TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Can you believe the rally? Stocks and commodities up sharply since the February lows. But can you trust this market to go higher?
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: House divided. Two prominent members of the Federal Reserve are split on a key condition for further interest rate hikes.
MATHISEN: And showing support. The big money backers behind the candidates running for the White House.
All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, March 7th.
HERERA: Good evening, everybody. Glad you could join us.
The Dow and S&P 500 extended their recent rally and, oh, what a rally it’s been. Stocks surging over the past three weeks, helping to cut the big losses suffered earlier this year. And the bounce back has been sharp and swift. Since the lows on February 11th, the major indices are up 7 percent or more and oil has gained 35 percent.
So, what’s driving the rally, and has the market entered a new phase?
Bob Pisani takes a look from the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The market has entered a goldilocks window. The most important development is that commodities appeared to have put in at least an intermediate term bottom for the last couple of months. Oil has rallied more than 35 percent since the February 11th low, and iron ore has rallied dramatically in the last few days.
This is very positive implication for earnings. It’s particularly good news for energy and material stocks. They led the rally. It’s also eased some of the worries about loans to banks have out to energy companies. And, finally, it’s dramatically decrease worries about an out of control deflationary spiral.
Now, it’s also helped greatly reduce the fears that some kind of global recession might be imminent. Now, that’s led to a huge rally at emerging market economies with countries like Russia, Brazil and South Africa all up double digits in just the last few days.
Also, the market has come to strongly anticipate that the Fed will lower its anticipations for rate hikes at its March 16th meeting.
Fed Governor Lael Brainard sounded like she was in no hurry to raise rates in an interview on CNBC today.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.
MATHISEN: And today on Wall Street, stocks did creep a little bit higher, as gains in energy offset declines in technology and that helped the Dow go to a five day win streak.
By the close, the blue chip index was up 67 points, 17,073 was the finish. The NASDAQ lost eight. The S&P 500 gained one.
As for oil prices settled at their highest level this year, up about 5 1/2 percent on the day, and according to one report, OPEC members are discussing a 50-dollar a barrel target for oil prices.
HERERA: And it’s not just oil that’s rallying. Commodities pretty much across the board have seen a strong comeback.
And as Deirdre Bosa tells us, there’s one commodity in particular that might fuel the bull case for stocks.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: From crude to copper, commodities are back. It may not be for a long time, but it’s been a good time so far.
Oil has jumped nearly 40 percent since mid-January. Gold is at its highest level until a year. Copper is back above $5,000. And iron ore has not just joined be party but spiked the punch, having recorded its best day gain ever.
The recovery is being driven by optimism that the worst may be behind the oil price routes. China’s willingness to do what it takes to support economic growth in the world’s second largest economy and weakness in the U.S. dollar.
Some think the come back is just getting started.
JOE TERRANOVA, VIRTUS INVESTMENT PARTNERS: Where do we go from here? Higher. We go higher from here.
BOSA: But others wonder if it’s a little bit too early to be celebrating.
MARY ANN BARTELS, BANK OF AMERICA MERRILL LYNCH: I still think it has a short life. This is not where the leadership is in the market. China is slowing down. It’s not growing.
So, I think when you just look at the commodity space, it’s going to be in the trading range and could wind up being in the trading range not just for quarters but could wind up being for years.
BOSA: The key to the comeback may be Dr. Copper, as is referred in industry lingo. The base medal earned its PhD for its ability to predict economic trends because of its widespread application in most sectors of the economy.
JIM IOURIO, TJM BROKERAGE: I don’t think the rally in copper is telling us we’re having a strong economy. What I won’t give you though is that maybe the excessive doom and gloom we had priced in before was a little excessive. What it’s really telling us is that China’s reaffirm that it’s all in, ECB is all in. And there are also somewhat tight supplies in copper, too.
BOSA: If history is any guide, copper’s big gain last week may be a bullet signal for equities which have also been rebounding over the last few weeks.
Data from Kensho shows that one month after such a rally, the Dow Industrial has climbed higher 90 percent of the time and the S&P 500 80 percent of the time. Oil has also reliably rebounded, returning more than 5 percent on average.
But interestingly enough, copper itself does not typically continue to rally. So, the doctor’s diagnosis may just be a short term reprieve. History is less clear on whether the global markets and economy is truly on the mend.
For NIGHTLY BUSINESS REPORT, Deirdre Bosa in Vancouver, Canada.
MATHISEN: There’s another dynamic working within the market — short interests or stocks that investors are betting against.
But as Dominic Chu tells us, these hated stocks could be part of the reason why the market has been rallying.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: There are lots of ways to measure sentiment about a stock but one way that’s getting a lot of attention these days is something called short interest. Now, simply put, it looks at how much traders and investors are betting against a stock. Now, they do so by borrowing a stock to sell at current prices, hoping that they can buy it back for less sometime in the future, pay back their stock loan and then pocket the difference.
When lots of people do this type of stock borrowing, it may indicate bearish sentiment about the future of a stock. So, there are currently close to 50 members of the S&P 500 large cap index that have at least 10 percent of their shares betting on a decline. But when a stock has fallen a lot, profits are there for short sellers, if they buy that stock to repay their loans.
That may be what’s driving up prices for a lot of these beaten down stocks especially in the energy and material sectors. For example, oil drilling company Transocean (NYSE:RIG) has gained 50 percent over the last week. Oil and gas producer Murphy Oil (NYSE:MUR) has gained around 60 percent and natural gas company Chesapeake Energy (NYSE:CHK) has more than doubles. Each of these three companies have among the highest short interest in the index.
Now, there’s a concern that if the current rally is driven by this closing of short positions instead of buying perceived value, it may not last. And there may be reason to stay cautious about the overall market.
BERNIE WILLIAMS, USAA INVESTMENT SOLUTIONS: I think the market is worried about Europe and the threat of negative interest rates. I don’t think it does anybody any good to have that. I think that’s one of the things that was driving banks down here. And then I think the market’s focused on China and can they pull off that soft landing and get their growth under control, if you will.
CHU: Still, others are convinced that there’s bullish fuel left in the tank.
KRISHNA MEMANI, OPPENHEIMER FUNDS: The bull market still has lots of legs because the policymakers can provide a great deal of support still. We believe this is going to be one of the longest business cycles that any of us has ever experienced.
And as the cycle progresses, the bull market will continue to rally.
CHU: Investors will be watching developments on numerous fronts including sentiment indicators like short interest to see if the market can continue its upside run.
For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.
HERERA: Karyn Cavanaugh joins us now to talk about the changes that are happening in this market and why investors may be missing out longer term if they’re sitting on the sidelines. She is the senior market strategist with Voya Investment Management.
Good to see you, Karyn. Welcome to the program.
KARYN CAVANAUGH, VOYA INVESTMENT MANAGEMENT: Thank you.
HERERA: Let’s start, first of all, with whether or not you think we can trust this rally. That was the question that we posed at the beginning of our program. Why don’t you weigh in on that?
CAVANAUGH: I think in the short term, I don’t think you can really trust it. I think that investors were overly pessimistic and now, the data has been coming in better. All the economic data, especially the jobs report we have last Friday. So, investors are breathing a sigh of relief and maybe things were a little bit oversold.
But you have to take a look at the corporate earnings and the corporate earnings are not growing. In fact, we’re in a little bit of a profits recession. So, I would say it’s going to be touch and go until we can get those earnings to turn around and those companies to start making money again.
MATHISEN: So, you have to wait for those first quarter earnings to tell us whether this is real or not.
You know, China’s not going the die. I think we have decided that. Oil is not going to go to zero. I think we’ve decided that.
But is oil in — is $40 oil, $38 oil enduring here, or is it still vulnerable to a big fall off again, Karyn?
CAVANAUGH: I think it’s vulnerable, because if it gets to a point where a lot of suppliers can now make money on it, then they’re going to come back online, the ones that got out of the business. So, I think we’re going to be a little bit range bound in oil, that if it gets to a certain amount more supply then the prices will go down.
But overall, oil is good for the consumer and a lot of bad news is already baked in. We’ve already digested it. We’ve already eaten all that bad news with the energy companies. We have been so overly pessimistic on that.
So, I think that if oil can just stabilize, that will be a good sign. It doesn’t have to go up that much, but just the fact that it stabilized in the 30s now, that’s why the market has been feeling so more optimistic.
HERERA: Now, longer term, you say people need to be invested in this market. What areas do you like?
CAVANAUGH: Well, people always — should always be in the market, because when you try to time market, try to gain that, timing the market, it doesn’t usually work out.
But, you know, I do like bonds because I think with all the volatility, a lot of investors realize that they are risk averse and they need to have those reliable, steady bonds. Things like Jenny Mays which may not be too exciting, but actually are there when you need them.
High yield’s probably been oversold and that’s probably a good opportunity to get in. We’re not going to see all those defaults that we thought we were going to see or maybe —
CAVANAUGH: And, also, being in the market, the financial sector has opinion beaten up. And so that — is that really warranted? So, financial consumer discretionary, the consumers, the benefits of this economic data, the jobs, the housing —
HERERA: And the low oil.
CAVANAUGH: — and the low oil prices.
HERERA: On that note, we’ll leave it there. Thank you.
Karyn Cavanaugh with Voya Investment Management.
CAVANAUGH: You’re welcome.
MATHISEN: What Deirdre Bosa mentioned a moment or so ago, China and its willingness to do whatever it takes to support growth is one reason why commodity prices have been rising. And over the weekend, top government officials in China pledged reforms to prop up the world’s largest second economy.
Eunice Yoon has the details from Beijing.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese government has acknowledged concerns about the economy and the continued slow down in growth. Over the weekend, the Chinese premier unveiled the annual work report and in it, he said that the authorities have decided to lower the GDP target to a range of 6.5 percent to 7 percent.
That acknowledgement was seen largely as a positive. But many economists are so concerned that policymakers here will struggle to reach growth at those levels.
At the same time, policymakers over the weekend and today were expressing their confidence that China would avoid a hard landing. The central bank said it expected to see a more cross-border capital flows, but that they were manageable, and also, the finance minister addressed an issue that’s been plaguing the economy, rising debt.
LOU JIWEI, CHINESE FINANCE MINISTER (through translator): Take the United States, for example, its current debt level is a lot higher than its 2008 standard, but its economy is still recovering. So, we can’t generalize a theory that high debt must lead to crisis.
However, it’s a fact that high debt level will impose more downward pressure on the economy. What we need to is regulate the debt. If we can get the debt properly included into our fiscal plan, we won’t have to be concerned that much.
YOON: He also said that the government had more room for fiscal stimulus. The fiscal deficit was lifted to 3 percent of GDP from 2.4 percent in 2015.
The main takeaway of the NPC so far, though, might be a message that economists don’t necessarily want to hear and that is that the authorities appear to be prioritizing growth over reforms. The main concern among economists and many in the business community has been, if the government continues to delay economic reforms, it could hold up near term growth but lead to bigger consequences down the road.
For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.
HERERA: And still ahead, a big agreement within the Fed over an issue that could determine the timing of the next rate hike.
MATHISEN: Wages may actually be growing faster than believed, that according to a new study by the San Francisco Fed. The report found growth in the median weekly pay of workers employed in full time jobs rose nearly 4 percent last year on annualized basis. That compares to roughly 2 percent as reported by the Labor Department. The report cites changes in the make up of the labor force, including the entry of low wage workers and the retirement of higher paid baby boomers.
HERERA: Two Federal Reserve officials both speaking this afternoon presented very different views on inflation — a central condition for further interest rate increases.
Steve Liesman tells us why Vice Chair Stanley Fischer and Governor Lael Brainard see the same thing so very differently.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Is the Fed’s hope for 2 percent inflation goal finally within grasp?
Two senior Fed officials, both speaking today, look at the same numbers but they have different takeaways.
Fed Vice Chair Stanley Fischer told an audience in Washington.
STANLEY FISCHER, FEDERAL RESERVE VICE CHAIR: We may well at present be seeing the first stirrings in an increase in the inflation rate, something which the Fed would like to happen.
LIESMAN: But his colleague, Fed Governor Lael Brainard, in an exclusive CNBC interview, had a less enthusiastic take. While recent inflation readings have been positive, Brainard said —
LAEL BRAINARD, FEDERAL RESERVE GOVERNOR: That’s a good data point, but it’s just that. It’s a data point. But I want to see a pattern. I want to see some persistence. That would give me comfort.
We have a lot of very positive developments in our domestic economy. You look at the labor force, the labor forces expanding. People are coming back into the labor force as the labor market remains very solid. American consumers are continuing to be very robust.
That’s why I am very focused on preserving and protecting the progress we’ve made.
LIESMAN: Brainard sees downside risk to the economy and to inflation from oversees, especially China. And while she’s focused on the U.S., Brainard says the United States needs to monitor and beware of other central bank moves.
The European Central Bank is expected just this Thursday, to announce another round of stimulus.
BRAINARD: What we all need to be doing at central banks, and more generally, including fiscal authorities around the world, is working to raise global demand.
LIESMAN: The Fed is not expected to hike at its meeting next week, but the battle line seems to be June. While Brainard is cautious, persistent inflation near 2 percent and a continued rebound in economic data could tee up a consensus for another quarter point hike this summer.
For NIGHTLY BUSINESS REPORT, I’m Steve Liesman in Washington.
MATHISEN: A strong holiday quarter helped lift Pier 1, and that is where we begin tonight’s “Market Focus”.
The retailer delivered better than expected preliminary sales in the fourth quarter, strong emphasis on promotions and clearance items help lift sales during the holidays. The company says it expects earnings to be in line with its prior guidance, and shares surge, get this, 29 percent to $7.08.
Valeant Pharmaceuticals will issue its preliminary quarterly results and full year outlook next week. The company had been slated to report at the end of February but postponed as the company’s CEO returned from a two-month sick leave. Valeant shares gained 7 percent to $65.66.
And NCR (NYSE:NCR) raised its guidance for the year and said it will buy back $250 million of its stock. The ATM maker purchased a billion dollars of shares back in December. Those shares rose more than 4 percent on the day to $25.78.
HERERA: United Continental CEO Oscar Munoz will return to work next week after undergoing heart transplant surgery in January. The airline said Munoz has been actively involved in major corporate decisions during his recovery. The shares were down just a tick to $57.61.
Shake Shack beat estimates on its top and bottom line, but shares fell in afterhours trading on lower than expected sales guidance. Same store sales for the latest quarter rose 11 percent, which also topped estimates. Shake Shack closed the regular session up a fraction to $42.23.
The clothing retailer Urban Outfitters (NASDAQ:URBN) reported better than expected profits, but revenue just missed analysts’ expectations. Nonetheless, investors were impressed by the results, as shares popped in after-hours trading. During the regular session, Urban was up more than a percent to $28.16.
MATHISEN: And to the campaign trail we go, where there’s a lot of money backing the candidates, super PACs. These are independent political committees that support a candidate with unlimited, often anonymous donations from companies, individuals or unions. They’re the big source of the dough.
Eamon Javers has been following the money.
So, Eamon, welcome.
From what industries do the big donors come? Who are they?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, Tyler, when you look down the list of the top givers, what you see is a lot of finance names, a lot of hedge funds and then particularly people who have founded their own companies. Those guys seem to be the type of personality who want to write a big, big check to one of these super PACs and back one of these candidates.
But now that we have seen this winnowing effect of the campaigns, we’re also seeing a winnowing effect of the donors. And the donors who backed a losing horse are going to have to face some decision about who they’re going to support going forward.
HERERA: Yes, who has the biggest hitters, the liberals or the conservatives?
JAVERS: Well, you got to say the edge goes to the conservatives, at least among the biggest donors.
Take a look at this list from the Center for Responsive Politics. They ranked some of the top liberal donors here. You see some familiar names from business, Thomas Steyer of Next Generation, George Soros of the Soros Fund, Haim and Cheryl Saban of Saban Capital, James H. and Marilyn Simons of Renaissance Technology, and S. Donald Sussman of Paloma Partners. So, those are the biggest liberal donors.
The biggest donors to conservative groups, Robert Mercer of Renaissance Technologies, Farris and Jo-Ann Wilks of the Wilks Brothers, Toby Neugebauer of Caprock Partners, Paul Singer of Elliott Management, and Norman Braman of Braman Motorcars. He’s a billionaire auto dealer.
So, a lot of big names, a lot of business founders giving to both conservative and liberal causes.
MATHISEN: How about Donald Trump, is he taking any money from these big donors?
JAVERS: He’s not. He’s not taking outside money. He’s raised a little bit of money, but he’s mostly self-financing this campaign. He’s not spending all that much money.
So, this is the campaign that really upends so much of what we thought we knew about money and politics. Donald Trump proving that just having a billion dollars or more is enough to get you the kind of media attention. That means you don’t have to spend a billion dollars or more.
MATHISEN: He may have to spend a little bit if the attacks, which are being funded by some of those PACs start adding up.
JAVERS: He’s going to have to. And if he wants to run a general election campaign, he’s going to have to really build a real presidential campaign with offices and staff in every city. That’s expensive and a big logistical challenge. So, we’ll see where he goes. He certainly has the pocketbook or at least he says he does to bankroll that.
MATHISEN: All right. Eamon, thanks very much — Eamon Javers.
JAVERS: You bet.
MATHISEN: Coming up, the quarterback who is going out a financial champion off and on the field.
MATHISEN: Wall Street bonuses fell in 2015. Employees took home $146,000 on average last year. Still a pretty nice little paycheck.
According to the New York state comptrollers office, that is a 9 percent drop from 2014. The fall reflects a challenging year in the financial markets. Industry profits off about 10 percent.
But while bonuses fell, employment on Wall Street rose for the second year in a row.
HERERA: Calling an audible. That’s what Peyton Manning is doing one last time. After nearly two decades in NFL, one of football’s most successful players is retiring.
And as Eric Chemi tell us, his accomplishments on the field have translated to big money of it.
ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT: After prolific 18-year-old NFL career, Peyton Manning announced today that this season was his last. The 39-year-old star informed the Broncos and the rest of the world that he’s retiring.
PEYTON MANNING, DENVER BRONCOS: There’s something about 18 years. Eighteen is a good number. And today, I’ve retired from pro football.
CHEMI: The two-time Super Bowl winner, five time league MVP and 14-time pro-bowl player, is considered one of the greatest quarterbacks of all time. But his off-field ventures and business portfolio are also all star caliber.
DREW ROSENHAUS: I don’t know if you can think of player that’s had more impact over these last two decades than Peyton Manning. He’s going to be missed. This is a great opportunity for him to go out on top and there’s no doubt that he was going to be able to capitalize on that endorsement-wise.
CHEMI: Manning will retire as the NFL’s all time highest paid player, earning more than $248 million in his career. That puts him far ahead of Tom Brady (NYSE:BRC) and ahead of NBA stars like LeBron James and Michael Jordan.
Manning is also the face of many of America’s biggest companies from Nationwide to Nike (NYSE:NKE).
UNIDENTIFIED FEMALE: I’m really high voice Manning and I have cable.
CHEMI: He was the top selling NFL endorser, earning more than $12 million off the field. His endorsement deal with Papa John’s includes the fact that he owns more than 20 Papa John’s pizza franchises in the Denver area. Now that jersey number 18 is hanging up his cleats, what can we expect with one of the NFL’s biggest stars?
MANNING: I’m totally convinced that the end of my football career is just the beginning of something I haven’t even discovered yet. Life is not shrinking for me. It’s morphing into a whole new world of possibilities.
CHEMI: Manning is in high demand to provide color commentary to the broadcast group, or to follow in the footsteps of John Elway and land a front office position. For many athletes at this level of fame and success, their post-career businesses prove to be even more lucrative than the playing careers. Even with all those trophies and awards, Manning may not be done winning just yet.
CHEMI: For NIGHTLY BUSINESS REPORT, I’m Eric Chemi.
HERERA: I love him.
HERERA: That’s NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us.
And we want to remind you, this is the time of year your public television stations seeks your support.
MATHISEN: And we thank you for that support. I’m Tyler Mathisen. Have a great evening, everybody. And we’ll see you back here tomorrow.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2016 CNBC, Inc.