Transcript: Nightly Business Report – August 24, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Harrowing and historic. Tumultuous move on Wall Street. The Dow plummeting 1,000 points in early trading, sending the S&P 500 into correction territory.

Economic shift, how the violence swings in the stock market may be impacting the thinking at the Feds.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: It’s making me very nervous, very nervous. I’m approaching retirement age and my husband is already retired. So, scary.

(END VIDEO CLIP)

HERERA: Reality check. Money moves you should consider if you’re retiring or nearing retirement and concerned about the market.

All of that and more tonight on NIGHTLY BUSINESS REPORT for Monday, August 24th.

Good evening, everyone, and welcome. I’m Sue Herera. Tyler Mathisen is off this evening.

A day like none other on Wall Street — an historic open, a dramatic afternoon and a stunning close.

And /the sheer intensity of the move took many by surprise and left no time to pause or even take a breath. Investors knew there would be a big slide at the open but few imagined just how deep, how steep and how fast. Within the first six minutes, the blue chip Dow index dropped more than 1,000 points, an epic move.

And the drama didn’t end there. Stocks staged a major comeback that nearly brought the Dow back to positive territory. Yes, a nearly 1,000-point move back up. But that didn’t hold.

Stocks fell back once again and by the close, the Dow Jones Industrial Average fell 588 points to 15,871. The NASDAQ shed nearly 179 percent, nearly 4 percent, its largest drop in four years. The S&P 500 now in correction territory, along with the Dow and the NASDAQ, slid 77.

But even that doesn’t tell the whole story. The Dow traveled more than 4,900 points in today’s session. The index suffered its biggest 3-day point loss ever and at one point, the S&P 500 lost nearly $700 billion in market cap.

So, what are money managers telling investors like you?

Our guests tonight still believe the market is in good shape. He sees the selloff as an opportunity for investors. He’s Neil Hennessy, chief investment officer at Hennessy Funds.

Good to have you, Neil. Welcome.

NEIL HENNESSY, HENNESSEY FUNDS CHIEF INVESTMENT OFFICER: Thank you, Sue.

HERERA: What makes you think the market is still in good shape given the volatility we’ve seen today?

HENNESSY: Well, Sue, we’ve seen volatility all year long. In fact, the Dow Jones excluding today on the close has traveled over 18,000 points on the ups and downs. So volatility is nothing new.

But I think what people are losing the idea of what is happening out there is the economy is still growing at 2 percent. We’ve been through this before when you go back to October of ’87 we lost 25 percent of the market value in a matter of 2 1/2 days and then rebounded. In the next 12 months, the market was up 24 percent.

So, if you take the fundamentals of the companies out there with the S&P 500 sitting on $4 trillion in cash and short-term investments, the Dow Jones sitting on $1.5 trillion in cash and short-term investments. Companies are making record profits. Cash flow is at all-time high. The banks are in the best shape they’ve ever been in.

HERERA: OK.

HENNESSY: It all comes together.

This is a unique opportunity for the investor. What happened today and last week is very unique and that’s why I’m very, very bullish.

HERERA: So did you add to stocks that you hold right now today? Did you step into this market?

HENNESSY: Yes, we’ve stepped in almost every day, especially when new cash comes in. But I think what the unique part here is there’s over $3 trillion, Sue, in fixed income mutual funds. You have an opportunity now that you haven’t seen where the markets pulled back in the bond market rally. So, you look at 2 percent or less ten-year treasury.

HERERA: Uh-huh.

HENNESSY: In the Dow Jones, those 30 stocks yield almost 2.6 percent.

So, when you look at it, you should not be in fixed income going forward because everybody knows that rates are going to go up. And you’re just going to lose part of your principal. You should be in equities. And the market is giving you this opportunity today and last week to get out of fixed income and get in equities.

HERERA: What about oil? I know it’s good for the consumer. I get that gas prices are going down. Yes, that’s a positive. But for oil companies and for the economy, people are beginning to use the deflation word again because of the big percentage moves to the downside we’re seeing in oil. Does that part of the equation concern you at all?

HENNESSY: Not necessarily, because I think Chairman Yellen, Janet, has a good handle on it. That’s been one of her main concerns, is deflation. And that was Bernanke’s main concern. Now, you have oil down at $40 a barrel, but we’ve seen this before and then it snaps back.

If you look at charts, normally once oil breaks, you know, on the downside, it’s about a year and a half cycle until it starts to move back up. But from a consumer standpoint, 44 to 50 states out there, Sue, a gallon of gasoline is under $3. Not in California. Not in California.

HERERA: It’s never that way in California, I don’t think.

HENNESSY: No.

(LAUGHTER)

HENNESSY: Neil, we have to leave it there. Thank you so much.

Neil Hennessy with Hennessy Funds.

HENNESSY: Well, thank you, Sue. Great to be on.

Well, as stocks plunged, investors flock to those safe haven investments, including U.S. debt. That sent the price of the benchmark 10-year Treasury note was sent higher and the yield lower, below 2 percent at one point for the first time since April.

Anxiety over a slowing growth in China and uncertainty over whether the Federal Reserve will raise rates are some of the reasons why investors are moving into treasuries. And while no one is certain exactly what the Federal Reserve will do next, expectations are changing. One week ago, many economists said the central bank would likely hike rates in September but a nearly 10 percent drop in the Dow Jones Industrial Average since then has caused sent meant to shift.

So, Steve Liesman has more on the growing choir of calls not to hike rates in September.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Extreme gyrations in the stock market causing extreme gyrations in forecasts for the Federal Reserve’s first rate hike, as concerns grow beyond the market to the broader economy.

Barclays making one of the more dramatic Fed calls on Wall Street today, pushing its expectations for the first Fed rate hike from September to March 2016. Barclays says the delay stems from Fed fears of destabilizing markets, tightening financial conditions and lower inflation than the Fed wants to see.

John Silvia of Wells Fargo (NYSE:WFC) says its considering a similar move from a September call to spring of 2016, as he goes increasingly worried about the real economic effects of the market meltdown on business.

JOHN SILVIA, WELLS FARGO: Business confidence will be negatively impacted. Clearly, firms are going to look at this and be less sure about their sales numbers and certainly less sure about any export growth they have into Asia, especially emerging market Asia. So, I would suspect business confidence will be reduced and that will reduce capital spending.

LIESMAN: Consumer confidence and spending could also take a hit with Americans, pulling back three to six months after what they opened what promised to be depressing statements on their stock, mutual fund and pension holdings.

The erosion in confidence could hurt housing as well, with uncertainty prompting some families not to take the plunge into a new home even though mortgage rates declined.

MATT WEAVER, FINANCE OF AMERICA MORTGAGE SALES VP: I’ve gotten several calls this morning, just with a little bit of panic, you know? Is now still the right time to buy? Where is it going to end? What’s the market going to look like? And being under contract, of course, while looking at your accounts, getting some losses or dealing with losses is certainly a challenge.

LIESMAN: To be sure, the stock market is not the economy, big downdrafts in the past usually come along with already weak economic growth rather than added to it. And sometimes like the white knuckle nose-dive in 1987, the economy just shrugs it off, but volatility like this can lead to a reduction in hiring.

The case of a rate hike was never so solid that it could withstand a massive market plunge like this. Now with concerns about economic growth and jobs and inflation, the Fed has good reason to wait maybe, according to some on Wall Street now, until next spring.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

HERERA: And late today, the president of the Atlanta Fed said that he sees the Fed hiking rates sometime this year, but Dennis Lockhart didn’t make mention of September, which he signaled when he last spoke two weeks ago. He said the strengthening dollar and a drop in oil prices is making it difficult to forecast economic growth.

China’s stock market plunged overnight which then reverberated across the globe, contributing to the selloff worldwide. Shanghai’s main index fell nearly 8.5 percent, erasing the Chinese markets gains for the entire year. The slide was so sharp, China’s state media dubbed today “Black Monday.” Overnight, the government eased regulations on pension funds allowing them now to invest in the stock market for the first time. But that was not enough to prop up sentiment.

Also contributing to the nervousness in the markets was oil. Prices today continued to plunge. West Texas intermediate fell more than 5 percent to settle back at the $38.24 a barrel, the lowest settlement since early 2009. The accelerating slide in prices is due to both to declining demand from China and an oversupply of crude.

And that slide in crude is expected to bring gas prices below $2 a gallon to most of the country by the end of the year. But over the past two weeks, the average price didn’t move much, dropping ever so slightly to $2.71 a gallon and that’s according to the Lundberg Survey.

The highest prices meanwhile were found in Los Angeles at $3.67 a gallon. The lowest in Charleston, South Carolina, at $2.10 a gallon.

The once hot technology sector has been hardest hit in the stock market rout. As we told you earlier, the tech heavy NASDAQ is in correction territory and today posted its largest daily percentage drop in four years and when the group makes big moves like that, investors pay attention because it has the biggest waiting in the S&P 500.

Josh Lipton tells us why tech is tanking and what might happen next.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tech is taking a beating.

Some 40 percent of tech stocks in the S&P 500 are now in a bear market, meaning a drop of 20 percent or more from a recent high.

SAM STOVALL, S&P CAPTIAL IQ U.S. EQUITY STRATEGIST: The tech sector has the greatest international exposure of all of the sectors within the S&P 500 and since this decline really started from concerns overseas, it’s not surprising that tech is lower than the overall market.

LIPTON: Apple (NASDAQ:AAPL), for example, has been hit hard. The stock is now down about 20 percent from its recent high. Investors concerned about slowing growth in China bailed on Apple (NASDAQ:AAPL) because the company generates 25 percent of its sales from there.

Apple’s CEO Tim Cook, though, tells CNBC’s Jim Cramer that business in China remains strong.

Then there are tech names like Netflix (NASDAQ:NFLX). These are crowded momentum stocks that have soared. When those kinds of go-go stocks slip, they tend to fall very hard very quickly. Still, even after a hard selloff, Netflix (NASDAQ:NFLX) is up more than 100 percent so far this year.

Despite the rout, some investment strategists believe that the tech sector will ultimately perform as well as the overall market over the next 12 months. In part, that’s because they expect earnings to grow at about the same rate as the S&P.

Before piling into tech, however, analysts also remind investors of the risks, including the sector’s heavy international exposure. He also note that valuations, while reasonable, are not necessarily compelling.

For NIGHTLY BUSINESS REPORT, I’m Josh Lipton in San Francisco.

(END VIDEOTAPE)

MATHISEN: And now to the stock stories of the day. An $8 billion deal tops tonight’s “Market Focus”.

AGL Resources (NYSE:AGL), the energy services company, will be acquired by Southern (NYSE:SO) Company. The move is an effort by Southern (NYSE:SO) to build out its natural gas infrastructure and it will make the firm the second largest in the U.S. utility by customers. Southern (NYSE:SO) Co fell nearly 5 percent to $43.58. AGL rose 28 percent to $61.41.

Chipotle announcing some big hiring plans. The burrito chain will hire 4,000 workers in a single day next month, which could increase the workforce by nearly 7 percent. Shares fell 2 percent to $704.25.

And Target (NYSE:TGT) has agreed to pay nearly $3 million to settle charges that it screened job candidates based on race and gender. That’s according to Equal Employment Opportunity Commission. The EEOC found that a pre-employment medical exam, the retail used during the hiring process, violates the American with Disabilities Act. Shares fell almost 4 percent to $75.28.

Caesars Entertainment saw its shares jump today on reports that it’s near a bankruptcy settlement with creditors. Separately, the casino operator will reportedly pay $20 million to settle charges that it did not properly enforce anti-money laundering measures. Shares rose about 12 percent to $8.98.

Still ahead, how Main Street feels about what’s happening on Wall Street.

(MUSIC)

(BEGIN VIDEO CLIP)

NARRATOR: The Dow, October 28th, 1929, prices dropped 13.5 percent sparking the Great Depression.

December 12th, 1914, the Dow fell more than 20 percent the day markets reopened after the start of World War I.

The worst, Black Monday, October 19th, 1987, when stocks dropped more than 22 percent.

(END VIDEO CLIP)

HERERA: It’s big moves like that on Wall Street that get Main Streets concerned about their investments, their IRAs, their 401(k)s and their 529s.

So, how concerned are they?

Eamon Javers travelled to Frederick, Maryland, to take the pulse of Middle America.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here on the Main Street of Frederick, Maryland, the big news of the day was the first day of school for area students. People here know about the wild gyrations in the stock market but they don’t seem fazed by the news.

UNIDENTIFIED MALE: Things are going up and down. I think keeping a calm head is much better when you look at the stock markets.

UNIDENTIFIED MALE: Trust your financial adviser. If you have a long-standing relationship with him or her, just listen to their advice. That’s all you can do, really. Panic is not something that should be resorted to.

JAVERS: Over lunch at Crab Apple’s Deli, people are more focused on the real economy than on Wall Street.

UNIDENTIFIED MALE: I’m in construction. I see what’s going on. And construction is pretty indicative, I think, of how the economy is going, to some degree, from my perspective.

JAVERS: Things are good in your world?

UNIDENTIFIED MALE: Things are very good in my world. Yes.

UNIDENTIFIED MALE: For me, at my age, I’m going to leave it in there for 30 more years. So, there’s no point stressing from day to day.

JAVERS: But not everyone thinks the worst is over.

UNIDENTIFIED MALE: I think there’s more to come. I think the money has been dumped into the market through the government and has been — has propped it up.

JAVERS: What people are telling us here mirrors what we saw in a cnbc.com survey over the weekend — 7,500 people polled. Of those, 37 percent said that they would sell nothing today, no matter what happened and an additional 13 percent said they would buy nothing today. That’s about 50 percent overall who said effectively, they are going to sit on their hands today no matter what happens during the day’s trading.

That poll did find a little bit of panic, though. They found 4 percent of the people who said they would sell everything today.

For NIGHTLY BUSINESS REPORT, I’m Eamon Javers in Frederick, Maryland.

(END VIDEOTAPE)

HERERA: So, what if you’re retiring or nearing retirement? What should be thinking about in this volatile market?

Sharon Epperson is back with us with a reality check.

So, Sharon, what does this mean for those in retirement right now or on the verge of it?

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, of course they are very worried, particularly if you’re in your first year of retirement. You’re very concerned about what’s going to happen with your money and will you be able to have enough money to last your lifetime.

But the key is that money in the stock market that’s invested and that has likely declined in this market correction is not money you should need in the next five years.

HERERA: Right.

EPPERSON: So, that’s something to really keep in mind, and that goes for whether or not you’re retiring 20 years from now or next year. So, make sure that that money is not in the market and think about where your money is invested. If it’s in a 401(k), make sure that it is in things allocated for your goals and for the risks that you’re willing to take.

HERERA: What if you’ve already retired? I would assume you’ve allocated some of those funds to other sectors of the market and you think that they are safe and you think that things are healthy. What kind of impact does an event like today have?

EPPERSON: Well, it shouldn’t have much an event on your portfolio. What you describe is a well-diversified portfolio. That’s what you want to have. If you are a well-diversified portfolio, and you have a certain investment strategy, you want to just stick to that.

A lot of financial advisers say that their clients get upset when they don’t beat the market. Their overall portfolio doesn’t beat the S&P 500. There’s a reason for that and that’s because they were making sure that you were invested in other asset classes that may not have been doing as well during the bull market so that you will be OK during the time of the stock market correction.

So, if you’re well-diversified in your portfolio, then you should be fine. If you’re worried that you’re not, now is the time to call your financial adviser or to get one.

HERERA: Right. Hopefully they already have one. But if they don’t, yes, definitely call. Retirees who perhaps are not as well-diversified, as you just mentioned they should be, they may have too much money in stock. Do they sell it now? I mean, I would think the answer usually is no.

EPPERSON: The financial adviser I talked to said now is the time to look other places to raise that cash. Maybe it’s short-term bond funds, maybe you have cash on hand in a CD or a savings bond but you really don’t want to sell stocks in a panic.

HERERA: Right. And, hopefully, it’s the bottom but if it’s not you don’t want to be selling.

EPPERSON: Exactly.

HERERA: Stay with us, Sharon, because we’re going to talk more about this.

EPPERSON: Sure.

HERERA: Because we’ve recently seen a flight of investor money out of U.S. stock funds. That’s according to the Investment Company Institute. More than $100 billion has been pulled from mutual funds and ETFs so far this year. That’s the most in four years.

And in stock market selloffs, outflows may intensify, prompting funds to sell shares to cover the redemptions. It’s a vicious cycle sometimes investors should be concerned about that in this market. And what about bond funds?

Here to answer all of that, Brian Reid, chief economist at ICI.

Good to see you, Brian.

BRIAN REID, INVESTMENT COMPANY INSTITUTE CHIEF ECONOMIST: Thank you for having me on.

HERERA: It does seem to be kind of a vicious cycle. Redemptions and then they have to raise cash to cover the redemptions.

But what should investors do in a market cycle like this?

REID: Well, as many of your — the folks who have been on your show tonight have been saying, the best thing to do is to do nothing. If an investor tries to move in this kind of market, all they’re going to do is get whipsawed and they’re going to be paying a very heavy price for trying to get out at this point.

EPPERSON: Brian, what’s interesting is many research studies have shown that it’s really investors’ behavior more than mutual funds performance that determines how well investors do long term. Have you seen that with the data with ICI? And, really, how has investors done, say, investing in an equity fund versus the S&P 500 over the last year or so?

REID: So, it is important how investors behave and keeping in mind that trying to move in and out of the market is a sure way to increase your costs and actually not perform up to the market. What we find is actually most people don’t do anything. On a day like today, it would be a large move to have — maybe ten hundredths of a percent of assets come out and we’ll see as many people coming in almost as people coming out. But it’s a tiny fraction of the money actually moves on a day like today.

HERERA: What did you see today? Because I know you’re all, you and ICI are always monitoring the data flow, for lack of a better word. What did today look like?

REID: Well, we don’t get the data in until another few days here, but I’ve gone through and looked at my market cycles for nearly 20 years during my career at the ICI. We see the same patterns over and over. Even if you go back to the tough months of 2008 in the fall, to get outflows of more than a couple hundredths of a percent in a day is really unusual.

EPPERSON: What about bond investors? What are they doing right now? What should they be doing right now? And are you seeing money come into bond mutual funds, coming out of it? What do you expect to see over the next couple of days?

REID: Well, we’ve been seeing two major trends really throughout this year. The outflows that you mentioned earlier that have been coming out this year, actually are investors moving into international equity funds. This has been a trend that’s been in place for at least ten years now as they increase their diversification offshore.

Bond funds have been growing in demand as well. That’s largely because of baby boomers who are moving towards retirement, slowly allocating a portion of their portfolio into more fixed income.

HERERA: So, if I’m reading you correctly, right now, given the volatility that we see in this market, the best advice for investors is to sit tight and wait for things to settle down?

REID: Sit tight, wait until things settle down. And then if you want to talk to your financial adviser about whether your portfolio is properly allocated, do it then. But don’t make a decision in the midst of this.

HERERA: All right. Brian, thank you so much. Brian Reid with ICI.

And, Sharon, thank you as always.

EPPERSON: Sure.

HERERA: So, coming up, why a brutal market selloff can make certain stocks more appealing to long-term investors. That story, straight ahead.

(MUSIC)

HERERA: Here’s a look at what to watch tomorrow. The market, of course. But lots of data, including new home sales, the S&P Case-Shiller home price index will also offer a read on real estate, and a check on Main Street with a consumer confidence report. And that’s what to watch for Tuesday.

The White House says the Treasury Department is closely monitoring the global financial markets. In a briefing, Press Secretary Josh Earnest said the president had been briefed on the volatility and that Americans should focus on the strength of the U.S. economy.

(BEGIN VIDEO CLIP)

JOSH EARNEST, WHITE HOUSE PRESS SECRETARY: There’s no doubt that the global economy is more interconnected than it’s ever been and a variety of reasons for that. Technology is not the least of them. But what I would encourage people to evaluate is the ongoing strength and resilience of the U.S. economy.

(END VIDEO CLIP)

HERERA: Earnest also encouraged China to continue with its financial reforms.

There are certain stocks that can look a bit more appealing to long-term investors during a major market pull back and they are dividend stocks.

Dominic Chu explains why and the risks you should know about before you buy.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: While sudden downdrafts in the stock market leave a bad taste in the mouths of investors, they can also make dividend yields looking more attractive. Yes, dividend yields. They are the carrot dangled in front of investors looking to grow their investments.

More established companies that can’t grow their stock prices quickly offer another kind of return to investors who buy their stock — the dividend. Many investors like dividends because the yield often beat the interest rates their money can earn with the bank and the same way bond yields rise when bond prices drop, dividends yields rise when stock prices drop.

That’s why this morning, as investors found themselves glued to their ticker of choice, the TV, a computer monitor, a phone, they might have noticed dividend yields looking better and better. This morning, several Dow bellwethers have given yields near and above 4 percent.

Chevron (NYSE:CVX), Verizon (NYSE:VZ), Caterpillar (NYSE:CAT), ExxonMobil (NYSE:XOM) and General Electric (NYSE:GE). When General Electric’s yield is nearly 4 percent, it can look like an attractive investment to some investors.

BILL NYGREN, OAKMARK FUNDS PORTFOLIO MANAGER: That’s twice the ten-year bond yield and while it’s really hard to figure out what the market is going to do this afternoon or tomorrow, next week, I think it’s a pretty good bet that over the next ten years, G.E.’s earnings go up and you’re earning twice as much in yield as you wait for that to happen as you would in a ten-year bond.

So, I think there are a lot of values out there today and investors should get used to using corrections as opportunities.

CHU: Of course, just as there’s no guaranteed safety in stock, there’s no guarantee that companies hurting for cash in a down market won’t lower their dividend payments. Indeed, especially in the beaten-down energy sector, dividend increases have been shrinking in a flat market over the past few months. And right now, the market looks anything but flat.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

HERERA: And that does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for watching. Have a great evening, everybody, and we’ll see you again tomorrow.

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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