SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stocks slide. The Dow sees its longest losing streak in nearly a year and oil prices settle below $40 a barrel.
New concerns. Consumers are spending. Businesses are not. And that’s raising a lot of questions about how where the economy is headed.
Scaling back. Aetna (NYSE:AET) runs up losses on its health exchange business, becoming the latest insurer to reconsider its participation in the program.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, August 2nd.
Good evening, everyone. I’m Sue Herera. Tyler Mathisen is off this evening.
Seven straight — the blue chip Dow index lost itself seventh in a row, making this its longest losing streak in nearly a year. The reasons include falling oil prices, mixed auto sales and concerns over the Italian banks. Not even a stimulus package out of Japan was enough to calm fears over global growth.
Today, the Dow Jones Industrial Average lost 90 points to finish at 18,313. It had been down as much 150 points. The NASDAQ was off 46, snapping its five-day win streak. And the S&P 500 fell 13. As for oil prices, they settled below $40 a barrel for the first time since April.
And the auto stocks shift lower today after July sales painted a mixed picture for the industry. Shares of GM, Ford, and Fiat Chrysler all fell in trading today. Overall, the pace of sales came in better than expected and remains close to a record, but increasingly automakers are wrestling with how to win over buyers while maintaining strong profits.
Phil LeBeau has more.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: After six straight years of rising auto sales, dealers facing a new reality — sales have plateaued. In fact, they cooled off in July, with three of the four largest automakers reporting sales that were below expectations.
The good news for automakers, buyers are paying close to a record high for new models. On average, almost $33,000. The bad news is automakers are spending more through incentives to win over buyers.
KARL BRAUER, KELLEY BLUE BOOK: I think we’re now going to settle into a more relaxed buyer attitude and it’s going to be harder for car companies to pull buyers in without using more creative incentives.
LEBEAU: The big concern for investors is how automakers handle sales leveling off. So far, there have been no major production cuts. And the inventory of new models is not bloated, but there’s an uneasiness in the industry because traffic for some dealerships is down. So, there appears to be fewer people looking to buy right now — perhaps an early indication the industry’s run of rising sales is about to run out of gas.
August is traditionally the busiest month of the year for auto sales, but if these summer doldrums continue, automakers may face pressure to raise rebates as a way to entice buyers come in and buy a new car or truck.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
HERERA: There may be questions about the future of auto sales, but the latest government report shows overall spending is still healthy. Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.4 percent in June. That’s the third straight month of gains.
So, what are some of the most consumer-focused businesses saying about the health of the consumer?
Bob Pisani takes a look.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Considering everyone is talking about how well the consumer is doing, the news today reflects a perfect little storm for consumer names. So, auto stocks were down on the disappointing sales for Ford and GM and Fiat Chrysler.
And the retailers like Dillards and Kohl’s (NYSE:KSS) and Macy’s (NYSE:M) and Nordstrom (NYSE:JWN) were all down in sympathy with the auto stocks. Airlines were down as Delta Air said its revenue fell 7 percent in July, and then the restaurants were down as Texas Roadhouse (NASDAQ:TXRH) reported a beat on earnings. But same store sales appeared to be slowing down a bit, and that took other restaurants down with it.
And then the cruise ships were down because Royal Caribbean cut its outlook on higher fuel costs and on currency issues, particularly on the weak British pound.
So, is the consumer really weakening? Well, not necessarily. Royal Caribbean said bookings were strong and the damage to airlines and autos appear to be largely self-inflicted. So, the auto companies have been providing these in outside incentives for months now, and airline companies have added too much capacity recently.
Finally, bear in mind that some of this reaction may be statistical. Stocks reversing course and moving back to their averages. Retailers have been notable outperformers post-Brexit. So, it’s surprising they give back some of their gains.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.
HERERA: While consumer spending is holding up. The same cannot be said for business spending. Business investment is down more than 2 percent and has fallen now for straight quarters, raising concerns about the health of the economy.
Lindsey Piegza is the chief economist for Stifel Fixed Income and she joins us now with some perspective.
Good to see you again, Lindsey. Welcome back.
LINDSEY PIEGZA, STIFEL FIXED INCOME CHIEF ECONOMIST: Thanks for having me.
HERERA: So, is there one particular element or part of this environment that is holding business spending back?
PIEGZA: Well, I think right now, it’s a number of issues. When we talk to businesses around the country, big and small, they continue to cite uncertainty. Whether that’s uncertainty from the upcoming presidential election, from tax policy, they also talk about ample regulation, they talk about rising health care. So, I think there’s a number of issues that are keeping businesses sidelines, which is continuing to exacerbate this weak economic environment.
HERERA: It’s interesting though, is it not, that the consumer apparently does not feel at least to as great an extent some of the same uncertainties that business do.
PIEGZA: Well, at least for now. Consumers do appear to be on relatively more solid footing. Certainly, they were doing the heavy lifting in the second quarter, from April to June, providing over 4 percent growth to the economy, helping to off set a lot of the other negatives across some other key sectors of the economy. But again, I would caution that that type of strength is going to be very difficult to be maintained without business investment leading to ample job and income creation.
HERERA: Has this caused you to downgrade what you’re expecting in terms of economic growth?
PIEGZA: Well, I have to say, we were looking for a more moderate rebound in the second quarter. Growth obviously fell short with businesses continuing to exacerbate this downward trend. We expected business investment to be weak, but not quite as weak as it came in. Now looking forward to the second half of the year, we have pared back our estimates for top line activity.
HERERA: All right. Lindsey, thank you. Good to see you again.
PIEGZA: Thank you.
HERERA: Lindsey Piegza with Stifel Fixed Income.
Japan’s government is ready to put more money into its stagnant economy. The cabinet has approved a new stimulus package that’s worth more than $270 billion or 28 trillion yen.
But as Akiko Fujita reports from Tokyo, the effects of all that extra money may be limited.
AKIKO FUJITA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Certainly the largest economic stimulus package passed here in Japan since the financial crisis back in 2009, but we saw the Nikkei fall about 1.5 percent largely because of the details in that package. Just 7.5 trillion yen set aside for new spending. That’s less than half that headline number. In terms of what that money will be spent on, infrastructure projects related to reconstruction in areas affected by the earthquake in southern Japan earlier this year, we also know the government will be giving cash handouts in the amount of 15,000 yen, roughly $147 to low income individuals and boosting hourly minimum wage by 3 percent.
Now, this is part of a renewed push by the central government to show that they are coordinating policy efforts here with the Bank of Japan. Just on Friday, the Bank of Japan moving to nearly double its ETF purchases, though they kept much of their policy unchanged, neither the policies have done much to take the pressure off of the yen.
The larger question here, though, is how much will the stimulus package actually boost the Japanese economy. The ruling moving party has said it could boost as much as 1.3 percent of GDP in the near term, although skeptics say that number is more like 0.4 percent.
And there is increasing fatigue here of an economic stimulus package. This is the 26th package passed here in Japan since 1990. None of which have done really what they’ve looked to turn the Japanese company around. There is increasing fatigue. With than, and increasing pressure on the Japanese government to go for larger, bolder, structural reform that so-called third arrow of Abenomics, that has really been quite slow to take shape.
For NIGHTLY BUSINESS REPORT, Akiko Fujita, Tokyo.
MATHISEN: And still ahead, funding fight. Why the money to battle Zika is being held up in Washington.
HERERA: Not surprisingly, there the road to the White House today. Republican Representative Richard Hanna broke ranks with his party and endorsed Hillary Clinton for president, becoming the first GOP congressman to do so. And that wasn’t all that happened today.
John Harwood is in Washington with more.
And, John, let’s start with what happened between Donald Trump and House Speaker Paul Ryan today. They have had a distant relationship, but things seemed to escalate a bit today.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sue, this is really inexplicable. I can’t figure out what Donald Trump has in mind here, but he does seem to have a tit for tat psychological.
Paul Ryan a few weeks ago said he was putting off — wasn’t ready to endorse Donald Trump. Trump today said he’s not willing to endorse the House speaker of his party who has a primary next week. He said, I’m taking a look at it. I’m not seriously — he tweeted out something friendly to the opponent of Paul Ryan.
But this is an extraordinary development because Paul Ryan is about as popular as you can get among non-Donald Trump Republicans, among people who are in the rest of the political world and he seems to be challenging Paul Ryan with those comments today.
HERERA: Yes. And how is the Republican Party reacting to this?
HARWOOD: The Republican Party doesn’t understand what Donald Trump is doing. And, in fact, in the last couple of days, not only that congressman that you’ve mentioned in the intro, but you had two prominent women aides to big time Republican politicians, Sally Bradshaw, who was an adviser to Jeb Bush, Maria Comella, an adviser to Chris Christie, who’s on Donald Trump’s team right now, both came out and said they were going to support Hillary Clinton. They could not regard Donald Trump as fit for the White House.
HERERA: And along those lines, two final questions. Does Trump — how much does he need the Republican Party behind him and what about President Obama’s comments earlier today saying he does not think Donald Trump is fit for the White House?
HARWOOD: Well, Donald — President Obama put up — amped up the pressure on Republicans saying they condemn these comments, how can they still endorse him?
Donald Trump needs Republicans, among other reasons, one, you need 90 percent of Republican votes if you’re Republican nominee, to win the presidency in a polarized system. Second, he needs Republican fund raising support.
Hillary Clinton’s raised a lot more money. They just come out with numbers for July. Hillary Clinton said between her fundraising efforts for her own campaign and the Democratic Party, she’s raised $90 million. Trump said he’s raised $35 million. He needs to do a lot better if he’s going to compete with her in November.
HERERA: Absolutely. John, thank you so much as always.
HARWOOD: You bet.
HERERA: John Harwood in Washington.
Aetna (NYSE:AET) has become the latest large insurers to forecast a loss on its Affordable Care Act plans for the year. The company is citing mounting medical costs and is reconsider its participation in the exchanges. Despite its ACA results, Aetna (NYSE:AET) reported better than expected profit and revenue growth which sent shares higher.
Bertha Coombs has more on what Aetna (NYSE:AET) may do next.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Aetna (NYSE:AET) had hoped to break even on its Affordable Care Act plans in 2016, but now expects to post a $300 million loss, saying exchange plan members this year are racking up higher medical costs than anticipated, fueled in part by high cost drugs.
MARK BERTOLINI, AETNA CHAIRMAN & CEO: Before, we were $100 million, $150 million in losses. That was sustainable.
Now, we’ve got $320 million in 2016 and unless we get in front of it for ’17, with some changes in the risk adjustment mechanism, we’re not going to be able to afford it. We’re not going to be able to continue to support it.
COOMBS: So, now, the insurer says it may cut back on its exchange participation in 2017. Aetna’s move comes nearly two weeks after the Department of Justice sued to block its acquisition of rival Humana (NYSE:HUM), as well as Anthem’s deal to buy Cigna in part over ACA.
BILL BAER, DOJ ASSISTANT ATTORNEY GENERAL: These two mergers, both, both, threaten to reduce competition for many Americans who now obtain health insurance to public exchanges, established by the Affordable Care Act. These four companies have been among the most active in offering insurance to the exchanges.
COOMBS: Aetna (NYSE:AET) says its exchange decision is not in direct response to the DOJ suit. The nation’s largest insurer, UnitedHealth announced its exit from exchanges earlier this year and a number of Blue Cross plans are also cutting back for 2017.
But without some of the savings that could result from the Humana (NYSE:HUM) merger, Leerink analysts Ana Gupte says Aetna (NYSE:AET) can’t afford to lose money on ACA plans.
ANA GUPTE, LEERINK ANALYST: They had guided to $1.2 billion. In synergies, just from reducing fixed costs with Humana (NYSE:HUM). So that can subsidize a lot of losses on public changes and Wall Street is relentless. So, if they’re not getting to a break even product this year, next year, it’s going to be worse.
COOMBS: Aetna (NYSE:AET) and Humana (NYSE:HUM) say they’re committed to fighting the DOJ in court to complete their merger. As part of that effort, the company has reached a deal to sell of its Medicare Advantage plan representing nearly 300,000 members to Molina Health for $117 million.
The Justice Department declined on the Aetna (NYSE:AET) news today, the sale or the exchange plans.
For NIGHTLY BUSINESS REPORT, I’m Bertha Coombs.
HERERA: Pfizer (NYSE:PFE) tops estimates even as profits plunge. That’s where we begin tonight’s “Market Focus”.
Earnings fell more than 20 percent, but stronger sales of two of the company’s newest drugs helped the pharmaceutical giant to clear Wall Street targets. Pfizer (NYSE:PFE) also said it would pay nearly $500 million to settle lawsuits tied to two of its drugs. As for whether it would split into two companies, Pfizer (NYSE:PFE) said it’s uncertain and will decide by the end of the year. Shares fell nearly 2 1/2 percent to $36.39.
Biogen may be an acquisition target. “The Wall Street Journal” says Merck (NYSE:MRK) and Allergan (NYSE:AGN) have had informal and preliminary talks with Biogen about a potential takeover, but that those talks may not result in a deal. Biogen shares rose 9 percent on the news. While shares of Merck (NYSE:MRK) and Allergan (NYSE:AGN) fell.
Consumer products company Procter and Gamble beat expectations. An increase in sales in the company’s health care and grooming segments helped lift results. The company’s CEO says the numbers were strong.
(BEGIN VIDEO CLIP)
JON MOELLER, PROCTER & GAMBLE CEO: Organic sales were up 2 percent versus a year ago, driven by a volume growth of 2 percent. Volume was up in every segment. Sales were up in every segment and we delivered nice triple-digit basis point gross margin improvement in 145 percent free cash flow productivity. So, a good quarter, a good base to build on.
(END VIDEO CLIP)
HERERA: P and G shares up 35 cents to $68.76.
CVS (NYSE:CVS) saw revenue rise as the drug store chain benefitted from recent deals to expand its business. But those results still weren’t good enough to top expectations. The company did however post higher than expected earnings. CVS (NYSE:CVS) also lowered its sales guidance for the year. But nonetheless, shares finished the day up nearly 5 percent to $98.06.
SodaStream had a bump in sales, thanks to the company’s markets programs and efforts to shift the brand’s focus from soda to sparkling water products. Those results were ahead of analyst’s targets. The beverage company said net income increased. Shares soared 16 percent to $28.25.
And AIG topped profit estimates, thanks in part to the insurance company’s cost cuts. The company also said it will launch a $3 billion share buyback. Shares of AIG rose in after-hours trading, but finished the regular session down a tick to $54.14.
The Centers for Disease Control and Prevention has issued what’s been described as an unprecedented travel warning. The agency is advising pregnant woman and their partners to avoid an area north of Miami because Zika concerns. Now, attention turns to Washington and the funding needed to help fight that virus.
Eamon Javers has that part of the story.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: In Miami, authorities are responding to an outbreak of Zika virus with aggressive efforts to control the mosquito population, test local residents and warn people how to protect themselves.
But today in Washington, the U.S. Capitol is nearly empty after Congress was unable to take any action on a billion dollar anti-Zika funding measure before lawmakers headed back to their states and districts for campaigns and vacations. The White House originally asked for $1.9 billion for Zika prevention, and the House passed a $1.1 billion measure in June. But the bill died in the Senate amid partisan squabbling.
And that’s got people on both sides pointing fingers, including the man who advised President Obama on Ebola.
RON KLAIN, FMR. EBOLA CZAR: It’s time for Congress to cancel its vacation. It should come back to Washington. It should come back this week or next week. It should pass the president’s response package. It should get this help on the way because, you know, people need help from their government.
JAVERS: Republicans in Congress blame Democrats, said a spokesperson for House Speaker Paul Ryan. “This only underscores the importance of Senate Democrats ending their inexcusable filibuster of the House-passed $1.1. billion package to fight Zika,” said Ryan’s spokeswoman Ashley Strong.
For now, the federal government has send emergency response teams to Miami and Florida agencies are going door to door offering testing. Much of that is financed by $27 million in emergency preparedness funding from CDC. And as a stopgap, officials have shifted hundreds of millions of dollars from fighting Ebola in Africa to fighting Zika at home. And Congress doesn’t return to work until September.
For NIGHTLY BUSINESS REPORT, I’m Eamon Javers in Washington.
HERERA: So, as concerns about the Zika virus grows, so do concerns about the travel industry — everything from airlines to hotels to cruise ships. They may find themselves in crosshairs by travelers spooked by the mosquito-borne virus.
Jonathan Grella is head of public affairs with the U.S. Travel Association, and he joins us now.
Jonathan, welcome. Nice to have you here.
JONATHAN GRELLA, U.S. TRAVEL ASSOCIATION HEAD OF PUBLIC AFFAIRS: Thank you. Great to be here.
HERERA: So, put it in perspective. I mean, the CDC called it an unprecedented warning today. One, do you agree with that? And two, quantify what type of impact you think this might have on your industry?
GRELLA: Sure. Right now, it’s confined to the neighborhood of Wynwood in Miami, which bears mentioning because it is just a neighborhood. It is certainly concerning to those who are pregnant or wish to be pregnant, and very different from previous health scares that have spread more geographically and applicable to more people than this current one.
HERERA: Yes. For instance, you were referring to Ebola or swine flu or something like along those lines. Correct?
GRELLA: Sure. Whether it’s Ebola, swine flu, H1N1, there is a lot a more anxiety on the front end than on the back end.
HERERA: So, do you think we’ll see an impact, just the fear factor, or not? You think that people are taking a look at the facts and realizing that if they don’t fall into that particular category, that things are OK? What does your gut tell you?
GRELLA: We’re in the early stages to this. And the guts less important than the facts. Really, the most important job for us all, not only in the travel industry, but also political leaders and the public is to make sure that we’re listening to the experts, the pros, that we’re being precise with the information that’s being passed around. And then, thirdly, that there’s proper perspective and that we don’t undersell or oversell this situations. It’s very important that we keep a level head in neither overreact nor underreact.
HERERA: Has your industry reached out to congressional representatives to put pressure on them to come back early and maybe do some funding?
GRELLA: Our industry has been working with congressional leaders on Zika funding both on the executive branch and legislative. The good news is that members of Congress from Florida understand better than most what it takes to keep a vibrant and strong travel industry. So, we’re confident that they’re going to keep an eye on the situation.
The good news if there is any, about Congress being home is they’re doing a lot more listening and less talking. And that probably to have them come back here and modulate their words and actions to an appropriate level to the situation.
HERERA: All right. Jonathan, thank you very much.
GRELLA: My pleasure.
HERERA: Jonathan Grella with the U.S. Travel Association.
GRELLA: Thank you.
HERERA: Coming up, cutting the cord? Not so fast, apparently. Why the TV business maybe in better shape than many thought it would be.
HERERA: It has been a year since Disney (NYSE:DIS) CEO Bob Iger raised concerns about the health of ESPN subscriber base, sending shock waves through that sector. Well, one year later, we’re back in the thick of media earnings and the TV business may be in better shape than many had expected.
Julia Boorstin reports.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: With so many new ways to access content without paying for a traditional TV bundle, media giants still have concerns about the health of their core business. Concerns sparked when Disney (NYSE:DIS) talked about cord cutting and skinny cable packages on ESPN.
BOB IGER, DISNEY CEO: ESPN has experienced modest sub losses, though those have been less than reported by one of the prominent research firms.
BOORSTIN: One year later, we’re seeing media giants offer more content direct to consumer, but their core TV business doesn’t look as bad as many feared.
ANDY HARGREAVES, PACIFIC CREST SECURITIES: I think the fears were related to cord cutting on the one hand, and probably ad dollars going to digital platforms on the other. Neither of those two things really have materialized in a major way. What has happened, though, is we’ seen dramatic decline in live viewership.
BOORSTIN: Take Discovery, whose stock shot higher after reporting better than expected earnings on the performance of its U.S. cable networks, also raising its earnings outlook.
CEO David Zaslav saying he’s focused on building content apps in Europe to sell to consumers outside the TV bundles. We’ve seen an explosion of options outside traditional TV. Skinny bundles from Dish’s Sling TV and Verizon’s Custom TV. Hulu is even working on its own live TV skinny bundle.
Meanwhile, cord cutting is slowing to just a 0.8 percent rat in the first quarter. That’s a third the rate of a year earlier, according to MoffettNathanson. And things are looking even better in the second quarter. Comcast (NASDAQ:CMCSA) (NYSE:CCS) has posted its second quarter I a decade in terms of subscriber losses and media giants over the top apps seem to be gaining traction. CBS (NYSE:CBS) saying its All Access and Showtime OTT apps are ahead of schedule with two million subscribers.
HARGREAVES: I think we’ll see more offerings like that. I think the competitive environment for a network entering that market, the direct to consumer market is extraordinarily tough.
BOORSTIN: And Discovery as well as CBS (NYSE:CBS) and NBC have given a bullish outlook for advertising, as higher out front ad prices kick in and some of the advertising dollars that shifted the digital return to TV.
Now, all eyes will be on what Disney (NYSE:DIS) says when it reports earnings a week from today.
For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.
HERERA: Julia reported on Comcast (NASDAQ:CMCSA) (NYSE:CCS) in her story, the parent company of CNBC, which produces this program.
Before we say good night, here’s another look at the day on Wall Street for you. The Dow lost 90 points, its seventh straight loss. NASDAQ was off 46, S&P 500 fell 13.
And that is NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us. Have a great evening, everybody, and we’ll see you here tomorrow.
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