in rates, as it is.

One of the reasons we’re positive on equities is that we expect rates to remain relatively low by any historical standard and we’re currently trading even above our trading range and it’s expected for the next six months. Even if the fed moves as expected either in September, if not earlier, we really don’t see much of a threat beyond what we’re already seeing for the trading around 250.

So, that period of monetary accommodation, we think continues and that remains very supportive for equities.

EPPERSON: And so, Bob, what does that mean for investors who are looking at where they should put their equity portfolio? Of course, the rise we’ve seen in the European stock market has kind of carried the way for 2015. Should investors be more diversified within equities and how should they do so?

BROWNE: Well, you should always be diversified and regardless of your view on a sector or a particular company, we have a very high quality bias, looking for companies with high, sustainable ROEs and good growth opportunities and business models. It sounds very simple, but you just have to be disciplined about finding a diversified selection of those types of companies in your portfolio.

And we still prefer U.S. equities to international equities. In general, though, we certainly are recommending an overweight risk asset. Today is a good example of why investors need to be fully invested when their longer term view is positive, and not get too caught up in trying to pick the exact moment because the risk is, you’re defensive on a day like today and you miss out on a very substantial rally.

So, we think cash is the most expensive asset class without doubt. We think bonds outperform cash, equities outperform bonds over the next 12 months.

MATHISEN: All right. Kathy, let’s turn to bonds. What should I do with my bond portfolio in the face of these rising rates? And if I haven’t done it already, is it too late to do?

JONES: Well, typically, when you go into a rates hiking cycle and the Fed starts to raise rates, the worst time for the bond market is usually about the three months before the first rate hike and then longer term rates tend to peak early in the rate hike cycle, because it starts to look like the Fed’s going to get ahead of inflation and slow down the economy. And, you know, we think that in this cycle, that’s even more true because we’re not starting from a point where inflation’s a big concern, or the economy’s overheating. The feds really just starting to lift rates to get back to something that’s more like normal.

MATHISEN: Should I — forgive me for interrupting, but should I emphasize shorter term bonds or do a barbell with some short-term and some long or intermediate? What? Quickly.

JONES: Yes. We think to like the barbells right now, and that’s a strategy where you have some short term bonds, cash, maybe some investment rate, floating rate, and then you have some intermediate term bonds that generate income.

MATHISEN: All right.

JONES: So, you know, the short-term will benefit when rates go up, you’ll get a chance to reinvest, but you still need to earn some income in your portfolio. And we like the intermediate term bonds for that.

MATHISEN: You sure do.

Good ideas from both of you. Bob Browne of Northern Trust (NASDAQ:NTRS), Kathy Jones with Charles Schwab.

EPPERSON: Tyler, meanwhile, the federal budget deficit has narrowed further in May. Revenue rose faster than expenses. The Treasury Department said the deficit last month dropped to $82.4 billion. That’s a 37 percent drop from the same period last year. For the first eight months of the fiscal year, the deficit shrank to its lowest since 2008.

MATHISEN: More on oil now. Rallying for a second straight day, crude prices nearing a one-month high. By the settlement, West Texas Intermediate rose more than 2 percent, $61.43 a barrel.

Jackie DeAngelis has our report.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Crude oil prices back on the rise, testing the top of their most recent trading range of $58 to $62, but failing to breakthrough. The most recent rally driven by EIA inventory data showing that crude inventories fell 6.8 million barrel last week, certainly bullish. But the Department of Energy also reporting that U.S. production rose to slightly more than 9.6 million barrels a day. That’s another increase in an oversupplied market.

Additionally, OPEC out with its monthly report, saying it expects demand isn’t likely to increase, but that oversupply will ease over the coming quarters.

The data points are all over the place, but consensus is that it’s borrowed demand from summer driving season that’s sending crude higher. Traders right now looking to buy this rise into the Fourth of July driving season peak, but then looking to sell crude.

Meantime, the dollar has eased a bit against the euro, that usually pushes crude higher. But if the euro struggles again and the dollar soars, crude prices could quickly turn the other way.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

EPPERSON: Still ahead, is the middle class dead as we know it? A former Goldman Sachs (NYSE:GS) partner explains why this group is so important to the economy and how it ca be rebuilt.

(MUSIC)

MATHISEN: The government now proposes to regulate aircraft emissions much like power plant emissions. In a new report, the EPA calls them a threat to human health, because they contain pollutants that help cause global warming. This could clear the way for possible adoption of international emission standards, but don’t figure on anything soon. Anytime global warming enters the discussion, a political battle usually follows.

EPPERSON: Lawmakers on Capitol Hill say they’ve reached a deal on a key hurdle to President Obama’s specific trade pact. Both parties have agreed on providing help for workers hurt by trade. That moves a vote on legislation that would give fast track trade promotion authority to the president to Friday.

MATHISEN: The large city hiking its minimum wage. Los Angeles approved a pay hike to $15 hour, becoming the latest city to do so. The vote follows similar moves in San Francisco and Seattle, and many expect the issue to be hot on the campaign trail, as the 2016 election cycle heats up.

Kate Rogers (NYSE:ROG) has more.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The minimum wage movement scores another victory. Across the country, there are now 29 states and Washington, D.C. with a wage higher than the federal minimum of 7.25 an hour. Experts say the pressure will spread to other states and in particular, big cities across the country.

With 2016 on the horizon, the issue will be a talking point for both Democrats and Republicans.

IRENE TUNG, NATIONAL EMPLOYMENT LAW PROJECT: Any candidate, regardless of their political affiliation, is going to have to take the issue of the minimum wage on and the issue of income inequality more broadly on. The economy is growing and the stock market is soaring, but most Americans have not seen that translate into growth in their paycheck. You know, many Americans are becoming more and more impatient with their elected official.

ROGERS: Fuelling the fight are a slew of big names including McDonald’s (NYSE:MCD), target and Walmart, all hiking wages in recent months for workers well above the federal wage floors. Fast food protest which has been a steady presence across the country in recent years has added pressure to raise wages for low income workers.

But the National Federation of Independent Business worries the increased pressure would hurt Main Street. The conservative lobbying group said small businesses pay higher wages when they can afford to. Market conditions, not government policies, should trigger wage increases.

JACK MOZLOOM, NATIONAL FEDERATION OF INDEPENDENT BUSINESS: That’s a natural economic movement. What we’re talking about is an arbitrary number imposed by politicians and advocates. That bears no relationship at all to the prices that consumers want to pay. And when wages are disassociated from prices, it’s bad news for the economy.

ROGERS (on camera): In April, congressional Democrats unveiled their own plan to hike the federal minimum wage to $12 an hour by 2020. And while that may not be a reality anytime soon, you can expect presidential candidates on the campaign trail to have strong opinions on why raising the wage is or isn’t the right move.

For NIGHTLY BUSINESS REPORT, I’m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

EPPERSON: Well, debate over raising federal minimum wage remains stalled in Congress, the Obama White House is on the verge of crafting new rules on overtime pay. That could give millions of Americans a big pay raise.

Hampton Pearson explains.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Any day now, the Labor Department is expecting to propose a new rule to adjust for inflation the current threshold for overtime pay from nearly $24,000 a year to as much as $52,000, extending time and a half overtime benefits to an estimated 6 million Americans.

At a Capitol Hill hearing today, supporters say it’s one way to overcome decades of wage stagnation.

SETH HARRIS, FORMER OBAMA ADMIN. ACTING LABOR SECRETARY: Overtime regulations — the current salary threshold that we’re all talking about here for exempt employees is at half of the average hourly wage for nonproduction employees in the American economy. Half.

PEARSON (on camera): Restaurants and retailers could be particularly hard hit. They employ mostly hourly workers, including managers. Many of whom do not get paid overtime.

(voice-over): Today, a top executive from the White Castle Restaurant Chain told lawmakers raising the salary threshold and changing the job description duties for overtime eligibility would impact the business model for much of the retail and restaurant industry.

JAMIE RICHARDSON, WHITE CASTLE INC. VICE PRESIDENT: An increase in the overtime salary threshold to $808 per week or $42,016 per year would affect 1.7 million retail and restaurant workers and would cost business owners $5.2 billion per year, assuming employers do not make changes to offset the increased cost.

PEARSON: Congressional Republicans are offering legislation to bloc the overtime rule changes and business groups may file lawsuits. In the meantime, look for Democrats to add overtime pay to the debate over income inequality.

For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.

(END VIDEOTAPE)

MATHISEN: Amid the raging debates over minimum wages and overtime pay, our next guest says we pay far too much attention to the wealth and income gaps between rich and poor and far too little to what’s happening to the middle class and why. He’s Peter Kiernan, a capitalist, a former Goldman Sachs (NYSE:GS) partner, who now devotes much of his time to poverty-fighting philanthropies like the Robin Hood Foundation. He’s also the author of the brand new book, “American Mojo: Lost and Found, Restoring Our Middle Class”.

Peter, welcome. Good to have you with us.

PETER KIERNAN, FORMER GOLDMAN SACHS PARTNER: So nice to be with you.

MATHISEN: You do emphasize the importance of shoring up, reinvigorating the middle class as opposed to the constant concentration on the gap between rich and poor. But if you shore up the middle class, doesn’t that help solve the gap between the rich and poor?

KIERNAN: It does. And one of things that’s changed that people are not focusing on, there are about 45 million poor people in the United States, which is obviously a tricky and troubling circumstance. But just above them are another 50 million who are hovering, just a lost paycheck or two, or a cancer diagnosis, or a car wreck, or some twist in life’s fate away from slipping into poverty.

And the challenge is, we can’t just be focused on evidence that says we’ve got a widening gap, we do. We have to find the solution by rejuvenating our middle class.

EPPERSON: And how do we do that? How do we connect the dots from what we’ve learned in terms of the surging middle class that we saw in the ‘50s and ‘60s? You outlined in your book many interesting stories. How do we translate that to what we’re seeing today, as we are facing an economy that is highly motivated by entrepreneurs and by new technologies?

KIERNAN: Well, there are two things, I would divide the answers and I do in the book into two buckets. One is what you do domestically and what do you do internationally. Domestically, we have to get serious about creating first quality jobs. And secondly, we have to look for jobs that are unfilled.

Right now, there are 4 million jobs that are not filled because of a skills gap. These are programming jobs and computer jobs and health care worker jobs that are great because they’re multiplier jobs. If you higher someone with that job, usually, two or three people additionally have to be hired.

Now, one of the things that troubles me so much is we’re focusing on how can we address — yes, some wage gaps in the minimum wage — but the focus should be on filling these first class jobs that are available by the millions in the country.

MATHISEN: You know, you take your fellow 1 percenters to task for not doing enough to address what you see as the challenges facing the middle class. But you say in the book that merely redistributing income and redistributing at the tax burden isn’t going to solve it. You have to redistribute opportunity. What do you mean by that? And how do you do it? Who does it?

KIERNAN: I think that’s key. That, look, I presume the taxes on the 1 percent are going to go up, so you’ve raised the money. OK, what are you going to do with the money now to help people? And I think, for example, if you imagine everyone who’s living Los Angeles and Philadelphia, all those people, that’s how many young people between the ages of 16 and 25, what I call NEAT, not in employment, education or training.

We need to find ways — we can’t have a lost generation of 6.5 or 7 million young people with no hope and options. We have to take the money that we have raised from taxation and other ways and deploy it so we can train these young people. They’re not going to go back to school with 15-year-olds if you’re 23 in specific training programs. Effort pointed at them.

MATHISEN: “American Mojo” has a lot to think about in it. “American Mojo” is a book. Peter Kiernan is the author. “American Mojo: Lost and Found”.

Thanks for being with us, Peter.

KIERNAN: It’s a pleasure to be with you. Thank you very much.

MATHISEN: Good to be with you.

EPPERSON: And we begin tonight’s “Market Focus” with a dividend hike from Caterpillar (NYSE:CAT).

The mining equipment maker will increase the payout by 10 percent to 77 cents a share. That will be made to shareholders in August. The yield on its dividend is around 3 percent. Shares rose 2 percent to $88.48.

Apple (NASDAQ:AAPL) Music, the streaming service the company announced this week, is facing scrutiny in New York and Connecticut. The attorneys general of those states are investigating the negotiations Apple (NASDAQ:AAPL) made with music companies while developing the service, to look for signs of potential antitrust violations. Despite that, shares rose 1 percent to $128.88.

MATHISEN: Well, Sharon, Johnson Controls (NYSE:JCI) is exploring now a sale of its automotive business. This could be a potentially huge shift in the auto industry’s supply chain. The company’s CEO explained the thought process behind the possible break up.

(BEGIN VIDEO CLIP)

ALEX MOLINAROLI, JOHNSON CONTROLS CEO: The most important thing to understand is that we have an incredible franchise business in the automotive business. But in order for us to become a multi industrial, truly to be a multi-industrial, it’s been clear, it’s going to be more and more clear that we need to focus on the segments that are going to move us forward as a company and allow the automotive business to have investments it needs to be successful.

(END VIDEO CLIP)

MATHISEN: Shares popped nearly 4 percent to $53.59.

Target (NYSE:TGT), meanwhile, increasing its quarterly dividend to 56 cents a share, upping its share buyback program by $5 billion. The retailer accidentally revealed the news before it was official. Then, the board said, yes, go ahead. Shares up a fraction to $79.67.

And coming up, San Francisco takes aim at sugary drinks, but will big companies like Coke and Pepsi fight back.

(MUSIC)

EPPERSON: Here’s what to watch tomorrow:

Retail sales are out. We’ll see if shoppers are shaking of the winter blues.

Also on the data front, initial jobless claims.

And Facebook (NASDAQ:FB) will hold its annual shareholder meeting.

That’s what to watch Thursday.

MATHISEN: Food and Drug Administration panel had backed Amgen’s highly anticipated and potentially revolutionary cholesterol drug. The panel says the drug benefits outweigh the risks, but that it should only be used in patients at high risk of cardiovascular disease.

Yesterday, a panel voted that a similar drug develop by Regeneron and Sanofi should be approved but again, for very narrow use.

Well, two major cities want people to eat better and they are proposing new rules to get you to do it. San Francisco taking aim at sugary drinks, while New York City is setting its sights on salt.

Sara Eisen has more.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sweet or salty? Both are coming under fire.

In Manhattan, Health Department officials proposed new rules today requiring chain restaurants to include a warning label on menus for items high in salt — dishes with more than the recommended daily limit of 2,300 milligrams of sodium, or about one full teaspoon.

Also today, San Francisco became the first city to require health warnings on ads for sugary drinks. The man behind the proposed rules, Scott Wiener, says he wants to educate consumers about the health risks of drinking soda.

SCOTT WIENER, SAN FRANCISCO BOARD OF SUPERVISORS : Sugary drinks are almost half of all sugar consumed in the American diet. One 12-ounce can of soda has ten teaspoons of sugar and these drinks are absolutely fueling the explosion of type 2 diabetes that we’re seeing in the U.S. So, this legislation is designed similar to the approach with cigarettes to get people to drink less.

EISEN: The industry group representing Coke, Pepsi and other beverage companies is fighting back, saying, “Singling out one industry and one type of product does nothing to educate people about the importance of balancing calories and physical activity.”

WIENER: Their argument is the same as saying, well, cigarettes aren’t the only cause of lung cancer and emphysema, therefore, don’t regulate cigarettes.

Yes, of course, there are other unhealthy things that people eat and drink, but here we have a particular product that is almost half the sugar in the American diet. That is absolutely scientifically linked to diabetes and we have a responsibility to address it.

EISEN (on camera): One fact, consumers are drinking less soda on their own, switching instead to tea, juice and bottled water. The industry has seen declining soda sales for the last decade. Meantime, the rate of diabetes cases has increased exponentially in this country.

San Francisco actually put the issue on a ballot last year, a soda tax, but it failed to secure a majority needed to pass. As far as the current proposal, San Francisco supervisors will vote against next eek and if it passes and the mayor OKs it, it will become law in 30 days.

For NIGHTLY BUSINESS REPORT, I’m Sara Eisen.

(END VIDEOTAPE)

EPPERSON: And finally tonight, Glassdoor is out with its list of the most loved CEOs. Number three, Charles Butt, the head of grocery chain HEB. Second is Mark Parker of Nike (NYSE:NKE).

And Google (NASDAQ:GOOG) CEO Larry Page ranked number one. He made a big jump. Last year, he was number 11.

And that’s NIGHTLY BUSINESS REPORT for tonight. I’m Sharon Epperson. Thanks so much for watching.

MATHISEN: And thanks from me as well. I’m Tyler Mathisen. Have a great evening, everybody. And we’ll see you right back here tomorrow night.

END

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.

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