Transcript: Nightly Business Report – January 29, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Big finish. Stocks rally
nearly 400 points to cap off a turbulent month that saw the major indexes drop 5 percent or more.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Hands tied? With anemic
growth and central banks around the world going to new lengths to reflate
their economies, is the Fed now backed into a corner?

HERERA: Portfolio protection. Stock picks from a top-rated funds manager
that he says have significant upsides in a slow-growing economy.

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, January
29th.

MATHISEN: Good evening, everyone, and welcome.

Well, if you can`t make sense of these markets, don`t feel bad. Neither
can we, really. To many market observers, January has been a month of
turbulence and transition, defying neat explanations.

Polar vortex? Not this year. Bipolar market? You bet. That pretty much
explains January.

And on this final day of trading for the month stocks in a deep funk for
much of January, roared higher. Dow Jones Industrial Average rallied 396
to 16,466. Good for the index`s best percentage gain since August. The
NASDAQ climbed 107. The S&P 500 gained 46.

Now, today`s drivers were an interest rate cut in Japan and weaker than
expected economic growth data here in the U.S. Taken together, those two
factors suggest that American interest rates may move little, if at all,
for many months.

Today`s strong finish merely masked a mostly moribund month. This January
will be remembered for producing the worst 10-day start to a year ever.
The plunge in oil prices, big stock losses in China, fears of a global
slowdown gripped the market and sent shares sliding.

And the final tally for the month — well, it`s ugly. The Dow lost 5.5
percent, worst January since 2009. NASDAQ off 8 percent or so, its worst
showing in any month since 2010. And the S&P 500 fell more than 5 percent.

HERERA: More on the economy now which saw growth sputter in the final
months of last year. Gross domestic product, the broadest measure of
economic output, expanded at 0.7 percent in the fourth quarter. That was
slightly less than expected and it follows a 2 percent advance in the
third. But the Federal Reserve would like to see more — more growth, not
less.

And as Steve Liesman reports, that`s not the only thing complicating the
central bank`s rate hike strategy.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The U.S. economy
registered weak growth in the fourth quarter and the Bank of Japan facing
its own anemic recovery cut its interest rate to negative to try and spur
economic activity. It was an historic move and the BOJ now joins the
European Central Bank as the second major monetary policy authority to
charge banks for keeping money on account.

That`s right. If a bank deposits money at the central bank, they get
charged for the privilege. It`s a way of giving banks incentive to loan
out their cash rather than hoard it. It leaves the U.S. Federal Reserve
glaringly alone with its intentions to hike interest rates this year.

Increasingly, it appears to Wall Street that Janet Yellen and the Fed will
do nothing of the kind.

MICHELLE MEYER, BANK OF AMERICA ECONOMIST: I think March at this point is
a low probability. I think the Fed is taking into account what`s happening
from other central banks which are continuing to ease and that`s going to
impact the dollar and that`s going to create tighter financial conditions
for the U.S.

LIESMAN: Fed officials on Friday acknowledge the global development.

JOHN WILLIAMS, SAN FRANCISCO FED PRESIDENT: What does worry me are things
from abroad. Like what you said, what`s happening in Europe in terms of
their economic struggles that continue. What`s happening in Asia.

But, overall, I actually am pretty optimistic about where we are in the
U.S. economy. And I think that we can weather some of these storms out
there that are happening abroad.

LIESMAN: The impact overseas of the stronger dollar are evident in the GDP
report, where exports fell 2 1/2 percent. It took almost half a point off
GDP.

Another big negative: a decline in investment dragged down by a fall-off in
spending for oil drilling equipment. The one bright spot, consumers who
are weaker than the third quarter but still good spend morgue than 2
percent. They`re a big reason why many economists expect growth to improve
this year.

The U.S. economy`s held up remark debris well but it could get some help
from foreign economies if negative interest rates have their intended
effects.

JIM MCCAUGHAN, PRINCIPAL GLOBAL INVESTORS CEO: I think this is all
pointing to the fact that other central banks are finally getting on the
program that they have to create the liquidity that the Fed no longer needs
to do for the U.S. economy.

LIESMAN: A big Wall Street rally showed investors were content to shrug
off the weak U.S. growth and roll the dice on the prospects for better
foreign growth and less Fed tightening.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: So, will investor optimism help carry this little rally through
into February and will today`s weak data change the Fed`s course for rate
hikes?

John Canally is chief economic strategist at LPL Financial, here to weigh
in on that discussion.

John, always good to see you.

Why don`t we start with where Steve left off, and that is what effect
today`s GDP data, the moves by the Bank of Japan will have on the course of
American interest rates? What do you expect for the remainder of this
year?

JOHN CANALLY, LPL FINANCIAL CHIEF ECONOMIC STRATEGIST: You know, I think
the Fed is in a kind of tough spot here. They had a statement this week
but all they had was a statement. They didn`t have a press conference.
Fed Chair Yellen didn`t get to explain what the Fed did. There`s no new
set of economic forecasts from the FOMC itself.

The next time we`re going to hear from the Fed on any of that is in the
middle of February, I think it`s February 10th, when Fed Chair Yellen
testifies before Congress. So, we really have another ten days or so
before we actually hear what the Fed is thinking about this.

My sense is the Fed is concerned about global growth but probably not as
concerned as financial markets are. But they are concerned. The market
right now only has the Fed hiking rates one time this year.

The Fed says it`s still going to do four hikes this the year. That`s got
to meet in the middle. My guess is it probably meets closer to what the
market thinks than the Fed thinks but we have another ten days or so to
wait that out. We won`t know until then.

HERERA: You know, John, there is a lot of rumor going around in the market
and a lot of fear in parts of the market, despite today`s big move to the
upside, about things like sovereign debt defaults, currency defaults,
things we have seen in the past.

Are those valid? The market seems to think that they are possibilities.
Despite some of the strengths we see here at home.

CANALLY: That`s correct. I think today`s rally off of the Bank of Japan
move we had overnight and the fact that the Fed is probably going to have
to rein back its rate hikes, that`s a good thing. But remember, Groundhog
Day is next Tuesday. And we could just repeat January all over again. If
we get some kind of a currency move based on what happened with the Bank of
Japan.

So, the Bank of Japan is in essence weakening the yen. That might impact
what China does with its currency. Then the China`s trading partners might
have to change what their currencies are doing.

That knock-on effect we last saw in real time in 1998. That was a very
unpleasant, volatile second half of 1998. I`m not saying that`s not our
base case but I think the unspoken fear in the markets is that happening or
the fear of that happening really I think is what`s driving asset prices,
at least in January so far.

MATHISEN: I spoke earlier today to the CEO of Whirlpool (NYSE:WHR) who is
clearly worried about the strength of the dollar. It is hurting his
business. Do you think that will persist and hurt American nationals
significantly in 2016? Quick answer, please.

CANALLY: You know, quarter to date, the dollar`s up about 5 percent versus
where it was a year ago. The headwind is abating but it`s still there. It
shouldn`t be as bad in `16 as it was in `15.

MATHISEN: All right, John. Thank you for the quick answer. John Canally
with LPL Financial.

CANALLY: Thank you.

HERERA: Oil prices rose today to just above $33 a barrel after a
government report showed production fell in November for the second
consecutive month. The number of oil rigs also dropped for the sixth
straight week. Traders are tracking those things closely. Any information
on potential supply changes given the global glut of crude.

But despite today`s rise, oil saw a double-digit decline for the month of
January.

MATHISEN: So the biggest energy companies in the world are now feeling the
wallop of those low oil prices. Today, Chevron (NYSE:CVX) reported a loss
of more than half a billion dollars in the most recent quarter. Its full-
year profit, the lowest it`s been in 13 years.

Morgan Brennan reports now on Chevron`s financial pain.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chevron (NYSE:CVX)
reporting its first quarterly loss since 2002. As oil prices collapsed to
the lowest level in over a decade, the U.S.`s second-largest energy company
saw earnings plunge more than 75 percent in 2010. The lion`s share of
losses came from the upstream division which explores foreign oil and
natural gas. But during the fourth quarter, results were surprisingly weak
in the downstream segment as well, as refining operations also saw profit
tumble.

After slashing its 2016 spending forecast 24 percent last month, CEO John
Watson reiterated plans to cut costs including reducing the company`s
workforce by 10 percent. Chevron (NYSE:CVX) also hopes to sell up to $10
billion in assets through 2017 after shedding $6 billion worth last year.

But as the company braces for oil prices to remain lower for longer, Watson
again stressing the company`s, quote, “number one financial priority” is to
maintain and grow the dividends, which currently yield 5 percent. After
last quarter, analysts question just how long Chevron (NYSE:CVX) can pledge
to do that.

But Watson insists it`s kept a strong balance sheet just for times like
this.

JERRY CASTELLINI, CASTLEARK PRESIDENT & CIO: Cash flow as you can see by
Chevron`s performance today is tight. They`re going to have to borrow
money this year if prices don`t improve and if they want to maintain that
dividend. But given the growth projects that they have in store for the
next two or three years, it`s a nice balance between growth opportunities
and the ability to pay that dividend.

BRENNAN: As the first of the major international oil companies to report,
Chevron`s miss could be a harbinger of more tough news to come, when
ExxonMobil (NYSE:XOM), BP, and Royal Dutch Shell report next week, the same
factors will be in focus, plunging upstream profit, resiliency of refining
operations, and assurances dividends will remain intact.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: Still ahead, the senator who wants to crackdown even harder on
corporate crime.

(MUSIC)

HERERA: Thousands of port workers walked off the job today in New York and
New Jersey, all but shutting down one of the nation`s busiest ports. The
stoppage is reportedly related to issues concerning collective bargaining
and time off after injuries. The terminals impacted receive nearly 30
percent of all cargo on the East Coast. The Port Authority is urging
members to return to work.

MATHISEN: Companies across multiple sectors paid billions in civil and
criminal fines last year, but Senator Elizabeth Warren wants more. In a
report, she criticized what she calls shockingly weak punishments for
corporate crimes. She cites numerous cases in which prosecutors were too
timid when going after companies and individuals for what she calls
criminal misdeeds.

Eamon Javers has been following the story from Washington.

Eamon, good evening. What were some of the details in the senator`s
report?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good evening, Tyler.

Well, here`s the report here. It`s called “Rigged Justice”. It`s eight
pages. It was released this morning.

And Elizabeth Warren says it`s going to be the first of an annual series of
reports she`s going to put out highlighting what she sees as the failures
of American law enforcement and securities regulators to prosecute big
business and particularly individual executives for wrongdoing in corporate
frauds.

What`s upsetting to Elizabeth Warren here is the Department of Justice, she
says, is not going after enough actual individuals. She also called the
SEC especially feeble. And she cites 20 different cases here where she
thinks that the U.S. government could have been a lot tougher on those
people who allegedly committed the fraud here.

So, a really scathing report here from Elizabeth Warren.

HERERA: It points the finger at Justice and at SEC. So, what did they
have to say about it?

JAVERS: Well, we asked them both. You might not be surprised to hear.

Here`s what the Department of Justice told me earlier this afternoon. In a
statement to us, they said, “The department is committed to aggressive
investigation and prosecution of corporate wrongdoing. As the deputy
attorney general emphasized in announcing the department`s new policy on
individual accountability in September 2015.”

I also asked the SEC for their comment on this. They didn`t have anything
to say publicly but I can tell you that I know people over there are
particularly proud of the SEC`s new policy under Mary Jo White requiring
companies in many cases to admit wrongdoing when they settle cases.
Previously, it had been the case they could settle without admitting or
denying the wrongdoing in question.

Now, under Mary Jo White the trend has been to force a lot of companies to
admit wrongdoing when they settle. Elizabeth Warren thinks that`s simply
not good enough, guys.

MATHISEN: I suspect Wall Street will say nothing about this, but maybe
privately they`re saying something. What would they likely make of it?

JAVERS: Yes, look, Wall Street already thinks that the federal government
is too onerous and overbearing. They do not think that the SEC and the DOJ
are not doing the job. They think they`re doing too much.

So, obviously, Wall Street and Elizabeth Warren live on different planets –
– Tyler.

(LAUGHTER)

MATHISEN: All right. Eamon Javers, thanks very much — from a different
planet, Washington.

JAVERS: Right. That`s right.

HERERA: All right, an iconic name is splitting up. That`s where we begin
tonight`s “Market Focus.”

Xerox (NYSE:XRX) is splitting into two separate companies. One, a document
technology company, the other, business services. The move comes as Xerox
(NYSE:XRX) was under pressure from activist investor Carl Icahn. Although
Xerox (NYSE:XRX) says the move had nothing to do with Mr. Icahn but he will
be able to name three members to the board of the business services
company. Xerox`s CEO said the move to split was an obvious one.

(BEGIN VIDEO CLIP)

URSULA BURNS, XEROX CHAIRMAN & CEO: What we found is that two companies
that have fundamentally different kind of ethos, different movements. One
grows a little slower than the other. One needed a little more investment
in development and developing its market than the other. One threw off a
lot more cash than the other.

Tat it was probably better that we split so we can actually be more
flexible, more responsive, and essentially more fit and focused for the
markets that we`re attacking.

(END VIDEO CLIP)

HERERA: Wall Street applauded the move. Shares of Xerox (NYSE:XRX) were
up more than 5.5 percent to $9.75.

The appliance-maker Whirlpool (NYSE:WHR) said quarterly profit more than
doubled thanks in part to cost-cutting measures, but revenue fell more than
7 percent. And Whirlpool (NYSE:WHR) says this year, it sees a strong U.S.
market offsetting weakness in its overseas business. Shares were up nearly
2 percent to $134.39.

Cost cuts were also the story over at Honeywell. The move helped lift
profit and offset a drop in sales hurt by the strong dollar. The
diversified technology manufacturer also reiterated its forecast for 2016.
Honeywell jumped more than to 5 percent $103.20.

MATHISEN: American Airlines posting a record profit for fourth quarter and
all of 2015. Cheaper fuel prices helped offset a drop in revenue. The
company says it expects to save $2 billion in 2016, on those fuel prices.
Shares of American up more than 2 percent, $38.99 the close there.

Falling cigarette volumes were a driving factor in Altria Group (NYSE:MO)
missing its earnings estimates. The owner of Philip Morris also said it is
working to cut $300 million in costs by the end of next year. That will
include about 500 salaried workers. Shares of Altria Group (NYSE:MO) up
2.5 percent today to $61.11.

And shares of Merck (NYSE:MRK) got a lift after the Food and Drug
Administration approved the company`s new treatment for hepatitis C. Merck
(NYSE:MRK) is the latest to enter the growing market for Hep C and will
compete with treatments from Gilead Sciences (NASDAQ:GILD) and AbbVie.
Merck (NYSE:MRK) rose 3 percent to $50.67, while Gilead was off 5 percent,
AbbVie dropped 2 percent.

And now to market monitor who says stocks, he says, will provide some
protections to your portfolio during periods of uncertainty in this market.
It is his first time joining us on the program. He is Rich Weiss, a
Morningstar (NASDAQ:MORN) five star fund manager at American Century
Investments where he oversees $25 billion in assets.

Welcome, Rich. Nice to have you here.

RICH WEISS, AMERICAN CENTURY INVESTMENTS SR. PORTFOLIO MANAGER: Nice to be
here. Thank you.

HERERA: Let`s start first of all with your overall take on this market.

WEISS: Well, unfortunately, we see the economy both globally and
domestically slowing down. You know, the fact is we`re not necessarily
looking for a recession, but U.S. real economic growth widely forecast to
be maybe growing at 2 percent, 2.5 percent this coming year, roughly in
line with what we saw last year. So, stagnating growth. We`re not getting
much of a push from overseas and China continues to decelerate.

So, we`re really battening down the hatches and trying to bullet proof our
portfolios. As the stock market moves from the more growth-er stocks to
value sectors. It`s imperative that you shift your asset allocation.

MATHISEN: Looks like you`re trying to bullet proof with a couple of energy
names.

Let`s start with Entergy (NYSE:ETR). Give me your thumbnail on that one.

WEISS: Entergy (NYSE:ETR) is an integrated energy company in transition.
Primarily electric utilities in the Gulf States, Mississippi, Louisiana,
Texas, Arkansas. But they also own nuclear plants up in the Northeast,
which they are in the process of negotiating decommissioning. By
transferring or transitioning from these volatile, noncore commodity
sensitive types of plants into the more regulated, stable cash flow
businesses, they can almost guarantee an increase in price earnings ratio
regardless of the economic direction overall.

HERERA: Next on the list is First Energy, also in the utility sector.

WEISS: Right. Similar story there.

Under the leadership of Chuck Jones, just appointed CEO, they`re going to a
back to basics strategy. They`re going to focus on their core electric
utilities businesses across the Mid-Atlantic States, including Ohio. And
they too are pursuing this transitional strategy from the deregulated to
highly volatile, deregulated industries in nuclear and coal, over to the
regulated industries. So you get better earnings visibility and higher
multiple.

Both those energy stocks are trading at maybe 10 times earnings. And if
they successfully make this transition, they could easily be valued at 14
times. They each carry a nearly 5 percent dividend yield. So, buffered
significantly on the downside.

MATHISEN: A quick few seconds on a company you call painfully cheap,
Synchrony.

WEISS: Synchrony is a really unique situation, a spinoff from GE. They`re
a consumer finance company, the largest and oldest retail credit card
company, private label company. They do business with JCPenney, Walmart,
they`re in a partnership with Amazon (NASDAQ:AMZN). Huge online database
of information which they`ve yet to monetize.

They`re growing online. They have extremely healthy growth rates.
Citigroup (NYSE:C), Capital One, TD Bank are all trying to get into this
lucrative market. But Synchrony has got a lock on it, also at 10 times
P/E.

HERERA: All right. We`ll leave it there. Thanks, Rich. We`ll see you
again soon.

WEISS: Thank you, Sue.

HERERA: Richard Weiss with American Century Investments.

MATHISEN: Just a month ago, most people hadn`t heard of the Zika virus.
Now, everyone`s talking about it, especially after the World Health
Organization said it is spreading explosively in the Americas with as many
as 4 million cases possible over the next year.

Meg Tirrell reports on what we know and what`s being done to control it.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Though its symptoms
are generally mild, the concern about Zika virus is mainly for pregnant
women. Brazil has seen a 20-fold higher incidence of the birth defect
microcephaly as cases of Zika soared. Microcephaly leads to smaller heads
and less-developed brains in babies.

The link isn`t proven but officials are concerned. Some countries in the
region have advised women to delay pregnancy. And the CDC advises pregnant
women to delay travel to those areas where Zika is spreading.

United States has had more than 30 cases reported but they`ve been among
travelers to the more than 20 affected countries in Central and South
America. The virus isn`t reported to be spreading here, and experts say
the risk in the U.S. currently is lower than other areas.

PAUL ROEPE, GEORGETOWN UNIV. MEDICAL CENTER: We have to have a very
healthy degree of respect for this virus but I don`t think we need to be
unduly alarmed just yet.

TIRRELL: That`s because of the way the Zika virus spreads. It`s carried
by the Aedes Aegypti mosquito which also carries dengue fever and
Chikungunya.

ROEPE: It`s spreading in Central and South America because there are a lot
of people who are currently infected and lot of mosquitoes. We have very
local distribution of Aedes Aegypti mosquitoes.

TIRRELL: They`re mainly found in the warm southern parts of the United
States where mosquito control efforts have curbed dengue outbreaks of
dengue and chikungunya. But with spring vacation season looming, some in
Wall Street worry about the effect of travel on the Caribbean.

Airlines are offering options to travelers who want to change tickets due
to Zika. American said today it`s too early to tell what impact Zika could
have, that it hasn`t seen a material change to flight bookings because of
the virus so far.

Another group with exposure to the area is cruise lines. The Caribbean is
a key location for cruise companies. For Carnival (NYSE:CCL), the region
accounts for about a third of its passengers. Stocks of Carnival
(NYSE:CCL), Royal Caribbean, and Norwegian Cruiseline holdings all have had
a tough start to the year. While there`s no treatment or vaccine for Zika
available now, work is under way.

DR. ANTHONY FAUCI, NAT`L INSTITUTE OF ALLERGY & INFECTIOUS DISEASE: We
have the capability of moving quickly to get a vaccine candidate into what
we call phase 1 clinical trial to determine if it`s safe and if it induces
the kind of immune response that you had predicted would be protective.

TIRRELL: Dr. Anthony Fauci at the NIH said the vaccine likely wouldn`t be
ready for several years. The best bet, officials say, is to protect
against mosquitoes.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: And coming up, taking a swing. The big industrial company that
is helping build a better golf club.

(MUSIC)

MATHISEN: Here`s what to watch next week. The government releases the
unemployment report for January, that`s Friday. January auto sales due
out, it will be the first report that comes off that record 2015.

Another busy week for earnings. More than 100 of the S&P 500 companies,
three Dow components will report. And that is what to watch next week.

HERERA: It`s known as the major of the golf business. And the Super Bowl
for golf equipment. It`s the annual PGA merchandise show in Orlando,
Florida. It ranks among the highest-profile event in the industry and for
good reason.

Dominic Chu was there.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s the who`s who of
the golf business. More than 1,000 companies are on display and over
40,000 attendees are expected to wander through the convention center
floor. Everyone trying to get a glimpse of the latest and greatest in gear
and apparel.

BOB PHILION, COBRA PUMA GOLF PRESIDENT & CEO: I think the innovation for
this year on the equipment side, we`re seeing customization or
personalization what is we call it. We`re able to do that through the King
family and it`s really tuning that product to the golfer where they`re
going to pick up the most benefit.

CHU: Technology plays a big role in the development of golf equipment.
Some companies even use partnerships with huge industrial companies to
further their cause.

CHIP BREWER, CALLAWAY GOLF PRESIDENT & CEO: One of the cool partnerships
that we`ve really had for many years is our relationship with Boeing
(NYSE:BA). And, you know, it`s really expanded in multi-levels across the
organization. But this last year, we partner with them to make our
equipment better.

CHU: All of this cops at a time where the game of golf is at a crossroads.
The economy is showing signs of slowing but there is a sense of optimism in
the game.

PETER BEVACQUA, PGA OF AMERICA CEO: PGA of America, we`re incredibly
excited about 2016 which for us is a truly unprecedented year. We have
such an energy in golf right now.

CHU: There`s a lot of buzz here at the PGA merchandise show. But the real
question now is, will that buzz translate into real-world gains on the
fairways and greens?

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu, Orlando, Florida.

(END VIDEOTAPE)

MATHISEN: Before we go, let`s take a look at today and maybe not so much
the month on Wall Street. The Dow rallied nearly 400 points. NASDAQ
climbed 107. S&P 500 added 46. That`s the good news.

For the month, it wasn`t so good. It wasn`t pretty at all. The major
indexes fell more than 5 percent. Good-bye January.

HERERA: Good-bye January, exactly.

All right. Have a great weekend. That`s NIGHTLY BUSINESS REPORT for
tonight. I`m Sue Herera. Thanks for watching.

MATHISEN: And I`m Tyler Mathisen. Sorry for stepping on you there.

Have a good week, everyone. We`ll see you Monday.

END

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