TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Turn the page. The calendar changes from a lackluster April. But are this year’s tepid returns enough to make investors follow the old adage, sell in May and go away?
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Off target. Shares of companies get punished when missing estimates but still showing growth. Is Wall Street missing the point? And are investors left to pay the price?
MATHISEN: And a new day. The end of sanctions are helping in many areas of Iran, including the nation’s tiny stock market. A rare look inside an exchange hoping to one day mimic ours.
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday.
HERERA: Good evening, everybody and welcome.
There may be one more day left in this month, but as far as Wall Street is concerned, the books are closed on a sluggish month of April. The Dow did manage to squeeze out its third straight month of gains, but the NASDAQ was the big drag, having its worst month since January, and we all remember how bad that one was.
As for today, the stocks fell early and often after some weak economic data helped set the tone. But late in the day, the market staged a bit of a comeback and ended well off the lows. The Dow fell 57 points to 17,773. The NASDAQ dropped just about 30. And the S&P 500 was off 10.
The Dow and S&P were off more than 1 percent, but the NASDAQ fell more than 2.5 percent. And for the month only the NASDAQ was lower, down about 2 percent.
MATHISEN: Yesterday, billionaire investor Carl Icahn said he has gotten out of his stake in Apple (NASDAQ:AAPL) and that sent stocks lower. He also warned of a, quote, “day of reckoning” for the markets. Today, fellow billionaire Warren Buffett weighed in and said, that’s just Icahn’s opinion.
(BEGIN VIDEO CLIP)
WARREN BUFFETT, BERKSHIRE HATHAWAY CEO: There were probably just — probably 50,000 people or more that bought stocks today and 50,000 people that sold. I don’t know that I’d pick out any one of them and put too much weight in what they did. No — I have no idea what the market will do day to day or why it did what it did today or yesterday.
(END VIDEO CLIP)
HERERA: One thing that pressured stocks early on today, a sign of weakness as a reading of economic activity in Chicago slipped. The Chicago purchasing managers index for April came in at 50.4, that’s down from last month’s 53.6, and well below expectations. A decline in new orders hurt things. A reading above 50 indicates expansion.
MATHISEN: Two of the major oil companies, ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), were out with their latest results today. As you might expect, low oil prices spell trouble. Exxon’s profit fell more than 60 percent, its lowest quarterly level since 1999.
But to put it in context, revenue was still nearly $49 billion. That is for the quarter, folks. As for Chevron (NYSE:CVX), profits turned into a loss and it was more than Wall Street expected. In the end, both companies were relatively flat in today’s trade.
Jackie DeAngelis goes deeper into the numbers.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Big energy reporting this week and by all accounts, it was a tough quarter. Exxon managed to beat expectations with 43 cents earnings per share. But that profit was achieved by slashing costs to offset plunging crude price in the first quarter. The company’s capital expenditures dropped by 33 percent year over year, showing drastic measures were necessary to survive a quarter where oil fell to almost $26 a barrel.
PAVEL MOLCHANOV, RAYMOND JAMES: Very hard to see this thing outperforming. On its valuation, it’s already pricing in oil at about 75 bucks a barrel. So, you know, plenty of oil stocks are pricing in the $60s, a lot lower than what Exxon’s pricing in.
KYLE COOPER, ION ENERGY GROUP: If you look at the details, ExxonMobil (NYSE:XOM) pulled out a profit because of their refining and other types of downstream profits that offset — still losses in upstream. So when you look at everything, these lower prices are providing excellent margins for refineries and for the chemical units of these integrated companies.
DEANGELIS: Meantime, Chevron (NYSE:CVX) outright missed expectations reporting a net loss of 39 cents a share, compared to a net profit of $1.37 in the same quarter last year.
Chevron (NYSE:CVX) CEO John Watson said in a press release that controlling spending and getting key projects under construction would boost revenue.
And with oil prices up nearly 20 percent in the last month, some analysts are hopeful for the future. But others are not.
MOLCHANOV: We’re anticipating a continuation of an oil recovery into the $60s by the end the year, probably $70s next year. But in the case of these two names, because of how well they held up during the meltdown, they’re already pricing in essentially all of their recovery in the commodity that we can envision.
COOPER: Unless we see global growth go to nothing, eventually we tighten up. That might be a year or two down the road. But we’re going to have to resume production growth globally longer term.
DEANGELIS: Recall also that earlier this week, Exxon lost its AAA credit rating from Standard & Poor’s. A credit downgrade, another blow to the company’s reputation.
For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.
HERERA: Well, we’re more than halfway through earnings season and while not a lot was expected, there has been a slight improvement.
Dominic Chu has the numbers on the earnings and where we stand.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Now that more than 60 percent of companies in the S&P 500 have reported results, we’re seeing a slightly better picture for corporate profits than originally thought. But it’s still not a pretty picture.
If you count all the companies in the index that have reported and assume that all remaining companies report results along the lines of what analysts expect, first quarter profits won’t post a 5.7 percent decline over the same time last year, according to data from Thomson Reuters (NYSE:TRI) IBES.
That’s better than the 7 percent drop expected before the season began. Oil and gas-related stocks have posted some of the biggest profit drops of the season. Meanwhile, those companies geared more towards consumer spending have posted some of the biggest gains.
As bad as things may appear, famed billionaire investor Warren Buffett still has faith in America’s corporate profit machine.
BUFFETT: Well, earnings have been so high. Corporate earnings have never been better. Yes. I mean, as a return on tangible equity, American businesses never had it so good. You know, as a percent of profits, as a percentage of GDP — I mean, profit margins up and down the line, business has been very, very good.
CHU: Some experts on Wall Street are looking ahead to what lies in the coming weeks. And they’re sounding a little bit more positive on what themes may develop.
NICHOLAS COLAS, CONVERGEX CHIEF MARKET STRATEGIST: For the back half of the year analysts expectation earnings to pick up, because we do some have easier comparisons to last year that will make the back half of 2016 seem a lot better than what we’re experiencing now or in the second quarter.
CHU: The second half of earnings season will see its fair share of retail-oriented stocks. That may give investors a better idea of the health of consumer spending. And with the S&P 500 reporting just next week, alone, there’s still reason to pay close attention to not only the results but what companies are forecasting about the rest of the year as well.
For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.
MATHISEN: I don’t have to tell you but corporate profit season can be brutal for companies that miss Wall Street estimates, even if they show earnings and revenue growth.
So, if your company is growing, should Wall Street estimates really matter? If so, how much and under what circumstances?
Brian Jacobsen, portfolio strategist with Wells Fargo (NYSE:WFC), joins us now.
Brian, good to have you with us.
I think companies that have troubles but then I sometimes look at the earnings estimates and I think, is it the company that is having trouble? Or the estimator that’s having trouble? What is it?
BRIAN JACOBSEN, WELLS FARGO FUNDS PORTFOLIO STRATEGIST: Well, that’s always a good question. You know, the analysts, their expectations do matter quite a bit as far as setting the current stock price, but really, it’s expectations about the future. If you think about the stock price itself, it’s supposed to reflect expectations of cash flows in the future to shareholders. So, that’s where analysts’ opinions and their estimates really matter.
And it’s also one of the reasons why earnings season is always so exciting and also such a volatile period of time. You get an estimate as to what that path really looks like. Is the company on the road that analysts were expecting? Or have they somehow deviated from that path?
HERERA: You know, you say that different estimates matter in different settings. Why is that?
JACOBSEN: Well, it’s very interesting if you look at parts of the economic and market cycle. Early in this recovery for the stock market, it really looked like all that mattered was that companies were finally showing profits again. So we call that the bottom line number, earnings per share.
But now it appears as though people are much more fixated on whether or not they’re generated that top line revenue growth, so those sales estimates really seem to matter a lot more than what they did earlier in this bull market that we’re currently in. I think part of that is because people recognize there’s only so much cost cutting that you can really do. At some point, you do have to have that sustainable revenue growth to really support continued cash flows to shareholders.
MATHISEN: I need a quick answer here. In the long run, is what really matters more far more than the estimate, what the actual earnings and revenues are? And whether they are growing, growing faster, or slowing? Isn’t that the long-term determinant of what the stock price is and will be?
JACOBSEN: You’re absolutely right. It really is that long-term view. And so the current measure with earnings for this particular quarter, really it’s a question of what does that tell us about that longer-term view? And it’s that long-term growth rate that really matters in setting that stock price.
All right. Brian, thank you very much for helping us, Brian Jacobsen with Wells Fargo (NYSE:WFC) Funds.
HERERA: It is a decades old saying — sell in May and go away. The reason? Well, many investors believe the late spring and summer months don’t provide much of a return.
Bob Pisani looks at whether that’s really the case.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sell in May and go away, the old adage is true going back for decades. The biggest gains in the stock market are made in the six-month period from November to April each year, while going largely sideways from May through October. While it doesn’t work every year, it does work enough to make money over time.
Now, in the last 20 years, the S&P 500 rose in price an average of 6.4 percent from November through April, but it gained only 0.2 percent from May through October, according to our partners at Kensho.
Still, I would not recommend this strategy for most investors. The S&P still rose from May to October 63 percent of the time, including double-digit returns a dozen times. It’s just risky to stay out of the market for six months.
Instead of just getting out, S&P Capital IQ argues a rotation strategy is better. They recommend buying the ETFs for consumer staples and for health care, these are two defensive sectors that tend to outperform May to October period and then switching into the S&P 500 from November through May. The bottom line is if you want to do a seasonable play, rotate, don’t just go to cash.
By the way, why does the S&P tend to underperform in these summer months? It’s not clear, but it’s likely due to the summer holidays when trading volume traditionally drop, as does investment banking activities.
On the other side, there’s more people investing money in the New Year from tax refunds or to fund an IRA.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.
MATHISEN: As Jackie mentioned earlier, oil prices didn’t go away in April, in fact, they surged. Prices were a few pennies lower today, but for the month of April, they were up about 20 percent. And that is the largest one-month gain in a year.
HERERA: Iran has asked the United Nations Secretary-General Ban to intervene after the U.S. Supreme Court ruled that $2 billion in frozen Iranian assets must be paid to American victims of attacks blamed on Tehran. Last week, the court upheld a 2012 law which said Iran’s frozen funds should go toward satisfying a multi-billion dollar judgment won by families in U.S. federal court in 2007.
MATHISEN: Meanwhile, the Tehran stock market has rallied sharply since Iran reached a deal to end sanctions over its disputed nuclear program.
Michelle Caruso-Cabrera is in that nation’s capital with a look inside this small market that’s on the rise.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Anyone off the street can walk into the lobby of the Tehran stock exchange. And they do. So they can watch the trading of their favorite shares.
When these investors found out that we were from a TV show that covers the stock market, they were dying to talk to us.
One man asked me if it was possible to corner the market in the United States. I told him, no, there are rules to prevent that. He responded, we need rules like that here in Iran.
Inside, on the official trading floor, seats are rented by Iranian brokers so they can trade on behalf of clients or for themselves.
How’s the market look? Is it going to go up or down?
HESSAM MALAEKEH, TEHRAN STOCK EXCHANGE BROKER: I hope it will go up, I think.
CARUSO-CABRERA: There are more than 300 listed companies and altogether they’re worth $100 billion. That’s much smaller than the S&P 500, which is worth $19 trillion.
Trader Hessam Malaekeh said transparency requirements for listed companies are good but they should be even better.
MALAEKEH: We need promote our rule. For example, we must make them standard, international standard.
CARUSO-CABRERA: The market here has rallied sharply in the last few years. The vice president of the exchange says that happened even before Iran signed a deal with the West that lifted sanctions, because the new president encouraged policies that brought down inflation and interest rates.
SAIED ROHALAD HUSSEIN MOHAMMAD, TEHRAN STOCK EXCHANGE VICE PRESIDENT: Inflation rate in Iran was more than 30 percent. But now, it’s one digit. I mean, it’s lower than 10 percent. And interest rate was more than 28 percent.
And this rate has a lot of financing for listed companies. But now, it is below 20 percent. You know, interest rate has a big effect on the capital market.
CARUSO-CABRERA: In Iran, they don’t have bulls and bears. They have lions and foxes. If you’re bullish, you’re lionish. And if you’re bearish, you’re foxy.
For NIGHTLY BUSINESS REPORT, I’m Michelle Caruso-Cabrera, Tehran.
HERERA: Coming up, this week’s market monitor joins us and says it’s all about the blue chips. He has three that he says you should own.
MATHISEN: Republican presidential front-runner Donald Trump kicked off his California campaign today and he was met by several hundred raucous protesters outside his speaking venue. Some of the protesters tried to rush barriers and several dozen were arrested. Trump’s motorcade was forced to go around the back of the hotel and walk past a concrete median. There you see him going into the rear entrance of the Hyatt.
But while he has a comfortable lead over his challengers in the Golden State, one place he is not winning, among Silicon Valley’s tech elites. So, does Trump think he can win them over or does he even care?
Josh Lipton is in Burlingame, California, with more.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: In California, Donald Trump has a lot of fans among Republicans. In some polls, he’s currently beating Senator Ted Cruz by more than 17 percentage points. Today, he was in Burlingame, California, just north of Silicon Valley, rallying his supporters.
DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: We can’t let these people down, right?
LIPTON: Among Silicon Valley’s elite, though, it’s a different story. They have come after Trump, including Facebook’s Mark Zuckerberg, who used his developer conference to criticize though not by name Trump’s plan to build a wall along the U.S. border with Mexico.
MARK ZUCKERBERG, FACEBOOK CEO: I hear fearful voices calling for building walls and distancing people they label as others.
LIPTON: Beyond CEOs, VC’s on Sun Hill Road also bash Trump, even right-leaning ones like Mark Andreessen of Andreessen Horowitz, who suggested he would support Hillary Clinton if Trump is the nominee.
Trump, for his part, has fired right back. He criticized Amazon’s Jeff Bezos in a tweet a few months, referring to his, quote, “no-profit company.” Bezos responded saying he’ll reserve Trump a seat to space.
Of course, it’s possible Trump couldn’t care less what tech elites think of him or his campaign. His base of support remains working-class voters and he’s saying they’re going to come out in full support of him leading up to this California primary on June 7th.
For NIGHTLY BUSINESS REPORT, I’m Josh Lipton in Burlingame, California.
HERERA: The Food and Drug Administration grants Quest Diagnostics (NYSE:DGX) emergency authorization for its Zika virus test. And that is where we begin tonight’s “Market Focus.”
The laboratory testing company said it expects to make the diagnostic test available to doctors in the U.S. and Puerto Rico by next week. It comes on the day when Puerto Rico’s health secretary said the U.S. territory has reported its first Zika-related death. Shares of Quest finished down a fraction to $75.17.
Sanofi reported an increase in quarterly profit as the drugmaker’s bio tech segment helped to lift its results. Overall, revenue for the company fell dragged down by lower diabetes drug sales. Also, biotech company Medivation (NASDAQ:MDVN) has turned down Sanofi’s unsolicited $9.3 billion offer, saying the amount undervalues the company. Shares of Sanofi fell 4 percent to $41.10.
MATHISEN: Rovi (NASDAQ:ROVI), which owns patents on digital entertainment devices, will buy the DVR maker TiVo (NASDAQ:TIVO) in a deal valued at more than $1 billion. The new company will take the name TiVo (NASDAQ:TIVO). TiVo (NASDAQ:TIVO) was up nearly 6 percent to $9.98. Shares of Rovi (NASDAQ:ROVI) were up over 1.5 percent to $17.62.
The drugmaker Valeant announced it has finally filed its financial report for 2015, avoiding thereby a default on some of its debt. The report was initially delayed over accuracy concerns with the company’s financials. Valeant also nominated three new members to its board of directors. Shares of Valeant nonetheless down more than 5 percent on the day to $33.36.
HERERA: Our market monitor has listed blue chip stocks he says will rise 15 percent over the next 18 to 24 months.
Joining us tonight is Gary Bradshaw, portfolio manager at Hodges Capital Management.
The last time he was on in May, he recommended, Brinker International (NYSE:EAT), which is down 17 percent, Cracker Barrel which is up 5 percent, and Casey’s General Store, which is up nearly 24 percent.
Gary, welcome back. Nice to have you here.
MATHISEN: Two of three is pretty good, Gary.
GARY BRADSHAW, HODGES CAPITAL MANAGEMENT: Well, thank you. It’s nice to be back.
HERERA: How do you feel about the market overall? As I understand, you think people are a little too pessimistic?
BRADSHAW: Well, Sue, we do. Even in spite of this slow-growth economy, we think investors are too negative and that the market will move higher going forward. The market is not too hot, not too cold, when you look at market multiples at about 17 times this year, 16 times next, and with interest rates low, 10-year around 1.85, we think market multiples can expand going forward as the economy gradually improves here in the U.S. and we think the world economy will improve as well.
MATHISEN: Let’s go through a couple of your picks. You’ve got interesting ones there. All large caps but they represent different slices of the economy. The first one is Home Depot (NYSE:HD).
BRADSHAW: Tyler, Home Depot (NYSE:HD) we believe at Hodges blue chip fund is the best retailer in America. And they just came off a quarter where comp store sales were up 8 percent. What’s driving that is individuals’ home values are improving. Housing sales are still good. People feel good about putting money into their houses.
And so, Home Depot (NYSE:HD), earnings continue to grow. They raised their dividend 17 percent and they’re buying back shares.
HERERA: Boeing (NYSE:BA) is next on the list. You think it could be a stock over the next 12 to 18 months that could rise considerably? And you like the yield too?
BRADSHAW: Well, Boeing (NYSE:BA) has a great yield, 3.3 percent. But better yet, they’ve got seven or eight years of these airlines that they’re going to build. And we think their margins will continue to improve. It’s a great American business. Their customers are doing well. And we think the stock could go up dramatically over the next 12 to 18 months.
HERERA: Yes, 165.
BRADSHAW: One sixty-five. And yet you’re getting 3.3 percent, which is better than any other deal.
MATHISEN: So, number three, Home Depot (NYSE:HD) which is hardware. Your last one’s a software company?
BRADSHAW: Well, Microsoft (NASDAQ:MSFT). Even Tyler in spite of their pull-back, Microsoft’s been reinvigorated by their cloud business. It’s not just the cloud business, it’s Windows 10, it’s their search business Bing.
We think earnings will continue to grow. It’s a 2.7 percent dividend. They’ve got $100 billion sitting in cash. So, hopefully, they’ll be able to put it to work.
HERERA: OK. Gary, have a wonderful weekend, thanks for coming.
BRADSHAW: Thank you for having me.
HERERA: Gary Bradshaw with Hodges Capital Management.
MATHISEN: You bet.
All right. Up next, Americans are saving more for retirement. We’ll tell you how and why.
HERERA: Here’s what to watch for next week.
On Monday, we get a snapshot of how the manufacturing industry is doing nationally with the ISM index. Tuesday brings auto sale for April and the April jobs report caps off the week on Friday. That is what to watch for in next week.
MATHISEN: And a new report from Fidelity out today shows that despite volatility in the markets, Americans continue to sock away money.
Sharon Epperson joins us now with more.
So, we are saving.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: We are actually saving. It’s a great report and it shows the savings rate is increasing significantly. But more important, a record number of people are saving in their 401(k). About 14 percent, according to Fidelity.
And what they’re doing is one strategies that’s the best way to save, in terms of your 401(k), and that is to contribute at least into the company match, because what we’re seeing is it’s a combination between their own contributions and employer contributions that are contributing to nearly 13 percent savings rate in the first quarter.
HERERA: Terrific. You know, we’ve often heard that people underfund their 401(k)s. So, that’s a nice change of pace. What else are you seeing?
EPPERSON: Well, they’re not just doing it with 401(k) actually. If they have a 401(k), they’re bundling with contributing to an IRA as well. And so, that is a significant change too, that more people are doing both. So, they’re not just relying on that employer plan.
MATHISEN: Anything in that report that points to the average balance in those accounts? Because I’m often shocked at really how small they are.
EPPERSON: Well, they’re not that great. I mean, the average balance for a 401(k) was somewhere around $87,000, and for an IRA, $89,000. And it has dipped a little bit in the first quarter with the volatility we’ve seen.
A year ago, it’s down 5 percent. So, people still need to be putting in more money and of course one of the things that’s interesting is that they’re not moving their money around a lot.
EPPERSON: So that’s a really interesting despite the volatility, they’re holding steady.
HERERA: That would be I would think a very good indication, because volatility, people tend to react to volatility instead of sticking with their plan.
EPPERSON: Exactly. Exactly.
HERERA: We’re listening to you, Sharon.
EPPERSON: Well, they’re listening — I hope they’re listening to a lot of people that are saying, don’t react to the short-term movements, make sure that you’re diversified, and also make sure you realize there’s going to be some risk there but you’re looking for the long-term. So, I think what this study also showed is those who have been in their 401(k) 10 years or more, they’re really seeing a significant increase in their balances. One, because the market has improved, but also because they’ve stayed in and they’ve ridden it out and that’s what the 401(k) long-term plans are for.
MATHISEN: All right. Sharon, thanks very much. Appreciate it. Have a great weekend.
EPPERSON: You too.
MATHISEN: All righty.
HERERA: And finally tonight, speaking of saving, you better keep packing away that retirement money that Sharon was just talking about, because if you’re planning on going to weddings anytime soon, it’s getting more expensive. American Express (NYSE:EXPR) (NYSE:AXP) says the average cost for an American wedding gift is now $703. That’s for things like airfare, clothes, child care, but not the gift.
MATHISEN: Not the gift?
HERERA: Not the gift. Especially if it’s a little blue box.
If you’re in the wedding party, it’s $743. But if you’re a millennial, the average cost is nearly $9. Did you hear Sharon Epperson gasp?
HERERA: $900, did I say — $900.
MATHISEN: Yes, whoa.
HERERA: That does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us.
MATHISEN: Go home and to save.
Tyler Mathisen here. Thanks for joining us. Have a great evening. We’ll see you Monday.
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.