TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Stocks routed, the
Dow dives, tech stocks tank as the blue chip index sheds more than 500
points to cap the worst week on Wall Street in four years.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Oil breaks $40. Crude
prices continue to crater falling briefly below that level. And there`s
one big problem for that commodity that isn`t going away any time soon.
MATHISEN: And needed repairs, bridges are crumbling but one state
found a fast fix to one of its biggest problems. The final part of our
week-long series “The Big Fix” — tonight on NIGHTLY BUSINESS REPORT for
Friday, August 21st.
HERERA: Good evening, everyone, and welcome.
The correction that many have been calling for is here. The Dow Jones
Industrial Average plummeting more than 500 points today is now down more
than 10 percent from its recent high.
And it`s not alone. The tech heavy NASDAQ and the small cap Russell
2000 index have also fallen that same amount.
The reasons for the selling, which we`ve been seeing all week, boil
down to three things, China, the Federal Reserve and oil. But today, the
losses intensified. By the close, the blue chip Dow index tumbled 530
points to 16,459 on very heavy volume. NASDAQ shed 171 points or 3.5
percent. And the S&P 500 lost 64.
For the week, all three major indices were off more than 5 percent
with the NASDAQ losing the most.
According to S&P, issues within the S&P 500 index lost more than $1
trillion in market value this week. And as stocks fell, so did bond yields
— the ten-year now hovering just above 2 percent.
Bob Pisani takes a look at the mood on the street and what investors
may be in for next week.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: What a day and
what a week. The S&P 500 fell more than 5 percent. This is the worst week
since September 2011.
There was no immediate catalyst for the decline. And that`s why
traders were taken by surprise by the heavy selling. It was a vague mix of
concerns on slowing global growth, concerns that had been building for
months frankly. China started dropping in June. Brazil started dropping
at the end of last year.
So, where`s the market bottom? I have no idea, but the fear level is
pretty high — higher than it`s been all year. And that`s a good sign.
The VIX or fear indicator has gone through the roof this week, practically
doubling indicating that traders are willing to pay for protection that
they didn`t have before.
And, traders were very busy buying and selling stocks and options.
One trader told me it was the busiest day he`s had in 18 months.
OK. What about next week? Housing is one of the few bright spots.
We have new home sales on Tuesday, we get durable goods on Wednesday, but
the big event will be the Jackson Hole Conference for the Kansas City Fed`s
annual gathering of central bank officials from around the world. That
starts on Thursday.
Still, the economic data and the meeting will take a backseat to
market sentiment. What will happen there? Look at it this way, the
contribution of China to the S&P 500`s revenues are only in the mid-single
digits, that`s not much. And we have already priced in a huge slowdown in
Cyclical global stocks, for example, like General Electric (NYSE:GE),
all down like 15 percent or more. Commodity stocks are in a bear market.
Most of them are down 20 percent, 30 percent, even 40 percent. With this
level of fear, many feel we are setting up for a short-term bounce.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock
(END VIDEO CLIP)
MATHISEN: So, how concerned are you, the individual investors, about
the selloff in the market? We sent our cameras to find out.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Makes me nervous for the future. I don`t invest
in individual stocks, but I do have some funds. And they`re going down.
UNIDENTIFIED FEMALE: Yes, it is concerning. But overall I would not
necessarily say it`s going to affect my life right now. It would be more
concerning about my long-term.
UNIDENTIFIED MALE: My retirement account is going down. I was
watching it online. And I have investments I`m watching. So I`m real
concerned about that.
UNIDENTIFIED MALE: It`s definitely hitting my 401(k) and my personal
net worth. It is also a buying opportunity.
UNIDENTIFIED MALE: I didn`t know about it, but I`m going to go check
my 401(k) now.
(END VIDEO CLIP)
HERERA: On that note, let`s talk to our next guest. He manages money
for individual investors and has had a very busy week fielding questions
from some nervous clients. He is Richard Coppa, managing director at
Nice to have you here.
RICHARD COPPA, WEALTH HEALTH MANAGING DIRECTOR: Thank you.
HERERA: So, what have your clients been asking you and what have you
been telling them?
COPPA: Well, a lot of them asking about, you know, the nervousness of
the market, how long will this continue, how much further do you think it`s
going to go?
I think the one good thing I think I can say is people aren`t unnerved
as you would imagine. Because I think we`ve been talking to clients for
years now about 10 percent correction, that`s the buzz word. And it`s been
since 2011 since we`ve had a 10 percent correction.
Typically, you have that once a year to twice a year. So we`ve been
kind of having that conversation for a while. And so I think the time has
come. And for people with cash, I think this is a time as some of the
people just said here, this is an opportunity to buy. We always think
about selling when the markets are going down and doing the opposite of
what we really should be doing.
MATHISEN: This is — I don`t mean to be Pollyanna here. But these
kinds of days, these kinds of weeks, are times where the phrase risk
tolerance really becomes real.
MATHISEN: What if I have now today bumped up against my risk
tolerance, and I go I am not comfortable with my equity allocation. In
what areas do I take money off the table?
COPPA: Well, that`s a common question. My job is to make sure from a
stress test that the portfolio can support your needs, your cash flow
needs. However, I have to balance that with the emotional risk tolerance.
In this case, what you`re saying I can`t take it anymore. I`ve been
looking, which I have been looking at, is the large cap value, large cap
growth area. That`s the area over the last five years that`s done the
best. I think taking some gains off there maybe up to 5 percent would
satisfy the emotional risk tolerance of a client. Secondarily, I probably
look at some of the emerging markets because I think that`s a troublesome
area going forward.
MATHISEN: Not because they`ve done terribly well over the past few
COPPA: No, not at all.
MATHISEN: Right. If this continues though, I mean, is this
correction a little bit different this time? Because it`s mainly being
triggered by China. Does that change the nature of this correction, or
COPPA: You know, I think — I think we always try to look for what is
different this time when we`re in it. And I think what we look at in
reverse is that nothing`s that different. We live through it.
There`s different reason, different causes for these events. But the
market continues over time if you`re a long-term investor.
I think however to your point China is probably driving this
correction because two or three weeks ago, we knew Greece was out of the
mix at least, you know, temporarily.
COPPA: We also knew that the fed was likely to raise rates, or the
argument was September or maybe later this year. That hasn`t changed.
Maybe they`ll push even further because of the events here, but I think the
uncertainty in China is driving that.
And the problem is, we don`t really know what the growth is really
going to look like going forward. We`re a little speculating at this time
because of the devaluation of their currency.
HERERA: Thank you so much for joining us, Richard. Appreciate it
COPPA: You`re welcome.
MATHISEN: Have a good weekend.
COPPA: You, too.
MATHISEN: Stay solvent.
All right. Oil prices fell below $40 a barrel midday today, something
that hasn`t happened since 2009, the heart of the Great Recession. By the
settle, crude prices were down 2 percent to $40.45 marking another week of
losses, longest such losing streak since 1986.
John Kilduff is founding partner at Again Capital and he joins us now,
or re-joins us as he often does on these wild days in the oil markets.
John, what`s going to happen?
JOHN KILDUFF, AGAIN CAPITAL FOUNDING PARTNER: Well, I think it`s
going to keep going, Tyler. As much as the stock investors are worried
about China, this is a real gut check for the oil market, because if the
oil market loses the demand and loses the economic engine of China for the
future here, it`s really bad news for crude oil.
HERERA: So, John, how much lower do you think prices could go? And
now we`re starting to hear that word deflation bandied about again.
KILDUFF: Yes, I think the deflation comes from, sue, the fact that
the global commodities supply chain got built out across the board in a big
way to satisfy China and her demand for these various base metals and oil.
And it got overbuilt. So, now, we`re seeing that the effect of that from
China is declining economically.
The price of crude oil, I believe, will ultimately bottom out later in
the year now in the mid-$20 range, $25 a barrel before this is all said and
done. There`s just too much supply. There`s too much worry about Asia.
It`s a terrific one-two punch for crude oil prices.
MATHISEN: This is obviously a pain for people who work in the oil
business, for Texas, for some of the producing areas in this country,
But on balance, John, is lower priced oil a good thing for the
KILDUFF: It most certainly is. Look, 80 percent of the crude oil
barrel in this country goes to transportation.
So, literally planes, trains and automobiles. Obviously, that`s going
to improve the bottom lines of the transportation companies, of consumers.
And it makes people feel good. It`s a boost to consumer confidence when
you see pump prices fall below $2 a gallon. And that`s in the process of
happening in many communities across the country.
I think what`s hurtful here is that the shale boom in this country
that really got us to where we are right now was a leader in terms of job
creation and other things. But, you know, it`s a boom and bust cycle.
The folks that are involved with that are used to it. And they`ll
have their day again in the sun. It`s just not going to be right now or
for a while.
HERERA: John, you know, this brings us kind of full circle to the
Federal Reserve because they`ve been looking for some inflation in the
economy. And, again, today I was hearing a lot from analysts we may be
entering a deflationary cycle.
Can they raise rates if we`re in that deflationary cycle?
KILDUFF: Well, it`s interesting, Sue, because obviously they also
focus on employment. And that is terrifically strong here in the U.S. no
doubt about it. In terms of the inflation out of the equation, you know,
the answer has to be no although they do try to exclude food and energy in
their analysis. But, no, this is going to feed through and keep a lid on
things. But they can`t ignore what`s being affected mostly in this
situation here, and that`s the China syndrome that we`re going through.
So, I believe it`s going to hold them back now.
MATHISEN: All right. John, thank you very much for being with us.
Have a great weekend.
KILDUFF: You too.
HERERA: As we`ve been saying, we are well aware of the pain that low
crude oil prices are causing, especially in those oil producing regions of
the U.S. But for consumers of oil, it`s a different story.
So, Morgan Brennan reports now on the important sectors of the economy
that are actually benefitting.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: With U.S. oil
futures dipping below $40 a barrel, it`s easy to spot the losers, from
energy companies to jobs to the ripple effects on the broader stock market.
But when oil falls this low, it also means winners, the biggest being
the consumer whose savings at the pump has been translating into spending
ART HOGAN, WUNDERLICH SECURITIES: Typically, the first thing you do
you go out to eat. That started to show in restaurants, same store sales
were continuing to see that in the second quarter and third quarter.
BRENNAN: Consumers have been plowing those savings into real estate
with home purchases on the rise and home improvement retailers like Home
Depot (NYSE:HD) and Lowe`s reporting stronger sales. Automakers have
benefitted in a few ways as well.
Last quarter, General Motors (NYSE:GM) sold more trucks and SUVs amid
cheap gas prices. That helped the company post earnings that were four
times better than a year ago.
And more Americans are taking road trips. Federal data shows
Americans drove more miles in June than ever before, pushing gas use toward
a new record. That helps tire manufacturers like Goodyear Tire and
Not only does driving drive up demand for new cars and parts, but
cheap oil makes the cost of producing synthetic rubber less expensive.
HOGAN: When you step away from the consumer and consumer
discretionary spending, the next place you want to look is enterprise. So,
anybody that`s manufacturing anything that takes energy or needs to be
delivered is a beneficiary.
BRENNAN: Including transportation companies, which count fuel among
their highest costs. Airlines like United, Continental and Southwest have
seen their jet fuel bills drop, bolstering earnings despite weakness in
revenue. And cheaper diesel has made trucking more cost competitive over
railroads — a dynamic that`s pulled some businesses from tracks to roads.
Hogan says between the increased spending power of consumers and lower
cost to move goods around the country, all of these oil tailwinds should
have a, quote, “huge benefit for 85 percent of the S&P 500” — the key
point to consider after a sea of red arrows on Wall Street this week.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
MATHISEN: The president of the St. Louis Fed is a big advocate of
raising interest rates at the central bank`s September meeting. And he
reiterated that stance today.
In an interview, James Bullard said he was upbeat about the U.S.
economic outlook even as oil prices drop and concerns over China grow.
HERERA: And U.S. Treasury Secretary Jack Lew told a top Chinese
official in a phone call today that the United States will closely monitor
China`s new currency policy. The call comes after China recently pushed
the value of its yuan sharply lower against the dollar — a move that makes
exports more competitive with the U.S.
Lew also urged China to continue with its economic reforms.
MATHISEN: Still ahead, bargain stocks to buy in a market selloff.
Our market monitor has identified some names he says are worth owning right
HERERA: Some of the most recognizable stocks are now in a bear
market. One-third of the Dow now trading 20 percent or more below their
52-week highs. And they include Chevron (NYSE:CVX), which is down nearly
40 percent since its most recent 52-week high followed by Du Pont,
Caterpillar (NYSE:CAT), Intel (NASDAQ:INTC), Exxon, Walmart, United
Technologies (NYSE:UTX), IBM, P&G and Apple (NASDAQ:AAPL).
MATHISEN: Our market monitor is using the selloff in some of those
big name companies to buy more shares at a lower price. He`s Randall Eley,
president and chief investment officer at Edgar Lomax company.
Randall, welcome. Good to have you with us.
Last time you were on you joined us in January, you recommended AT&T
(NYSE:T), which is flat since then, Exxon Mobil (NYSE:XOM), which is off
more than 20 percent, and Johnson & Johnson (NYSE:JNJ), which is down 10
I know that Exxon is one of your picks today, but let me ask you about
those other two, Intel (NASDAQ:INTC) and J&J, are you still comfortable
holding them? Would you buy more?
RANDALL ELEY, THE EDGAR LOMAX COMPANY PRESIDENT & CEO: Absolutely.
ELEY: In both cases, in businesses, we need they`re understandable
businesses, intel, you can`t run your computers without them. Johnson &
Johnson (NYSE:JNJ), we wouldn`t have the life expectancy we have without
They`re also strong businesses. Financially, they have little debt.
They`re going to be around a long time.
HERERA: What about Exxon though, Randall? I mean, if this oil cycle
is going to be longer than we`ve seen previous cycles and we`re not yet at
the bottom in crude, how is that going to impact Exxon`s bottom line?
Would you buy more here?
ELEY: Absolutely. We would buy more. In fact, we`re going to do
something that I hope you see as courageous. We would double up.
ELEY: And also — oh, yes. Move (NASDAQ:MOVE) money into Chevron
Now, we`ve been owning in our larger portfolios, but in a smaller
portfolio like we`re looking at today, we will go in.
These companies are not going out of business. You know, people are
assuming that oil prices are going to fall, I`m hearing below $20, like
But many investors are assuming that these oil prices are going to
fall to $1 or $2 a barrel. That`s not going to happen.
MATHISEN: Let`s talk about Chevron (NYSE:CVX), which we just pointed
out is now in bear market territory and how off 40 percent from its high.
I assume you like among other things a very juicy dividend that just got a
little juicier today.
ELEY: We absolutely do. You`re talking about a dividend over 5.5
percent. So, this is — this is more than twice that of a ten-year
MATHISEN: Would they ever cut it? Cut the dividend?
ELEY: It`s always possible. If the earnings fall for a sustained
period below the dividend rate, then they would cut it. But they can
afford to cut it in half and still more than the ten-year treasury yield.
And the company would be keeping more money and becoming richer.
HERERA: So, Randall, what about the overall market? That was one of
the big debates today is how much lower the S&P needs to go, will go, or is
it bottoming out? What do you think?
ELEY: Yes. Well, I don`t think it`s bottoming out as far as looking
at a bull or bear market cycle. But in the long-term, you know, we expect
stock prices to go up as these companies are profitable and add to their
net worths or their book value.
But the fact is the price-to-book ratio, which is one we like to look
at, is close to three right now, the price three times the book value. And
I would be more comfortable seeing that under 2.5, getting closer to 2.
But you see that`s not expecting the markets to fall by half.
MATHISEN: All right. Let`s go to your third choice very quickly,
Randall. And that is Intel (NASDAQ:INTC).
ELEY: Yes. That was on the list last time.
ELEY: Again, you can`t run your computers without them. This is a
company, again, very little debt. They have constantly proven the
naysayers wrong, who think their business model is broken.
They keep finding ways to remain relevant. And there`s no doubt in my
mind they will continue to. They also have tons of money to keep up their
MATHISEN: Randall, stay cool in Washington, my hometown.
ELEY: Thank you. You too.
MATHISEN: All right. Randall Eley with the Edgar Lomax Company.
HERERA: Deere`s profits tumble and that`s where we begin tonight`s
The world`s largest seller of tractors and combines reported a
slumping demand for new tractors, as crop prices fell. The company trimmed
the sales forecast for the year despite analyst expectations in the most
recent quarter. Shares of Deere down over 8 percent to $83.29.
Shoe and apparel retailer Foot Locker beating analyst earnings and
estimates for the eighth quarter in a row. Same store sales grew nearly 10
percent for the retailer which operates more than 3,400 stores in 23
countries. Shares rose early in the trading day but fell along with the
broader market to finish at $69.02.
MATHISEN: And speaking of shoes, the board of shoemaker Skechers
approved a 3-for-1 stock split, the CEO calls the decision an indication of
confidence in his business model. If approved by a shareholder vote in
September, both class A and class B shares would be split. The news sent
the stock up initially but ended the day down more than 4 percent
The global transport giant FedEx (NYSE:FDX) said it will formally
start its plan to acquire the Dutch firm TNT Express (NYSE:EXPR) next week.
The company expects its $4.8 billion offer to clear any regulatory hurdles
and be approved. FedEx (NYSE:FDX) ending the day down nearly 3 percent
today to $156.03.
Well, demand for IPOs had been very hot with investors gobbling up
shares of new publicly traded companies. But that seems to be changing.
Many of those offerings are now trading below their IPO prices, and with
the continued market selloff, the pipeline of new shares may be cooling as
Dominic Chu has the story.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: U.S. stocks are
capping off one of the most volatile weeks in recent memory, and some
traders are saying the losses may have been hinted at by performance of
recent initial public offerings or IPOs.
Just look at stocks like Chinese e-commerce giant Alibaba and social
media company Twitter. Both were hot IPOs at one point, but both are now
trading right around their original debut price.
Renaissance Capital is a firm that manages funds tied to the IPO
market. And according to their data many of these stocks had been
outperforming the broader market at least to start the year.
KATHLEEN SMITH, RENAISSANCE CAPITAL CO-FOUNDER AND CHAIRMAN: The
returns on the IPOs that happened at the end of `13 and into `14 were very
strong, so that encouraged investors to become more confident and
participate and to chase those returns. So, it`s really about the returns
and that keeps the action going with IPOs.
CHU: But over the last month or so the performance of recent IPOs has
started to falter and are now underperforming. That could have a big
effect on how the market views these types of new stock issues in the
coming months. It may also discourage some companies from trying to go
public if markets continue to be volatile.
SMITH: Almost half of the IPOs done so far this year are trading
below their IPO price, so we expect to see a ratcheting down of the
valuations of the IPOs that are going to come out. And, in fact, maybe a
slowdown in some that may not be able to get done if we continue to have
this very weak overall market scenario.
CHU: But not all companies may be as negatively impacted. Investors
are watching closely for a number of high profile companies in particular
to see if they test the IPO waters any time soon.
SMITH: We can`t forget that so many are waiting for Uber and Airbnb.
It will be interesting how the market if they come out this year I think it
may be unlikely at this point, but how the market will treat these
companies when the Internet companies have been so poorly treated in this
existing trading environment.
CHU: Volatility in the broader market will play a big role in whether
private companies attempt to go public regardless of popularity or their
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
HERERA: And coming up, rapid repairs. Why the state with the highest
percentage of bad bridges is looking to the private sector for help. It`s
the final part of our week-long series, “The Big Fix”. And it`s straight
MATHISEN: Well, the economy will be in focus next week. Here`s a
look at what to watch. A number of housing reports are due out, including
new and pending home sales. We`ll find out more about economic growth,
with the second read on second quarter GDP. And we will have reports —
you bet we will — from Jackson Hole, Wyoming, where they`ll meet at the
annual symposium. They know how to pick a nice place. That`s what to
watch next week.
HERERA: The used car market is hot, but not because it`s cheap.
Edmunds.com says the average price for a used car hit a record high of
$18,800 in the second quarter. That`s an increase of 7.5 percent year over
year. The same factors behind this year`s rapidly rising new car sales —
better economic outlook, low unemployment and low interest rates are also
driving used car sales.
MATHISEN: The nation`s bridges are on shaky ground. The government
says 10 percent of them are structurally deficient. Doesn`t mean they`re
about to collapse, but they do need to be repaired. The cost to fix them
estimated to be almost $21 billion a year for the next 13 years. The
problem is particularly bad in Pennsylvania, which has the most deficient
bridges of any state.
And as Mary Thompson tells us, in a final installment of our series
“The Big Fix”, Pennsylvania is looking to the private sector for a
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Pennsylvania`s
got a problem, or 4,200 of them, in the form of structurally deficient
LESLIE RICHARDSON, PA SEC. OF TRANSPORTATION: While that number`s the
lowest it`s ever been, it`s still a lot of bridges. So we need to really
work hard and aggressively to reduce that number even further.
THOMPSON: So the state Secretary of Transportation Leslie Richardson
says it`s spending almost $1 billion on a public-private partnership to
repair 558 bridges in three years.
RICHARDSON: Normally, it would take about a dozen years to get to
this many bridges.
THOMPSON: Daniel Galvin works for the firm running the project, The
Walsh Group. Critical meeting the deadline, repairing a single span bridge
like this one in ten weeks rather than the typical six months.
DANIEL GALVIN, THE WALSH GROUP: We come in, remove the old one, tear
out the abutments, pile driving, put in new abutments, put the deck in
place and repave it and back open for business.
THOMPSON: Hoping to save time and money using uniform methods to
repair and build the bridges and buying materials in bulk.
Here in Cressona, Pennsylvania, Northeast Prestressed Products will be
making almost 2,300 of beams like these.
Those beams slated for the targeted bridges which in an unusual twist
will be maintained by The Walsh Group for a much longer than normal 25
GALVIN: So we`ve got an investment in this project to make sure that
the quality is there and that it lasts with 100 years that each one of
these bridges are supposed to stand up.
THOMPSON: For NIGHTLY BUSINESS REPORT, I`m Mary Thompson in Cressona,
MATHISEN: To read more about what Pennsylvania`s doing to fix its
bridges, head to our website NBR.com.
HERERA: And before we go, here`s another look at today`s selloff on
Wall Street. The blue chip Dow Index tumbled 530 points to 16,459 on very
heavy volume. The NASDAQ shed 171 points. The S&P 500 lost 64. And for
the week, all the major indices were off more than 5 percent.
Next week`s going to be a tricky one, I think.
MATHISEN: Oh, yes.
That will do it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue
Herera. Thanks for joining us.
MATHISEN: And thanks from me as well, I`m Tyler Mathisen. Have a
great weekend, everybody. Inject plenty of liquidity. We`ll see you
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