SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Setting the tone. Will the
four major themes of the first two months play out over the rest of the year?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Making a splash. A wild
day on the campaign trail that included water-throwing and a major
endorsement for the GOP front-runner.
HERERA: Price tag. The company behind the biggest natural gas leak in
U.S. history is tallying the cost of that disaster.
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, February
MATHISEN: Good evening, everyone, and welcome.
Well, two straight weeks of gains for stocks, and while that may sound like
a positive trend, in this market, it`s a little bit hard to tell.
Just look at what we`ve seen so far this year. One leap year day shy of
the two-month mark in 2016, the major averages are all down 4 percent or
more. Along the way there have been big ups, bigger downs, and dizzying
So, two months down, almost, ten to go. And while no one knows what`s next
for the market for sure, we can be pretty sure that four of the themes that
set the tone in the first two months of 2016 will persist for the rest of
MATHISEN: First, oil prices. Stocks and oil. Oil and stocks. They`ve
been linked for the most part virtually every day this year.
And until there`s more clarity on production levels, out of OPEC
especially, and more clarity on prices, chances are stock prices will ride
the wave of oil until they don`t. Meantime, the low oil price and the
possibility it could fall more is pressuring U.S. exploration and
production companies with high debt.
Listen to Again Capital`s John Kilduff.
JOHN KILDUFF, AGAIN CAPITAL: Well, I`m going to piggyback on a report from
Deloitte just recently this week that said 75 percent bankruptcy,
restructuring of debt at the least, or out and out windups at the worst.
MATHISEN: Next, fears of a global recession.
WILLEM BUITER, CITI CHIEF GLOBAL ECONOMIST: Growth continues to slow down
globally. I think there`s still further slowdown to come in China. Now
also the advanced economies, including the U.S., are slowing down.
MATHISEN: China is growing, but at the slowest rate in a generation.
Japan is dead in the water. Europe`s growth is spotty.
Strong some places, weak in others — which brings us to the U.S. The
economic data points are a mixed bag. Fourth quarter GDP revised up today
but up to just 1 percent.
That`s still down sharply from mid-2015. Consumers didn`t spend at the end
of last year but January`s consumer spending number was up more than
expected, half of one percent. Consumer sentiment slipped a bit in
February, but it was higher than previously thought.
So, what will the world`s central banks do? That`s the third enduring
theme of 2016.
And here, to coin a word, the bankers are not just uncoordinated, they are
dis-coordinated. China, Japan, and the European central bank are pumping
money into the system. The Federal Reserve here in the U.S. wants to
siphon it offer so gradually. The great rate debate will persist through
BUITER: I think it will dawn on people that the old game by the central
banks could stimulate demand from their own is over.
MATHISEN: And finally, theme number four, the U.S. presidential election.
It will hang over the economy and the mystified global markets like a
Beijing smog. Could it choke U.S. growth or stifle stock prices? You bet
DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: He doesn`t even know how to tell
the truth —
HERERA: John Canally joins us now to talk more about these dominant
themes, from oil to the economy, to the presidential election, and how they
may play out in the market over the next year. He is chief economic
strategist with LPL financial.
John, welcome, nice to have you here.
JOHN CANALLY, LPL FINANCIAL: Good to be here.
HERERA: Of those four themes that we outlined, which resonates the most
with you at this point? And do you think that it will continue for the
rest of the year?
CANALLY: I do. I think all those are crucially important. They`re all
And I would say that the most important one to me is the price of oil. But
they`re all sort of the same. We`ve gone through eight years where the Fed
kept rates at or close to zero. We also came from a period where China was
growing 10 percent to 12 percent. Now it`s growing maybe at 4 percent.
Those are — each of those shifts by themselves is a big deal. To have two
of them happening at once was almost too much for global markets to handle.
And it took eight years to get into the structural imbalances that we have
and it`s not going to take just eight weeks or eight months to get out of
it, it may take awhile longer.
So, we think the first two months of the year are a pretty good template
for what`s going to happen over the final —
MATHISEN: Why are oil prices and stock prices, at least in the U.S., so
intimately connected these days?
CANALLY: They shouldn`t be. And some of the correlations are quite
strange and disturbing. But they are quite high. I think what`s happening
is that oil prices have become a proxy for global growth, rightly or
In our view, it`s more right than wrong but it`s not entirely right. Most
of the oil problem is a supply problem, not a demand problem. And on the
supply side we have seen some cuts. So for example, here in the United
States, supply is down about 7 percent from the peak last June. That`s
good. Overseas, however, OPEC has agreed to a freeze in production but not
a cut yet. So, that really remains an issue.
But day to day, week to week, month to month, until oil and stocks can
decouple, unfortunately I think they`re going to remain coupled if that
makes any sense. The only way they`re going to decouple is if supply can
kind of tighten up a bit and oil prices are going to go higher. It`s a
very complex issue. But I think in order to decouple oil stocks have to
come down. Oil supply has to come down more rapidly than it already has.
HERERA: All right. Well, it`s going to be an interesting year to say the
least. John, thank you so much.
CANALLY: Thank you.
HERERA: John Canally with LPL Financial.
MATHISEN: And as we just reported, the Federal Reserve`s policy decisions
will certainly shape the market in the months to come, but those decision
days which occur roughly every six weeks aren`t the only times we hear from
the Fed`s top guns. Officials give speeches did and interviews often,
nearly every day, as Steve Liesman reports, they may be speaking too much.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A new research paper
coauthored by top Wall Street economists, academics and a former fed
official asks should the Fed just shut up when it comes to telling the
market when it will raise interest rates? This 100-page paper, it was
delivered to the Chicago Booth School`s monetary conference, they meet
every year in New York.
It pretty much says that. It says the Fed should stop telling markets when
it will raise interest rates and focus instead on economic data. Stop
talking about when or how many times in a given year it will hike. The
paper says this leads to more market volatility and to worse economic
And it blames the market, and in fact the financial media, for focusing too
much on time and not enough on data. It raises the question about whether
the Fed should get rid of the dots or their forecasts for future Federal
Reserve interest rate hikes.
But top Fed officials who they were in the audience, they`re pushing back.
Fed Governor Jay Powell, he spoke at the conference. He said, “I`m not
convinced my own judgment`s different in significant respects from those
described in the paper.”
San Francisco Fed President John Williams also said he was not convinced,
“By this evidence that time-based guidance leads to bad outcomes.”
Fed officials right now are looking for the right language to guide the
markets in this era of potential rate hikes, when in fact the market is
forecasting none at all. But the early response to this paper says the Fed
will keep forecasting and talking about when it will hike, but dependant on
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in New York.
HERERA: A mixed finish on Wall Street as investors digested the recent
economic data and kept a watch on oil, of course. By the closing bell, the
Dow Jones Industrial Average fell 57 points to 16,639, the NASDAQ rose 8
and the S&P 500 lost 3. For the week, all of the major indexes rose 1.5
percent or more.
MATHISEN: China is seeking to restore confidence in its economy. Leaders
from that country are talking up plans to increase growth as G-20 nations
gather in Shanghai. Concerns about the global economy loom large.
Eunice Yoon reports.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Persistent worries
about China`s slowdown and Beijing`s ability to manage it have been
identified as key risks to the global economy. I spoke about this with
Hank Paulson who said that Beijing`s leaders have a messaging challenge but
they`re taking steps to address it.
HANK PAULSON, FORMER U.S. TREASURY SECRETARY: A big part of things they
can do is they can show right now they`re very serious about dealing with
inefficient state-owned enterprises as they take capacity out of the steel
industry, coal industry and others by letting some failing companies fail.
YOON: In fact, China`s leaders have been messaging that they understand
there`s a greater need for transparency in their policymaking. The Chinese
central bank governor today held a news conference which some officials
took to mean the central bank is embracing more openness.
The central bank governor also made remarks today, notably in English, and
some people took that to mean he wanted to speak directly to global
investors. He said that the bank didn`t see any basis for persistent RMB
depreciation and also the central bank believed it had enough tools in its
tool box to stimulate growth. Some investors think that could mean we
could see more interest rate cuts to come.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Shanghai.
HERERA: And now to Ireland which remains the fastest-growing economy in
Europe. Today, the Irish electorate went to the polls to vote in the
general election. The question is whether the austerity-weary country will
usher in more fiscal restraint.
And as Steve Sedgwick reports from Dublin, the results could have broader
implications for all of Europe.
STEVE SEDGWICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here in Dublin and
throughout Ireland, the country is going to the polls on Friday and it`s an
absolutely key event for not only this country but also for the broader
For the broader Eurozone, concerns about lack of appetite for austerity,
for more reforms inspired by the European central bank, by the IMF, and by
the commission is a key issue after inconclusive results on elections in
Spain and Portugal.
For Ireland, it is absolutely key, because it`s a country which has grown
aggressively over the last couple of years, appearing to recover fully from
the debt of the crisis of 2010 and 2011. The money markets have confidence
again in the Irish economy. Rates for 10-year paper are now under 1
percent, and unemployment has gone down from 15 percent to around 8.5
So, the appetite of the Irish people for more austerity, for more reforms,
is a key test for not only this country but the broader Eurozone and
This is Steve Sedgwick for NIGHTLY BUSINESS REPORT, in Dublin, Ireland.
MATHISEN: And now to our election. There was a surprise endorsement on
the campaign trail today. New Jersey governor and former Republican
presidential candidate Chris Christie endorsed the GOP frontrunner Donald
(BEGIN VIDEO CLIP)
GOV. CHRIS CHRISTIE (R), NEW JERSEY: America needs someone who`s going to
make sure that Hillary Clinton doesn`t get within ten miles of the White
House. Donald Trump can do it.
(END VIDEO CLIP)
MATHISEN: John Harwood, of course, has been following this latest twist in
a wild race.
Many observers I think thought Mr. Trump had a rough night in last night`s
debate. So, how important was this endorsement today? And more broadly,
do endorsements really mean anything in the long run?
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, endorsements
generally, Tyler, don`t mean all that much in terms of bringing votes. But
they can change the psychology of a race. They can change the storyline of
a race. And that`s why this is big for Donald Trump.
Chris Christie is as mainstream a Republican as you can get. He was the
keynote speaker at the last Republican convention. He was once believed to
be a front-runner for the Republican nomination itself.
And he becomes the first person who`s not a fringe figure like, say, Sarah
Palin, to embrace Donald Trump right at a moment where, if he has a
breakout on Super Tuesday, March 1st, 11 states voting, he could be rolling
toward the Republican nomination and it`s something that change the
storyline away from that debate where Donald Trump got pummeled last night.
HERERA: So given what we saw today, John, what`s the path ahead for Marco
HARWOOD: Well, Marco Rubio seems to have decided, based on how well he did
in the debate last night and the crowd response this morning, that he`s
going to go all trump on Trump. He was mocking trump from the stage. He
talked about how Trump wanted to check a full-length mirror before the
debate. He said maybe he wanted to see if his pants were dry.
He was — he was ridiculing Donald Trump in the fashion that we`ve become
accustomed to seeing from Trump. The question is, is that going to work
for him? Is it going to let him pull the party together? Is it going to
let him win any states on Tuesday? Which is the big question. He`s not
leading in any of the Super Tuesday states.
MATHISEN: Let`s talk about Ted Cruz. He has a very big day ahead on
Tuesday. Where was he in all of this hullabaloo?
HARWOOD: Well, he was pretty much out of the storyline, although late in
the day, he talked to reporters, went very hard after Donald Trump, also
went after Hillary Clinton.
The big test for Ted Cruz is, can he win the state of Texas on Tuesday?
That`s the biggest prize on Super Tuesday. Ted Cruz has been leading
Donald Trump there, but this Trump endorsement from Christie was in Fort
Worth today. Texas will be a big test of whether Donald Trump has got
momentum from the general run of the campaign plus this endorsement to
overtake Chris Christie. If he does, that could push Ted Cruz out of the
MATHISEN: All right. John Harwood, thanks very much. It`s getting real
HERERA: In Washington today, the IRS said that more than twice as many
taxpayer accounts may have been hit by cyber criminals than previously
thought. The agency says hackers gained access to as many as 700,000
accounts. Last August, the IRS said 330,000 accounts may have been
compromised. The hackers did not target the main database but rather one
that allows taxpayers to obtain previous year tax return information.
MATHISEN: Still ahead, beaten and bruised. Why our market monitor says
those are the stocks that could be good buys.
HERERA: The United Technology/Honeywell drama continues. The industrial
conglomerate rejected a $90 billion offer made by rival Honeywell earlier
today. United Tech says the bid undervalues the company and that any
combination would be irresponsible toward its shareholders. Shares of both
companies fell in trading today.
MATHISEN: Apple (NASDAQ:AAPL) CEO Tim Cook defended his company`s
opposition to the FBI`s request to hack into an iPhone used by one of the
San Bernardino shooters. Speaking at the company`s annual shareholder
meeting, Cook said, “Apple (NASDAQ:AAPL) is a staunch advocate for our
customers` privacy and personal safety.” The company also committed today
to raise its dividend annually.
HERERA: Sempra Energy (NYSE:SRE), it`s not a household name but it owns
the California storage field responsible for the largest natural gas leak
in U.S. history. Despite the leak the company`s earnings were upbeat, even
as it tallied the cost of the recently capped well.
Jane Wells has more from Los Angeles.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s called the worst
manmade greenhouse disaster in U.S. history, displacing thousands of people
and costing hundreds of millions of dollars.
UNIDENTIFIED MALE: I have not been in my house for three weeks.
WELLS: Yet the company behind the leak in Los Angeles reported earnings
Friday which beat the street. Sempra Energy (NYSE:SRE) had a fantastic
quarter, even as its Southern (NYSE:SO) California Gas division dealt with
a devastating leak at a massive natural gas storage facility under a
neighborhood in northern Los Angeles. The leak started in October and
residents soon complained of the odor and health problems.
UNIDENTIFIED FEMALE: Headachy, sinusy, naggy headache. That`s what I
WELLS: Schools had to shut down and the utility was ordered to pay for
temporary relocation of residents. The leak was finally sealed last week
but not before spewing an estimated 5 billion cubic feet of methane gas
into the atmosphere, the equivalent of a full year of methane emitted from
nearly 600,000 cards.
Sempra CEO Debra Reed said the analysts call that costs so far is estimated
at $330 million, but Sempra will only probably pay about $5 million.
DEBRA REED, SEMPRA ENERGY CHAIRMAN & CEO: We have concluded it is probable
that we will receive insurance recovery for the total amount, less
retention of $325 million.
WELLS: Sempra says it has four insurance policies totaling over $1 billion
in coverage and it may need to tap into them. Yesterday, residents were
told they could move home. The tests showed the air was safe. Many don`t
want to and a court has ordered Southern (NYSE:SO) California Gas to
continue paying relocation costs for three more weeks.
UNIDENTIFIED FEMALE: You need to shut it down. It`s killing us.
WELLS: Then there`s the debate whether to ever open the storage facility
back up. SoCal Gas president Dennis Arriola said shutting it down for good
would be bad for L.A.
DENNIS ARRIOLA, CALIFORNIA GAS COMPANY PRESIDENT & CEO: It`s vital that we
have safe and reliable gas storage to support not just gas demand but
especially in the Los Angeles basin, electric reliability as well.
WELLS: But now, the county has launched a criminal investigation of the
utility and it`s also being sued by local air quality regulators. Still,
SoCal Gas saw earnings skyrocket last quarter and while future fines might
be covered by insurance, one might expect that Sempra`s insurance premiums
For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.
MATHISEN: A blowout quarter for JCPenney and that is where we begin
tonight`s “Market Focus.”
The retailer posted better than expected revenue and earnings and so its
market share grows, helped in part by strong holiday sales in the company`s
Sephora and footwear segments. The department store chain also says it
expects to post its first annual profit in five years. Shares up more than
14 percent on the day to $9.59.
Footlocker`s fourth quarter sales and profits topped street expectations,
but the shares tripped after the company said February comparable store
says could fall year over year. The stock down more than 4 percent to
HERERA: Macy`s (NYSE:M) said it would raise its quarterly dividend by 5
percent. It will also add $1.5 billion to its share buy-back program. The
news comes after the retailer said earlier this week that it saw a more
than 30 percent decline in profit for its latest quarter. Shares of Macy`s
(NYSE:M) were up fractionally to $43.43.
Weightwatchers shares thinned out a bit today. Investors had their first
chance to react to earnings out late yet. The diet company reported a
sharp drop in revenue, hurt by a decline in subscriptions. Weightwatchers
tumbled more than 29 percent to $11.01.
MATHISEN: And now to our weekly market monitor who is finding
opportunities in battered stocks across a few different sectors. This is
the first time join us the program. Welcome to Sarah Hunt, portfolio
manager at the Alpine Fund.
Sarah, good afternoon, evening, good to have you with us.
SARAH HUNT, ALPINE FUNDS PORTFOLIO MANAGER: Good evening. Nice to be
MATHISEN: You don`t see the market making a lot of headway as far as your
eyes can see, why?
HUNT: I think right now, we`re in a little bit of a difficult time,
because you`ve got the Fed, you`ve got to the ECB, you`ve got the BOJ.
We`re not all going in the same direction.
Markets have been pretty unsteady since the beginning of the year and
toward the end of last year. I think for that reason and I think until the
markets start to feel like there`s either a direction where everybody`s
headed in the same direction or the fact that we`re having divergent
monetary policy is not going to affect the market much, I think until then,
you`re going to continue to see volatility.
HERERA: You did manage to find stocks for our viewers to take a look at.
The first one on the list is FedEx (NYSE:FDX). You have a price target of
$165. Tell me about that.
HUNT: So I think FedEx (NYSE:FDX) is a stock like a lot of the
transportation stocks have been hit very hard. If you look at the S&P
right now, you`ve seen a lot of stocks beyond a bear market and down more
than 20 percent. I think FedEx (NYSE:FDX) has taken a bunch of selling
pressure because of the fact that people are worried about the global
economy, because of the fact that people are worried about what`s going on
in the U.S. and outside the U.S.
And the transports tend to take a dim view in the economic picture changes.
And I think those stocks have taken a pounding. We like where FedEx
(NYSE:FDX) is sitting. The ground business is stabilizing. They`ve made
an acquisition. If they can get through the integration, we think that
FedEx (NYSE:FDX) right now where it`s sitting is in pretty good shape.
MATHISEN: Give us a few phrases on BE Aerospace (NASDAQ:BEAV). You have a
price target in the mid $50s.
HUNT: So, BE Aerospace (NASDAQ:BEAV) makes the interiors for planes. It
makes seats and cabin interiors and kitchens and things for airplanes.
You`ve got two markets there. You`ve got the new equipment market and
you`ve got the retrofit market.
So, we think that that stock has been beaten down pretty hard. It`s
separated from its distribution business. There was talk of a takeout
before that happened. The stock did not get bought.
So, I think the valuation got very attractive for us here. We think the
risk/reward here is pretty nice. We look at how much traffic continues to
grow. And we say, you know what, the airplanes are going to continue to be
built, they`re going to continue to roll off the lines, and they`re going
to have to have interiors.
HERERA: And if you want to go into the energy sector, do it for the
dividend and BP is your recommendation there. So, I assume you think that
dividend is safe?
HUNT: Well, we are — we have several dividend funds and we`re very
focused on dividends. We like BP here because they`ve done a lot of work
already to get their balance in shape for what is turning out to be a very
difficult oil price. They had to do that for not such great reasons, but
because they did it they`re in a pretty good situation right now with their
Now, oil prices are definitely going to be the key to this entire sector
and the dividends across the sector. We like BP, we like Exxon, and we
think that they`re in pretty good shape to keep those dividends.
MATHISEN: All right. Sarah, thanks very much, well done.
HUNT: Thank you.
MATHISEN: You can come back.
HUNT: Thanks so much.
MATHISEN: Sarah Hunt with Alpine Funds.
HERERA: We look forward to it.
All right. Coming up, Hollywood`s biggest night comes as the industry
undergoes tremendous change.
MATHISEN: Here`s a look at what to watch next week.
On Tuesday, automakers will release sales figures for February. Several
states head to the polls on Tuesday. To vote in the primary on what is
known as Super Tuesday. And Friday, it`s Super Friday. We`ll get the
unemployment report for February right before the opening bell. That`s
what to watch next week.
HERERA: And finally tonight, glitz, glamour, the big business of Hollywood
will be on display at Sunday`s telecast of the Academy Awards.
Hollywood`s biggest night comes at a time of change and controversy for the
Julia Boorstin reports from the red carpet.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Academy`s
rolling out the red carpet for Hollywood`s biggest night of the year, as
studios face all sorts of new challenges.
For their media giant parents, studios` performance is increasingly
important, as their TV division counterparts are under pressure from cord
Viacom (NYSE:VIA) perhaps is feeling it the most. It just started
strategic investors to take a stake in its Paramount Studio.
And the most successful studios face tough comparisons after last year,
thanks to Disney`s “The Force Awakens” and Universal`s “Jurassic World,”
the biggest box office year on record.
GITESH PANDYA, BOXOFFICEGURU.COM: We have a “Star Wars” movie coming out
in December, but it`s more of a spinoff and not a direct sequel. So, it
will be a little bit hard for studios to match up last year`s box office.
BOORSTIN: Plus, there are some new issues. First, while movie ticket
prices continue to rise, but consumers have more options what was to watch
on TV or to stream at home.
Second, for lower-budget films, the type that tend to draw Oscar attention,
like this year`s nominee “Brooklyn,” studios face new competition from
Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN), which have snapped up
movies on the festival circuit.
And third, the Academy and studios are under fire for a lack of diversity.
All 20 acting nominees are white this year and last year. #oscarsowhite
tweeted over a half a million times since January.
PANDYA: For a business perspective, it makes total sense to reflect the
population, the people in your movies.
BOORSTIN: But Sunday`s show is expected to be the biggest entertainment
television event of the year. And Oscar attention should help give studios
Nominated films over the past five years saw an average $4 million bump
after the awards. While the best picture winners averaged $10 million more
at the box office after their victory.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
MATHISEN: I`m a little behind in my movie watching, because —
HERERA: We`re going to have to binge watch.
MATHISEN: — if it doesn`t have talking animals or Adam Sandler, I`m out.
HERERA: You`re out. I know. That`s our life. Mine too.
That does it for NIGHTLY BUSINESS REPORT, I`m Sue Herera. Thanks for
MATHISEN: And I`m Tyler Mathisen, thanks for me as well. Have a great
weekend, everybody. We`ll see you on Monday.