Transcript: Nightly Business Report – June 30, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR:  Halfway mark.  A turbulent
first half ends with big gains for stocks.  But as companies prepare to report earnings in coming                                                                             weeks, there`s a new issue to figure out.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  New scrutiny.  Auto safety
regulators investigating Tesla`s autopilot feature as the move towards
driverless cars gains traction.

MATHISEN:  Candy land.  Hershey`s rejects an offer from Mondelez in what
would have been one of the biggest deals of the year.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
June 30th.

HERERA:  Good evening, everyone, and welcome.

A big finish to a turbulent month, a blustery quarter and a wild first
half.  Stocks logged their third straight day of gains as investors
continue to believe that the fallout from the Brexit vote will be limited
and today`s buying picked up steam after Britain`s central bank said new
stimulus was likely this summer.  More on that in just a moment.

All of the major indexes rose more than 1 percent today.  The Dow Jones
Industrial Average gained 235 points to 17,929.  The NASDAQ added 63.  The
S&P 500 was up 28.  For the first half, the Dow and the S&P 500 posted
gains.  The NASDAQ fell.

But the final numbers for the first six months of 2016 don`t tell the whole
story and what a story it was.

(BEGIN VIDEOTAPE)

HERERA:  January 2016, it was the worst start of the year for stocks ever.
In just ten trading days, the S&P 500 erased nearly $1.5 trillion in market
value.  February 2016, the selling intensified.  The major stock indices
hit multi-year lows.  Oil prices cratered and gold prices took off.

By March, things start to turn.  Global uncertainty seemed to fade.  Stocks
rose along with the price of oil and the market hit new highs for the year.
That climb continued through April and May.

Then came June.  The Federal Reserve, which had been on track to rays
interest rates did not because of the risk of a possible vote by the U.K.
to leave the E.U., which it did to the surprise of many, and global stocks
were rocked, losing a record $3 trillion over just a two-day period.

But now, in just the past three days, the market has once again stabilized,
ending the quarter not far from where it started.

(END VIDEOTAPE)

MATHISEN:  Those gains for the Dow could bode well for the second half of
the year.  Only three times since 1950 has the Dow finished the year with a
loss after being higher during the first six months of the year.  But with
the quarter now in the book, the next test for the market will be earnings.
And one big question is what impact, if any, the Brexit will have on the
earnings of U.S. companies.

Bob Pisani has more.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  We don`t know if the
Brexit will have a long-term impact on the economy.  The global economy in
particular, like China`s currency devaluation in August, remember that, or
like the big drop in oil prices earlier this year?  But the worry is that
it may torpedo any chance of a return to positive earnings growth for the
S&P 500 for the year.

You know, we`ve already had five straight quarters of negative earnings
growth for U.S. stocks.  You could call it an earnings recession, and
although the street was expecting earnings to turn positive in the third
and fourth quarters of this year, this Brexit thing could throw a monkey
wrench into all those calculations.

There`s two problems.  First, there`s the threat of a stronger dollar.
That`s really bad news for material stocks, for energy stocks and
technology stocks.  They all do a lot of business overseas.

Second is the whole issue of lower rates for longer.  You`ve heard that
phrase before.  That`s really bad news for big banks.

The banks were expected to have higher earnings later this year, partly on
higher rates and partly on an improving global economy.  This Brexit makes
that more unlikely.

The markets have been rising in the last few days and some have been
speculating on the impact on the U.S. and that the impact in the Brexit
would be limited.  But once earnings season starts in a couple of weeks,
you`ll certainly hear more about the macro fallout from this Brexit.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

HERERA:  So, let`s turn to Anastasia Amorosa for more on this market.
She`s global market strategist to J.P. Morgan Funds and she is bullish on
the markets.

Good to see you, Anastasia.  Welcome back.

ANASTASIA AMOROSA, J.P. MORGAN FUNDS GLOBAL MARKET STRATEGIST:  Thank you,
Sue.

HERERA:  Let`s start, first of all, with — you know, I was kind of
impressed with the way the market rallied back this week, given the way it
looked Sunday night going into Monday morning.

Is that one of the reasons that you feel as though there`s more room for
stocks to run?

AMOROSA:  Actually, that is exactly not the reason why I feel that way
because I — the way I feel about Brexit I think what`s playing out in the
markets right now is a relief rally, and it`s the initial relief from the
shock that we got last week which was the vote to exit the European Union.

However, I do think that as we progress through the second half of the
year, the reality, the Brexit reality may set in, and the reality may be
that they will start to see incrementally slower data, so it`s not that the
market is shaking off Brexit.  That`s the reason I feel bullish, but I do
feel bullish for two reasons.  The first one of them is South Korea that
you alluded to, and that is earnings are set to rebound and we`ll get news
on that in the next few weeks, and the second point is the Fed by delaying
rate increases may actually be doing this economy and, therefore, this
market a great service.

HERERA:  So, Anastasia, you think that the earnings, I guess what I`m
hearing you say, is that the comparisons year over year are going to get
better, that`s number one.  And number two, that the actual performance is
going to get better and that maybe we hit the trough in earnings last
quarter?

AMOROSA:  Yes, that`s right, so if you look at year over year estimates we
think that the second quarter is going to be much better than the first,
and the first quarter that we now have in the rearview mirror has marked
the trough in earnings.

The other reason that I look to earns is as you move through the year,
we`ve got to start paying more and more attention not to each quarter but
the full 2017 year earnings estimate and if you look at 2017 year earnings
estimates, they are actually quite optimistic.  They are forecasting a rise
of about 14 percent.

Now, having said that, that probably is too optimistic of a number, but if
we get something even modestly close to that, that`s good news for stocks.

HERERA:  So, where do you put money to work in this market if indeed your
thesis about where we`re headed is correct?

AMOROSA:  Yes.  I do have to say that even though the U.S. is a safer place
than some of the other places around the world, I do think that investors
need to be quite selective within the stock market because you`ve alluded
to financials having a hard time.  We may have mentioned in emerging
markets.  They have been moving with the U.S. dollar.

So, it`s very easy for investors to get whipsawed in the range bound but
trending higher market so what I would do is quite simple.  I would look
for stable income, and the good news for investors is that this does not
just mean in U.S. stocks.  It could mean in U.K. stocks that have been
beaten up but they do actually offer a dividend.

But the thing that I would look to most is corporate bonds.  Corporate
bonds, if the Fed is now going to raise rates, and if we get a no recession
economy, corporate bonds could very well be a sweet spot in this market.

HERERA:  OK.  Anastasia, thank you so much.

AMOROSA:  Thank you.

HERERA:  Anastasia Amorosa with J.P. Morgan Funds.

MATHISEN:  As we reported earlier, stocks did move higher today after the
governor of the Bank of England said that an interest rate cut is likely
over the summer, and while the stock markets stabilizes here, the situation
in the U.K. is anything but stable.

Wilfred Frost reports on the twists and turns from London.

(BEGIN VIDEOTAPE)

WILFRED FROST, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A week is a long
time in politics.  Just six days ago, former London Mayor Boris Johnson
oversaw an extraordinary victory as the leave camp won the Brexit
referendum.  Many people thought that would sweep him to power and make him
the next U.K. prime minister.

However, this morning he surprised everyone.  Speaking on the topic of who
could be the next prime minister, he had this to say.

BORIS JOHNSON, FORMER LONDON MAYOR:  My friends, you who have waited
faithfully for the punch line of this speech, that having consulted
colleagues and in view of the circumstances in parliament, I have concluded
that person cannot be me.

FROST:  So Boris Johnson not a contender, but there are five candidates now
to be the leader of the Conservative Party, and with it, the next U.K.
prime minister.  The favorite is the home secretary, Theresa May.  She had
this to say.

THERESA MAY, UK HOME SECRETARY:  Brexit means Brexit.  The campaign was
fought.  The vote was held.  Turnout was high, and the public gave their
verdict.

There must be no attempts to remain inside the E.U.  No attempts to rejoin
it through the back door and no second referendum.  There should be no
general election until 2020.

FROST:  An important message from someone who had campaigned for remain.
It seems inevitable now that the U.K. is on its path to a Brexit.

The other news in London comes from the Bank of England.  The governor
suggesting there may be need for further cut in interest rates in response
to the Brexit outcome.

MARK CARNEY, BANK OF ENGLAND GOVERNOR:  In my view, and I`m not pre-judging
the views of other independent members of the MPC.  The economic outlook
has deteriorated, and some monetary policy easing will likely be required
over the summer.

FROST:  In response to those comments, the pound fell over 1 percent.

For NIGHTLY BUSINESS REPORT, outside of the Bank of England in London, I`m
Wilfred Frost.

(END VIDEOTAPE)

HERERA:  Back here at home, the president of the St. Louis Fed is expecting
lower economic growth but not a recession.  He was actually giving a speech
in London, but James Bullard reiterated comments that his long-term
projection for the U.S. economy is uncertain despite low unemployment and
inflation.

MATHISEN:  And to the economy we go now.  The number of Americans filing
unemployment benefit claims rose last week by 10,000 to a seasonally
adjusted 268,000.  Despite the rise, jobless claims remain well below the
level associated with a faltering labor market.

HERERA:  Lionsgate Entertainment has agreed to acquire the premium cable
network Starz for more than $4 billion.  The deal had been speculated about
for months and it strengthens Lionsgate control of key distribution
channel.  Lionsgate is the studio behind “The Hunger Games” and Netflix
(NASDAQ:NFLX) TV series “Orange is the New Black.”

Media mogul John Malone has interest in both companies.  The move is part
of his plan to consolidate small entertainment companies.  Shares of Starz
rose, while shares of Lionsgate fell.

MATHISEN:  And speaking of hunger, Hershey`s rejects a takeover offer from
the maker of Oreos.  Mondelez had proposed a tie-up that would bring
together popular candy brands to create the world`s largest confectioner.
Shares of both companies soared on the initial report of the bid and they
stayed higher after Hershey`s rejection.

David Faber tells us what might happen next.

(BEGIN VIDEOTAPE)

DAVID FABER, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It`s enough to make
you want to have some Hershey`s Kisses, a day filled with ups and downs.
Mondelez making a $107 a share cash and stock bid for Hershey and being
soundly rejected later in the day.  The Hershey board saying it doesn`t
even see the reason for further discussions given at least that price.

This following months of discussions as we reported between the two
companies culminating in that offer made last week to Hershey`s board of
directors by Mondelez.  What now?  Well, Mondelez thought or at least hoped
it would get to the board of directors, perhaps even get their approval and
then move on to the all-important Hershey Trust which controls 80 percent
of the voting shares of Hershey.

In fact, they made allowances for just that, hoping that by saying we would
call the company Hershey.  We would headquarter our global chocolates
business in Hershey, Pennsylvania, and not eliminate manufacturing jobs
they would get the approval of the trust and so far they have gotten the
approval of nothing.

The board soundly rejecting that offer.  We will see where the Mondelez
chooses to come back with another offer at this point or whether another
suitor for Hershey should appear on the Verizon (NYSE:VZ).

For NBR, I`m David Faber.

(END VIDEOTAPE)

HERERA:  Still ahead, Tesla under scrutiny and now, so maybe the movement
towards driverless cars more broadly.

(MUSIC)

HERERA:  Rental car company Hertz is now offering special rental rights to
Uber and Lyft drivers.  The move is designed to give traditional rental car
company a bigger presence in the ride-sharing industry.  Hertz is also
hoping it can derive more revenue from its older vehicles which are located
in cities throughout the country.  That agreement sent shares of Hertz
higher in today`s trading session.

MATHISEN:  A highly unusual warning from the secretary of transportation
for owners of older Honda vehicles.  Anthony Foxx tells more than 300,000
owners to stop driving their cars immediately because of a much higher risk
of their Takata air bags rupturing during a crash.

He calls the following vehicles unsafe and in need of immediate repair.  Do
not drive.  The 2001 and `02 Civic and Accord, 2002 and `03 Acura TL.  The
2002 Honda CR-V and Odyssey and the 2003 Acura CL and Honda Pilot.

HERERA:  BMW is reportedly set to announce an alliance with two tech.
According to “The Wall Street Journal”, the automaker will team up with
computer chip-maker Intel (NASDAQ:INTC) and collision detection specialist
Mobileye.  The goal is to give driverless cars better reflexes without
driver input.

MATHISEN:  As automakers in Silicon Valley move towards those driverless
cars, today safety regulators opened a preliminary investigation into
25,000 Tesla Model S cars, this after a fatal crash involving the, quote,
“autopilot mode”.

Phil LeBeau is following the story for us.

Phil, what are the details of this investigation?  What happened?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, it`s focused on
the autopilot system and whether or not it failed to do its job in an
accident that happened on May 7th on a highway in Florida.

Let me set the scene for you.  The Tesla Model S which was in autopilot
mode was going down the highway.  A perpendicular highway had a truck on
it, a tractor trailer that then turned in front of the Model S.  The
tractor trailer turned in front.  The Model S ran into it.  That`s when the
driver of the Model S was killed.

And, again, the probe is focusing on the design and the performance of the
autopilot system.  Basically the radar, the cameras, the sensors in the
vehicle that are supposed to alert you if you need to slow down, if you`re
going to hit an object, if you can`t lane changer because another vehicle
is there.

Tesla released a statement saying neither autopilot nor the driver noticed
the white side of the tractor trailer against the brightly lit sky so the
brake was not applied.

So, what happens next?  Investigators will take a look at the black box, if
you will, the data recorder within the vehicle.  They will see if they can
get a better sense of what exactly happened in this accident.  And was this
a failure of the autopilot system or were there unique circumstances here?
We`re a long ways from knowing exactly what happened.

HERERA:  Absolutely.  There`s also a new survey that kind of dovetails with
this, Phil, that shows more Americans want tech companies to build the
driverless cars as opposed to automakers.

How do you think this Tesla investigation might or might not change that
perception?

LEBEAU:  Depends on what they find.  If they find a system that completely
failed, that might make people think twice about this type of technology.
If they come back and say, look, unique circumstances here, the system did
not fail.  It did its job but there was — the car was going too fast,
whatever it might be, that would have a completely different spin with the
public.

Make no mistake, Sue.  Survey after survey after survey shows the public
overwhelmingly wants self-driving cars and we knew this day was coming when
there would be a type of accident, a fatality involving one of the systems.
The question now is, does it dampen the enthusiasm the public has for self-
driving cars?

MATHISEN:  Going to be a fascinating story over the next four or five or
ten years.

Phil LeBeau in Chicago — thank you very much.

LEBEAU:  You bet.

HERERA:  Darden Restaurant sees its profit rise but its outlook worries
Wall Street.  That`s where we begin tonight`s “Market Focus”.

The owner of Olive Garden said the uncertainties about the food industry
prompted the company to offer a lower than expected full year guidance.
The company also hiked its quarterly dividend 12 percent to 56 cents a
share.  The shares fell nearly 4 percent to $63.34.

Memorial Day beer sales and recent acquisitions helped lift to results at
Constellation Brands (NYSE:STZ).  The owner of Corona and Modelo beer
reported better than expected results with both profit and revenue rising.
The company also reaffirmed its earnings guidance for the year.  Shares
were up 3.5 percent to $165.35.

Conagra Foods saw its results fall 44 percent, but results were still good
enough to meet street estimates.  Overall revenue however didn`t fare quite
as well.  The company reported worse than expected sales as higher prices
on some frozen products weakened demand.  The shares were up just a tick to
47.81.

MATHISEN:  And profits jump 11 percent at McCormick (NYSE:MKC).  Results
were better than expected, thanks to the spice maker`s recent acquisitions
and some cost-cutting.  It took a pinch out here and there.  Revenue fell
in line with street target.  Shares spiced up nearly 4 percent, I had to,
to $106.67.

A U.S. Appeals Court has overturned a more than $7 billion antitrust
settlement that credit card companies Visa (NYSE:V) and MasterCard
(NYSE:MA) had reached with retailers regarding high credit card fees.
Today, the court ruled that the merchants involved in the settlement were,
quote, “inadequately represented”.  Both Visa (NYSE:V) and MasterCard
(NYSE:MA) now reviewing the decision.  Shares of Visa (NYSE:V) down 3
percent on this up day at $74.17.  MasterCard (NYSE:MA) off 4 percent at
$88.06.

And Micron, which makes memory chips, reported a nearly 25 percent decline
in quarterly revenue as low demand for personal computers weighed on
results.  The company also forecast a loss for the current quarter.
Analysts were anticipating a profit of three cents.

In addition, Micron says it`s going to slash jobs worldwide as it tries to
cut costs.  Shares of micron down nearly 9 percent after the bell, but they
finished the regular session up 4 percent to $13.76.  Watch them tomorrow.

HERERA:  As the markets try and recover from the post-Brexit selloff, there
is one sector that investors may want to consider.

Susan Li shines the sector spotlight on industrials.

(BEGIN VIDEOTAPE)

SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Transport, construction,
heavy machinery-makers and aerospace, just some of the businesses that make
up the industrial sector widely regarded as a proxy to the U.S. economy
given the wide use of the goods and services the companies provide.

So, how do they perform when there`s a global market shot like the one we
just experienced with the U.K. Brexit vote.  Historically when there`s been
volatility in the global markets like in the 2008 U.S. global financial
crisis or the 2010 Greek debt crisis, industrials, while still down, not
down as much as the overall markets, and a few names even managed to make
money for shareholders.  GE, Quanta Services (NYSE:PWR) and Stericycle
(NASDAQ:SRCL), which is a waste management company, have continued to trade
higher 100 percent of the time.

ANDY KAPLOWITZ, CITI SR. RESEARCH ANALYST:  Post-Brexit I guess I would say
we didn`t need another sort of shock on the system, but we still feel like
we have relatively easy comparables as we go into the second half of the
year, and generally speaking, we do see some growth in the greater
industrial space.

LI:  So, will the upcoming U.S. presidential election bring more
uncertainty to the financial system and the industrials in particular?  Not
necessarily.  History shows us that in the five months leading up to
election day, excluding 2008 when the U.S. stock market was in turmoil, the
S&P 500 was up 2.5 percent, but the industrial sector was up by over 6
percent, far outperforming the overall market.

The top industrial stocks were Kansas City Rail, General Dynamics
(NYSE:GD), Raytheon (NYSE:RTN), Union Pacific (NYSE:UNP), FedEx (NYSE:FDX)
and Citi recommends sticking with larger cap companies.

KAPLOWITZ:  We like things like GE, Honeywell, 3M (NYSE:MMM), and we like
these names because their diversification should help in a relatively slow-
growth world with a good amount of uncertainty.

LI:  And with all this uncertainty, the Federal Reserve looks to be holding
on interest rates for the rest of 2016 which, again, is a boost for
industrial shares.

For NIGHTLY BUSINESS REPORT, I`m Susan Li.

(END VIDEOTAPE)

MATHISEN:  Coming up, investing in the red hot rental market.  There`s a
new way for some to do it regardless of your income.

(MUSIC)

HERERA:  Here`s a look at what to watch for tomorrow.  The big automakers
will release their sales figures for the month of June.  We`ll get a new
read on the struggling manufacturing sector as well as construction
spending for May.  Puerto Rico`s $2 billion debt payment is due.  The
commonwealth is expected to default on a large portion of it, and that is
what to watch for, for Friday.

MATHISEN:  Mortgage rates hit a three-year low.  Freddie Mac says the
average rate now on a 30-year fixed is, believe it or not, 3.48 percent,
down from the prior week.  Benchmark treasury yields tumbled in response to
Britain`s vote to leave the European Union and mortgage rates followed.

HERERA:  What if I told you could get a mortgage or even several mortgages
without even having a job?  Well, if you`re an investor, it`s now possible.
A new loan product from one of the nation`s largest private equity firms is
betting on the red hot rental market and doling out cash to investors
regardless of income.

Diana Olick explains how it works.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  During the housing
crash, this Florida home was headed for foreclosure but investor Brian
Russo put down the cash and turned it into a profitable rental.

Now, it`s worth nearly twice its former value, but Russo couldn`t
capitalize on that.

BRIAN RUSSO, REAL ESTATE INVESTOR:  There weren`t a lot of opportunities
for us to pull that cash out of these properties and using leverage to get
into additional properties.

OLICK:  Until now.  B2R, a Blackstone-owned company, recently launched a
new mortgage product for investors based largely on the rental income of
the property, up to $750,000 per property.

Here`s how it works.  You need a minimum 20 percent equity in the home for
purchase or 25 percent on a refi.  Then, the rent on that home has to be 33
percent higher than your costs which include principal payments, interest,
insurance and taxes.

You also need a minimum 680 FICO credit score.  Mortgage broker Matt Weaver
says it`s just that simple.

MATT WEAVER, FINANCE OF AMERICA MORTGAGE:  It goes solely off the rental
income of the property and not the actual borrower`s income, which if you
think about it it`s as an investor, it`s common sense lending.

OLICK:  This is a 30-year fixed product, and there are pre-payment
penalties.  So it`s more for those who buy and hold like Russo did with
these homes, not really for flippers.  The interest rate will be about 6
percent to 8 percent, depending on the loan, but commercial investor loans
today can be twice that and far more restrictive.

WEAVER:   This product right here really fills a void for the real estate
investor.  It`s going to allow them to purchase more property.

OLICK:  Weaver says there has been strong demand.  The vast majority from
investors who already own several homes they bought with cash.

RUSSO:  Looking at my portfolio with approximately $6 million in value
between myself and my partners, if we were to refinance all of those
properties using the B2R product, we potentially could be sitting on $4
million in equity that could be reinvested in another product.

OLICK:  Russo says he thinks he can turn his $6 million rental portfolio
into a $20 million one.

As for risk, should rents suddenly fall, that`s what the 33 percent cushion
is for.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA:  And to read more about loans for investors in rental homes, head
to our website, NBR.com.

MATHISEN:  And finally tonight, talk about bad timing.  The world`s largest
uncut diamond was put up for auction in London just days after the U.K.
voted to leave the E.U., which marked a sharp decline in the value of the
British pound and sort of lack of confidence as well.

Guess what happened?  The diamond failed to sell.  The highest bid for the
1,100 carat stone was $61 million.  That was below the minimum reserve
price.  Sotheby`s thought the diamond would sell for $70 million.

HERERA:  Yes, that is bad timing.

MATHISEN:  Size of a tennis ball, they say.

HERERA:  Yes, it is.  Yes.

MATHISEN:  Whoa!

HERERA:  I took a good look at that diamond.

That`s NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks for
watching.

MATHISEN:  I`m Tyler Mathisen.  Have a great evening, everybody.

END

Nightly Business Report transcripts and video are available on-line post
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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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