SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Wrestling with the bear. Oil prices fall more than 20 percent from their most recent highs, taking gas prices and oil stocks down with them.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Buying spree. Dow component Verizon (NYSE:VZ) is spending billions on a GPS tracking company. And investors want to know why.
HERERA: Disrupting retirement. What some startups are doing to shake up the savings of millions of Americans.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, August 1st.
MATHISEN: Good evening, everyone, and welcome.
The bear is back, not for stock, but for oil prices. Domestic crude broke below $40 a barrel midday to settle down more than 20 percent from its most recent high in June. That technically qualifies as a bear market.
Now, a number of factors are contributing to the slide. On the supply side, there are early signs that production is increasing in the U.S. just as output from OPEC and elsewhere is rising. And demand isn’t increasing enough to mop up the excess. As a result, crude settled down nearly 4 percent today to about $40 a barrel.
Hello, Mr. Bear.
And as the oil price tumbles, gas prices follow. Jackie DeAngelis has a look at what drivers can expect when they go to fill up.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good news for consumers. Gas prices are falling sharply, at a time that they’re expected to rise.
According to AAA, the national average for a gallon of regular gas is $2.13. It was $2.66 last year and that’s the average. Some cities were well under $2, which is unusual for the height of the summer.
Causing the decline, a glut in relatively cheap oil. That led to a refining boom and that created a gasoline glut. Seasonally, summer is when Americans hit the road, so it’s one time of year that we can expect an uptick in demand. That demand was robust, but not enough to make a dent in inventory.
ANTHONY GRISANTI, GRZ ENERGY PRES. AND FOUNDER: We started out the driving season with, needless to say, an abundance of crude oil. That crude oil had to be used. It was refined into gasoline. Refiners were running about 92 to 95 percent, which is about 4 to 5 percentage points higher than previous years.
DEANGELIS: So, what happens after the summer?
When demand drops off, when we see crude and gas prices decline every year, those drops will be even more pronounced.
GRISANTI: As price of crude oil slides, you’re going to see a slide in gasoline prices. Number one, we switch over to the October contract, which is the winter grade, and we lose ten cents a gallon just by switching it over there.
Demand usually drops in the late third, fourth quarter, and first quarters of every year. So, I would expect gas prices to touch maybe the 1.50 area by Christmas or even New Year’s.
DEANGELIS: Meantime, Barclays is out with a negative note this morning, saying, “The drain is clogged.” And also pointing to oversupply issues and demand issues internationally come this fall.
The Saudis continue to pump oil to compete with Iran. So, there’s little relief in sight. The only caveat that could shift this story from fundamentals and send prices higher is the dollar, which typically moves on Fed expectations.
If the market feels the Fed won’t hike, that means a weaker dollar and higher crude price, but for now, consumers are relishing in less pain at the pump.
For NIGHTLY BUSINESS REPORT, I’m Jacqui DeAngelis.
HERERA: Energy shares were among the biggest decliners today, thanks to those falling oil prices. That offset gains in health care and technology stocks. And stocks continued to move within a very narrow trading range on this first day of trading in August. According to new search, in fact, the S&P 500 has spent the last two weeks in one of its narrowest trading ranges since the early 1980s.
The Dow Jones Industrial Average fell 27 points to 18,404. The NASDAQ climbed 22. The S&P 500 fell nearly three, but did briefly hit a fresh all-time intraday high.
MATHISEN: When you think of Verizon (NYSE:VZ), you probably think of a giant phone company. Wireless, wire line, with some cable systems thrown in. So, you may have been scratching your head when you heard it was spending about $2.5 billion on a GPS vehicle tracking company called Fleetmatics. The deal sent shares of Fleetmatics up more than 38 percent. Meanwhile, Verizon (NYSE:VZ) shares fell.
But as Morgan Brennan explains, there’s a strategic reason why Verizon (NYSE:VZ) made the big acquisition.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Verizon (NYSE:VZ) buying spree continues. The top U.S. wireless carrier buying Fleetmatics. The Dublin-based company provides fleet management services, developing software that shows vehicle locations, fuel usage, mileage and driver hours. News of the deal comes right on the heels of Verizon’s purchase of another fleet management firm, Telogis, for an undisclosed sum last Friday.
Analysts say it’s all part of a plan to expand beyond smart phones, a market that’s maturing amid fierce competition between carriers.
AMIR ROZWADOWSKI, BARCLAYS: Verizon’s primary interest in Fleetmatics is largely to bolster their position in the “Internet of Things” arena. Right now, Verizon (NYSE:VZ) is in a transition phase and it’s looking for new opportunities to grow its overall revenue pod as some of these new opportunities emerge.
BRENNAN: And the “Internet of Things” does provide an opportunity. Revenue in Verizon’s “Internet of Things” division grew 25 percent last quarter to $205 million. A modest sum compared to 30 billion overall, but representing one of its fastest growing segments.
Fleetmatics will provide more services catering to small business, enterprise and long haul trucking, but this is only the latest in a buying spree that’s over past 18 months, also included AOL (NYSE:AOL) for $4.4 billion and just recently, Yahoo (NASDAQ:YHOO) for $4.8 billion.
ROZWADOWSKI: Over the longer term, think of Verizon (NYSE:VZ) as more looking to diversify its revenue streams by connecting more devices and then being a part of the different types of data that traverse its network.
BRENNAN: All of these purchases from tech to media to trucking services enabled Verizon (NYSE:VZ) to not only provide the wireless network, but the software to run on it and the content to attract and keep users and advertisers as well.
For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.
HERERA: In other deal news, Tesla Motors (NASDAQ:TSLA) and SolarCity have agreed to combine in a deal valued at a little bit more than $2.5 billion. The merger will put electric vehicles, rooftop solar systems and energy storage batteries under the same roof. Despite neither company turning a profit, Tesla’s CEO Elon Musk says the time is right to do the tie up.
(BEGIN AUDIO CLIP)
ELON MUSK, TESLA MOTORS CEO: In order for the right scenario to transpire in three years, we need to take the action now. You can’t take the action in three years and then have it instantly be the (INAUDIBLE). It takes time to get there.
(END VIDEO CLIP)
HERERA: Shares of both Tesla and SolarCity fell in today’s trading.
MATHISEN: Yet another deal to tell you about. This one is cross border. DiDi, the dominant ride hailing service in China, will acquire rival Uber’s operations in that country. The deal ends a fierce battle between the two companies in the market that was one of Uber’s largest of the total number of rides.
Eunice Yoon reports tonight from Beijing.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: DiDi is acquiring all of Uber’s asset in China, that include the operations, the brand, as well as the data. Investors in Uber will get a 20 percent stake in the combined company which will be valued at $35 billion. In addition, DiDi will invest $1 billion in Uber.
The deal will end a fierce price war between the two companies in China. Both companies have been spending billions in subsidies to attract drivers and passengers. Uber had been moving $1 billion a year here. Uber’s CEO posted his reason for the decision on Facebook (NASDAQ:FB), saying, “Serving China’s cities is only possible with profitability.”
At the same time, it’s been fighting an uphill battle. DiDi raised $7 billion in part from Apple (NASDAQ:AAPL). It’s also backed by China’s sovereign wealth fund and DiDi said that it now is the only company with investors from China’s three major tech titans, Alibaba, Tencent, and now Baidu (NASDAQ:BIDU).
Uber’s case is also pointing to wider concern in the tech community, that the business environment for foreign companies is just getting tougher.
For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.
HERERA: Activity in China’s manufacturing sector shrank in July. According to an official survey, orders cooled, demand was weak and flooding in parts of the country disrupted business. The report is adding to recent concerns that China’s economy will slow in the coming months.
MATHISEN: The factory here in the U.S. grew at a modestly slower rate in July, but is still expanding at a pace that can support the broader economy. The Institute for Supply Management saw its index drop to just under a one-year high. The index has been positive for five straight months.
Separately, U.S. construction spending fell for a third straight month, was spending on nonresidential building, dropping by the largest amount in six months.
Two Federal Reserve officials suggest that the financial markets are too complacent about a September rate hike. Speaking in China, Dallas Fed President Rob Kaplan said a rate hike next month is, quote, “very much on the table”. Meantime, the president of the New York Fed, Bill Dudley, said he could definitely see the Central Bank raising interest rates at some point before the election. Both officials said economic data between now and the next meeting will be critical to any decision.
MATHISEN: The CEO of the biggest U.S. bank by asset sounded optimistic on the U.S. economy, saying it has the potential to grow a lot faster than it is now. Jamie Dimon made the comments during an interview today with Wilfred Frost in Huntington Beach, California.
WILFRED FROST, NIGHTLY BUSINESS REPORT CORRESPONDENT: The chairman and CEO of J.P. Morgan, Jaime Dimon, said he was not concerned about oil prices falling below $40 today. In fact, he was upbeat about the outlook of the U.S. economy. And in a message to the main presidential candidate, outlined some of the actions he thinks the next president should be taking.
JAIME DIMON, JPMORGAN CHMN. & CEO: What I worry about more is the next president, whoever it is, focusing on the right things, I think we’re going to 4 percent, OK? Those right things are probably immigration reform, proper infrastructure spending, the roads, bridges, schools, airports. It would be great for United States. You know, we need corporate tax reform. I would also expand things like the earned income tax credit to help those with lower pay.
FROST: Despite that positive outlook, he did outline some concerns about bond market valuations.
DIMON: I’m not a buyer of ten-year bonds. I would be a little worried about drastic action in the ten-year bonds. The more important thing, and the Fed talked about it, is are we going — we have profit growth in the United States that will start to normalize interest rates, so think of the short end. You know, 25 basis points doesn’t matter much, but the fact is, we start to normalize, I personally think it’s a good thing.
FROST: Away from America following the recent Brexit vote, when asked whether he could envisage a future breakdown of the Eurozone, Mr. Dimon said it come be one of fat tail outcomes of Brexit. It may take more than five years, but it may very well happen.
For NIGHTLY BUSINESS REPORT, I’m Wilfred Frost from Huntington Beach, California.
HERERA: Meantime, the recent European banks stress tests are putting a renewed focus on the Italian banks, which some fear could be the next trouble spot for the global economy.
Julia Chatterley reports from Rome.
JULIA CHATTERLEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The worst performing bank in the European stress test, Monte dei Paschi, actually the best performing bank in trading today. Why? Well, I can tell you it wasn’t to do with the stress test. It has to do with that 11th hour 5 billion euro recapitalization plan that was announced. Conditional on the whole chunk of their nonperforming loans being moved off balance sheets and financed by issuing bonds to the Italian government, to this Atlante fund here in Italy and to shareholders.
I can feel your eyebrows raising already and it does bring a whole host of questions why will investors be willing to invest in these bonds when we’ve already seen over 80 billion euros invested to recapitalize Monte dei Paschi in the past, or the Atlante fund itself. It’s a collection of cash from some of the biggest banks in Italy and does it make sense to dilute some of the strength of the stronger banks to offset and help the weaker ones. This remains and ongoing question, but for now at least, investors relieved I think that something is being done in a private sector solution, not a bail in for Monte dei Paschi bank.
UniCredit also in focus, though obviously wasn’t a pass fail mark to the stress test. But 7 percent, tier one capital, was really a benchmark. UniCredit coming just above there.
Now, analysts at Credit Suisse has suggested that the bank could be between at 4 billion euros and 9 billion euros. So, again, still some questions being asked of one of the two largest banks, UniCredit, here in Italy.
And just to blur the picture a bit more, remember, UniCredit is one of those sitting cash to Atlante fund. It’s very Italian. We’re going to continue to watch this.
But for now, a stronger performance among capacity in trading today and a bit of a sigh of relief I think that something is being done to tackle issues in the banking sector before that critical vote on the constitutional referendum here in Italy that Prime Minister Matteo Renzi has signed his future on. We’ll see.
Back to you.
MATHISEN: Still ahead, disrupting retirement. Millions of Americans don’t have access to a 401(k), but now, some start-ups want to change that.
MATHISEN: Suzanne Wright, the cofounder of Autism Speaks, died on Friday after a battle with pancreatic cancer. She and her husband Bob Wright, the former CEO of NBCUniversal, started the organization more than ten years ago after their grandson was diagnosed with the disorder. Autism Speaks has committed more than $570 million to research the causes, prevention of, and treatment of autism. Ms. Wright was 69.
HERERA: To politics now and the powerful and deep pocketed Koch brothers who over the weekend, rejected pressure to back Donald Trump, the Republican presidential candidate. The rejection deprives Trump of a major source of funding.
John Harwood joins us now from Washington.
John, was this a surprise that they decided not to back Trump and what are the implications?
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: I don’t think it’s a big surprise, Sue. Donald Trump does not share their free market views on trade, for example, on limited government, reforming entitlement programs. So, they had signaled some distance from Trump before. But it is a rebuff that stings at this point in the campaign because Donald Trump and the Republican Party are trying very rapidly to raise money to catch up with Hillary Clinton.
They’re far behind. They’re working it. They’ve made some progress, but they need more and because Donald Trump has not indicated that he’s willing to put the kind of resources into his campaign you need to compete with what Hillary Clinton’s got.
MATHISEN: From one billionaire, Mr. Koch, to another, the billionaire investor Warren Buffett, campaigned with Hillary Clinton today in Omaha. Is that really impactful to her campaign?
HARWOOD: I think it is a marginal development. Warren Buffett is famous among certain circles of people, certainly investors and business community. Not a household name to the average person. But anything that lends credibility to Hillary Clinton’s argument that Donald Trump is too risky to entrust with control of the military and the economy, helps her reach out to independent voters and some moderate Republicans.
HERERA: You know, talking about how unreliable polls are during the conventions, but now that we’re passed those conventions, there are new polls out. The latest two have Hillary Clinton leading slightly. Tell us more about that.
HARWOOD: Well, as you said, Sue, we take them with a grain of salt. Nevertheless, it’s a piece of data, you look at it and see if it holds up over time.
CNN came out with a poll today which shows Hillary Clinton now nine points ahead of Donald Trump. She was behind by three going into her convention. There was a CBS (NYSE:CBS) News poll that showed a 7-point edge for Hillary Clinton. I’d be waiting for others layer in the week, including the NBC/”Wall Street Journal” poll which before both conventions, showed that Hillary Clinton was ahead by five points. What’s it going to be a week for now? We’ll find out.
HERERA: All right, John. Thank you so much as always. John Harwood in Washington.
MATHISEN: New hope for a childhood spine disorder sent shares of two biotechs higher and that is where we begin tonight’s “Market Focus”.
Biogen and Ionis Pharmaceuticals said their drug intended to treat infant spinal muscular atrophy, met its main goal during clinical testing. Due to drug’s success, Biogen will now exercise its option to develop and commercialize the drug. It will halt the trial, begin treating patients in a subsequent study. Biogen which pays Ionis about $75 million in a licensing fee plans to seek regulatory approval for the drug by the end of the year.
Shares of Biogen up to 4 percent to $301.83. But look at the shares of Ionis up 30 percent to $38.01.
Pfizer (NYSE:PFE) has inked a deal to buy the rest of Bamboo Therapeutics. Pfizer (NYSE:PFE) will pay $150 million to acquire 78 percent of the gene therapy company it doesn’t already own. Shares of Pfizer (NYSE:PFE) up 8 percent to $37.31.
And GlaxoSmithKline and life sciences division of Google’s parent, Alphabet, will form a new company to develop bio electric medicines which use miniature electronic devices to manage electrical impulses in the nervous system. The company said they will contribute more than $700 million to the joint venture over the next seven years.
Shares of Glaxo up 18 cents to $45.25. Alphabet up eight percent to $800.94.
HERERA: Cost cuts helped Diamond Offshore big profit and revenue expectations in its latest quarter, but despite the earnings, share of the drilling contractor fell after the company said there were quote next to zero contracts in place for rigs. Diamond offshore fell more than 7.5 percent to $20.98.
Credit card payments processor First Data posted higher than expected profit. The company said strong growth in its global financial solutions division and in Latin America helped to lift results. Revenue also rose. Shares surged 5 percent to $13.02.
Analysts at Citigroup (NYSE:C) are bullish on Etsy. The bank placed a buy rating on the stock, of the crafts marketplace, and a target price of $14, saying consensus revenue ton company’s sellers services business. Shares rose nearly 18 percent to $11.86.
MATHISEN: If you work for a small company, there’s a good chance you don’t have a 401(k) or if you do, you may pay a lot for it. Now, a bunch of startups are looking to change that by using technology to lower the cost. Can these firms deliver on their big promise?
Sharon Epperson joins us now.
Sharon, why are we seeing a rise in 401(k) plans for companies that heretofore haven’t been able to offer them?
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, Tyler. This is a hug untapped market. We’re talking about among those companies with 100 or fewer employees. That’s about 42 million people that are employed by these companies. About a third of the private sector workforce and only 14 percent of these small businesses actually sponsor a retirement plan.
So, there’s a great market out there for companies that want to offer retirement plans and so many workers that don’t have access to plans that need it.
HERERA: So, who’s entering the industry?
EPPERSON: There are a lot of financial technology firm that are coming up that are entering the industry, ForUsAll is one of them, Honest Dollar, a lot of Silicon Valley startups.
And then there are some that have been around for several year, but are really in that small business space like employee fiduciary or some of the other, America’s Best 401k.
And then the fund companies that have been around for long time, like Vanguard. They are also in the small business market. But it’s those financial technology companies that are really being disrupted right now.
MATHISEN: When you say financial technology, there’s a phrase out there called robo advisers.
MATHISEN: It’s that what lots of these are?
EPPERSON: That’s basically what they are. They’re offering online services and able to offer investments at a lower cost because they’re doing so much of this online. And so, they’re basically setting it up for you as a robo adviser would with your regular retirement. And they’re doing it for small business.
MATHISEN: They make it affordable for the employer.
EPPERSON: And it certainly is lowering the prices overall for these 401(k) plans for small businesses. We’ve seen that. BrightScope has put out data about how much this has dropped in and it’s gone down significantly in the last several years.
HERERA: That’s some of their promises. So, it appears on the surface anyway, that they are living up to their promise.
EPPERSON: Well, it appears to the surface that they are, but you always have to look under the hood when it comes to retirement, and we always talk about this. You really need to look at what types of investments they’re offering. Many of them are just offering index funds, some of which you may be able to get just on your own for still less money.
And then you have to look at beyond the lower fees. What else are they providing? Is there financial education? Usually not that much, unless it has a good communications arm, to send out information.
But you’re not talking to someone and many people say that’s what they want. They want to be able to talk to a real person and is the person calling in the call center in that online adviser, is that really someone who’s licensed to give you the information you need?
MATHISEN: Sharon, thank you very much.
EPPERSON: Sure. Definitely.
MATHISEN: Interesting development though, making it available to more people. Sharon Epperson, thanks.
EPPERSON: So important, sure.
HERERA: And still ahead, sequel slump. Why familiar Hollywood brands are failing to find audiences the second, third and some cases, four time around.
MATHISEN: Here’s a look at what to watch tomorrow. Automakers report their sales figures for July. It’s one of the busiest months of the year. Two Dow components report earnings, Pfizer (NYSE:PFE) and Procter and Gamble. And Japan’s prime minister is expected to detail his government’s latest fiscal stimulus package. That, folks, is what to watch for Tuesday.
HERERA: The big winner at the box office this weekend was the latest installment of the “Jason Bourne” series, but it didn’t in as much as the last Bourne release. And that plays right into an emerging Hollywood trend that shows sequels are slumping and having a hard time finding audiences.
Julia Boorstin has our story.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Jason Bourne had the biggest global debut in the franchise, $110 million worldwide. This $60 million U.S. debut was still $10 million than the 2007 “Bourne” film, not even including inflation.
Including “Bourne”, the summer has had two more wide released sequels in all of last summer. And this year’s performance is far worse. The U.S. summer box office is 26 percent lower than it was last year at this point.
PAUL DERGARABEDIAN, COMSCORE: There are a lot of sequels that do very, very well. It may just be a quality problem. If the movie doesn’t resonate, if it’s not a good movie, it may not be a — that people are biased against sequels, they may just be biased against bad movies.
BOORSTIN: Last quarter, sequels were particularly rough. FBR analyst Barton Crockett writing that the quarter will be remembered as a time when sequels, especially those not featuring superheroes came up short.
He’s referring in part to Paramount’s “Ninja Turtles: Out of the Shadows”, who’s opening weekend was just 54 percent of the 2014 reboot. Viacom (NYSE:VIA) which owns Paramount warning its results would be impacted by the film’s underperformance, prompting analysts downgrade.
Just this morning, theater owner AMC Entertainment reported an 11 percent decline in U.S. per screen revenue, blaming a, quote, “lackluster film slate”, sending its shares plummeting. Other summer disappoints included Universal’s “Neighbors 2” and Disney’s “Alice Through the Looking Glass”, and Fox’s “Ice Age: Collision Course” had the worst opening among the five films in the series.
But sequels have also been the year’s top two performing films. Disney’s “Finding Dory” and “Captain America: Civil War”.
The bar is higher than ever to pull people away from their couch and from Netflix (NASDAQ:NFLX).
DERGARABEDIAN: Audiences have a lot of options today, more than ever before. And you’ve got to keep people going back to that movie theater to get in that movie-going habit, the way to keep them there is with great movies, not just with sequels, but with all kinds of different great movies.
BOORSTIN: One movie that might have the draw this weekend isn’t a sequel. Warner Brother’s “Suicide Squad”.
For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.
HERERA: And that does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for watching.
MATHISEN: And thanks from me as well. I’m Tyler Mathisen. Have a great evening, everybody, and we’ll see you right back here tomorrow night.