TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Snapback. Stocks break a
five-day losing streak because of a gusher of oil. The question now, can it hold?
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Recession or not? The stock
market seems to be ringing the alarm bells but the economy doesn`t want to
play ball. So which is right?
MATHISEN: Tread lightly. This week`s market monitor thinks the next few
months hold more risk than reward but he has some names he says you may
want to think about nonetheless.
All that and more for Friday, February 12th.
HERERA: Good evening. Welcome.
It was a strong finish to an otherwise dismal week on Wall Street. The
catalyst to the upside is the same catalyst that has been triggering sell-
offs and that, of course, is oil. Oil posted its best day in seven years
gaining 12 percent on hopes of a possible production cut that we told you
about last night.
The banking sector also pitched in, having its best day since 2011, helped
out by a big buy-back that we`ll tell you about in just a few moments.
Some strong economic data helped out as well. Add it all up and you have a
recipe for a rally.
The Dow was up 2 percent to close at 15,973. NASDAQ rose 70. The
benchmark S&P 500 added 35. That`s also about 2 percent.
For the week, it was a different story. The Dow was the big loser, down
nearly 1.5 percent. The NASDAQ and S&P both off more than half of a
Bob Pisani has more on today`s rally.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The market cannot
decide how it feels. All week, we were in the usual quasi-panic mode that
characterized the entire year. Oil is down, bond yields were down, gold
was up, the yen was strengthening, global stock markets down.
Then, everything changed at 2:30 p.m. Eastern Time yesterday. And that`s
when oil which was trading at $26, a 12-ear low, suddenly turned around on
remarks of the UAE oil minister that OPEC may agree on some kind of
production costs, and no one really believed that. But the world changed,
everything reversed. Oil rallied, bond yields rose, gold went down, the
yen weakened, stocks rallied.
And that trend continued into Friday. In fact, the S&P rallied about 50
points since 2:30 p.m. yesterday.
Now, this is all the more remarkable because we`re going into a three-day
weekend. And you know the drill. With all the volatility, traders are
wary holding positions when China will reopen on Monday and our markets
were closed but that apparently was not a worry today.
So, what does this all mean? Well, if oil puts in a convincing bottom that
would be important. But nothing has changed to indicate that it has. It`s
Next week, we`ll hear from ECB head Mario Draghi who speaks in Brussels on
Monday. We`ll also get Japan`s fourth quarter GDP and we`ll hear from big
retailers including Walmart later in the week.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
MATHISEN: Well, the market plunged to start the year, has some investors
wondering whether stocks are signaling recession. Others say the economy
is saying, no way. Today, people in the economy camp got a lift. We got
data showing the consumer was alive and well last month as retail sales in
January were stronger than expected.
So, if stocks are warning recession, Steve Liesman tells us why the economy
isn`t playing ball.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you could cover
one eye and block out the dismal stock market numbers, if you could look
only at the economic data, you`d have no idea we`re in the middle of some
apocalyptic panic, which is to say the U.S. economic data has not been
great but it`s been good — good enough to contradict the view from the
stock market that a recession is imminent. Retail sales for January were a
bit better than expected, helping confirm the early read that first quarter
growth would show a modest bounce back from that weak fourth quarter.
Jobs are up as are wages and unemployment is down. Add to that a sterling
household credit report from the New York Fed showing bankruptcies and
foreclosure in the U.S. hit their lowest levels in 2015 in the 13 years the
bank has tracked it.
WILLIAM DUDLEY, NEW YORK FED PRESIDENT: I think the U.S. economy is in
quite good shape. You know, we`ve talked today about the household sector.
You also look at the outlook for housing. You look at the fact that fiscal
policy in the U.S. is actually turning stimulative as brought by support
this year. So, there`s quite a bit of I think momentum in the U.S.
LIESMAN: To be sure, there are weaknesses and warning signs. The stock
market can be a leading indicator of growth in recessions. Corporate
earnings are contracting and the manufacturing sector of the economy seems
already to be in recession.
In addition, the economy itself doesn`t always give warning signs when the
economy will slow down. That said, the early read from the January
economic data does not confirm the dismal market outlook. And low oil
prices, low unemployment, and higher wages set up the consumer to keep
spending this year.
The biggest danger then may be the damage in the decline in stocks,
undermining confidence and prompting some companies not to hire or to cut
back on their capital spending. So, the only thing the economy has to fear
Franklin Roosevelt might have said is fear of the stock market itself.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
HERERA: OK, but what about on the corporate side? Earnings season is
wrapping up and the numbers haven`t exactly been something to write home
Dom Chu takes a look at how the earnings have been and why they could be a
possible red flag.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: There`s a reason why
some investors are worried about both the economy and the stock market
ahead. It`s earnings season. And while reports from America`s largest
companies have generally come in better than expected, the expectations
were already low to begin with.
So here`s how things are shaping up: around three-quarters of S&P 500
companies have already reported numbers. Among those, more than two-thirds
of them have beaten the average analyst estimate. The problem is, it still
means if all remaining companies in the index report earnings as expected,
earnings growth will post a decline of 4 percent over the same period last
If that does happen, it will mean two straight quarters of earnings
declines which some experts categorize as an earnings recession. All of
this according to Thomson Reuters (NYSE:TRI) IBIS.
But the concerns don`t end with bottom-line earnings results. There are
worries about top-line revenues or sales. S&P 500 companies are on track
to deliver sales declines of nearly 3.5 percent this past quarter.
If that does come to pass, it would be the fourth consecutive quarter of
year over year sales declines. The last time that happened was during the
financial crisis. It also means a sales recession is already under way.
Both will argue if you strip out the outsized negative effect of declining
oil sales and profits there would actually be modest growth. The bears
argue that you have to look at the entire earnings picture no matter how
gloomy things have gotten for the energy sector.
Regardless, the decline in sales and profits at America`s biggest companies
is helping to add to the overall market caution.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
MATHISEN: One person who is firmly on the side of the economy in this
little debate between the markets and the economy is the billionaire hedge
fund investor John Paulson. His views on the market are closely watched by
other investors and he said last night the stock market is getting carried
(BEGIN VIDEO CLIP)
JOHN PAULSON, PAULSON & CO. PRESIDENT: There`s a disconnect between the
performance in the stock market and the performance of many companies,
particularly, you know, that we`ve invested in our portfolio, that the
companies are actually doing very well, yet the stock prices are declining.
So that`s kind of an imbalance and eventually that will sort itself out.
So, I would say that the market is somewhat overreacting to the current
state of the economy.
(END VIDEO CLIP)
HERERA: So which side is right? We`ve set it up for you.
Joining us to discuss is Craig Dismuke, chief economic strategist at Vining
Sparks. And David Kelly, chief global strategist at JPMorgan (NYSE:JPM)
Welcome, gentlemen. Nice to see you here.
Craig, let me start with you. I think you heard the arguments on both
sides. Tell me, who do you think has it right, the stock market or the
CRAIG DISMUKE, VINING SPARKS CHIEF ECONOMIC STRATEGIST: Well, I think both
of them are telling different stories right now. The economy continues to
run at a stable rate of growth. It`s not great. It`s below the 3 percent
we`re used to.
But we do see the economy continuing to be fairly stable, growing between
1.5 percent and 2 percent, and that`s primarily because we have a better
consumer. I think Steve hit on that earlier. Consumers are in a better
position, the labor market`s better. They`re seeing a little wage gains.
And so, from that perspective, the consumer`s driving economic growth and
that`s healthy. I think the stock market is really reflecting the fact
that there`s a lot of volatility out there. Central banks have been
driving asset prices. And to that degree, when they start to unwind it
like the Fed did in December, there will be a lot of volatility and that`s
what we`re seeing play out.
MATHISEN: David, how do you handicap the possibility of a recession in the
United States in 2016?
DAVID KELLY, JPMORGAN FUNDS CHIEF GLOBAL STRATEGIST: Yes, I think in any
given year, in any year, there would be a 15 percent to 20 percent chance
of recession because of something happening. I don`t think the chances of
recession are much more than that, about a 20 percent chance.
As we went into this year the key thing, I agree with Steve Liesman`s
report, if you look at government spending, it`s going to be rising this
year. Consumer spending is going to do very well this year. All the
consumer fundamentals are in place. Housing is still in midst of a bounce
If you give me C plus H plus G, you give me that part of the economy,
that`s 90 percent of the economy — 90 percent of the economy looks fine
and that will be enough to allow us to avoid recession, unless some big
shock that has not already occurred, occurs.
HERERA: Craig, weigh in on that if you will, because from my notes, you
say it`s unlikely to have a recession short term, but that the risks are
elevated, and if growth contracts, you have a more fragile economy.
DISMUKE: Yes, and that`s one of the challenge wet have today. When you
have a 2 percent economy, like we`ve had post the great recession, you
know, going — sliding into a recession is much easier than when you have a
3 percent economy. So I think we have a more fragile economy today.
With all of the turmoil that we see globally and overseas, I think that you
could see, if confidence were to be shaken and we were to see the consumer
pull back, then you could see it slip into a recession. I think it would
be a mild one, but you certainly could see that happen.
So, we`re just starting at a lower base, and because of that, it makes it
easier for us to slip into recession.
MATHISEN: David, we didn`t get a chance to talk after the Fed chair`s
testimony Wednesday or Thursday. What do you make of it? And more
pointedly, what do you think, if anything, she signaled with respect to the
pace of interest rate hikes this year?
KELLY: Well, I think Janet Yellen was trying her hardest not to make news.
I must say I don`t envy her position sitting in front of the congressmen
and the senators. I think she`s — I think the Fed is cautious. They`re
sort of — that`s in their nature. I think that the volatility we`ve seen
this year probably takes March off the table, although she didn`t say that.
I still think the economic numbers will look good enough, that by June they
will have to raise rates, and I expect to get a June hike, a September
hike. And, by the way, I think the pace of which unemployment`s coming
down means they did start too late. And they`re eventually in 2017 going
to have to deal with an issue of wage inflation and a very low unemployment
So, to some extent there is a risk in 2017, a greater risk of recession in
2017, but I don`t think so in 2016.
HERERA: Craig, what about the pace of interest rate hikes? A lot of
people think march is off the table and a lot of people think the Fed might
be only one more interest rate hike in their cards at this point.
DISMUKE: Yes, ironically, if you look at Fed funds futures contracts,
which is just a way to determine what the market thinks, they`re actually
pricing in a greater chance of a rate cut this year than a rate hike. They
were as of Thursday.
So, you know, I think it`s going to be hard for them to raise rates. I
think the primary reason — I agree with David that Janet Yellen didn`t
want to make news. I think March is off the table for sure.
But at the end of the day, they have to see inflation come back. And there
really are no signs of any inflation anywhere in the production pipeline,
earnings growth has been very weak. And so, if there`s not inflation,
they`re missing that side of their mandate. So, at the end of the day, I
think it`s going to be hard for them to raise rates. Maybe one time this
year at best.
MATHISEN: David, what do you make of her comments about negative interest
rates in the United States? What would it mean in the U.S. if we did go
negative? I know that`s not what you`re suggesting or forecasting at all.
What is it going to mean in Europe and what could it mean if it happened
KELLY: Well, it`s very disruptive. It reminds me of one of these ads for
a fairly harmless disease, they tell you about this pill they spend a
minute giving you all the negative side effects. I don`t really see any
good. So, I certainly hope we don`t have to resort to that medicine
because this isn`t medicine, it doesn`t fix things anywhere.
I hope that the Federal Reserve is really looking at what`s going on, where
negative interest rates have been applied, indeed where zero interest rates
have been applied for many years, and recognize this is not good at
stimulating the economy, it`s best to try to have the fortitude to raise
rates gradually to get back to normal.
HERERA: Gentlemen, thank you have a much. Craig and David, appreciate it.
Have a good weekend.
DISMUKE: Thank you.
MATHISEN: And with all the bank bashing from both side of the political
campaign, Wall Street is searching for a presidential candidate to get
behind. So, where and who might Wall Street look to? That`s coming up
HERERA: There has been a common ground from both sides of the aisle this
election campaign, blame Wall Street. So, with attacks coming from the
left and the right, the street is trying to figure out who to back and it`s
not the favorites. Today, Ken Langone, a GOP donor and Home Depot
(NYSE:HD) cofounder has decided to back Ohio Governor John Kasich. And
activist investor Bill Ackman wrote an op-ed urging former New York City
Mayor Michael Bloomberg to run.
John Harwood digs into who Wall Street wants.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s been a rough
presidential campaign so far for Wall Street and American business. On the
campaign trail, Bernie Sanders says Wall Street`s business model is fraud.
Donald Trump denounces corporate blood suckers. Ted Cruz rips crony
capitalism. The returns on campaign money, which ought to be Wall Street`s
edge, have been as weak as the stock market.
Its three favorite in the race for donations — Hillary Clinton with $2.9
million, Jeb Bush with $2.4 million, and Marco Rubio $1.3 million — have
been struggling. That sent donors looking around.
Activist investor Bill Ackman wants to persuade former New York City Mayor
Michael Bloomberg to run. And Ken Langone has signed on with Ohio Governor
John Kasich. But Kasich`s past work for Wall Street is itself a target.
GOV. JOHN KASICH (R-OH), PRESIDENTIAL CANDIDATE: I was a banker and I was
proud of it.
DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: This was a man that was a
managing general partner at Lehman Brothers when it went down the tubes.
AD NARRATOR: In Congress, John Kasich voted to give Wall Street banks a
blank check to write billions in bad loans, leading to the financial
crisis. Then as a banker with Lehman Brothers, a Wall Street bank that
failed, Kasich made millions while taxpayers were forced to bail out Wall
HARWOOD: And guess where that ad came from? The super PAC supporting Ken
Langone`s previous candidate, New Jersey Governor Chris Christie.
For NIGHTLY BUSINESS REPORT, I`m John Harwood in Washington.
MATHISEN: JPMorgan (NYSE:JPM) CEO Jamie Dimon buys more than $26 million
worth of company shares and that is where we begin tonight`s “Market
The purchase, which was disclosed in a company filing was for 500,000
shares and this means Mr. Dimon now owns more than 6 million shares,
according to “The Wall Street Journal.” The banks soared today more than 8
percent to $57.49.
Another company that saw its stock surge today was Square. In an SEC
filing, the credit card giant Visa (NYSE:V) disclosed it`s purchased a
nearly 10 percent stake in the Class A shares of the mobile payment
company, in addition to an undisclosed investment Visa (NYSE:V) made in the
company in 2011. Shares of square up for the day nearly 8 percent to
The Chinese internet search company Baidu (NASDAQ:BIDU) said it received an
offer from two executives to buy its majority holding in a Chinese video
streaming website. The offer was for the 85.5 percent stake Baidu
(NASDAQ:BIDU) owns in that online video site. Shares of Baidu
(NASDAQ:BIDU) as a consequence rose over 8 percent to $152.73.
HERERA: Fashion retailer L Brands says the CEO of its Victoria`s Secret
brand has resigned. Victoria`s Secret is L Brands` largest division. L
Brand CEO Leslie Wexner will add running Victoria`s Secret to her duties.
L Brands shares fell 2.5 percent to $81.87 and are off more than 13 percent
over the last 12 months.
Intercept Pharmaceuticals spiking on a Reuters report saying that companies
is exploring a sale and has received interest from other companies.
Intercept is a biotech company focusing on treatments for liver disease.
Reuters says Intercept has been working with investment bank others a
potential sale but there`s no certainty a sale would took place. Shares
were up more than 27 percent to $120.22.
Ford said its January sales in Europe rose 10 percent, making it the best-
performing January in four years. A leading driver in the sales came from
high SUV demand. The company also said it would launch four new sport
utility vehicles over the next four years in response to their growing
popularity. Ford shares rose over 3 percent on the news to $11.55.
And insurance company Allstate (NYSE:ALL) is increasing its quarterly
dividend 10 percent, which will be paid out on April 1st. The company is
the nation`s largest publicly held insurer. Shares gained more than 2.5
percent to $63.91.
This week`s market monitor says when it comes to the market right now, he`s
cautious. Not bearish, cautious. Mark Tepper is president of Strategic
Mark, welcome. Good to have you with us.
MARK TEPPER, STRATEGIC WEALTH PARTNERS: Thanks for having me.
MATHISEN: Overall, do you think the market six to 12 months from now will
be higher than it is today? How bumpy will it be if you think we`re going
to get there?
TEPPER: Yes, I do think six to 12 months from today we will be higher but
I am expecting quite a bit of volatility over course of the next few
There are certainly some big issues. Number one, there`s a huge disparity
between what the markets believe and what the Fed believes is appropriate
monetary policy at this point in time. Markets are expecting about 15
basis points of rate hikes. The Fed on the other hand is projecting around
100 basis points of rate hikes. So, that`s going to lead to continued
And beyond that, when you look at earnings season, near-term earnings
outlook is very bleak. Revenues are declining. Downside risks remain as
far as profit margins go. Pricing power is essentially absent right now.
So, I`d expect more volatility. But at the end the year, we`ll be higher
than we are right now.
HERERA: But you say there are potential value plays out there and you`ve
given us some names.
So, let`s start, first of all, you say overweight utilities and Duke, DUK,
is your pick there.
TEPPER: Duke Energy (NYSE:DUK) is yielding over 4 percent. And it has
paid its quarterly dividend for 90 consecutive years. So, it`s not the
fastest growing dividend in the world, but it is one of the safest
dividends that are out there. For our clients, a lot of pre-retirees,
post-retirees, they`re mostly concerned about making sure that they have
that income in retirement.
MATHISEN: And the dividends payers typically outperform all other stock,
as you know, by a good little margin. Retail drugstores you like. And
your choice here is CVS (NYSE:CVS).
TEPPER: Right. So, retail drugstores, as it stands right now, drug demand
is just completely booming. And when that happens, you see increased foot
traffic into the stores. And what these CVS (NYSE:CVS), Walgreens, what
these companies really want to do is they want to sell those high-margin
impulse products that are sitting on their shelves. So, we`d expect that
to continue to happen over the course of the year.
HERERA: And then insurance. You say overweight insurance, your pick is
CINF. You say if we do get higher interest rates, that works in their
TEPPER: Absolutely. Insurance companies are net creditors. So, they —
as interest rates do rise, that is a tailwind for their performance. And
if you look at all the sectors out there, as I just mentioned, pricing
power a minute ago, two of three sectors are unable to increase — two out
of three industries are unable to increase their prices at or above the
rate of inflation right now.
Insurance companies, however, have quite a bit of pricing power and that`s
going to help them to have some outside performance over the course of this
MATHISEN: And that stock has a very nice return over the past year. I
mean, there are not a lot of stocks up 18 percent or so from 12 months.
TEPPER: No, no, it`s done very well. And as you just mentioned, Allstate
(NYSE:ALL) increased their dividend as well. So, insurance companies
definitely will be benefiting over the course of the next year.
MATHISEN: All right, Mark, thank you very much.
TEPPER: Thank you.
MATHISEN: Mark Tepper of Strategic Wealth Partners in Cleveland.
HERERA: Coming up, the bloom may be off the rose for the multi-billion
dollar flower industry, but we`ll tell you about a few startups that are
hoping to change that.
MATHISEN: Here`s what to watch next week, as you probably know. U.S.
markets are closed Monday for Presidents Day. But don`t worry, NBR is
still on the air. That`s what to watch, folks.
MATHISEN: On Wednesday, we`ll get minutes from last month`s Federal
Reserve meeting. The investors that we`ll be focused on what the committee
had to say about the economy and obviously the future of interest rates.
And with oil a big focus, Thursday`s inventory numbers will be closely
watched by investors and that is some of what to watch next week.
HERERA: Valentine`s Day is Sunday, Ty. As you might expect, flowers are a
big business. And although Americans spent about $2 billion on them for
Valentine`s Day alone last year, sales have still been falling.
But as Kate Rogers (NYSE:ROG) tells us, there`s a fresh crop of startups
that are hoping to shake up the way consumers look at Valentine`s Day.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: In a panic over
flowers for Valentine`s Day? It`s not too late. A new crop of on-demand
flower startups are promising to make your lover happy in a few hours or
New York City`s bates florist Rachel Cho busy fulfilling same-day orders
for Bouqs Company. The California-based startup is sourcing flowers from
eco-friendly farms in South America and the states for nationwide five-day
and next day deliveries. And they`ve recently added same-day services to
130 markets from artisans like Rachel.
The Bouqs Company says their leaner supply chain, cutting out the
middleman, leads to lower costs.
JOHN TABIS, THE BOUQS COMPANY, CEO & CO-FOUNDER: One of the things you`ll
see that`s different versus competitors is that pricing, especially around
Valentine`s Day. Go to our site today, you can order a dozen red roses
delivered for Valentine`s Day for $40 flat. Because we don`t have those
multiple layers of supply chain between us and you as the consumer, we
don`t have to sort of bear the markups at every step along the way. We can
offer that price year round.
ROGERS: Armed with sleek apps, V.C. dollars and a focus on sustainability,
competitors in the on demand eco-friendly space include Bloom That which
wraps flowers in compostable burlap and Urban Stems using in-house bike
couriers for delivery.
While spending on flowers for Valentine`s Day has remained stable in the
past few years at about $2 billion, the more traditional florist industry
taking a hit over the past decade, going from more than $9 billion in 2006,
to less than $6 billion last year as grocery stores and online players have
increased their market share.
Which is why savvy florists like Rachel are turning to the Bouqs.
RACHEL CHO, RACHEL CHO FLORAL DESIGN: The Bouqs customer, they keep
growing because they retain their customers, as well as they`re reaching
out to many different people and the demographic has been I think very
young. But it`s also very broad range.
ROGERS: All of this ahead of what Rachel expects to be a very busy weekend
for some very happy valentines.
For NIGHTLY BUSINESS REPORT, in New York City, I`m Kate Rogers (NYSE:ROG).
MATHISEN: And finally tonight, an iconic toy finds a new home. After more
than half a century, the Etch A Sketch, a toy where you draw a picture
using two dials and shake it to erase it, it is being sold to a Canadian
company for an undisclosed amount. The Ohio Art Company bought the rights
to license and make the toy.
Wow, look at that, will you?
MATHISEN: At a 1959 German toy fair. They paid $25,000. We`re not sure
what they sold it for, but you could call it the luck of the draw.
HERERA: Oh! You had to do it.
MATHISEN: There you go.
HERERA: All right. That does it for NIGHTLY BUSINESS REPORT for this
evening. Good — thanks for watching.
MATHISEN: I know what you mean.
Have a great weekend, everybody. I`m Tyler Mathisen. We`ll see you on
HERERA: Yes, we will.