Transcript: Nightly Business Report- October 26, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Put to the test. The stock market faces a number of challenges over the next few months, and some will unfold during the coming week. We spell out the risks and the possible rewards.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Deal nears. Congressional leaders and the White House are reportedly close to agreeing on a crucial budget, one that would avert a potentially damaging default on our government debt.

MATHISEN: The future of money. Why you may soon pay for things not with your wallet but with a wave of your hand.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, October 26th.

HERERA: Good evening, everyone, and welcome.

Get ready to be tested. That’s how many on Wall Street are describing what could be next for the stock market. And it comes at a time when investors are enjoying the ride. With just four trading days left in October, the S&P 500 is on track to close out its best month in four years.

But there are a number of challenges the market has to overcome during the next few weeks and months, from the fed to profits to data.

And as Dominic Chu reports from the New York stock exchange, many of those challenges will unfold in the coming week.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is a week that’s going to be chockfull of possible catalysts — possible things that could either drive the market up or down.

So, first of all, let’s talk about what’s going to happen later on this week on the big picture macro economic front. You’ve got a lot of data coming out. You’ve got durable goods coming up later on this week. That’s a sign perhaps of what people are buying in terms of things that are built to last more than just a few years — cars, airplanes, washing machines.

You’ve also got, of course, the second day of a big Federal Reserve central bank interest rate meeting. Will they or won’t they raise interest rates?

All of that ahead of what’s going to happen later on on Thursday this week when you’ve got the first reading of economic activity, gross domestic product, GDP here in the United States. And, of course, what’s happening elsewhere in the overall markets with pending home sales. That’s the sale of homes where contracts have been signed but not yet closed.

You’ve also got small companies’ specific stories as well. We’re talking about Apple (NASDAQ:AAPL). They come out with their earnings tomorrow. And then later on this week you’ve got oil giants like Chevron (NYSE:CVX) and Exxon, both reporting their numbers as well.

There are a lot of possibilities for catalysts that could make that a volatile week.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu here at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: And China is always a challenge for the market since the health of the world’s second largest economy trickles through the global financial markets. This week, China’s leaders will map out the country’s five-year economic reform plan.

In Beijing, Eunice Yoon tells us what to expect.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The leaders of the Chinese communist party are gathering in Beijing this week to discuss and set a social economic agenda for the next five years. The four-day conference is likely going to be an opportunity for the leaders to reassure investors that they’re committed to structural reforms.

With the economy slowing down, there have been increasing concerns that the leaders here are backing away from reforms that could set the economy on a better path. There’s expected to be a lot of discussion about how the market should play a decisive role in the economy.

This conference also traditionally produces growth targets. The current one is for around 7 percent for the year, and expectations are, even among government researchers that the government is going to guide down that number to 6.5 percent to reflect the slowing economy.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: And with all that data and news out this week, what should long-term investors keep their eyes on and what will amount to good news or bad news for that matter for stocks?

Here to answer that is Karyn Cavanaugh. She’s a strategist for a $200 billion investment platform. She’s with Voya Investment Management.

Karyn, welcome, nice to have you here.

KARYN CAVANAUGH, VOYA INVESTMENT MANAGEMENT: It’s nice to be here. Thank you.

HERERA: So, what is front and center for you? We’ve kind of laid out what the market is facing this week from the fed to China to earnings. But what would be front and center in your book?

CAVANAUGH: The primary thing that investors should be focused on is earnings. Because think about it — everything kind of trickles through that earnings number. If there’s a global slowdown, oil prices collapsing, it all shows up eventually in earnings. And that’s what’s happening.

MATHISEN: Are earnings as bad as we seem to think they are? There was quite a story in “The Wall Street Journal” this morning. Or are they better than we think they are because so much of the pain is in just a couple of sectors, namely energy and materials and industrials? Not to minimize it.

CAVANAUGH: It’s working its — it’s working its way through other sectors. But U.S. corporations, they’re more resilient than you would think. And we always see these numbers that look very, very negative. And they usually surprise on the up side.

So, I think we’re still looking at potentially a negative growth scenario for the third quarter, but companies can surprise. That’s why it’s really important to stay diversified and not just look at the initial reports because I think there’s a lot of U.S. companies that are really doing what they can to move the ball forward. Right now, things still look slightly negative.

HERERA: What about the Fed, Karen? You know, the big debate is whether or not come Wednesday they’re going to raise interest rates or whether they’re on hold until next year. What do you think?

CAVANAUGH: I don’t think they’re going to raise interest rates. Since their September meeting, data is coming in a little bit more negative. And I don’t think they’re going to — right now, employment’s doing well but inflation is still very low. Globally, inflation is very low. So I don’t think they’re going to do anything to kind of upset the apple cart. I think they’re going to wait till 2016.

MATHISEN: Give me some ideas where I can put some money to work to make some more money.

CAVANAUGH: Well, being diversified is always the best thing to do. In terms of sectors, I like some of those sectors where people don’t always think about maybe like global REITs, senior loans for steady income, and I do like large cap stocks of course too. And I always tell investors a good mix of stocks and bonds will get you through those rough patches in the market because corporate earnings, they are — they have been pretty flat this year, and that’s why the market has been pretty flat this year. But stay globally diversified.

HERERA: All right, Karen, we’ll leave it there. Thank you so much for joining us.

Karen Cavanaugh —

CAVANAUGH: You’re welcome.

HERERA: — senior market strategist at Voya Investment Management.

MATHISEN: On Wall Street today, stocks held on to most of last week’s gains falling just slightly as investors wait to see what the Federal Reserve does and how earnings stack up and what corporate America says about profits, not just the numbers, but what their commentary is, how the economy is doing as well.

Dow Jones industrial average lost 23 to 17,623, weighed down by Apple (NASDAQ:AAPL). It reports earnings tomorrow. NASDAQ gained two. The S&P 500 dropped about four.

Energy shares like ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) fell along with oil prices. Domestic crude sank to a two-month low on concerns over a supply glut and weakening demand. And natural gas prices dropped for a fourth straight session, losing nearly 10 percent today to settle at their lowest level in three years.

HERERA: To the economy now. New home sales tumbled in September to the slowest pace in ten months. Economists are citing higher prices and also slower overall economic growth as the reason for that decline.

The Commerce Department reports a drop of 11 1/2 percent, ending two consecutive months of increasing sales. New home sales declined in every region across the country, with the Northeast falling the most, off 68 percent from the prior month. That pressured shares of the home builders today.

MATHISEN: And business economists are forecasting modest economic activity for the fourth quarter. This according to a report by the National Association of Business Economists. Most of those surveyed expect growth of about 2 percent in the quarter. Respondents say their outlook for wages, salaries, and employment and profits has slowed since the last survey in July. And as we reported, the government will report a first read on third quarter GDP on Thursday.

HERERA: A handful of deals.

First, Duke Energy (NYSE:DUK) is buying Piedmont Natural Gas (NYSE:PNY) for about $5 billion. The acquisition adds roughly 1 million natural gas customers in North Carolina, South Carolina, and Tennessee. And it helps Duke shift from coal to gas generation. This is the second time this year an electric utility has purchased a gas distribution company. Shares of Duke Energy (NYSE:DUK) fell while Piedmont soared more than 30 percent.

In other deal news, exchange operator Intercontinental Exchange is buying financial data firm Interactive Data Corp. for a little bit more than $5 billion. Intercontinental, otherwise known as ICE, says the deal will help expand its market data business and that deal was approved by the boards of both companies.

MATHISEN: Manny, Moe and Jack have a buyer. Bridgestone America will acquire the auto repair and parts chain Pep Boys for about $830 million. The deal follows pressure from activist investor Mario Gabelli for the company to consider a sale. And they did. Pep Boys shares climbed more than 20 percent today. Mr. Gabelli must be happy.

In Washington, there are reports Congress is close to a budget deal and an agreement to increase the debt limit. The deadlines are fast approaching. And money to pay for government operations runs out totally on December 11th, and the Treasury Department has said the federal borrowing limit must be raised by November 3rd or risk a default.

Hampton Pearson has been following the developments.

So, what are some of the details, Hampton, of this reported budget deal?

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, even as we speak, Tyler, the House GOP conference is meeting to discuss, quote, “the October agenda”.

And what we’re hearing as far as possible details of this tentative bipartisan budget deal, it sets spending limits for the next two years through the fiscal year 2017. There would be higher spending on both military and domestic programs to be offset by savings elsewhere. Also, a possible Medicare Part B fix protecting millions of seniors from major increases in their premiums and deductibles.

Also, there’s a cautionary tale from the White House today. Quote, “nothing is agreed to until everything is agreed to.” That from White House press spokesman Josh Earnest.

HERERA: So next week’s debt limit deadline, that’s what the bond market is worried about. Does this budget deal, if indeed it is inked, lessen the risk of a government default?

PEARSON: Well, the reports we’re getting says that we may, in fact, get a separate attachment, a clean debt limit suspension, the debt limit currently at about $18 trillion. There’d be a separate attachment dealing with that until March of 2017 going forward. After that it would be up to the Treasury Department to reset that limit based on borrowing at the time.

Separate issues but, of course, linked. And the real political linkage here, Sue, if you will, the desire of John Boehner to get those two huge issues off the table before the likely next speaker of the House, Paul Ryan, takes over at the end of the week.

MATHISEN: What about the latest on that Export Import Bank, Hampton? I heard that may be resurrecting because of a parliamentary move in the House.

PEARSON: Yes, this is almost a back from the dead story. Tonight, supposedly, bipartisan group of house members will try to revive the Export Import Bank. It stopped doing business this summer after basically leaders let the charter expire.

So, what happened to get this back on the floor is a majority of members, 218, signed a discharge position. That’s the first step in trying to revive the Ex-Im Bank legislatively. It will force a vote on the issue. It’s rarely used. Over the past 50 years, about 10 percent of the more than 200 discharge positions have won congressional approval.

But the odds are in the House, this one has a good chance because both big business and big labor are lobbying to save the Ex-Im Bank, and including some conservative Republicans who on the flip side have labeled it corporate welfare. So, it can get through the House. Its fate in the Senate is yet to be determined.

MATHISEN: Hampton, thanks very much. Hampton Pearson reporting from Washington.

HERERA: Still ahead tonight, why the $95 billion beef industry is firing back and rejecting the findings of a new study.

(MUSIC)

HERERA: Federal prosecutors are reportedly working on a criminal case against a former Goldman Sachs (NYSE:GS) banker. As first reported by “The New York Times (NYSE:NYT),” the banker is suspected of taking confidential documents from an employee of the Federal Reserve Bank of New York. The New York Fed is one of Goldman’s regulators.

According to the report, the former banker may plead guilty to a misdemeanor. Goldman would play a $50 million fine under a tentative deal with New York regulators and would acknowledge that it failed to properly supervise its employee.

MATHISEN: General Motors (NYSE:GM) and the United Auto Workers Union have reached a tentative agreement. The deal avoids a potential strike and was announced minutes before the midnight Sunday deadline. Details were not released but union officials say the deal represents, quote, “significant wage gains and job commitments.”

HERERA: The meat industry is coming under fire. A report by the World Health Organization warns that red and processed meats have the potential to cause cancer.

Courtney Reagan has more on the study and what the big beef industry is doing to fight back.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Doctors and the American Cancer Society have said eating too much red and processed meat could increase the risk of cancer. Now, the World Health Organization’s France-based cancer agency is backing up that theory. After 22 scientists evaluated more than 800 studies from several continents, the organization says consumption of ham, sausage, bacon, and other processed meats can lead to colon and possibly stomach cancer and puts processed meat in the same danger category as cigarettes and asbestos.

The WHO says red meat is probably cancer-causing as well, potentially colon, pancreatic, and prostate.

However, as with most health warnings, there are skeptics and the meat industry is fighting back. The North American Meat Institute says the WHO claim defies both common sense and numerous studies showing no correlation between meat and cancer, and cites many studies that show health benefits of balanced diets including meat.

Commodities futures didn’t move much on the news. American Restaurant Association president and commodity strategist David Maloni says that’s probably because we’ve heard about the potential linkage between meat and cancer before.

DAVID MALONI, AMERICAN RESTAURANT ASSOCIATION PRESIDENT: The fact that we didn’t see an initial sharp reaction, especially in something like cattle futures, which have been on a pretty good run as of late, are actually due for a short-term correction lower. That we did not see a major reaction by stock prices, it only fuels my initial reaction that the response to this will not be long-standing.

REAGAN: However, if consumers take the warning to heart and pull back on meat consumption, it could spell big trouble for the meat industry. For farmers, meat producers, and even shake up the global meat trade balance. The North American Meat Institute says the meat industry contributes almost $900 billion to the U.S. economy. Beef alone is a $95 billion a year business in the U.S., which is the world’s largest producer and importer of beef in the world according to the USDA.

A separate group of international researchers are putting the statistics into perspective. Global Burden of Disease Project estimates up to 84,000 global cancer deaths per year could be associated with diets rich in red and processed meats compared to a million deaths due to tobacco smoking, 600,000 from alcohol, and more than 200,000 from air pollution.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

HERERA: Xerox (NYSE:XRX) reports its first quarterly loss in years, and that’s where we begin tonight’s “Market Focus”.

A big charge because of a disrupted project weighed on the company’s results. Lower printer sales and a stronger dollar didn’t help either. Xerox (NYSE:XRX) says it will conduct a review of its business operations, but a sale of the firm is not being considered. Shares fell 3 percent to $10.02.

Another down day for Valeant Pharmaceuticals. That firm defended itself against allegations of fraudulent business practices, which we told you about last week. But the company also says it has named a committee to look into the claims. Shares slipped more than 5 percent to $110.04.

Oracle (NASDAQ:ORCL) pulling the curtain back today on a host of new cloud-based services. Co-CEO Mark Hurd says the firm’s ability to compete with others in the cloud space is growing.

(BEGIN VIDEO CLIP)

MARK HURD, ORACLE CO-CEO: I think we’re winning, we’ve invested. You saw that over the past couple of years. We made investments in building out both our platform as well as our software service infrastructure. Our margins we’ve committed to in the cloud being 80 percent over time, as we continue to grow our revenue. Our pipelines are full.

(END VIDEO CLIP)

HERERA: The stock rose a fraction to $38.37.

Lending Tree reported better-than-expected results. The online mortgage broker also raised its revenue estimate for the full-year. Shares surged 23 percent to finish at $120.98.

MATHISEN: LabCorp reporting a big jump in revenue in its latest quarter. The firm said its recent acquisition of the firm Covance (NYSE:CVD) helped the top line. Shares jumped 5 percent to $117.74.

Comcast (NASDAQ:CMCSA) (NYSE:CCS) will reclassify its special class A common shares into regular common stock, if shareholders approve. The company says the move is an effort to clean up confusion over the different classes of its stock. Shares today rose a fraction to $62.15. Comcast (NASDAQ:CMCSA) (NYSE:CCS), of course, the parent company of CNBC, which produces this program.

Mixed quarterlies from Cheesecake Factory after the close. The chain reported earnings that beat estimates, while revenue came in short of consensus. Shares were volatile in after-hours trading. During the regular session the stock rose 2.5 percent. It f finished to $51.99.

A weak outlook sent shares of Rent-A-Center (NASDAQ:RCII) way down after the close. Its earnings topped estimates, while revenue missed consensus. Shares plunged in initial after-hours trading, down as much as 20 percent. During the regular session the stock was up a fraction to $25.78.

HERERA: A whole new world of banking is emerging. Entrepreneurs gathered today at a massive conference called Money 2020, where the focus was on disrupting the financial industry and shaping a new, more modern one.

Mary Thompson has our report from Las Vegas.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you could look into the future of money, you would see a scan of your eyes. Not a password accessing your account at an ATM. You can see the future at Money 2020 where entrepreneurs, incumbents, and investors show how they plan to change the world of finance.

VINOD KHOSLA, KHOSLA VENTURES FOUNDER: I find this whole sector exciting because it’s so large. More importantly, it’s both large and profitable.

THOMPSON: Billionaire venture capitalist Vinod Khosla sees making money in money is an attractive bet because technology is quickly changing how we pay, lend, and assess risk.

KHOSLA: Almost all areas are exciting for one reason or another because they enable new capability.

THOMPSON: Here, finance and technology are converging with both new and old companies finding ways to take out costs, increase transparency, and create better experiences for the customer. Experiences like WU Connect — 165-year-old Western Union’s answer to Facebook’s payment system. WU Connect letting corporate and retail clients send money over social and digital platforms all across the globe.

HIKMET ERSEK, WESTERN UNION CEO: This new innovation opens our platform to a new customer segment.

THOMPSON: With finance and fashion among entrepreneurs, financial stalwart MasterCard (NYSE:MA) is using fashion to show off its entrepreneurial side.

The payments giant debuting a line of wearable payment devices including rings, sunglasses and a purse, letting you leave your wallet, mobile or otherwise, at home and pay with a wave of your hand.

The pace of change at times dizzying but welcomed by established firms like MoneyGram.

PAMELA PATSLEY, MONEYGRAM CEO: There are days where I kind of marvel at that, I have to say. But I think that’s a good thing.

THOMPSON: It is a good thing, but only if consumers embrace it. And so far, their take-up of mobile wallets like Samsung Pay is a lot slower than expected.

THOMAS KO: People like my wife are very keen on continuing to use plastics.

THOMPSON: Suggesting on the consumer side of finance, innovation is likely to continue to outpace adoption in the near future.

For NIGHTLY BUSINESS REPORT, I’m Mary Thompson in Las Vegas.

(END VIDEOTAPE)

MATHISEN: Coming up, was the first live-streamed NFL football game a success? The reviews are in.

(MUSIC)

MATHISEN: Here is what to watch tomorrow. Lots of Dow components reporting their earnings, including DuPont, Merck (NYSE:MRK), Pfizer (NYSE:PFE), and Apple (NASDAQ:AAPL). On the data front, a read on durable goods orders and the Federal Reserve begins its two-day policy meeting. And that is what to watch Tuesday.

HERERA: Toyota (NYSE:TM) is once again the world’s largest automaker by sales. Toyota (NYSE:TM) sold about 7.5 million vehicles this year through September, and that’s more than Volkswagen’s 7.43 million and General Motors’ 7.2 million. Volkswagen has been in the lead for the first half of the year but many say the full impact of the emissions test scandal is yet to be felt. That scandal was disclosed at the end of September, and it is expected to show up in fourth quarter sales.

MATHISEN: “The New York Times (NYSE:NYT)” reports that Uber has obtained a $60 billion to $70 billion market valuation as it seeks to raise another billion bucks. According to the report, the San Francisco on-demand ride hailing company was raising its eighth funding round in five years and separately newly compiled data obtained by “The Wall Street Journal” shows that Uber use in New York City quadrupled in July.

HERERA: Well, the average price of a gallon of regular gasoline fell during the last two weeks. According to the Lundberg Survey, the average price is $2.24, down 10 1/2 cents. In the lower 48 states, the lowest price can be found in Charleston, South Carolina, at $1.85. The highest usually is in Los Angeles at $2.87.

MATHISEN: Millions watched the free global live stream of a regular season national football league game this weekend from London. As we reported Friday, Yahoo (NASDAQ:YHOO)!’s live stream was the first time a single company had distributed an NFL game via the Internet.

And as Julia Boorstin reports, the results of this digital experiment are in.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yahoo (NASDAQ:YHOO)! says it was the big winner in the face-off between the Bills and the Jags, reporting 15.2 million unique viewers. And despite mixed reviews of the live stream, there are complaints about buffering and pixelation, the NFL’s EVP of media Brian Rolapp says the feedback from advertisers has been across the board positive and they consider the game’s live stream a success.

This streaming NFL game drew an average of 2.4 million viewers per minute. Now, that’s far less than the millions that tune in on average for a national football game, but it’s more than double than the number of viewers that a regional game similar to this one would have drawn on television.

Perhaps most important for the future live streaming of football games, a third of the viewers north of 5 million were overseas, which means the NFL is likely to cash in on that international demand by selling more digital streaming rights to its smaller games while its larger game rights are tied up for the next five years.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: FedEx (NYSE:FDX) predicting record shipments during this year’s holiday season. It says package deliveries could increase nearly 13 percent when compared with last year. The company attributes the expected gain to rising retail sales and E-commerce.

MATHISEN: From FedEx (NYSE:FDX) delivery to drone delivery. Walmart has applied for permission to test drones for home delivery and curb pickup. The world’s largest retailer by revenue has already been testing drones indoors. The move means it will go ahead — go head to head with Amazon (NASDAQ:AMZN), which wants to use drones to help deliver goods ordered online.

HERERA: And finally tonight, it doesn’t look like consumers are spending any extra cash on Halloween. According to the National Retail Federation, total purchases are expected to reach $6.9 billion, but that’s a step down from the nearly 7.5 billion spent last year.

But it’s not because people aren’t in the Halloween spirit. Americans are apparently already stocked up on masks and pumpkins. It’s true.

How many masks do you really need?

MATHISEN: Not that many. You can get by with just a few.

HERERA: Just a couple, right?

MATHISEN: And my old Batman suit fits still.

HERERA: Still?

MATHISEN: Yes.

HERERA: I’m impressed. That’s it for NIGHTLY BUSINESS REPORT — but not surprised. I’m Sue Herera. Thanks for joining us.

MATHISEN: And I’m Tyler Mathisen. Thanks for coming along. And we’ll see you 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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