TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Reality bites.
Stocks get slammed. The Dow plunges 2 percent as investors start to wonder
how a gradual increase in interest rates may impact companies and
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Protecting your
portfolio. Our market monitor has a list of stocks he says will do well no
matter how the broader market behaves.
MATHISEN: Send in the drones? No. Send in the jets. Amazon
(NASDAQ:AMZN) considers leasing its own aircraft fleet to ensure what you
buy gets there when you want it.
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday,
HERERA: Good evening, everyone. And welcome.
A momentous weekends with a momentous thud. Stocks cratered, falling
for the second straight day as investors across the globe continued to
digest the Federal Reserve`s rate hike and tried to figure out what this
new rising rate environment may mean for businesses and consumers. The Dow
Jones Industrial Average sank 367 points to 17,128, its lowest close since
October. The NASDAQ fell 79. The S&P 500 dropped 36.
A decline in crude prices didn`t help the broader market either. Oil
futures fell 22 cents to settle at $34.73 a barrel, after data revealed a
climb in the number of active oil rigs for the first time in five weeks.
And investors flocked to safety, sending bond prices higher and yields
lower. For the week, all of the indexes were lower.
Bob Pisani has more on the dramatic end to a momentous week in the
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks declined
again today. What`s going on? Wall Street`s in a funk. The basic theme
is lower for longer, meaning commodity prices and global demand will stay
low into 2016. Lower for longer not just in oil but natural gas and lower
for longer in steel and in copper and aluminum and other base metals.
Lower for longer in global industrial sales and lower in interest rates and
lower for longer in many emerging markets.
So, how long is this lower for longer? Well, it depends. But the
general theme is that lower everything continues into at least the first
half of 2016.
And the Fed, oh, traders are in a funk on this one too. How`s this?
Janet Yellen is in trouble no matter what she does. The argument is this.
If the economic data is good, she`s going to raise rates quicker and the
markets are going to have a tough time digesting the higher rates. If the
data is poor she`ll be less aggressive raising rates but stocks will
respond negatively to the poor data.
You see what I mean? You`re in a jam either way but that`s what the
traders think. Wall Street needs to stop drinking the Kool-Aid and start
drinking the eggnog.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock
MATHISEN: And on that note of eggnog, we bring in Russ Koesterich.
He joins us to talk more about today`s market sell-off. Russ is chief
investment strategist at Blackrock.
Always great to see you, Russ. Is this sell-off over the past two
days about rising rates? Is it about falling oil? Or is it about the
effect that falling oil is having on high yield? Or all three?
RUSS KOESTERICH, BLACKROCK GLOBAL CHIEF INVESTMENT STRATEGIST: Well,
I think it`s mostly the last. And I`d put one more category in there. The
market can withstand a gentle tightening by the Fed, particularly if the
starting point is zero. So I don`t think a couple of hikes or even four
hikes next year is the end of the world.
What is a challenge is what`s happened this year. That if the Fed is
hiking at a time when most of the other central banks are easing and we see
another rapid appreciation in the dollar that`s becoming a very big
headwind for U.S. companies. It`s one of the reasons earnings went
nowhere. And that to me is a bigger challenge for stocks than whether the
Fed does two or three hikes in 2016.
HERERA: So, is this going to continue, this type of sell-off into
next week? It`s going to be a week with thin volume because a lot of
people take that week off, the next two weeks actually. So, what are you
expecting, in terms of the momentum to the downside possibly in this
KOESTERICH: Well, certainly, you`ve got a week with not many people
here. So, it`s going to exacerbate the moves. I`m not as worried about
the next two weeks. You get a little bit of a positive bias towards the
end of the year.
But I do think unfortunately we come back from our holidays in
January, we`re going to be facing the same set of issues. And we mentioned
oil a moment ago. You know, oil going down is actually a positive. It`s
pro-cyclical. It`s a force of consumption.
But if oil is 35 or even 30, raises more fears about the high-yield
market, that`s going to leak very quickly into stocks and that will lead to
MATHISEN: We`re looking right now, Russ, at a kind of zero year for
year for equities if it ended today.
Modest gains if you had some kind of stocks, modest losses if you had
others. What do you look for in 2016 and since you think so much of this
may be related to the value of the dollar, where do you see the dollar
going? It didn`t move all that much this week as I`m remembering.
KOESTERICH: It didn`t. It was up about 1 percent this week. But you
know, the dollar`s been moving steadily higher over the year, granted in a
very erratic fashion. The odds are that`s going to continue and I think
that holds one of the keys for 2016, which is thinking about the currency.
The currency has been a headwind for U.S. companies, it`s been a tailwind
for companies in Europe and Japan.
Now, neither market had a brilliant year but they`re both in positive
territory and if you would hedge back on the currency, Japan, for example,
is up about 9 percent. So part of the strategy for 2016 is thinking about
if the dollar continues to go up who are the net beneficiaries? They`re
companies overseas, not as much in the United States.
MATHISEN: All right. Russ Koesterich with Blackrock — go have some
eggnog. Have a great weekend, sir.
KOESTERICH: All right. Right now.
MATHISEN: All right.
HERERA: In Washington, Congress today approved the $1.1 trillion
spending package. The bill avoids a year-end showdown over the budget and
the shutdown of the government. It also includes a number of tax breaks.
Eamon Javers has been following the developments from Washington.
Good to see you, Eamon, as always. You know, the Republicans and the
Democrats haven`t been able to get along for a long, long time. Suddenly,
on this issue it`s a huge bipartisan vote for the package. What happened?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a huge
bipartisan vote. We expected this one to be a lot tighter than it was in
the end. Ultimately, they ran away with it on the yay side. The nay side
not so much.
And part of reason for that is it was a $1.1 trillion spending
package. Also, about a $500 billion package of tax deals in there as well.
All bundled together in this massive deal that included everything from
repealing the 40-year-old oil export ban to a cyber security bill that was
entirely unrelated that was tucked in there at 2:00 a.m. on Wednesday, to a
whole lot of things that a lot of lawmakers liked.
So, there were some conservatives who said this is too rich for our
blood, we don`t like all this deficit spending and there were some
Democrats who said it doesn`t spend enough, there`s no bailout in there for
Puerto Rico and some other things they wanted. But ultimately that was
enough to get the broad middle Democrats and Republicans overwhelmingly
voting for this package today.
MATHISEN: So what was the critical thing the GOP wanted and I assume
they got it, and is this the end of that word we knew, sequestration?
JAVERS: That`s a good question, Tyler. So, the number one thing
Republicans wanted was that 40-year ban on oil exports. And the politics
on that have changed so dramatically now that we`ve got this very low price
of oil, low price for gas at the pump. That means voters are not squealing
as much about gas prices and politicians feel free to do something on that
front that they haven`t been freed to do over the past several decades.
That`s what Republicans wanted. In fact, Nancy Pelosi, the Democratic
leader on Capitol Hill, said Republicans wanted it so much she said they
gave up a whole bunch of other stuff in order to get it in negotiations.
That`s part of what made Democrats happy about it.
So, yes, this means they passed through the sequestration budget caps.
You remember the deal they passed a couple years ago that capped federal
spending overall, this burst through that, and that was one of the goals of
President Obama. He said today that he`s happy ultimately with what this
deal does partly because it does breakthrough that sequester spending cap.
HERERA: All right. Eamon, thank you. Have a great weekend. Good to
see you. Eamon Javers in Washington.
JAVERS: Thanks, Sue.
MATHISEN: And sticking in Washington, President Obama praised
Congress for reaching that budget deal during his year-end address from the
White House. He also highlighted the improving scene in the economy.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Our early actions to
rescue the economy set the stage for the longest streak of private sector
job growth on record, with 13.7 million new jobs in that time. The
unemployment rate has been cut in half, down to 5 percent. And most
importantly, wages grew faster than at any time since the recovery began.
(END VIDEO CLIP)
MATHISEN: The news conference the president held was wide-ranging,
covering a number of topics including national security, and John Harwood
was following it all.
John, as you predicted, much of the news conference was about national
security. One subject, using social media to help identify potential
terrorists, the president stepped very carefully. And I`m just not sure
where he landed. Are you?
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, I think
so. Look, the president was making the point in the wake of a controversy
that had occurred after a story this weekend that said in the vetting
process for the woman who married Syed Farook and came to this country,
that vetters had overlooked social media messages she had posted. That was
in “The New York Times (NYSE:NYT)” over the weekend.
As it turned out, she had not posted them publicly. They were
messages that were contained in private e-mails or Facebook (NASDAQ:FB)
messages. And what the president said today was we need to work closer
with tech companies and get them linked with law enforcement to try to
monitor what we can. But he acknowledged that there are — it is not
possible to get private messages in many cases from these social media
So, he was trying to make that distinction as part of a broader
argument that preventing lone wolf attacks from solitary individuals who
are intent on wreaking havoc is simply going to be very difficult to do in
all cases like the San Bernardino case.
HERERA: He also talked about what he considered the successes of this
year for him and for his administration, normalizing relations with Cuba to
a greater extent, the Asia Pacific trade agreement. But then he said he
intends to get a lot more done in 2016. What are some of the big
priorities for him?
HARWOOD: Well, he wants to get that Trans Pacific Partnership through
the Congress. And there have been mixed signals. Paul Ryan said he was
open to an early vote. Paul Ryan favors that deal. Mitch McConnell, the
Senate leader, has indicated he might not want to have a vote before the
November election. The administration doesn`t want that.
So, pushing that forward is one thing. The other opportunity he
highlighted today was on criminal justice reform. There is a growing
bipartisan consensus that we`re putting too many people in prison for non-
violent crimes rather than rehabilitating them at a cost to our economy, to
our government budgets, and to the toll on the lives of those individuals.
And to that end, by the way, he pardoned 95 people today who fit that
category, and this was a greater number of pardons than he`s issued at any
time before in his presidency.
MATHISEN: John Harwood in Washington tonight — thank you very much.
Have a great weekend, John.
HARWOOD: You too.
HERERA: A Federal Reserve official says that four rate hikes next
year would be considered appropriate. Speaking on a business panel in
Charlotte, Richmond Fed President Jeffrey Lacker said that`s what the
central bank means when it anticipates raising rates at a gradual pace.
(BEGIN VIDEO CLIP)
JEFFREY LACKER, FEDERAL RESERVE BANK OF RICHMOND PRESIDENT: I think
it`s a sign of the strength of the U.S. economy. I think it`s a
fundamentally positive reflection of how far we`ve come since the
recession. We continue to add jobs. Consumer spending continues to
expand. We continue to innovate and invest. I think we enter the next
year on a good foot.
(END VIDEO CLIP)
HERERA: Lacker is the first Fed official to speak publicly since the
Central Bank hiked rates on Wednesday.
MATHISEN: The Central Bank, of course, watches the job market very
closely, and today, we learned that the unemployment rate fell in more than
half of U.S. states back in November. The Labor Department reports that 27
states saw their jobless rates fall, 11 saw an uptick. The rest unchanged.
New Mexico now has the nation`s highest unemployment rate, 6.8 percent.
North Dakota the lowest, 2.7.
HERERA: Still ahead, why the hospital auto sales market is sending
one car dealer into reverse.
HERERA: An update now on a story we told you about last night.
Martin Shkreli, the CEO known for significantly raising the price of a
life-saving drug, has resigned as chief of Turing Pharmaceuticals. The
news comes one day after he was arrested and charged in a securities fraud
scheme unrelated to Turing. The privately held firm has promoted its
chairman to the position of interim CEO.
In a statement, Turing said the leadership changes won`t impact its
business and that no patient in need of Daraprim, the drug that saw that
price increase 5,000 percent, would be denied access.
MATHISEN: Shares of Disney (NYSE:DIS) drooped like soggy mouse ears
today after a Wall Street firm cut its rating on the stock to sell. The
firm believes the likely success of “Star Wars” would not be enough to
offset the impact of ESPN subscriber losses.
(BEGIN VIDEO CLIP)
RICH GREENFIELD, BTIG MEDIA AND TECHNOLOGY ANALYST: And it`s squarely
because of ESPN and the cable network division, everyone`s excited about
“Star Wars.” And look, we believe “Star Wars” is going to do $2.6 billion
in global box office. So, we`re not taking a negative view of “Star Wars.”
This is all about cable networks, which is 45 percent of Disney`s operating
(END VIDEO CLIP)
MATHISEN: And shares of the Dow component fell nearly 4 percent on
this down day, making it one of the worst performers on the blue chip index
HERERA: And that downgrade comes on the same day that Disney`s “Star
Wars: The Force Awakens” pulled in a record $57 million in Thursday evening
previews. That figure tops the previous record. And so far, fans like
what they`re seeing.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: I got here at 1:00 a.m., and the theater was
packed. I don`t think there were any seats left. And when the logo came
up and just said “Star Wars Episode 7”, the theater just lost it and
everyone was cheering. It was a great experience.
UNIDENTIFIED MALE: I was kind of surprised, but I think they did a
really fantastic job on this. Being Disney (NYSE:DIS), very good job.
UNIDENTIFIED MALE: I`m going to see it again tonight. We have
tickets for another showing. So just to make sure it`s a good movie, I`m
going to go to watch it twice.
(END VIDEO CLIP)
HERERA: Well, Disney (NYSE:DIS) says it expects today`s domestic
sales to top $100 million and more than $200 million in U.S. and Canadian
sales through Sunday.
BlackBerry shares rally as the broader market sinks, and that`s where
we begin tonight`s “Market Focus”.
The company reported revenue above expectations and its quarterly loss
was smaller than anticipated. CEO John Chen says he`s particularly pleased
with the company`s bigger push into software.
(BEGIN VIDEO CLIP)
JOHN CHEN, BLACKBERRY CEO: I think the direction of our software
business are pretty good. I`m quite comfortable with the fact that
especially on the recurring side, we`re running I think about 70-some
percent today on recurring. Our goal for next year will be over 80
(END VIDEO CLIP)
HERERA: Shares of BlackBerry rose more than 10 percent to $8.60.
Darden also had a positive day. The owner of casual dining
restaurants like olive garden and Longhorn steakhouse swung to a profit and
increased its earnings outlook for the year. The company also raised its
same-store sales forecast and outlined a new buyback program. Shares of
Darden rose 7 percent to $62.51.
Carnival`s fuel costs were cut nearly in half and that helped the
cruise ship operator swing to a profit in the latest quarter. The company
was also able to increase prices and said its bookings were strong. The
stock rose about 4 percent to $52.44.
MATHISEN: Lennar (NYSE:LEN) reported earnings and revenue that easily
topped expectations. Second largest home builder in the U.S. reported
gains in new orders and deliveries. The company said land costs did
increase in the future but that was partially offset by higher home prices.
Shares, though, fell 2 1/2 percent to $47.49.
Target (NYSE:TGT) reportedly developing its own mobile wallet. The
project would let customers pay for goods using an app on their phones.
But according to reports, target has not committed to launching the
product. Shares of the nation`s fourth largest retailer fell more than 1
percent to $71.40.
And from the why didn`t they do this sooner file, Isis pharmaceuticals
is changing its name. The drug company`s new name will be Ionis
pharmaceuticals, effective next week. The ticker symbol will also change.
No longer ISIS. It will be INOS. The company has been considering a name
change for most of the year to avoid being confused with the Islamic
terrorist group. Shares fell slightly to $57.84.
HERERA: CarMax`s shares tumbled as well. The auto retailer reported
disappointing third quarter results, missing both profit and revenue
expectations despite strong sales for cars overall. The stock fell about 6
1/2 percent to $53.49.
Phil LeBeau explains why the hot car market is creating a tough
environment for some car dealers.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: With the economy
improving and used car sales in the U.S. close to a record high, you would
think CarMax (NYSE:KMX) sales would be in overdrive. Think again. Sales
comparisons for stores open at least a year dropped slightly in the third
Why? Well, heavy demand for certain models like trucks and SUV
created a situation where CarMax (NYSE:KMX) had a tight supply. At the
same time, financing for new vehicles is so cheap it`s making many people
who ordinarily buy used decide instead to buy or lease new.
JAMIE ALBERTINE, STIFEL: There really isn`t a large supply of zero,
one, two, and three-year-old vehicles in the same category. So when faced
with similar payments, we believe some consumers are opting to go to new
vehicles relative to used and that`s weighing on CarMax (NYSE:KMX) sales
results at the moment.
LEBEAU: In the third quarter, the average monthly payment for those
buying a new vehicle was just under $500 and those leasing paid just under
$400 a month. Just $37 per month more than the average used car payment.
In addition, cheap gas may be convincing consumers they can afford to
pay a little more to get the model they want. And increasingly, what they
want are pickups, SUVs, and crossover utility vehicles. In fact, sales of
those bigger models have soared to their highest level since 2004. While
car sales have slowed down.
Analysts believe what happened with CarMax (NYSE:KMX) comp sales in
the third quarter is unlikely to be the start of a long-term trend, mainly
because the surge in vehicles leased in recent years will soon be going off
lease. And when they do, they`ll be sold as used vehicles at dealerships
like CarMax (NYSE:KMX).
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
HERERA: And now to our market monitor who likes stocks he says
investors can own whether the stock market is up or down.
Mark Lehmann joins us. He`s president of JMP Securities, an
investment bank based in San Francisco.
Welcome. Nice to have you here.
MARK LEHMANN, JMP SECURITIES PRESIDENT: Thank you. Appreciate it.
HERERA: So, basically, the last time you were on back in February of
2014, you recommended Tableau Software, which is down 1.4 percent, Aratana
Therapeutics, which is down 74 percent. Ouch. And Workday is down 15
So, Mark, do you still held those stocks?
LEHMANN: Well, two, of the three — the tech stocks have done — made
numbers in Tableau and specifically has beaten numbers.
Workday has done quite well. It`s just one of those stock that hasn`t
been appreciated by the market. I think they will go into 2016.
Aratana did well right out of the chute and had some problems with
some drugs. They`re in the pet health market. And that is unfortunate.
That`s a wins business. They`ve had a couple back about a year ago, some
But I think they`re going to perform going forward. That has been a
tough stock, though, as you noted.
MATHISEN: Let`s move on to your stock picks now. You still have on
your list that Workday company. We`ll get to that. But you like two of
the so-called FANG stocks here. I`ll take the A. Sue can have the F.
I`ll take the Amazon (NASDAQ:AMZN). Why do you like it?
LEHMANN: Well, it`s a well-known stock. We`ve been liking it at JMP
for a long too many. Our analyst Ron Josey has been highlighting the
Amazon (NASDAQ:AMZN) web services story. That part of the business which I
think is the least well known business is growing at 60 percent.
Their EBITDA margins are in the mid-20s and they really are defining a
new space. It`s a multibillion-dollar business for them growing again at
60 percent. It`s a catalyst for the stock in 2016. It`s been a great
story in 2015.
Their core business at retail, we all know it, they`re innovating
better than anybody. That is a slow grower but their operating margins is
up 20 percent year over year in that business. It`s just a terrific story.
It`s just — you`ve just got to decide what to pay for it and on days like
today when the markets hit, that`s when you want to pay attention to stock
like Amazon (NASDAQ:AMZN).
HERERA: All right. Facebook (NASDAQ:FB), and you point specifically
LEHMANN: So, Instagram`s a great business for them. The number of
users on Instagram has gone from 300 billion users at the end of 2014 to
about 400 million this year, and you`ll start to notice much more on the
advertising spend on that business.
If they get anywhere close to the kind of rates they`re getting on the
core Facebook (NASDAQ:FB) business, that Instagram is going to be such a
large contributor to earnings going forward. I don`t think people are well
aware of how good a catalyst that will be.
And as I said — as I say all the time, Facebook (NASDAQ:FB) users
check their Facebook (NASDAQ:FB) page a billion times a day. We get a
World Cup Finals every sickle day with users of Facebook (NASDAQ:FB). That
is a juggernaut for advertisers they want to monetize.
MATHISEN: Thirty quick seconds on Workday. You reduced the price
target but you love the earnings growth.
LEHMANN: Exactly. They`ve owned the HR market. They`re going deeper
into the financial services market. I think they`ve got the street ready
for a 30 percent year on the top line. Growing EBITDA faster than that.
It`s a terrific company. The stock`s traded sideways for two years as they
doubled revenues. I think it`s time in `16 for that stock to take off.
MATHISEN: Mark, have a great weekend. Thanks for joining us.
Mark Lehmann with JMP Securities.
LEHMANN: Thank you both.
MATHISEN: And coming up, speaking of Amazon (NASDAQ:AMZN), Amazon`s
big ambitions as it reportedly takes another step to get your packages
HERERA: It is a shortened trading week, and next week, here`s what to
watch. Lots of economic data including the third read on third quarter
GDP, existing home sales, and durable goods.
Dow component Nike (NYSE:NKE) reports its earnings, and OPEC releases
its world oil outlook, and that`s what to watch next week.
MATHISEN: And President Obama announcing today that nearly 6 million
Americans have enrolled in insurance for 2016 through the federal
healthcare.gov site. About 2.5 million of the current total are new
customers. Compare that with this time last year when only about 3.5
million people had signed up.
HERERA: And now to Amazon (NASDAQ:AMZN), which is reportedly taking
another stop to ramp up its delivery operations. As first reported by the
“Seattle Times,” the online retailer is looking to lease its own fleet of
jet planes to potentially lower the risk of shipment delays. Shares of
Amazon (NASDAQ:AMZN) were off just a fraction.
Morgan Brennan takes a look at Amazon`s strategy.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call it an
airy ambition, the latest in Amazon`s quest to build out and control its
own transportation network. The “Seattle Times” reporting the e-commerce
giant is in talks to lease 20 Boeing (NYSE:BA) 767 jets to create its own
air delivery service.
Amazon (NASDAQ:AMZN) has not responded to request for comment and
Boeing (NYSE:BA) is not commenting, quote, “on any potential negotiations
that may or may not be taking place with potential customers.” But if
Amazon (NASDAQ:AMZN) is looking to hit the skies, it is likely doing so by
talking to aircraft leasing companies, not Boeing (NYSE:BA) directly.
Leasing companies could operate the fleet since Amazon (NASDAQ:AMZN)
doesn`t have an air operator certificate. This model may be something
Amazon`s already testing out. Air transport services group is running an
air cargo trial out of Ohio. That as of last month involved five Boeing
ATSG has not disclosed its customer for the trial and is not
commenting on these reports. But several sources do claim the project does
involve Amazon (NASDAQ:AMZN).
Overall, Amazon (NASDAQ:AMZN) has been bringing more fulfillment
operations in-house, building sorting centers and recently unveiling a
fleet of branded trucks.
To get shipments to customers quickly, analysts say that means getting
more inventory to more places faster. But what would this mean for UPS and
FedEx (NYSE:FDX), which currently handle so many Amazon (NASDAQ:AMZN)
packages? UPS calls the e-commerce company, quote, “an important customer”
that it`s working with to meet growth and service objectives.
And earlier this week, on an earnings call, FedEx (NYSE:FDX) CEO and
founder Fred Smith made similar comments. But the founder of FedEx
(NYSE:FDX) also pointed out that building a global transportation network
is very capital and information sensitive, the reason there`s only three
major parcel carriers in the U.S. and that it`s a landscape he doesn`t see
changing in the foreseeable future.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
HERERA: And that does it for NIGHTLY BUSINESS REPORT tonight. I`m
Sue Herera. Thanks for watching.
MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a
great weekend, everybody. And we will see you back here on Monday.
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