Transcript: Nightly Business Report – July 29, 2016

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

growth of the winter extended in the spring, raising new concerns about the health of the U.S. economy.

sharply at two of the world`s largest oil producers as low crude prices
challenge big oil.

MATHISEN: Big promise? Is the much hype smart home not so smart after

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, July 29th.

HERERA: Good evening, everyone, and welcome.

The S&P 500 hit an intraday high, but closes just shy of one. When it
comes to the economy, there was no spring revival. The economy expanded
much less than forecast in the second quarter, surprising investors who
were expecting a pick up following the weak start to the year.

The Commerce Department reported a 1.2 percent rise in gross domestic
product. The broadest measure of goods and services produced in the
nation. Estimates were for an increase of 2.6 percent and growth for the
first quarter was revised lower, raising questions about the pace of the 7-
year-old economic recovery and what the Fed might do next.

Steve Liesman has our story.


summer, Washington got a blast of cold economic air on the economy. The
government reported tepid growth in the second quarter of just 1.2 percent,
more than half of what economists expected. The report showed the prior
two quarters were weaker than originally thought and it raised worries that
the economy could be slowing down. Curiously, consumer spending did well
with business investments that kept growth down.

BRICKLIN DWYER, BNP PARIBAS: Consumers are the economy. That`s the piece
that matters. That`s reflective of strong payrolls and fairly resilient
wages. So, that`s the piece that matters. That business investment
component, you know, companies continue to give money back to shareholders,
vis-a-vis share buybacks or dividends or whatever. They`re not willing to
make that investment and that trend hasn`t changed.

LIESMAN: Business investment has now declined for three quarters and some
believe it only gets worse from here, as concern about Britain`s leaving
the European Union and the U.S. presidential elections could keep CEOs from
green-lighting tech and equipment spending.

But some economists point to a sharp decline in inventory, as a reason for
optimism. They say companies aren`t likely to keep destocking their
shelves at the rate of the second quarter. So, inventory building could
help future growth. They also believe government spending growth will help
rebound. The weak growth seems to rule out additional tightening from the
Federal Reserve.

going to play some 50 percent and the Fed is going to move a quarter point
in December, but I think in so much as international factors, Brexit,
what`s happening the Bank of Japan. So, I think the Fed is going to be
more cautious.

LIESMAN: A word of caution. GDP reports are subject to sometimes large
revisions. Actual growth numbers could be revised to be as little as zero
or as much as 2.5 percent, but for now, investors have only the current
number, showing they have to think more about a weaker 1 percent economy
than a 2 percent economy.



MATHISEN: So, what does today`s GDP report suggest about the health of the

Jim Cahn is chief investment officer with Wealth Enhancement Group and he
joins us now.

Jim, welcome. Good to have you with us.

Does today`s number which is probably I would characterize it as worrisome,
suggest that the economy is dangerously close to slipping into negative
territory or that monetary policy, the Fed, low interest rates have lost
their power to do anything?

JIM CAHN, WEALTH ENHANCEMENT GROUP CIO: Well, let`s be honest. Today`s
report was clearly disappointing. Growth that`s up 2 percent. In this
economy right now is very disappointing to see. But if we look at the
underlying factors, the underlying factors related to business investment,
and the second quarter has some very unique characteristics, especially
around the Brexit decision.

I think if you look at the markets now, it`s almost like Brexit never
happened, but if you were a CEO sitting there in early June making a
decision about whether or not to build a plant, invest in more
productivity, whatever it might be that ewe need to grow your business,
Brexit weighed on your mind and you didn`t make that decision.

Now, on the flip side, you might say, look, are we reaching stall speed?
Is this the speed at which the economy is going to turn around and plunge a
recession? And I think that the data would point to the fact that this is

And if you look at consumer spending, consumer spending was up 4 percent,
which means that the consumers are starting to feel the benefit of lower
unemployment. Unemployment in this country is up 4.7 percent. They`re
starting to feel the benefit of some wage growth. It`s tepid, but it`s
starting to pick up. And people are feeling a little bit better about

HERERA: So, what do we do then with this report? Is it like the fluke in
the unemployment figures we got earlier this year? Do you put that aside,
given what you just laid out with Brexit? Do we ignore this report and
wait and see for other evidence of economic expansion?

CAHN: Well, I wish it was it was that easy. I think the first thing we
need to do is reset sort of what are our expectations are for GDP growth?

So, if you talk to most economists, they`ll say that GDP should go about 3
percent in the U.S. That`s what`s going historically.

But if you look at the decade in 1995 and 2005, new workers entering the
workforce grew about 2.1 percent per year. Over the last decade, we`ve
only seen workers entering the growth workforce at 0.5 percent a year.
Which means that productivity in order to get back to that 3 percent number
has to increase by 1.5 percent a year.

So, my — if I look at the productivity growth, if you look at new workers
entering the workforce, I think we should really be happy if we get this
economy growing at 2.6 percent. I think we have to look forward to the
third quarter and ask if the inventory burn off in the second quarter was
sufficient and if we get enough clarity around geopolitical issues, and we
don`t see a pick up, we should worry.

MATHISEN: All right.

CAHN: If we do see a pick, then I think we`re probably on a pace for
continued strong growth.

MATHISEN: All right, Jim, thank you very much. Jim Cahn is chief
investment officer with Wealth Enhancement Group.

And later in the program, given the strong consumer spending component of
the GDP report, our market monitor has some consumer-related stock picks to
make you wealthier.

HERERA: Speaking of the consumer, consumer sentiment fell slightly this
month. The University of Michigan`s index for July shows that higher
earning Americans see Britain`s exit from the European Union as cause for
concern. The report noted that global uncertainties as well as the
presidential election will keep some consumers cautious.

MATHISEN: On this last trading day of July, the Dow posted its sixth
consecutive month of gains. But for the day, stocks like the economy
didn`t move much.

Here are the closing numbers. Blue chip Dow index off 24 at 18,432.
NASDAQ, however, rose 7 points to its highest level this year, and the 500
was up three just and that was just shy of a record. For the month, NASDAQ
was the big winner of more than 6 percent, as you see there.

But recently, stocks have been trading in a narrow range. And as Bob
Pisani reports, August has the potential to shake things up.


Now, here`s the bad news. August is traditionally poor for the stock
market. In fact, it`s the worst month for the S&P since 1987. While it`s
traditionally a poor month, it`s usually on light volume and low volatility
unless there`s a crisis. There was one, August 24th last year when the
Chinese devalued their currency. There was one in August 2011 when the
Greek government debt crisis happened.

Then, there`s the election, which is a real wild card. First, as an
unconventional candidate in the form of Donald Trump, and there`s a little
history problem. There`s no incumbent running. According to Merrill
Lynch, since 1928, the S&P has dropped in average of 2.8 percent in
presidential election years that don`t include an incumbent seeking re-
election. But in years when the sitting president is up for reelection,
the S&P has average returns of 12.6 percent.

Now, why is that? The theory is that incumbents tend to obsess over
economic issues and promote market friendly policies, according to Merrill.

All right. Is there any good news here? Well, actually, there is. A lot
of these old trader salts (ph) are not working. So, take “Sell in May, and
go away”. Remember that? That`s not working again this year. The S&P is
up 5 percent since the start to have May.

Maybe August will be a winner, after all.

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


HERERA: New cancer and hepatitis treatments helped Dow component Merck
(NYSE:MRK) post an unexpected increase in second quarter revenue. Merck
(NYSE:MRK) has been trying to grow sales with new medicines after several
years of declines, offsetting a loss of some of its treatments to generic
competition. Earnings and revenue both topped Wall Street expectations and
shares managed to finish the session up slightly.

MATHISEN: Oil prices steady today after a week long selloff. Domestic
crude settled up today, about 1 percent, but for the month, it`s been a bad
one. Crude is down sharply 17 percent.

It is those low oil prices that are hurting big oil. ExxonMobil (NYSE:XOM)
and Chevron (NYSE:CVX) reported results that were below expectations. In
fact, ExxonMobil (NYSE:XOM) reported its smallest profit since `99. shares
of Exxon fell, while Chevron (NYSE:CVX) rose.

Jackie DeAngelis has more on big oil`s big miss.


for ExxonMobil (NYSE:XOM) and other energy companies this quarter was
international growth and continued low commodity prices, even though crude
got a slight bounce in the second quarter.

CEO Rex Tillerson said the industry environment is volatile and the company
is focusing on cost control. Refining did help the bottom line, even
though margins were squeezed and the company will maintain its dividend of
75 cents a share. Chevron (NYSE:CVX) earnings were a few cents better than
expectations, but there were some impairments that impacted the bottom

Also, a dividend darling, the company maintained its payout of more than a

But the energy majors have been cautious, signaling a challenging road
ahead and that view is more cautious than the rest of the street.

last year fourth quarter and this year, first quarter, where demand
basically fell off a cliff. And oil wasn`t being used.

Oil`s a very seasonal market. Once it ends, demand drives up. If you
continue with the supply the way it is, you`re going to see prices trade
into the lower $30s.

DEANGELIS: Meantime, cost cuts are generally a positive in challenging
times, but there comes a point where only so much can be done, and analysts
are also questioning how sustainable dividends are. Cash flow is tight and
oil prices look like they`re taking another dip down. The immediate future
appears to be murky for the energy industry, with crude prices falling into
a technical bear market territory, meaning they`re down 20 percent from
their June high, there could be a rough road ahead.

Reporting from the NYMEX, I`m Jackie DeAngelis.


HERERA: Still ahead, some of the hottest stocks of the sizzling summer.


HERERA: The computer network of Hillary Clinton`s campaign was reportedly
hacked. According to “Reuters”, this is part of a broad cyber attack on
Democratic political organizations. It also follows two other hacks, one
on the Democratic fundraising committee for candidates for the House of
Representatives, and the other, the Democratic National Committee.

The tech sector led the market this week, and this month, making technology
the hottest group of the summer season so far.

Landon Dowdy tells us which stocks are sizzling.


traditionally time for investors to set it and forget it when it comes to
portfolio management. But there are some stocks that sizzled during the
summer month, specifically in the tech sector. Out of the ten sectors in
the S&P 500, tech is up the most since the summer solstice, jumping 8
percent. It`s been a top performing summer sector for the past six years,
but on average, tech lands in fourth place on the list of the ten sectors.

So, what specific stocks are sizzling? Seagate is up more than 40 percent
this summer. Thanks to positive guidance earlier this month on the heels
of a restructuring plan.

Linear Technology (NASDAQ:LLTC) and eBay (NASDAQ:EBAY) both up 31 percent
this summer. Linear stocks have turned around this year after the firm
received a bid from Analogue Devices for about $15 billion. And as for
eBay (NASDAQ:EBAY), the e-commerce company reporting earnings last week of
very positive same store sales and solid full year guidance, which has
helped to push that stocks higher. And after strong results from Amazon
(NASDAQ:AMZN), Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG), the sector
may get even hotter.



HERERA: Higher deliveries lift revenue at UPS, and that is where we begin
tonight`s “Market Focus”.

The world`s largest package delivery company beat sales expectations in its
later quarter, while profit also rose and matched estimates. The company
also reiterated its earnings guidance for the full year. Shares of UPS
fell fractionally though to $108.10.

Profit was cut in half at Phillips 66. The energy company said a gas glut
impacted the company`s refining margins, but earnings still managed to beat
expectations. Revenue also fell, but it came in shy of estimates. Shares
were down 19 cents to $76.06.

Strong demand for trucks and SUVs helped lift sales at AutoNation
(NYSE:AN), but that still wasn`t enough to beat estimates. The auto
retailer did however report profit that was better than expected. So,
shares were up more than 2 percent to $53.35.

Cigna is lowering its full year outlook as the health insurer posted
profits for the quarter below expectations. The company cited weakness in
its group disability and life division. But revenue did rise, and that
beat estimates. Cigna shares fell, though, 5 percent to $128.96.

Currency headwinds and weaker sales dragged down profit and revenue at
Bloomin Brands. The parent company of Outback Steakhouse did manage to
beat earnings targets however, although its revenue did come in a little
light. The company also issued guidance for the year that was below
forecast. Shares down 97 cents to $17.98.

Board of directors for the beer maker SAB Miller said it will recommend
shareholders approve the sweetened takeover offer from rival Anheuser-Busch
InBev. The revised bid, which we reported on earlier this week was for
more than $100 billion. Shares up 2 percent to $129.44 of Anheuser-Busch.

Shares of Series Therapeutics plunged today after the biotech company said
its drug intended to treat an intestinal disorder failed a test trial. The
company said it will work with the Food and Drug Administration to make
modifications to the treatment. Shares down 69 percent to $10.94.

And several private equity firms may be exploring a buyout of information
technology company Hewlett-Packard (NYSE:HPQ) Enterprise. This according
to the website, The Information. A potential deal could be worth more than
$40 billion. Hewlett-Packard (NYSE:HPQ) declined to comment, but shares
did rise 3 percent to $21.02.

HERERA: And now to our market monitor who likes stocks that he says should
benefit from rising consumer spending. When he was on in October of 2015,
we recommended Disney (NYSE:DIS), which is down 8 percent, Home Depot
(NYSE:HD), which is up 14 percent, and United Healthcare, which is 23
percent higher.

He is John Traynor. He`s the chief investment officer at People`s United
Bank`s Wealth Management.

Good to see you again, John. Welcome back.

you. Thank you.

HERERA: Let`s get to your stock picks. Disney (NYSE:DIS), it`s had some
rough going, however, but I was just at Disney (NYSE:DIS). People were
certainly spending. So, you still like the stock.

TRAYNOR: Absolutely. We want to be exposed to the consumer. But what we
really like about Disney (NYSE:DIS) is content. If you look at Netflix
(NASDAQ:NFLX), you look at Hulu, all of these new delivery technologies,
they need content and that`s what Disney (NYSE:DIS) does.

They stumbled because of concern about ESPN, which is a real concern.
Something we`re watching. Are people turning off the cable box and going
somewhere else? Well, when they go somewhere else, they still want that

So, we own Disney (NYSE:DIS) and we think this is a great time to add to a
position if you own it currently.

MATHISEN: Number two is Microsoft (NASDAQ:MSFT). You say a price of $60
is in view within 12 months.

TRAYNOR: Yes, it`s a fairly conservative estimate. Love to be surprised
on the upside.

What Microsoft (NASDAQ:MSFT) is doing is, and I don`t know if it`s
appreciated by a lot of investors, they are dramatically changing their
business revenue model, moving away from a release of software, where they
get a big rush of funds to a more annuitized revenue stream, as they move
their business to the cloud, which is a great — it`s a great move for
them. We think that could lead to some P/E multiple expansion, if they
become more and more successful. So, that shift in revenues to the cloud
is going to have a big impact on Microsoft (NASDAQ:MSFT).

HERERA: And you also like Starbucks (NASDAQ:SBUX) with a price target over
the next 12 months of $61 and you`re looking at their long-term potential
here, specifically as it relates to China.

TRAYNOR: Correct, correct. If you look at their earnings report, they
disappointed on U.S. comps. But China, the comps were a little over 7
percent, so they had a very good report from our standpoint on the
international side. Plus, they`re expanding. They`ve got the mobile app
where you can order through your phone to get your order set, your latte
set before you get there.

So, they`re doing a lot of interesting things.

MATHISEN: July was perhaps, John, a surprisingly good month in light of
the Brexit vote, and all kinds of other things that were going on. What do
you see between now and Election Day, August, September, October.

TRAYNOR: You`re correct. July was a very good month and what we liked
about it was it was much more of a risk on type market, where people
focused on those companies that are growing earnings. It wasn`t driven by
the defensive stocks, the utilities and telecoms. So, it was a structure
of the market rise. It was very, very helpful.

What we think we`re going to be focusing on between now and especially you
talk about the month of August earlier, the election and the economy. We
have the GDP number this morning and we actually liked it. I know the
initial number wasn`t good, but if you look at final demand, that was about
2.4 percent, which is what we expected. So, we like the number.

You`re going to have employment number next week. We think that will be a
good number. The more investors focus on the economy, the better off the
markets are going to do.

I`m a little bit of a political junkie, so I watched both conventions. And
I can tell you, the election, it`s going to be exciting. It`s going to be
exciting and it`s probably going to be a little confusing for investors.


MATHISEN: You bet.

HERERA: Indeed.

John, thank you so much. Have a great weekend.

TRAYNOR: Thank you, thank you.

HERERA: John Traynor with People`s United Bank`s Wealth Management.

MATHISEN: Well, coming up, the promise of the smart home was big and cool
and high-tech, but the reality is turning out to be something different.


HERERA: And here`s a look at what to watch for next week. Monthly auto
sales are out for July. Also on Tuesday, two Dow components report
earnings, Pfizer (NYSE:PFE) and Proctor and Gamble. The biggest release
comes Friday with July`s employment report. Investors will want to see if
the bounce back that we saw in the last report has held and that`s what to
watch for next week.

MATHISEN: A number of startups are settling down just north of
California`s Silicon Valley. Portland, Oregon`s Silicon Forest is fast
becoming an entrepreneurial hub for health and fitness companies and it
lies, of course, in the shadows of Nike (NYSE:NKE)`s headquarters.

Kate Rogers (NYSE:ROG) is in Portland tonight.


gymnastics and diving teams prefer to hit the international stage in Rio,
one start up in Portland is helping them go for gold.

APDM wearable technologies created custom wearables for Team (NASDAQ:TISI)
USA to do more than just count steps. These devices study the quality of
each move they made so that coaches and athletes can analyze the data to
enhance performance.

running up to a vault and so we can look at — we can look and characterize
their body movement. So, looking at efficiencies. So, are we trying to
improve their speed? So, let`s look at efficiencies. Or if they`re trying
to improve their rotations, let`s look at their form.

ROGERS: The intersection of fitness and technology made Portland a great
place for APDM to call home. Local resources like the Portland State
University Business Accelerator where the startup is based have also helped
give Portland`s ecosystem legs.

abundance of highly qualified, highly educated people that are available to
startups right now, and the other is that we`re seeing more and more
availability of money and funding here.

ROGERS: Venture capital funding in Oregon hit a five-year high in 2015
according to Dow Jones venture source, proving investors aren`t shying away
from good ideas outside of New York and San Francisco. More broadly, the
Portland metro was ranked a top five location for small businesses in 2015
according to data from the Kaufman Foundation.

Fitness and nutrition are thriving industries here in Portland with
athletic powerhouses like Nike (NYSE:NKE), Adidas and Columbia Sportswear
(NASDAQ:COLM), calling the area home. And now, newcomers like Society Nine
are getting into the race.

Le got her big idea teaching kickboxing and noticing a problem among female
fighters. Their gear didn`t fit properly.

LYNN LE, SOCIETY NINE FOUNDER: As a community, I`m passionate about and
these women deserve their athleticism deserves respect and the way to get
to that point is by saying to them, you deserve products just as good as

ROGERS: He took that message nationwide in 2015, first on kick starter and
now on the web and in a handful of local gyms. But Le is staying true to
Society Nine`s Portland roots.

LE: There`s also a really strong community of fostering local artisans,
local businesses. And so, between that type of camaraderie, as well as the
work life balance and the environment itself and then you lead that with
this core innovation culture that`s here, it`s really a hard place to beat.

ROGERS: One thing`s for sure: Portland startups aren`t trying to find
their way out of the Silicon Forest anytime soon.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG) in Portland,


MATHISEN: Kate packs a big punch there.

All right. To read more about Portland`s start up, head to our website,

HERERA: A number of tech companies want to make your home high-tech,
allowing you to control your thermostat with your phone or communicate with
your refrigerator. But is the smart home really smart or is it still just

Aditi Roy reports.


the Nest thermostat, Samsung`s smart fridge and Amazon (NASDAQ:AMZN)`s Echo
promise to save time and increase efficiency around the home.

But there are real challenges, preventing mass adoption. As we learned
when we tested out the August block`s new integration with Amazon
(NASDAQ:AMZN)`s Echo, which is supposed to make it easier to lock your

Here`s how it works. First, you install the August Smart Locks, the
Bluetooth lock, and Wi-Fi Bridge needed to make the conduction. Next, set
up your Amazon (NASDAQ:AMZN) Echo with the Alexa voice recognition built
in. And then you give the commands Alexa, tell August to lock my front
door. Assuming the Wi-Fi is working, your door should look. That`s how it
should work.

But when we took part in the demo, it wasn`t so seamless.

After several tries, it finally worked.

VOICE: August checked the door and it was locked.

ROY: If you`re wondering why anyone would go through all of these hops,
August CEO Jason Johnson told us that the company decided to integrate with
Amazon (NASDAQ:AMZN)`s Echo based on customer feedback.

JASON JOHNSON, AUGUST CEO: The challenges if you have to use an app for
every device, smart lock or thermostat or lights, it`s bit cumbersome. So,
you know, what Alexa is doing is allowing people to not use an app at all,
just use your voice. I think our customers and people using these
technologies really appreciate that convenience.

In order to take full advantage of this technology, it will cost you. The
Amazon (NASDAQ:AMZN) Echo will run you about $180. And then adding the
cost of the August Smart Lock and the Wi-Fi Bridge for a grand total of

According to Juniper Research, the smart home market could reach $71
billion by 2018, up from $33 billion in 2013. But a number of roadblocks
still stand in the way, including security, hacking concerns, frustration
over the installation process and cost. It`s no surprise some say analysts
say that these obstacles represent a barrier to mass market adoption of
smart home tech.

BOB O`DONNELL, TECHALYSIS CHIEF ANALYST: Practically speaking, it`s really
difficult for people to integrate it right now. You`ve got all kinds of
different technical standards. Products that inexpensive maybe one at a
time, but when you add them up, the ones you need for your home, makes the
entire exercise for expensive and frankly, a lot of questions of is this
worth my money anyway? And how much value I`m going to get out?

So, it`s a very tough time right now for smart home. And it`s not living
up to the hype that it certainly receives for a long time.

ROY: One solution, according to O`Donnell, is to rely on big servers like
AT&T (NYSE:T) to bundle and install the technology for you, which would
take the guess work out of bringing the technology into your home.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.


HERERA: Or you could just use a key.

MATHISEN: Yes, right? Keys work fine for me.

HERERA: Work fine. Just a thought.

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

MATHISEN: Thanks from me as well. I`m Tyler Mathisen. Have a great
weekend, everybody, and we`ll see you here on Monday, August 1.


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