Transcript: Nightly Business Report – August 10, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Dow 20,000? New research puts it in sight and there are a few sectors that may leaf the market higher over the coming months.

Manmade mosquitoes. Can genetically engineered bugs help stop the spread of the Zika virus?

Lousy 401(k)? Why more employees are suing their employers over their retirement plan offerings.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Wednesday, August 10th.

Good evening, everyone, and welcome. I’m Sue Herera. Tyler Mathisen is off tonight.

Great ready for Dow 20,000. Yes, you heard right. It may sound like a world away especially since the broader market has been making very small moves over the past few weeks, but new research shows it’s not. According to S&P, a compilation of one-year target prices for the 30 members of the Dow puts that blue chip index at 2000 in just 12 months. That’s roughly 8 percent higher from current levels.

Now, S&P does say that this is based on analysts’ targets, which tend to be optimistic, but there is some consensus on which sectors will outperform over the next few months and help take the market higher.

Dominic Chu has part of the story.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you haven’t looked at your 401(k) or retirement account statements in a while, you might be in for a pleasant surprise, even if it’s just a little one, that’s because there doesn’t seem to be anything that can take this stock market down and we’re near record highs for all the major U.S. indices.

For some experts, the outlook for the rest of the year is somewhat promising.

BILL STONE, PNC INSTITUTIONAL ASSET MANAGEMENT: We’re looking for earnings getting at least less bad and I think we’ll turn to the positive here by the end of the year and you still have what we would argue as lower for longer in terms of interest rates, and whichever way you cut it, lower interest rates do mean higher prices in the long run for assets and those assets include stocks.

CHU: But that doesn’t mean that the entire market is just going to start soaring higher. There’s a debate as to what parts of the market will lead the way and which parts fall behind.

Many strategists believe the sectors like technology and health care will help drive things higher.

DANIEL SKELLY, MORGAN STANLEY WEALTH MANAGEMENT: I actually like health care because I think you have frankly stronger growth and frankly, you’re also tethered to longer term secular terms such as the ageing, the demographic dynamics in the U.S., the ageing of the boomers. In technology, I think it was reassuring to see a lot of the sort of value tech, big mega cap names performing fairly well to the most recent earnings season.

CHU: That might provide some fuel for an overall market move to the upside. Technology and health care are two of the biggest parts of the S&P 500 and they’ve had a good amount of success reporting bigger than expected earnings so far this season.

As for where there’s less optimism — well, there’s certain places.

SKELLY: I think there are areas of utilities you need to be more concern about that frankly very high valuations. They’re areas of telecom, particularly in some of the careers where you got pricing competition, and then there’s frankly areas of consumer staples that have long-term secular concerns related to health and wellness and so forth that I’d also be cautious at at these valuations.

CHU: As investors weigh future events like our presidential election and whether the Federal Reserve will do anything with interest rate, how they weigh different parts of the market could go a long way towards better or worse returns heading into 2017.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

HERERA: On Wall Street, oil prices dropped, so did energy stocks, and the broader market fell along with that. By the close, the Dow Jones Industrial Average was down 37 points to 18,495. The NASDAQ was off 20. The S&P 500 declined six.

And joining us now to talk more about the market is Rich Bernstein, chief investment officer at Bernstein Advisors.

Good to see you again, Rich. Welcome back.

RICH BERNSTEIN, BERNSTEIN ADVISORS CIO: Hi, Sue. Thank you. How are you?

HERERA: I’m good. Thank you.

Let’s start with how you view this market. I mean, we pose the question, Dow 20,000 and I know there were some who disagreed with you wrongly when you were more optimistic on the than others. So how do you feel about it now?

BERNSTEIN: Sue, you know, you’re right. We have been pretty consistently bullish for the past six, seven years. We thought for some time that this bull market would be one of the biggest ones of maybe my career. I think it’s already the second longest in the post-war period, and I think by the time we’re done, it will be one for the record books.

I think this bull has good legs to run on still. And I think, if you just one reason why, it would be because nobody wants to play.

HERERA: Right.

BERNSTEIN: The fear that is still out there, I haven’t seen anything like that, seven years into a bull market in my entire career.

HERERA: Yet, if you’re a money manager and you have to put money to work really equities is one of the only places that you can go right now.

BERNSTEIN: It wouldn’t necessarily just equities. I mean, you know, we have in our portfolio, some exposure to gold. We have some exposure to lower quality bonds. I think there are a lot of things that you can look at.

The common thread, though, in our portfolios, that one should expect continued improvement in the economy, an improvement in corporate profits. Now, I didn’t say the economy would be good in and an absolute sense. The market doesn’t really care about that.

So, our feeling is and our forecasts and what we’re seeing in corporate profits is that they will continue to improve for the next 12 to 18 months. If we’re right on that, then I think the bull market continues.

HERERA: What about valuations? There are a number of people on the street who think that stocks are overvalued, but you think that they’re may be fairly valued.

BERNSTEIN: Correct. And the reason why is that, you know, people see the price earnings ratio of the S&P 500 and they see it, depending on how you pressure it these days, and what definition of earnings you’re going to use, it will be somewhere between 20 and 25. The absolute number doesn’t really matter. But in general, people will say that the market is expensive because you’ve got this very high price/earnings ratio.

I think what people are missing is what is that price earnings ratio relative to the level of interest rates. For example, if we go back to 1999, I’m sure period most of your investors, most of your watchers remember, the P/E ratio on the S&P was very high 20s, if not 30s. But the ten-year keynote that the time was 6.5 percent.

Today, we have a P/E ratio, as I said, somewhere between 20 and 25, and a ten-year note of 1.5 percent. It’s very hard to argue that with 1.5 percent ten-year keynote that stocks are dramatically overvalued. I think that’s very difficult in this environment to make that argument.

HERERA: All right. Rich, we have to leave it there. Thanks so much. Good to see you again.

BERNSTEIN: Thanks for inviting me on, Sue.

HERERA: Rich Bernstein with Bernstein Advisors.

There’s a new report on the job market and it shows a kind of mixed picture. The rate of layoffs fell about 1 percent in June. That matched the lowest on record dating back 15 years. But the Labor Department’s monthly survey of labor market turnover also showed that pace of hiring into new jobs has yet to fully recover from the 2009 decline, and that since switching jobs is one of the ways that workers get raises, the report may explain why wage gains have been muted.

To politics now, where a new batch of e-mails reportedly show top Clinton Foundation officials sought access to the State Department while Clinton was secretary. The documents were released by conservative watchdog group. Clinton has always denied charges that the charitable foundations worked to reward donors with access to the State Department.

John Harwood joins us now from Washington and has more.

John, how damaging are these e-mails likely to be?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Hillary Clinton has a problem with people believing she’s not trustworthy. That’s dogged her campaign. Majority of people say that. Donald Trump calls her Crooked Hillary.

So this plays into that story line, with the idea of a conflict of interest. It’s more smoke than fire. There’s no allegation of specific things being done to benefit the donors. One of the e-mails that came out today was a Clinton Foundation official asking the State Department to put a wealthy donor in touch with a person on Lebanon. That person at the State Department said he never met the wealthy donor, so don’t know whether anything came of that.

However, the appearance of conflict of interest is not helpful to Clinton and Donald Trump was ripping her for it today.

HERERA: Now, meantime, Mrs. Clinton responded to Donald Trump’s Second Amendment comment, that had been interpreted by some as inciting violence. Take a listen.

(BEGIN VIDEO CLIP)

HILLARY CLINTON (D), PRESIDENTIAL NOMINEE: His casual cruelty to a Gold Star family. His casual suggestion that more countries should have nuclear weapons. And now, his casual inciting of violence. Every single one of these incidents shows us that Donald Trump simply does not have the temperament to be president and commander-in-chief of the United States.

(END VIDEO CLIP)

HERERA: So, John, what’s the fallout been and will there be more?

HARWOOD: Well, Donald Trump extended the conversation about that today by disputing a report by CNN that the Secret Service has had conversations with his campaign. He said that that wasn’t true.

He didn’t address it directly in his remarks. He did say that the press has a pattern of taking stories that aren’t really stories and making a big deal out of them. That seem to be an allusion to what happened the day before. He did say that the Second Amendment was under siege and he urged people to rally in support of it.

But the question is going to be how much do other Republicans who are concerned about his comments, how much do they distance themselves. Paul Ryan said last night, he needs to clear this up quickly. He hasn’t done it quickly in any detail yet.

HERERA: All right. We will wait and see, John. Thank you very much.

John Harwood in Washington.

Still ahead, the fight against Zika. Can manmade mosquitoes wipe out the ones carrying the virus?

(MUSIC)

HERERA: Heavy discounting and declining foot traffic in malls impacted both Ralph Lauren and Michael Kors. But Ralph Lauren’s quarterly results came in largely as expected. And the company is spending a lot of money to turn itself around. It’s also cutting costs and investors like that, sending the shares up more than 8 percent.

But over at Michael Kors, stronger dollar and fewer shoppers at the malls led the luxury goods maker to report a bigger than expected drop in quarterly comparable store sales. The retailer also gave a cautious forecast and shares fell more than 2 1/2 percent.

Michael Kors is just one of a handful of luxury handbag makers that are fed up with department stores and the constant discounting, and it has a strategy to battle back.

Courtney Reagan has that part of the story.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: High end handbag makers aren’t happy with department stores. As shopper traffic continues to languish, department stores keep upping the ante on the discounts. Just as brands like Michael Kors, Coach and Kate Spades are working hard to go the other way. These handbag makers are working on rebuilding their premium brand images by returning to premium pricing.

Michael Kors is most exposed of the three, with half its sales coming from the wholesale channel, and it’s looking to remove itself from all of its retail partners couponing, including friends and family sales held at department stores like Macy’s.

JOHN IDOL, MICHAEL KORS: We think it’s creating confusion in the consumer’s mind relative to the value of the Michael Kors brand when it’s being seen so often on sale in so many different places.

REAGAN: Earlier in the summer, Michael Kors confirmed it was pulling back on the number of products it sends to department stores, explaining less available product should lead to increased demand and that demand will be at full price versus sale.

Coach is taking it a step further, pulling its products out of a quarter of its North American department store partners. The brand says not only is volume below the threshold at these locations, but the increasing promotional levels at department stores are creating a negative impact on long-term brand health.

ANNA ANDREEVA, OPPENHEIMER & CO. MANAGING DIR. SPECIALTY RETAIL: We think preserving the brand in that aspirational luxury-type of positioning is the right thing to do. It seems like a reliance on the wholesale at large is becoming less and the resale makeshift is something to talk about.

REAGAN: It’s a conversation analysts and investors are certainly having, trying to determine what it means to continually challenge department stores as well.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

HERERA: Disney took a giant step into the future. As we reported last night, the world’s largest entertainment company is making a billion dollar investment in a streaming media company created by Major League Baseball. But this deal is about a lot more than just streaming sports.

As Julia Boorstin reports, it’s about reshaping an industry that touches and entertains as all.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Disney’s making a billion dollar bet that this future is digital, buying a third of streaming video company BAM Tech. And Disney’s collaborating with BAM Tech to create a streaming ESPN branded sports app with content like hockey and baseball. It won’t stream existing ESPN channels, but Disney’s CEO, Bob Iger, says this opens to overhauling ESPN’s business down the line.

BOB IGER, DISNEY CHAIRMAN & CEO: If the business model that is supporting these great media property starts to fray, in a significant way, we have the ability to pivot quickly and put out a direct to consumer product that can potentially either replace it or supplant it. That’s really important. We’re not suggesting that it’s going to happen. It’s our hope that that doesn’t happen, but this certainly puts us in a great position should it happen.

BOORSTIN: Apart from ESPN, Iger says this investment will help Disney bring brands across the company, direct to consumers, with new streaming options. Imagine a Disney app for kids or even a subscription services focused on Marvel content.

It’s not just ala carte content. There are new lower cost streaming bundles in the works from DirecTV and Hulu. Disney says its top channels will be included in both of them.

JAMES STEWART, NEW YORK TIMES COLUMNIST: I think this move into, you know, direct streaming technology for the company is a recognition that there’s a future where the cable set top box is no longer the nexus with the consumer.

BOORSTIN: The question investors are evaluating now is whether the consumer to streaming and away from traditional TV is going to eat into current Disney revenue streams.

ROGER MCNAMEE, ELEVATION PARTNERS: For Disney, specifically, they have this amazing deal, particularly on ESPN, where 80 million people are paying for ESPN whether they want it or not. As we go to various cord cutting and unbundling situation, they’re going to have to reset the business model.

BOORSTIN: With cord-cutting on the rise, consumers may not be as interested in paying for traditional TV bundles. So, Disney and other media giants are working to make sure they’re where ever consumers want to be.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: Perrigo slashes its full year outlook. That is where we begin tonight’s “Market Focus”.

The pharmaceutical company said increased competition and lower prescription drug prices prompted it to lower its earnings forecast. The company also reported worse than expected profit in the latest quarter. The shares fell more than 9.5 percent to $86.

Orbital ATK said it will delay filing results for the quarter due to accounting errors tied to a military contract. The aerospace contractor said it plans to restate more than a year’s worth of its results. In addition, the company reaffirmed its earnings outlook for this year. Shares plummeted 20 percent to $70.79.

Sales growth disappointed at Wendy’s. The fast food chain reported an uptick in same store sales, but it was significantly lower than what analysts were looking for. The company also said revenue and profits for the quarter fell as more consumers opted to dine out less. Shares down 28 cents to $9.91.

Shake Shack raises its full year forecast. The burger chain saw both profit and revenue rise, with results surpassing analysts’ estimates. But the company only saw same store sales grow 4.5 percent and analysts were anticipating a 5 percent increase. That sent shares sharply lower in initial after-hours trading. The stocks finished the regular session down 1 percent to $40.99.

Well, this may sound like something out of a sci-fi movie, but it is very real. The FDA recently gave the OK to deploy armies of genetically engineered mosquitoes to fight the spread of the Zika virus.

And as Meg Tirrell reports, the plan may soon be tested in a Florida community.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Though its embattling the mosquito that carries the Zika virus for decades, public health experts say our current methods don’t always work well enough.

That’s what happened in the area of Wynwood, Miami, where there are now been 21 cases of Zika acquired from local mosquitoes. But in another area of Florida, health officials have been considering another method of mosquito control, a genetically modified bug programmed to wipe out its own kind.

RANDAL KIRK, INTREXON CHAIRMAN & CEO: The usual methods of reducing this particular mosquito really don’t work.

TIRRELL: Here’s how the technology works: Intrexon subsidiary Oxitec modifies male mosquitoes to be released and mate in the wild. The offspring they produce can’t survive. If enough of these bugs are released, they’ll outperform their wild brethren. Ultimately, wiping out much of the population.

In field tests in Brazil and elsewhere, the Oxitec mosquitoes have reduced numbers of the bug known as Aedes Aegypti by more than 90 percent.

Intrexon’s Kirk sees this as potential big business. The market for pesticides to control disease-carrying bugs is estimated at $2 billion to $3 billion annually.

KIRK: I think it’s actually significantly more than that. And the reason is, it should be born in mind that this, the footprint of this mosquito on a worldwide basis is absolutely enormous now. It’s basically, everywhere between 35 degrees north and south latitude and below about 2,000 meters in altitude, just an absolutely enormous footprint. It’s the largest footprint that this mosquito has ever occupied.

TIRRELL: The approach just received clearance from the Food and Drug Administration to start testing in the U.S. The regulator found no significant environmental impact as a result of the GMO mosquitoes. But the idea has faced local opposition in the Florida Keys, where Intrexon aims to do the first U.S. trials.

The community of Key Haven will vote in November on whether to do the test. When residents cast their ballots in the general election, both for president and whether to test GMO mosquitoes. Intrexon’s Oxitec says it’s having conversations with different areas of Florida, also considering whether to test the technology. Meanwhile, the hard work continues of trying to keep the bugs at bay.

DR. SCOTT GOTTLIEB, AEI RESIDENT FELLOW: We have the capacity to do it, but it’s going to take a sustained effort, probably over multiple years. You’re not going to completely this population in one season. But we know how to do this.

TIRRELL: Communities like the Florida Keys are using traditional methods, climbing through backyards, hunting mosquitoes, and spraying pesticides by air, as well as tireless vigilance to try to keep residents safe.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

HERERA: Coming up, meet the retiree who is in the middle of a prolonged legal battle with his former employer over his retirement savings.

(MUSIC)

HERERA: A legal win for Twitter. A judge today dismissed a lawsuit that accused Twitter of supporting Islamic State rhetoric. The case was brought by the widow of an American killed in Jordan. She claimed the social media company gave the terror group a voice. The judge ruled that Twitter cannot be held liable but gave the plaintiff a chance to re-file an amended lawsuit.

A growing number of employees have sued their employers over their 401(k) plans. Most of the lawsuits center around a similar complaint, excessive fees. The rise in the number of lawsuits follows a Supreme Court ruling that basically increased the responsibilities of those who oversee company retirement plans. Just last night, we told you that three renowned universities were being sued.

Tonight, Sharon Epperson tells you of one man’s legal battle with his former employer.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Former engineer Ronald Tussey is spending his retirement much like he imagined he would. What he didn’t plan on was a prolonged legal battle with his former employer ABB over his 401(k) plan.

RONALD TUSSEY, RETIREE: It was very difficult to figure out exactly what it was costing you.

EPPERSON: Tussey eventually filed a class action lawsuit claiming the company failed to comply with federal law, causing plan participants to incur unnecessary and improper fees.

JEROME SCHLICHTER, TUSSEY’S ATTORNEY: We spent a year and nine months looking into industry practices and the ABB plan and I came way convinced that people were being ripped off for their retirement assets.

EPPERSON: A Missouri federal court ruled in favor of Tussey, ordering ABB to pay $37 million to its employees and retirees.

But no one has received a penny, since the case is still on appeal, ABB said it could not comment on an open case, but did tell us that, quote, “benefit offerings are reviewed regularly to ensure they remain competitive and compliant, as well as cost effective.”

Experts who help companies designed 401(k) plans say the companies need to do a better job understanding how fees work, and be able to explain to participants where the money’s going.

JANIA STOUT, HIGHTOWER FIDUCIARY PLAN ADVISORS: Plan sponsors really need to be educated on — well, then, who’s getting paid and how are they getting paid.

EPPERSON: Along with the rise in 401(k) lawsuits over the past several years, 401k fees have been declining, with the average total cost dropping to less than 0.9 of a participant’s asset.

But Ronald Tussey says many companies still need to do more.

TUSSEY: It should be simple. It should be straightforward, what the cost is to have a particular fund.

EPPERSON: For NIGHTLY BUSINESS REPORT, I’m Sharon Epperson.

(END VIDEOTAPE)

HERERA: According to a new report from Federal Reserve Bank of New York, some of the nation’s lowest scoring borrowers are getting credit cards again. New issuance of cards with credit scores under 660 has been rapidly expanding since 2009, approaching pre-crisis levels.

Craig Dismuke, chief economist of Vining Sparks, joins us now to talk more about that.

I would think this is a worrisome sign, Craig, but you disagree a little bit.

CRAIG DISMUKE, VINING SPARKS CHIEF ECONOMIST: Well, I think there are a couple of things to remember. First of all, generally, the expansion of credit is positive. When you have expansion of credit, it increases consumer’s ability to spend. It shows that lenders were willing to lend again. And it also shows the consumers have enough confidence to be willing to take on more credit.

So, it’s not always a bad sign. When you get too hot and you see too much growth, that’s when you have to worry about it. But I think you look — step back and look at the big picture, the amount of credit that’s outstanding right now is still much lower than it was prior to the crisis. And so, when you look at it from that level, I still think we’re at a very manageable levels.

HERERA: What about — there are those out there who say that — well, the reason that they’re using credit again is they’re trying to make ends meet, because they’re either working two jobs or and wages haven’t grown significantly for sometime now.

So, what do you make of that argument?

DISMUKE: That — so that’s the one downside, is that before the consumers who are using credit to make ends meet. And you’re right. Wages haven’t been growing and they’re, the labor market is getting better, but there are still some areas of weakness. That’s where you have a concern, and so, we have to wait and see how that plays out.

But the thing, the trend that we still see playing out right now is that the delinquencies on credit cards are still coming down. So, it’s still positive. It looks like the sector is still positive. And we may be seeing the very beginning of an increase in credit that could be a problematic later on.

But for now, I’m not that worried about it. I don’t think it’s excessive at this point.

HERERA: The cynical part of me says that the lenders are extending credit because they can’t make money in other ways, on other instruments because interest rates are so low. And with credit cards, they can charge a much higher rate. And so, that’s one of the reasons they’re expanding credit.

What do you think?

DISMUKE: Yes, I agree with that and it’s one of the outworking of Fed policy. With the Fed keeping rates as low as they have for so long and now, you’ve got other central banks helping to do is same thing. It’s really making it difficult for these lending institutions. So, they’re looking for any kind of loan they can make, and there’s not much demand on the real estate side and so they’re going in the car loans which have been — auto lenders have been a party for six years. And now, with credit card, we’re starting to see expansion there as well.

HERERA: All right. Craig, thank you. I hope you’re right.

Craig Dismuke with Vining Sparks.

DISMUKE: Thank you.

HERERA: And finally tonight, San Jose, California, became the first U.S. city where the price of a typical home cost more than $1 million. San Francisco came in second with a median price is more than $885,000, and Anaheim, California, third at $740,000.

And that does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us. Have a great evening. We’ll see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2016 CNBC, Inc.

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