Transcript: Nightly Business Report – May 17, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR:  Stocks sink.  Upbeat economic reports stir fears of higher interest rates, as two Fed officials say it’s possible that action may be taken in June.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Home sweet home.  Especially for Home Depot (NYSE:HD), where Americans continue to spend on sprucing up their houses.

MATHISEN:  And what a mess.  As airport security lines grow, so do tempers.  Can anything be done quick to fix a problem that’s only expected to get worse?

All of that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, May 17th.

HERERA:  Good evening, everyone, and welcome.

What’s good for the economy is bad for stocks.  The Federal Reserve has been looking for any indication that prices are rising and that inflation is heading back to its target level.  Today, that’s exactly what it got.

The consumer price index, the prices Americans pay for goods and services, rose 0.4 percent last month, the fastest rate in three years.  It could be a sign the economy is regaining some steam and it could give the Federal Reserve just what it needs to raise interest rates again at potentially at an earlier date than Wall Street expects and that’s exactly what the markets did not like.

The Dow Jones Industrial Average dropped 180 points to 17,529.  The NASDAQ fell 59.  And the S&P 500 was off 19.

Mary Thompson has more on today’s stock slide.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, the sharp selloff on Wall Street Tuesday as the markets gave up all of Monday’s gains.  The catalyst for the decline, some hotter than expected data on consumer prices as well as comments from two nonvoting members of the Federal Reserve who said the two to three rate hikes this year would not be unreasonable.

JOHN WILLIAMS, FEDERAL RESERVE BANK OF SAN FRANCISCO PRES.:  You know, my view is that during live meeting, we’ll have a great discussion.  We’re going to get a lot more data between now and then, and we’ll do all of our homework and analysis.

UNIDENTIFIED MALE:  So, I’m at this stage sort of inconclusive on how I’m going to be thinking about June, but I wouldn’t take it off the table.

THOMPSON:  Now, the data and the comments are raising expectations that central banks could move as soon as this summer to raise interest rates.  That coming on the heels of the December hike, which was the first rate increase here in the U.S. in nine years.  Utility and consumer stocks decline on Wall Street today and that offsets a very slight gains we saw in the energy sector.  It was the only sector to finish in the green, thanks in part to continued gains in oil prices with oil finishing above $48 a barrel.

It was Home Depot (NYSE:HD) that face the decline in the Dow Jones Industrial Average, the home improvement retailer lower despite posting better than expected first quarter numbers and raising its full year forecast.  Meanwhile, the Dow Jones Transportation Average finished in the green as well, bucking the downward trend.

Now, uncertainty about interest rates is likely to make the markets jump in the days and weeks ahead.  And in Wednesday’s session, traders will be focusing on the release of the Fed minutes from its last meeting, searching for any additional clues as to whether or not we could see a rate increase in June or July.

For NIGHTLY BUSINESS REPORT, I’m Mary Thompson at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN:  There was also a positive economic news from the nation’s factories: industrial production rose 0.7 percent in April.  That is the biggest increase for a single month since November of 2014.  But the bounce reflected weather-related factors rather than higher spending by consumers and businesses.

HERERA:  The housing market remains strong.  Housing starts, which marked the beginning of construction of a new home, rose more than 6.5 percent last month.

But with single family homes still in short supply, Diana Olick spoke with some of the nation’s biggest builders at the JPMorgan (NYSE:JPM) Home Building Conference in New York.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The tone at the JPMorgan (NYSE:JPM) Home Building Conference today was a cautious optimism.  Home builders are seeing increased demand from buyers but also increased costs of construction.

STUART MILLER, CEO, LENNAR:  This is a tough market condition.  We’ve seen the market recover since the downturn but the recovery has been slow, steady and in a pretty tight band.

OLICK:  Lennar (NYSE:LEN), one of the nation’s largest public builders has hedged its best, investing in multifamily apartment buildings and single-family rental homes.  Like most of the others, it is not building entry-level homes even though that’s where demand is highest.

Are you all missing a huge opportunity here?

MILLER:  Well, the first thing you say is that demand is the highest.  It might be high demand but not enabled demand.  We’re still mortgage constrained.  It’s hard for first-time buyers to get the down payment and to qualify for a mortgage.

OLICK:  Home construction is climbing out of the pit of construction, but for single family, it’s still about 30 percent below historical norms.  Never mind all the pent-up demand left over from the recession.  Mortgage rates, which were expected to rise this year, have actually fallen to three-year lows, making the time right for buyers.

MIKE WEINBACH, CEO JPMORGAN CHASE MORTGAGE:  Credit availability is not what it was before the financial crisis and I don’t think we think it should be.  It’s been getting better and better over the last several years.

OLICK:  Rates are low, but better credit availability may not be enough — especially with the supply of starter homes so low and builders essentially leaving them in the dirt.

For NIGHTLY BUSINESS REPORT, I’m Diana Olick in New York.

(END VIDEOTAPE)

MATHISEN:  The strength in the housing market helped home depot turn in a solid quarter.  Mary Thompson mentioned that earlier in the program.

The world chain raised its earnings in revenue forecast for the year after it reported better than expected results for the most recent quarter, bucking the broader retail trend.

Courtney Reagan takes a look at the place where consumers are spending.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  If you listen closely, you’ll hear signs of relief across Wall Street, thanks to American homeowners.  Home Depot (NYSE:HD) again posted quarterly results strong enough to beat analyst expectations for profit and revenue and for extra positivity, raised its full-year earnings forecast.

The world’s largest home improvement retailer saw particularly strong comparable sales growth of more than 7 percent in the U.S.

CHRIS HORVERS, J.P. MORGAN RETAIL ANALYST:  Now that prices are recovering, there are fewer houses relative to a year ago, about 12 percent of homes are under water versus two or three years ago, it was in the 30s.  So, people are spending it on roofing, on windows, doors.  So, they are doing that and buying a lot of appliance because there’s innovation there.

REAGAN:  Spring is the holiday season for home improvement retailers because it marks the start of the housing market high season, and the beginning of demand for outdoor merchandise from furniture to plants to roofing.  But that also means weather plays an important role in sales strength.

This year, April was cooler and wetter than normal in many areas of the country.  Home Depot (NYSE:HD) acknowledged inconsistent weather throughout the quarter and sales trend did decelerate each month.  However, it’s not deterring analysts from pointing to continued strength for home depot going forward.

HORVERS:  Ultimately, for Home Depot (NYSE:HD), it’s one of the best executing companies across consumer and certainly in retail.  It has one of the biggest Amazon (NASDAQ:AMZN) moves (ph) and frankly it’s one of the biggest, best online platforms in our coverage.

Buying Home Depot (NYSE:HD) today, you’re buying the sustainability of the earnings algorithm.

REAGAN:  Home Depot (NYSE:HD) competitor Lowe’s will report result before the bell tomorrow, and typically follows the same general trends as Home Depot (NYSE:HD).  It was slightly less strong.

Still, analysts are expecting more reassurance from Lowe’s that consumers have money to spend at least when it comes to their homes.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN:  According to Bank of America (NYSE:BAC) and as reported by “The New York Times (NYSE:NYT),” the Standard & Poor’s 500 stock index has fallen an average of 8.2 percent since 1928, in years when a two-term incumbent president is leaving office.

The final year of an incumbent’s eight-year term is the only year that average negative returns in that time period.  So what does this mean for the market between now and the election and beyond?

Let’s ask Mark Luschini, chief investment strategist at Janney Montgomery Scott.

Mark, those are pretty compelling numbers I guess you’d say.  I guess it all traces back to uncertainty.  Do you think the market is going to be in a holding pattern at least through the election?

MARK LUSCHINI, JANNEY MONTGOMERY SCOTT:  Well, Tyler, you hit the operative word, “uncertainty”.  Markets disdain uncertainty and obviously with now an expiring president and not knowing who is going to occupy the White House, neither of which have ever held a seat in it before, brings an amplification to the uncertainty surrounding the presidential election.

But there are other factors in play as well, including the fact that, you know, oil prices will lap the oil prices later this year.  In addition to that, the dollar will strengthen about 8 percent last year, it’s actually down about 4 percent so far this year.  So, that’s turning into a tail wind for multinational profits.

So, actually, the profit pictures are kind of set up to improve in the second half of 2016 even in spite of the fact that we’re obviously left with the tremendous amount of uncertainty with regard to the presidential campaign and as a consequence, those factors together will create a confluence of uncertainty that will probably keep markets really in a rather tight, tradable range rather than breaking up or down.

HERERA:  But — I was going to say, but you’re not expecting negative returns, just kind of — I see you’re expecting muted returns but on the positive side.

LUSCHINI:  That’s right, Sue.  I mean, for us, we believe that earnings are ultimately going to happen due to heavy lifting this year and we’ll see better earnings, we think, over the balance of this year, into 2017, and as a consequence expect equity prices to reflect that.  Not necessarily to see them jump in price but rather to go up in at least a positive fashion and probably outdo bonds and/or cash over the next 12 to 18 months.

That said, that doesn’t mean there is going to be volatility which at times is going to challenge that thesis.

MATHISEN:  Quick thought: what about the Fed?

LUSCHINI:  Well, Tyler, obviously, today’s news, you commented about it earlier, concerning a couple of Fed governors, talking about two to maybe three rate hikes this is year, and putting the market back on its heels, a sign of very low probability of a June rate hike.  I still think it’s a low probability, but I think Fed governors will start to set the market up for the prospects of a rate hike.  It’s not July.  That’s a bit quick.  Certainly, though, in September.

MATHISEN:  All right.  Mark Luschini, Janney Montgomery Scott, thank you very much.

LUSCHINI:  Thank you.

HERERA:  Still ahead, something Ty and I just experienced in Chicago.  Airport security lines, they’re growing.  So, does the frustration felt by travelers?  But is there a fix to the problem that’s likely to get worse this summer?

(MUSIC)

HERERA:  Donald Trump, the presumptive Republican presidential nominee said he plans to outline his economic vision in two weeks.  According to “Reuters”, Trump plans to dismantle most of the Dodd/Frank financial regulations.  He says tech startups have helped to create a new financial bubble.  He does not plan to make any cuts to Social Security and that auditing the Fed is not his top priority.

MATHISEN:  The Senate today advanced a compromise bill to provide more than a billion dollars to combat Zika.  The emergency funding will be used for mosquito control and development potentially of a vaccine.  The compromise provides $800 million less than President Obama requested.

HERERA:  TJX does what most other retailers couldn’t and that’s where we begin tonight’s “Market Focus”.

The parent company of discount chains T.J.Maxx and Marshalls posted increases in both profit and revenue with sales jumping about 10 percent.

TJX also raised its profit forecast for the year.  Strong customer traffic also drove same store sales higher by seven percent. Shares of TJX up a fraction to $75.59.  And shares of the children’s place got a boost today after the retailer reported higher than expected earnings in the latest quarter.  In addition, the company also raised its profit guidance for the year, citing gross margin expansion and expense control.  Shares finished the day up 4 percent to $71.05.

On the flip side, Francesca saw its sales plummet after the clothing and accessories retailer announced the unexpected resignation of its CEO.  The company also posted downbeat preliminary results for the quarter, saying it expects earnings to come in at the low end of its previously issued guidance.  The shares fell more than 29.5 percent to $10.50.

MATHISEN:  And a hedge fund wants Pandora to think about putting itself up for sale after the bell yesterday.  Corvex Management disclosed a nearly 10 percent stake in the music streaming service, raised concerns about the company’s business plan.  Pandora responded by saying it has a profitable core business and is committed to delivering long-term value for its shareholders.  Shares of Pandora up 6 percent to $10.59 was the close.

The Justice Department has launched an investigation into the sales practices of the Lending Club, as we reported last week.  The peer to peer lenders CEO resigned after the discovery of faulty loan sales by some of the staff.  The news today sent shares down more than 8 percent to $3.60.

The patent and trademark office will review Coherus Bio Science’s request to copy an arthritis drug made by the pharmaceutical company Abbvie.  Coherus Bio Science creates so-called bio-similar versions of drugs.  The government agency said the patent on Abbvie’s drug may be invalid.  Shares of Abbvie fell 3 1/2 percent to $60.25.  Shares of Coherus soared nearly 16 percent to $18.85.

And Planes All-American Pipeline, and one of its employees has been indicted on criminal charges related to the company’s oil spill last year.  It leaked 143,000 gallons of oil near a beach in Santa Barbara County, California.  The oil company may be find nearly $3 million and faces 46 criminal charges, including four felony counts.  Despite the news, shares rose more than a percent to $25.31.

HERERA:  From congested subways to crowded airports, our nation’s infrastructure is in need of repair.  The American Society of Civil Engineers rates our system at a D plus and says the U.S. will need to spend more than $3.5 trillion on infrastructure by the year 2020.

In our nation’s capital, the issues are pretty obvious.

Hampton Pearson reports on the problems plaguing the D.C. metro.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  With more than 700,000 riders per day, the Washington metro subway system with six lines and about 120 miles of track is the second busiest in the country.  But in the last 16 months, there’s been a fatal fire last January where more than 80 passengers were injured, a 24-hour shutdown of the entire system in March that forced hundreds of thousands of commuters back into their cars and just last week, this dramatic video, a fireball arcs on the track moments after a train pulls away.

These and many more incidents contributing to a crisis from metro riders.

UNIDENTIFIED MALE:  It’s an antiquated system.  It’s been around for years.  Infrastructure hasn’t been keeping up with progress and the usage on the system.

UNIDENTIFIED FEMALE:  For me as a commuter, using the Metro every day, I worry about getting to work on time, but I also worry about safety, because I do bring my kids on the metro sometimes.

UNIDENTIFIED FEMALE:  Metro is all you have.  You have to grim and bear it.  I mean, what else can you do?

PEARSON:  Metro’s own data shows 216,000 smoke and fire incidents last year doubled the year before.  Ridership is down: 214 million last year, down from 225 million in 2009, despite a population increase and expanded service in northern Virginia.

Metro’s governing board estimates it needs to spend more than a billion dollar as year for safety and maintenance upgrades, included designated funding from Congress.

For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.

(END VIDEOTAPE)

MATHISEN:  From trains to planes, you’ve seen the pictures of those long airport security lines.  Maybe you’ve spent a few hours in them.  The frustration grows and the house panel is planning a hearing next week on how Congress can help ease the wait times.  And today, Illinois Senator Dick Durbin said 58 security officers and four bomb-sniffing K-9 teams will be sent to O’Hare Airport where the problem is particularly acute.

Eamon Javers has more.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE:  It’s frustrating.  I travel a lot.

UNIDENTIFIED MALE:  It seems like within the last month, it’s increased to an hour wait.

UNIDENTIFIED MALE:  I try to tamper my frustration with the understanding that we want everybody to be safe.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Airline travel these days is all about hurry up and wait.  And now, American Airlines says the delays at TSA check points are only getting worse, calling the TSA lines unacceptable, American said during the spring break week of March 14th through 20th, nearly 6,800 of the airline’s passengers missed flights because of checkpoint delays.

The worst airports?  Los Angeles, Miami, Atlanta, Dallas and Philadelphia.  TSA says it’s focused on countering threats as American transportation remains a high-value target for terrorists.  It says the strong economy means air carriers are enjoying record travel volume and so travelers should show up at airports two hours early.

This week, dozens of travelers were stranded at Chicago’s O’Hare International Airport after security delays caused them to miss their flight.  Airline officials were reduced to handing out blankets and setting up cots.

All that means the TSA and its administrator, Peter Neffenger, who are resisting budget cuts and asking for more screeners have their hands ful.

KEVIN BURKE, AMERICAN COUNCIL INTERNATIONAL:  They have a funding issue and they talked to Congress and we support this.  There’ll be more money going to training officers and more immediate officers coming online.  But it’s a long-term problem for them.

JAVERS:  The union for TSA says the federal agency needs a lot more manpower, 6,000 more screeners.  Although 200 new screeners graduate from training every week, about 117 people quit the agency in the same time frame.  And that means TSA is just barely treading water.

For NIGHTLY BUSINESS REPORT, I’m Eamon Javers in Washington.

(END VIDEOTAPE)

HERERA:  As we told you last week, long lines and long waits at the TSA checkpoints nationwide and it’s a growing problem, as Eamon pointed out, and it’s expected to get worse this summer.  But why is it happening now and is there a fix to this problem?

David Fuscus joins us, and he’s an aviation expert and president of Xenophon Strategies.

I hope I pronounce that correctly, David.  Forgive me if I did not.  Nice to have you here.

DAVID FUSCUS, XENOPHON STRATEGIES PRESIDENT:  Glad to be here.

HERERA:  You know, I and I were just in Chicago.  So, we can vouch for the fact that the lines were extremely long, even in the TSA pre-check area.

Why is this happening now?

FUSCUS:  Well, there’s a number of things.  It’s a lack of funding from Congress, TSA is understaffed, over 4,000 less screeners that it did a couple of years ago, increased numbers of passengers and a renewed focus, an additional focus on looking for the things that are particularly dangerous, things like bombs.

HERERA:  We had a guest on last week who pointed the finger at management.  Is it a management problem?

FUSCUS:  I think it comes back to it.  It’s more than anything else, it’s a congressional problem.  Congress does not provide the funding necessary to run the TSA at these levels.  And let’s face it, a couple of years, the TSA went to Congress and asked them to allow them to focus more on bombs and less on things like small pocket knives.  Congress rejected it.  That’s sucking up a lot of the resources and contributing to the lines.

HERERA:  Well, if it’s a congressional problem, it doesn’t sound like the way that Congress moves these days that it will be able to fix that problem before the peek summer travel season.

FUSCUS:  It’s going to be very difficult.  I mean, it’s a long-term problem but there are short-term things that can be done as well.  It’s about time that the airlines kicked in and helped on this problem somewhat.  One of the problems of going through screening now, everybody has tons of carry-on baggage because of checked baggage fees.

The airlines could offer temporary relief on checked baggage fees.  That would certainly help the long lines at the airport.

MATHISEN:  In other words, people would then check the bags.  They wouldn’t have to go through the gate screening.  But do you really think people who have gotten so accustomed to carrying on and don’t want to wait in a baggage claim line, do you think it would alleviate the problem that much?

FUSCUS:  Well, there’s no question that it would help.  There’s a number of things that have to happen.  That would help.  Additional screeners would help.

But in the end, we’ve got record numbers of people out in the air transport system and it is going to be a very difficult summer.

HERERA:  What about privatization?

FUSCUS:  There’s a privatization program now where in 21 airports, private companies do the screening under TS’s supervision, under TSA’s rules.  There’s no way to get that in place before the summer season.  And doing it wholesale across the system would be a little bit extreme.

MATHISEN:  But do you have hope that that would be helpful? Will private companies do it better even if they are being supervised by the government TSA?

FUSCUS:  Let’s not forget that the TSA’s primary job is to keep people in the skies safe, to keep our airplanes and airport systems safe.  Something that they are good at is not to be efficient and move people through quickly.  That’s secondary.

And private companies that are operating under the same rule, with the same equipment, with the same resources are probably not going to do it more efficient than TSA.

HERERA:  David, thank you very much.  David Fuscus joining us today.  Thanks, David.

FUSCUS:  My pleasure.

MATHISEN:  And coming up, there are more companies than ever selling access to television but there is one that may be worth watching.

(MUSIC)

HERERA:  Here’s a look at what to watch for tomorrow.  Dow component Cisco (NASDAQ:CSCO) reports earnings.  It’s often viewed as a barometer of the enterprise tech sector.  The Federal Reserve released the minutes of the last meeting.  And Facebook (NASDAQ:FB) CEO meets with prominent conservatives to address allegations of political bias at the social networking website.  That’s what to watch for on Wednesday.

MATHISEN:  Well, the way we watch TV is changing, and those changes aren’t just coming from traditional television companies but also from tech firms, a lot of them.

Julia Boorstin has more on how tech is tackling TV from the Internet and television expo in Boston.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  There are more companies than ever selling access to television.  Cable and satellite TV companies, telecom providers like Verizon (NYSE:VZ) FiOS and AT&T (NYSE:T) U-verse.  And after years of offering traditional bundles of channels, they are now increasingly taking new approaches.  Offering less expensive slimmed-down bundled distributed over the Internet, like Verizon’s custom TV packages and Dish’s Fling TV.

Plus, there are a slew of tech and Internet companies jumping into the game.  Sony (NYSE:SNE) is offering PlayStation View, Amazon (NASDAQ:AMZN) is partnering with Comcast (NASDAQ:CMCSA) (NYSE:CCS) to sell its TV service, as well as on-demand content.  And Hulu is announcing it’s working on a new live TV service launching next year.  It’s already in advanced talks with two of its owners, Fox and Disney (NYSE:DIS) ABC.

CRAIG MOFFETT, MOFFETTNATHANSON SR. ANALYST:  The one that you really have to worry about is Hulu because Hulu is backed by the content companies themselves and therefore has that one key element which is they’ve got the programming.

BOORSTIN:  And it’s not just Hulu.  Google’s YouTube, Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) are working on their bundles of live TV packages, hoping to benefit not just from subscription and advertising revenue, but also from all that data, about what people are watching.

Tech giants embracing TV is pushing TV companies to become more high tech.  Cable giant Comcast (NASDAQ:CMCSA) (NYSE:CCS) here showcasing its new X1 interface for the Olympics.  CEO Brian Roberts adapting the company’s options to meet shifting demands.

BRIAN ROBERTS, COMCAST CHAIRMAN & CEO:  What our company is trying to do is make sure we’re really available to customers on wherever they want to go.  And so, some customers clearly will not buy a bundle.  Some will want a skinny bundle and some will take it a different way.  And that’s part of why we bought NBCUniversal.  That’s why we’re adding content with DreamWorks.

BOORSTIN:  Comcast (NASDAQ:CMCSA) (NYSE:CCS) beating on the long term appeal of its premium content, to keep its customers from switching away to the host of new markets, which eMarketer predicts will be a rising trend, projecting by 2018, one in five customers will not subscribe to cable.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Boston.

(END VIDEOTAPE)

HERERA:  And before we go tonight, here’s another look at the selloff on Wall Street.  The Dow dropped 180 points to finish at 17,529.  The NASDAQ fell 59 and the S&P 500 was off 19.

MATHISEN:  The Fed got back in the equation today.

HERERA:  I know.  In a big way.

MATHISEN:  In a big way.

HERERA:  So, there might be volatility tomorrow as well.  Fasten those seat belts.

That does it for NIGHTLY BUSINESS REPORT tonight.  I’m Sue Herera.  Thanks for joining us.

MATHISEN:  And thanks from me as well.  I’m Tyler Mathisen.  Have a great evening, everybody.  We’ll see you back here tomorrow night.

END

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.

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