SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: On hold. The Federal Reserve may not have moved on interest rates but the central bank did say about where it sees the economy heading.
Profit problems. Why investors can add one more item to their list of things to worry about.
And, senior scams. Millions of older Americans fall victim to financial fraud. But there are things that you can do to protect yourself or those you love.
All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, June 15th.
Good evening, everyone. I’m Sue Herera. Tyler Mathisen is on assignment tonight.
The Federal Reserve stands pat. Not only does central bank unanimously decide not to raise interest rates but it also lowered its economic growth outlook. If growth is anemic, don’t expect as many interest rate increases. Not this year, not next and not even in 2018. That is a big shift in the central bank’s thinking since the Fed chair’s last news conference.
Hampton Pearson has more on what’s changed and what the Fed is saying now
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Halfway through 2016, Fed Chair Janet Yellen and her monetary policy advisers are still on hold when it comes to raising key short-term interest rates.
JANET YELLEN, FEDERAL RESERVE CHAIR: We really need to look at the data and pre specify a timetable. So I’m, you know, not comfortable to say it’s in the next meeting or two. But it could be. It could be.
PEARSON: The latest speed bump on the road the interest rate hikes, an anemic May jobs report. Part of a mixed economy in the eye of the Feds were the pace of job growth has slowed, while overall economic activity has picked up due in part to increased spending.
YELLEN: The market appears to have slowed down. And we need to assure ourselves that the underlying momentum in the economy has not diminished.
PEARSON: There is also concern about the future of European Union if Great Britain withdraws. The Brexit vote is just eight days away.
YELLEN: It could have consequences in turn for the U.S. economic outlook. It would be a factor in deciding on the appropriate path of policy.
PEARSON: The vote for today’s policy action was unanimous. With the odds increasing for just one rate hike this year. Policymakers are also lowering their long term trajectory for rate hikes as well. Leading economists now see a Fed that is losing touch with the real economy.
DAVID KELLY, JPMORGAN FUNDS CHIEF GLOBAL STRATEGIST: There is no excuse at a 4.7 percent unemployment rate to have a federal funds rate which is negative in real terms, and, just, you know, between 25 and 50 basis points. There’s no excuse for it.
BOB DOLL, NUVEEN ASSET MANAGEMENT CHIEF EQUITY STRATEGIST: The visibility of the jobs number earlier this month and the noise around Brexit I think causes them to wait yet again.
PEARSON: By the time of the next Fed meeting in late July, the Brexit vote will be history, and there will be another batch of date, including another jobs report, also on the table.
For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.
HERERA: Scott Minerd joins us now with more analysis on the Fed and the economy. He is global chief investment officer at Guggenheim Partners.
Good to see you again, Scott. Welcome back.
SCOTT MINERD, GUGGENHEIM PARTNERS CIO: Thank you, Sue.
HERERA: Let’s start with your thoughts on what the Fed did not do today. They did not move on rates obviously. And you think they’re going to be hard pressed to even more than one rate hike in.
MINERD: I think so.
You know, Sue, given the weakness we got in the last employment report, the Fed is going to want to see more than one monthly report of strength from here. So, given what’s going on, I think in July, they’re not going to have enough information. And that gets us to the September meeting.
Of course, when you get to September, that is historically a very rough month for financial markets. The Fed has shown us in the past when markets are volatile, they don’t like to move. So, I think the clock is running out and the calendar is working against them.
HERERA: You know, what I found interesting, and I’d love your thoughts on this is, is also their projections for rates. They basically saw a downward projection for rates, all the way out to 2018. That does sound like it bodes well for the economy.
MINERD: No, I don’t think so, Sue. I think the Fed has been, you know, very watchful of the employment market. They’ve also been keeping an eye on inflation.
And even with the unemployment rate at 4.7 percent, we’re not really seeing sharp uptick in inflation. And I think the Fed is wary that perhaps unemployment has to be much lower than it was today at 4.7 percent. So, I think the chairwoman was very clear that she wants to keep an eye on the data. I think it will take more than one or two strong months of strong growth to get the Fed to move.
HERERA: And the jobs numbers are complicated, are they not? Because you do have an enormous number of people who are the, quote/unquote, “discouraged workers” — those who have stopped looking for work, or dropped out of the workforce for various different reasons. Does that skew the data that the Fed has to deal with?
MINERD: It certainly does. One of the things the Fed has been looking for is an improvement in what they call the participation rate. That is to bring some workers back into the work. But in the last employment report we saw, the participation rates fell rather sharply.
And, you know, Dr. Yellen has been very clear in the past that bringing these workers back into the workforce is very important to her. And so, I think they’re going to try to see the participation rate rise from here. And that I think that’s going to take a substantial period of lower interest rates than where we are today.
HERERA: How important is the British vote next week? As to whether they stay or leave the U.K.? The European Union?
MINERD: Well, I think it’s very important, Sue. If the U.K. decides to leave Europe, it’s going to raise questions what other nations might want to leave Europe. And it is really going to bring a lot of discouragement to the ongoing existence of the euro.
So, if the U.K. were to vote the leave, I think we would get a lot of market volatility. And we would see European stock much lower. That would probably spill over into the United States.
HERERA: The other issue we were hearing a lot about today was whether or not the market has lost faith or whether the Fed has lost credibility in the market size. What do you think?
MINERD: Well, I think the market is beginning to realize that low interest rates are not a cure-all for the economy. And, you know, unless the Federal Reserve continues to maintain this policy going forward, it is making equity prices and other investments in the market vulnerable to a sudden shock. So I think that the Fed is in a trap at this point.
But any increase in interest rates in the United States will be looked to slow the U.S. economy. The Fed clearly doesn’t want to be doing that. And so, they’ve become a hostage of their own policy.
HERERA: On that note, Scott, thank you very much. Always a pleasure to speak to you.
MINERD: Thank you, Sue.
HERERA: Scott Minerd with Guggenheim Partners.
Well, stocks gave up their gains following the Fed chair’s news conference. The Dow Jones Industrial Average posting the first five-day losing streak since February. By the close, the blue chip index lost 34 points to 17,640, the NASDAQ fell 8, and the S&P 500 was off 3.
And inflation is on the Fed’s radar, and today, we learn that the prices firms received for good and services rose last month. The Labor Department reports a 0.4 percent increase in the producer price index. That was more than expected and its biggest gain since January. Most of the increase was due to higher energy prices. Inflation has been running below the Federal Reserves preferred 2 percent target.
The nation’s CEOs are turning more bullish investment. According to the business roundtable second quarter survey, more chief executives plan to increase capital expenditures this year. Thirty-seven percent of the CEOs of the country’s largest firms say they intend to spend more in the next six months, up from 34 percent in the first quarter. Eighteen percent say they plan to cut back, but that’s fewer than the 23 percent who cited a reduction in capital spending in the last survey.
An upturn in business investment is considered a positive for longer term economic growth because it improves productivity, wages and corporate profits. But there is, of course, one industry that will not be spending a lot. That is oil and gas business. A new report from consultant Wood McKenzie shows the industry could cut $1 trillion from expenditures on exploration and development. The reason is that long slump in prices.
Worldwide oil and gas production has fallen sharply since the drop in crude that began in 2014. As we mentioned earlier, Fed Chair Janet Yellen said one of the reasons they did not raise rates was because of the upcoming referendum in the U.K. But the rise of the movement to leave the United Kingdom has some similarities to the rise of Donald Trump and the political climate here.
Wilfred Frost explains.
WILFRED FROST, NIGHTLY BUSINESS REPORT CORRESPONDENT: Trump versus Brexit. There’d been lots of comparisons, not just because they shared crazy blond hair of the Donald and the Boris. Let’s dive into and explore the similarities first.
Number one stems from Donald and Boris, both have a straight talking nature and celebrity status that endears them to voters far more than other politicians. Second similarity, their supporters tend to be older, also part of smaller businesses or self-employed.
Third similarity, there’s a definite connection on immigration, albeit with some important nuance differences.
But I would argue, some crucial overall differences far outweigh those similarities.
First up, free trade. Trump opposes it and advocates measures. Brexit is meanwhile seek free trade just as much as the U.K.’s main camp does, just seek it in a different way.
Difference two, Trump’s rise stems from an annoyance with elected Washington political insiders, Brexit is about unelected Brussels outsiders. Brexit is about British sovereignty. Whereas American sovereignty is not in doubt, whether under Trump or Clinton as president.
Finally, Trump’s rise is new and recent. U.K. opposition to Europe however stems from before the first incarnation of the E.U. in 1951. There has even been an in-house referendum before in the U.K. in 1975 which was delivered by a labor government highlighting the extent and longevity of the anti-Europe debate in the U.K.
So, fun observations between the two, but in my eyes, no conclusions to draw for next week’s U.K. vote for the U.S. election.
For NIGHTLY BUSINESS REPORT, I’m Wilford Frost.
HERERA: From Brexit to interest rates, and now, a new concern for investors. Rapidly falling corporate expectations for the second quarter. According to S&P, analysts are looking for a 4.7 percent decline in profit growth for the second quarter. And that is a dramatic change from two months ago when earnings were expected to fall just 2.5 percent.
So, does this mean that the profit recession may not be over?
Let’s turn to Lindsey Bell, senior analyst at S&P Global Markets Intelligence for some answers.
Good to see you, Leslie.
LINDSEY BELL, S&P GLOBAL MARKETS INTELLIGENCE SR. ANALYST: Good to see you, Sue.
HERERA: Let’s start first of all with why this big change. What can you tell me?
BELL: Well, I think the big change that you’re discussing is really, it started at the beginning of the year. We saw global economic uncertainty, weaker than expected economic data here in the U.S., and we had an unseasonable weather. So, all that combined to make the perfect storm to cause analysts to cut their earnings estimates as the first quarter earnings began in April.
So, those numbers were slashed dramatically. So, the first quarter numbers came down by 9 percentage points which is huge. But when all was said and done about, which is about where we’re at right now, the numbers came only, only 2.5 percentage points better. Typically, or any given quarter, it comes in 4 to 4.5 percentage points better. So, that was kind of uninspiring.
And a decline of 5.4 for the first quarter is certainly weak, the third quarter in a row that we saw earnings decline. It is not a good thing. And management outlook for the second quarter in the remainder of the year remained subdued, even kind of provided downward, because this was so much uncertainty in the environment.
HERERA: So, let me just interrupt you. A hot of people thought we were in a profit recession that was ending, but it doesn’t sound at this point that that’s what’s happening.
BELL: Well, see, I’m not so sure that’s the case. The silver lining here is that the second quarter earnings growth, while it was supposed to decline 4.7 percent. That’s better than what we saw, the decline we saw in the first quarter of 5.4 percent. Consequentially, it is better.
For the three prior quarters, the earnings recession we thought would bottom in each of those quarters and it kept getting pushed out, kept getting pushed out. We are finally seeing that the first quarter seems to be a draw. If it remains that way, and the second quarter comes in better than the 5.4 percent decline, which it should as things currently stand, assuming the 4 percentage opponent rate. Then we can get a little more encouraged about the profit recession and finally beginning to see growth rates increase for the S&P 500 and third and fourth quarters.
HERERA: What does it mean for the economy overall though, Lindsey?
BELL: Well, I think it goes to show what your first guest talked about. This is a slow economic growth environment. And you can’t expect earnings growth to grow substantially higher than economic growth in this type of environment — a huge weight on the S&P 500 this quarter and then past four quarters. Where we’ve seen negative growth has been the energy sector and energy prices are finally starting to rebound. They’re up over $10. In the last two months.
I know we’ve stalled out here just below the $50 mark. But also we’re seeing currencies, the U.S. dollar, the strength in that has begun to weaken. These are all very good things for corporate profitability.
So, that will be a good thing going forward but again we’re in this uncertain environment. Still, we’ve got to see what happens with Brexit. That’s going to be really important, because that could pressure energy and the dollar all together, that is going to pressure earnings.
HERERA: Lindsey Bell with S&P Global Markets Intelligence — thank you, Lindsey.
BELL: Thank you.
HERERA: Still ahead, the brain drain at Viacom (NYSE:VIA). When it might stop and what the company is doing about it.
HERERA: Presumptive Democratic presidential nominee Hillary Clinton outline part of her economic plan to “USA Today”. In an interview, she said that if elected, she would use her executive action to end the tax loophole for wealthy Americans. Clinton said she would ask the Treasury Department to close the carried interest loophole which allows hedge fund managers to pay lower rate than other taxpayers by counting their income as investment income.
Sumner Redstone, the 93-year-old media mogul reportedly went to visit two of his companies recently, CBS (NYSE:CBS) and Viacom’s Paramount. According to “The Wall Street Journal”, Redstone stayed in his vehicle while he met with executives. The rare appearances coming during a heated legal battle between Redstone and Viacom (NYSE:VIA) CEO Philippe Dauman. Both are fighting for control of the company.
Meantime, Sumner Redstone’s daughter Shari reportedly met with the Alibaba founder Jack Ma about buying Paramount Pictures. As first reported by “The New York Post”, the two spoke last week and the talks come as Shari gets up to speed on the studio sale process, something currently being orchestrated by Viacom’s CEO Philippe Dauman.
And every twist and turn in the Viacom (NYSE:VIA) drama seems to come at the expense of morale at the company where executives are leaving at a rapid pace.
Julia Boorstin has more on the departure of Viacom’s top talent.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Morale at Viacom (NYSE:VIA) is miserable, say sources at the media giant. Under the cloud of a legal battle between Viacom’s controlling shareholder, Sumner Redstone, CEO Philippe Dauman. Plus, television ratings have been in decline and there has been a string of disappointments at Viacom (NYSE:VIA) Studio.
All of this uncertainty coinciding with a slew of high profile executive departures. Just this week, long-time MTV executive, head of reality TV, Lauren Dolgen, stepping down after 19 years. Earlier this month, Nickelodeon president Russell Hicks announcing his departure. And last month’s Comedy Central president Michele Ganeless.
MATTHEW HARRIGAN, WUNDERLICH SECURITIES: Viacom (NYSE:VIA) is really too much rotation on its executive ranks, including the networks and the creative side. I think you really need continuity. I think in the human relationships, both with people running the networks themselves, and creative talent on the air, are very important for media company.
BOORSTIN: With a ruling pending on Dauman’s lawsuit challenging his removal from Redstone’s trust, there’s no sign of upheaval in Viacom’s management ranks, slowing any time soon.
Viacom’s lead independent director Fred Salerno sending a letter to Sumner Redstone yesterday, imploring him to provide more transparency about his plan for the company and saying Redstone’s opposition to selling a stake in Paramount is not in shareholder’s best interests.
Viacom (NYSE:VIA) studio Paramount is under particular pressure because performance has been lagging. Recent Teenage Mutant Ninja Turtle sequel falling flat, putting the studio in fifth place for box office market share this year.
HARRIGAN: I think Paramount’s management is really on the seat. They had very uneven success. I mean, there is too much sequelitis, I think there’s too much tendency toward, you know, financial engineering.
BOORSTIN: With Dauman and Redstone battling over whether Paramount should remain wholly owned by Viacom (NYSE:VIA), an upheaval across the company, Harrigan predicts Dauman could be out of a job within nine months.
For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.
HERERA: Retailer Bad Bath & Beyond buys One Kings Lane, and that’s where we begin tonight’s “Market Focus”.
One Kings Lane which sells discount home decor on its website was once valued at a billion dollars in 2014. Today, the ecommerce company is likely worth a lot less. Bed, Bath and Beyond bought the company for an undisclosed amount but did say the purchase price was, quote, “not material.” Shares of Bed, Bath & Beyond only up a fraction on the news to $42.94.
Bank of America (NYSE:BAC) is cutting more jobs. Up to 8,000 positions are expected to be eliminated in the company’s consumer banking division with the majority coming from attrition. At the same time, Bank of America (NYSE:BAC) will be hiring in its sales unit. Shares up a tick to $13.34.
Shares of U.S. steel producer Nucor (NYSE:NUE) rose on better than expected guidance for the current quarter. The company said it expects to benefit from higher average selling prices and improved volumes. That sent shares up nearly 2 percent to $50.45.
Shares of Whole Foods were hit following news the Food and Drug Administration has sent a letter to the company saying it found serious violations in a Massachusetts plant during a February inspection. The organic grocer responded to the claims back in March saying it would address the issues. But the agency remains unconvinced and gave the company 15 days from the time they received that letter to provide proof of the corrections. Shares fell nearly 5 percent to $30.92.
Jabil Circuit (NYSE:JBL) which makes parts for iPhones top both profit and sales estimates. The electronics manufacturer also announced a $400 million share buyback. But shares fell after hours on weaker than expected forecasts for the current quarter and the full year. Shares finished the regular session down a fraction to $18.43.
Amsurg (NASDAQ:AMSG) which operates ambulatory surgery centers will merge with medical transportation provider Envision Healthcare, in a deal valuing the company at about $10 billion. Shares of Amsurg (NASDAQ:AMSG) rose in the extended session, while shares of Envision Healthcare fell on the trading day.
Coming up, what you can do to show the rise of financial abuse among the elderly?
HERERA: A milestone for the state of California. That state economy is now bigger than France’s, and the biggest, the sixth biggest in the world. That’s according to a newly released data. The most populous U.S. state has a gross domestic product of $2.5 trillion. Tech companies like Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) are helping drive the economy, along with a growing agricultural industry. Last year, California created the most jobs of any state.
A new study is forecasting a big hike next year in health insurance premiums under the Affordable Care Act. According to the Kaiser Family Foundation, premiums for the popular low cost plans are expected to rise an average of 10 percent in 2017. The impact for consumers will depend on whether they receive government subsidies.
Today is World Elder Abuse Awareness Day, shedding light on a common and often underreported problem. More than 5 million Americans are financially exploited by scammers, caregivers and sometimes even a family member every year.
Sharon Epperson is here now with some advice on what seniors can do to safeguard their finances and how their children may be able to help.
Good to see you as always, Sharon.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to be here, Sue.
HERERA: Not only is this a terrible situation for many elderly people but it is a costly one as well.
EPPERSON: It is very costly. You know, the 5 million victims that are expected to fall prey to financial abuse every year, that number could be much higher, 20 times higher when you consider that it often goes under reported. One report found one in every 44 cases — only 1 in 44 is ever reported. And when you talk about the cost of criminal, fraud and theft, financial exploitation and also abuse by caregivers and sometimes family members. We’re talking about $36.5 billion a year.
HERERA: Why is it underreported? Are people afraid on report it? Or maybe they’re embarrassed that they were scammed or something along those lines?
EPPERSON: I think shame has something to do with it. But one person who has prosecuted a lot of cases against scammers that have taken advantage of the elderly said another common occurrence is cognitive impairment, is dementia, is Alzheimer’s. And elderly being afraid to admit that they’re suffering from memory loss and family members not seeing the signs.
HERERA: Right. Or not wanting to see the signs because it’s such a difficult situation.
So, if that’s the case, what are some of the red flags that family members or caregivers or others should look for?
EPPERSON: One of the things also to keep in mind is financial services companies want to do something about this. It is difficult for them often to be able to share information they may see in terms of suspicious activity with family members, if they don’t have power of attorney or some reason to do so. So, you need to be as a family member, really diligent and looking at your elderly parent and seeing what’s happening in their home. Piled up notices from creditors, bills that have gone unpaid, boxes of things they purchased and you don’t know why they purchased them, big withdrawals from their accounts. Look at those as possible warnings that something is amiss.
HERERA: So, how do we protect them is that perhaps more importantly, how do we empower them to protect themselves?
EPPERSON: Well, they definitely need to be able to protect themselves. Another thing on keep in mind, they should look for some common scams with Medicare, because, of course, a lot of seniors are facing that. So, any time you get a call saying that Medicare is going to offer something for free and it doesn’t sound right, or you’ll get a knew car or give me your social security number, your medical number. That’s often a very common scam.
So, you want to be very wary of those scams. But the important thing family members can do is to have the talk. It is such a difficult conversation to have for many people, but it’s so important to do as soon as possible and find out how you can help your parents. Perhaps it is automating bill pay. Making sure you have oversight about that.
It may also be just making sure you are aware of the purchases they’re making. Where their documents are being kept and keep someone else if you need to in the loop, like financial adviser or tax professional, but make sure that you look over what they’re doing as well.
HERERA: All right. Sharon, always good advice.
EPPERSON: Sure. My pleasure.
HERERA: It’s great to have you here. Sharon Epperson.
And for more tips on how to protect older Americans from elder abuse, head to our website at NBR.com.
And that does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining me and have a great evening. We’ll see you right 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.