Nightly Business Report – September 30, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Big gains. Stocks rallied at close and an unusual quarter that saw the NASDAQ gain 10 percent. And the next three months could get even more interesting for investors.

Betting the farm. Why the key battleground state of Iowa is taking on
greater importance in this presidential election.

And paying it back. Our market monitor looks for dividend investments and
has a list of stocks he says you should have on your buy list.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
September 30th.

Good evening, everyone. And welcome to this last day of the quarter and of
September. I`m Tyler Mathisen. Sue Herera is off tonight.

Well, investors ended the quarter in a good mood. Stocks rose sharply and
once again it was the financial sector that led the way as it has on and
off over the past three months.

Now yesterday, bank stocks sand bagged the market. Today, they lifted it.
On unconfirmed reports that Deutsche Bank has reached a deal with the U.S.
Justice Department. More on that story in a moment.

Meantime, the Dow Jones Industrial Average finished the session today up
164 points at 18,308. NASDAQ added 42 and the S&P 500 gained 17.

In today`s rally closed out an unusual third quarter, one that saw
turbulence created by the Brexit vote early on, fresh record highs later
and continued uncertainty about interest rates.

Of the three major indexes, the NASDAQ was the big winner for the July to
September period, up nearly 10 percent, as you see there. But now, we
start the fourth quarter of 2016, and as Bob Pisani reports, it could start
to get really interesting for investors.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you`re an average
investor, you probably don`t want volatility in the stock but professional
traders like volatility, because they make money trading price swings and
stocks. Aside from some volatility earlier in the year as the oil dropped
and a little volatility when the U.K. voted to leave the European Union in
June, there hasn`t been much volatility this year.

Traders hoping for big market moves around the Clinton/Trump debates were
also disappointed. But hope never dies and traders are pitting their hopes
for market volatility in the fourth quarter on two events, the presidential
election and the Fed meeting in December.

It`s not clear either will produce much market movement. The market seems
to be position for a Clinton victory with the House going Republican, a
divided government. Should Trump win, that would cause volatility, though
many point out a major source of that potential volatility is Trump`s
antipathy for Fed Chair Janet Yellen. Any disruption to the Fed,
particular if Yellen resigns, would cause a problem for the markets.

And that brings me to the Fed meeting in December, where markets believed
there is a roughly 60 percent chance the Fed hike rates. The Fed is the
big gorilla in the room. They are the only one of the long term movers of
volatility out there.

Is there anything else? Well, there is a recession, but that`s not on the
horizon. And, of course, you could have some kind of exogenous shock, like
a terrorist incident.

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

(END VIDEOTAPE)

MATHISEN: Kevin Nicholson joins us now to talk more about the markets and
what he expects in the fourth quarter. He`s chief market strategist at
Riverfront Investment Group.

Mr. Nicholson, welcome. Good to have you with us.

Bob Pisani just teed up a lot of things, from a possibility of an exogenous
event somewhere around the world, to the resignation of Janet Yellen, if
Mr. Trump became president. What do you think the biggest variable is, as
we — for investors as we go into this fourth quarter?

KEVIN NICHOLSON, RIVERFRONT INVESTMENT GROUP: Well, I think the biggest
variable is the election. I think if Donald Trump wins the election, then
you`re going to see market volatility. You will probably see the stock
market go down, because they — just the fear of the unknown. If Hillary
Clinton wins the election, then it`s a little bit more of the same. And so
I think at that point the market could grind higher.

MATHISEN: So, the underlying fundamentals of the market, as you handicap
them right now are? Where are they on a scale of 1 to 10 with 10 being
really good?

NICHOLSON: I would probably say the fundamental of the market would
probably be about a 6. I mean, what we have seen with the economic numbers
that have come out this quarter in the U.S., we have kind of see a mixed
bag of economic numbers.

So, I think that right now we`re not operating on, you know, full
cylinders. We`re not gung ho. But at the same time, I`m not going to run
away from the markets either.

MATHISEN: Right.

NICHOLSON: I think that, you know, we`re position in a good place.

MATHISEN: Let`s talk about some sectors that you think might be able to
push higher, no matter what happens. And let`s focus on two of them —
energy/oil and financials.

NICHOLSON: Sure. With energy, I think that with OPEC, the rumors this
week that OPEC has come to an agreement to cut production. I think that`s
really good for energy. It puts a floor on oil at about $40. It also
allows the U.S. drillers more of the shale drillers to be able to use those
drilled but uncompleted wells, bring them back online. And so, that will
put oil in a range-bound —

MATHISEN: Right.

NICHOLSON: — state of $40 to $60, we expect to see some volatility.

MATHISEN: So, if the deal — if the deal is good for the oil stock, good
for the shale dealers, what about the financials and what is your one
favorite sector over the next quarter?

NICHOLSON: OK. With financials, I think that financials are probably
going to do well, as we get closer to a Fed raising interest rates. The
Fed held off this last meeting, but we do believe in — and have indicated
they are going to potentially hike at some point this year. And we think
that hike is going to come in December. And, you know, obviously higher
interest rates are going to help banks as far their net interest margin,
and so we think that, you know, financials is a good place to be going in
the fourth quarter.

MATHISEN: All right. Kevin — Kevin Nicholson with Riverfront Investment
Group in my home state of Virginia.

All right. To the economy now, consumer spending softened in August.
Personal consumption, which measures how much Americans spend on just about
everything, was unchanged from the prior month. And that was the weakest
reading since April, and a change from the second quarter, which saw
consumer spending advance at its fastest pace since 2014. Incomes,
meanwhile, grew more slowly last month.

But despite the pullback in spending, another report shows that sentiment
rose in September. That suggests that households are feeling pretty good
about the economy, and when consumers feel good, they do tend to spend
more, which in turn helps economic activity. American households have been
the main driver of economic growth this year.

Well, a concerning statement out of Cognizant, something no shareholder
wants to hear. The I.T. services provider says it is conducting a
corruption. The probe, which is in its early stages, is centered on
possible violations of the Foreign Corrupt Practices Act related to
payments in India. The company`s president abruptly resigned and no reason
was given for his departure. The revelations caused the stock to drop 13
percent in trading today.

Wells Fargo`s COE could receive a bigger payout than original thought.
According to a “USA Today” report, if John Stumpf were to retire, he`s
still positioned to collect pension accounts and stock, valued at more than
$134 million. That`s more than the previously reported $123 million, and
his potential payout has grown, apparently because he exercised options to
buy an additional 500,000 shares since the end of last year. This comes
despite the $41 million forfeiture he announced earlier this week.

More now on that Deutsche Bank story which as we reported was a big driver
of today`s stock market rally. This as concerns eased about the health of
Germany`s biggest bank. First, the CEO expressed confidence in the firm`s
financial position. Then, there was a report, though it`s not been
independently confirmed, that the bank is close now to a settlement with
the U.S. Justice Department related to its dealings in mortgage securities.
That settlement, according to the report, is at a price well below the $14
billion originally floated.

And with that, the stock took off, rising 14 percent and easily making up
all of yesterday`s losses, plus more.

Annette Weisbach reports tonight from Frankfurt.

(BEGIN VIDEOTAPE)

ANNETTE WEISBACH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tonight, there is
a lot of relief, I`m sure in the towers behind me, which are the
headquarters of Deutsche Bank. There are reports that there might be a
settlement with Department of Justice of US$5.4 billion, which is a lot
lower than the number previously reported, which was US$14 billion.

But still that number might still be incorrect, because according to the
law in Germany, the company has to react immediately if a number is out in
the market, which is close to the real number they are discussing. So,
take that number with a pinch of salt. Of course, the whole crisis comes
as a very bad timing for Deutsche Bank. There`s a general feeling that the
European banking sector is not very stable, and, of course, Deutsche Bank
being one of the biggest banks is very much in focus here.

So, the lender is trying to fend off certain speculators, John Cryan, the
CEO of the bank, wrote a letter to its staff, reassuring its staff about
the stability of the bank and also saying there are certain forces in the
market speculating against the bank that they have to do what they can to
fend those speculators off and reassure clients about the stability of the
bank.

This is Annette Weisbach for NIGHTLY BUSINESS REPORT, in Frankfurt.

(END VIDEOTAPE)

MATHISEN: Still ahead, battleground breakdown. Why the cornfields of Iowa
could pay a — play a very big role in this year`s presidential election.

(MUSIC)

MATHISEN: Federal investigators have found one of the black box recorders
from yesterday`s commuter train crash in Hoboken, New Jersey, which we told
you. The crash killed a woman and injured more than 100 others. The data
recorder will help investigators identify key information like the speed of
the train, as it approached the station.

With the election a little more than a month away, Iowa is in focus. The
state has an early voting window, one of the few states that allow weeks of
in-person voting ahead of Election Day. And this year, it`s the only
battleground state to do so.

Andrew Ross Sorkin reports tonight from Des Moines.

(BEGIN VIDEOTAPE)

ANDREW ROSS SORKIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Every four
years, Iowa`s cornfields become battlefields for presidential campaigns.

(CROWD CHANTING)

SORKIN: 2016 is no different. Early voting began Thursday, and the rest
of the country is looking to the Hawkeye state, which has voted Democrat in
the past five out of six presidential races.

Iowa didn`t again its bellwether status because it`s representative of the
country. According to the Census Bureau, the state`s population is more
than 90 percent white. Its economy driven by farms and commodity crops.
And farmers in Iowa have a lot to say about the issues impacting them most.

DARCY MAULSBY, CORN AND SOYBEAN FARMER: Being taxed to death is no way to
grow an economy. I mean, it`s like if I wore stiletto heels out to the
cornfield. It doesn`t make any sense. So, we need to get — we need to
have serious conversations about what are we going to do about this tax
policy run amok.

TIM KALDENBERG, CATTLE FARMER: One of the important issues for us is
getting more trade. Agriculture is one of the things that has the most to
gain from TPP, and that has been good for us too. We need more exports.

SORKIN: As a result of these concerns, candidates shift their focus while
campaigning here.

Bruce Rastetter is advising Donald Trump when it comes to agriculture.

What needs to happen?

BRUCE RASTETTER, ENTREPRENUER: I think two things. I think, one, if you
think about agriculture and farming, we have unfair trade agreements that
are harming income levels and not putting agriculture and other industries
in the U.S. on a fair playing field. Two, we have over-government
regulation that`s increasing costs and creating uncertainty for your
business.

SORKIN: Right.

RASTETTER: So, the combination of those two is not a good thing.

SORKIN: But Clinton is focusing her ground game away from the farms in
Polk County. In Des Moines, where she spoke Thursday, the Democratic camp
hopes to close the gap by courting a more urban and younger demographic.

Now, here in Des Moines, Iowa, Democrats have a registration advantage, but
millennials, those under 35, are growing remarkably, twice the national
rate. Now, Trump didn`t win in the caucuses in the state but he is leading
the polls.

For NIGHTLY BUSINESS REPORT, I`m Andrew Ross Sorkin in Des Moines, Iowa.

(END VIDEOTAPE)

MATHISEN: Wall Street has its best initial public offering of the year so
far, and that is where we begin tonight`s “Market Focus”.

Cloud computing company, Nutanix, hit the market and in a big way, more
than doubling in its first day of trading, one of the anticipated IPOs this
year. In a year, with not many offerings. Shares priced last night at $16
each, and that was above the expected range. Nutanix finished up 131
percent at $37 even.

The aluminum maker and former Dow component, Alcoa (NYSE:AA), says it will
split in two, effective in November, after the company`s board approved the
move. The company will separate its fast-growing plane and car parts
business from its traditional aluminum business, a move that aims for
higher returns amid the prolonged slump in commodity prices. Alcoa
(NYSE:AA) up nearly 2 percent on the day to $10.14.

The spice maker, McCormick (NYSE:MKC), raised its full-year guidance after
reporting quarterly earnings that beat estimates. The company saw sales
rise 3 percent from last year, with adjusted earnings per share, up 21
percent.

McCormick (NYSE:MKC) credited the growth to products that are, quote, on
trend with consumer demand and healthy and high-quality flavors.
Particular in the U.S. and China. Shares of McCormick (NYSE:MKC) up better
than 2.5 percent on the day to $99.92.

The activist hedge fund Elliot Management doubled its stake in Mentor
Graphics (NASDAQ:MENT) to more than 8 percent. Elliot said shares of the
electronic design firm were undervalued and called on the company to
increase shareholder value by enhancing efficiency and pursuing those
strategic opportunities they always talk about. Mentor Graphics
(NASDAQ:MENT) popped 7 percent to $26.44.

And Costco (NASDAQ:COST) has come under fire for selling fake Tiffany
(NYSE:TIF) rings. The federal jury ruled yesterday that Costco
(NASDAQ:COST) should pay $5 million to the Jeweler for its counterfeit
engagement rings branded with the Tiffany (NYSE:TIF) name. The jury said
the luxury retailer was also entitled to punitive damages which still to be
determined. An investor seemed more interested in the company`s higher
than expected earnings that came out after the bell yesterday. Shares were
up today more than 3 percent at $152.51.

Our market monitor likes dividend stock that he says are less susceptible
to rising interest rates and could be a good source of income in today`s
environment. Last time he was on, that was back in January. He
recommended CVS (NYSE:CVS) Health, it`s down 6 percent. AT&T (NYSE:T), up
18 percent, and Ford basically flat off about 1 percent.

He`s Mark Spellman, portfolio manager at Alpine Funds.

Mark, welcome. Good to have you with us.

Are you still comfortable with each of the picks you made last January? Or
not?

MARK SPELLMAN, ALPINE FUNDS PORTFOLIO MANAGER: Well, if you add in the
dividend back in January, AT&T`s dividend was about 5.5 percent. If you
add some of that back in, that stock was up over 20 percent on a total
return basis.

We like the stock, we have cut it back. We think fair value is about $42 a
share. So, there`s limited up side. But it is a good source of income,
and we`re comfortable holding it.

Ford, we`re a little concerned about. They`re still making tons of money
on light trucks and SUVs, but the car market has become very competitive.
Again, that stock had a 5.5 percent dividend and if you add that in, you
did make some money on that.

CVS (NYSE:CVS), we actually like going forward and we think it`s been
susceptible to these hearings about Mylan (NASDAQ:MYL). You know, the CEO
of Mylan (NASDAQ:MYL) was in front of Congress talking about EpiPen prices
going from $100 to $600, and we think she was trying to deflect the
criticism on to the pharmacy benefit managers, which CVS (NYSE:CVS) is one
of. And we think that`s kind of unwarranted. We think the stock is very –
– looks like a very good value right here.

MATHISEN: It`s one of your three picks this time around. It`s currently
$89. You have $106 price target on it. Still like that one. Let`s move
on to Lowe`s. You got an $89 price target on that one. Currently trading
at about, what, 73 — mid 70s.

SPELLMAN: Yes. Lowe`s continues — their results have been OK recently.
But the macro environment for Lowe`s continues to be very good. The
employment numbers are good. Homeowners continue to increase. We like
that stock. It`s a very reasonable valuation.

They raised the dividend by greater than 20 percent in each of the number
of years. We think that`s going to be going forward the same kind of
profile. Really do like Lowe`s here.

MATHISEN: All right. Third pick is American Tower (NYSE:AMT). Tell us
what they do and why you like them.

SPELLMAN: Yes. American Tower (NYSE:AMT) is a vital part of the
infrastructure globally now. And it`s one of the top ten positions in our
global infrastructure fund. They own 140,000 towers throughout the world.
You know, you`re using your phone for a lot more than you used to a number
of years ago, and so are businesses. And they sign long-term leases to
lease these towers.

Mobile data growth has been going up by greater than 50 percent over the
last number of years. We think that`s a trend that`s going to continue.
And because we like dividends, this is a stock whose dividend has doubled
in the last three years. And we think it`s actually going to — on pace to
increase another 20 to 25 percent going forward. It`s about a 2 percent
yield.

MATHISEN: A hundred and forty thousand towers. That`s amazing.

SPELLMAN: Yes.

MATHISEN: A quick thought, if you don`t mind. Will the market end higher
than it is today?

SPELLMAN: You know, all along we have been looking about a 6 to 8 percent
market this year. Because of the multiple is kind of high and we were
basically getting from earnings growth. But it underscores how important
dividends are and rising dividend are, as well, because 40, 50 percent of
the total return for the market is going to come from dividends.

We think you`re at the higher end, maybe you get a little bit more —
there`s a lot of worries out there as far as the elections are concerned.
So, it might be a little bit volatile, but we think 8 percent is probably
what you`re going to get this year.

MATHISEN: We`ll take it.

Mark Spellman, thanks, with Alpine Funds.

SPELLMAN: Thank you.

MATHISEN: Well, it has been a year since customers began dipping cards
rather than swiping them at cash registers across America. And those cards
known as EMV chip cards are intended to create far more security and
prevent the use of counterfeit credit cards.

But as Contessa Brewer reports, the switchover has been bumpy with
retailers slow to adopt the change and confusion on the part of costumers.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Six hundred
million chip cards have now been issued to consumers, about half of all the
cards in use. But those high-tech cards can`t be used at two-thirds of the
nation`s stores, since fewer than 2 million retailers are ready to accept
them.

JASON OXMAN, ELECTRONIC TRANSACTIONS ASSOCIATION: This is an incredibly
complicated undertaking. Both on the consumer side, banks undergoing
enormous billion dollars in costs to upgrade to the new chip cards. On the
merchant side, it`s an enormous undertaking for merchants, as well.

MALLORY DUNCAN, NATIONAL RETAIL FEDERATION SVP: I would say that for Main
Street retailers, the cost of the equipment is roughly $2,200 for each
terminal. They have to put it in their store.

BREWER: Before the EMV chip technology transition, credit card issuers
were liable for fraudulent in-store purchases. Now, the responsibility has
shifted to merchants if they haven`t upgraded to using chips. The chip
technology, known as EMV for Europay, MasterCard (NYSE:MA), Visa (NYSE:V),
creates a unique code for each transaction, with a tiny microprocessor on
the card, communicating with the terminal. It cuts down on the possibility
of fraud at the point of sale.

MasterCard (NYSE:MA) and Visa (NYSE:V) report fraud has dropped by roughly
half at retailers using the EMV technology.

But overall, fraud is actually on the rise this year, expected to reach a
record $4 billion.

OXMAN: Criminals are, understandably, migrating their fraudulent
activities from merchants have upgraded to chip readers from those who
haven`t.

BREWER: A National Retail Federation survey shows 86 percent of retailers
expect to have EMV chip systems up and running by the end of the year. The
NRS insists stores have done their part and blames the credit card issuers
for dropping the ball.

Almost 60 percent of stores that have not adopted the chip technology say
they`re waiting on their certification by the card industry, more than half
waiting six months or longer. And in the meantime, customers are getting
the hang of it, even if they wait a few seconds longer.

A Nerd Wallet survey shows 78 percent of Americans say they have positive
feelings about the chip cards.

Of course, there`s another option. Customers may want to pull out their
smartphones. Apple (NASDAQ:AAPL) Pay, Android Pay and Samsung Pay offer
the same security as chip cards.

For NIGHTLY BUSINESS REPORT, I`m Contessa Brewer.

(END VIDEOTAPE)

MATHISEN: Coming up, taking a swing. Will the Ryder Cup give golf the
jolt of excitement that it so desperately needs?

(MUSIC)

MATHISEN: There`s a lot of data on tap, and here`s a look at what to watch
next week. On Monday, we will get two reads on the manufacturing sector.
Tuesday, the economy will likely be a big topic of conversation in the vice
presidential debate. Friday, the employment report for September is due
out, something the Fed, Wall Street and Main Street will all be focused on,
and that is what to watch next week.

Well, there is no bigger event in the world of golf than the Ryder Cup, one
that pits the best golfers in America against the best in Europe. It only
happens once every other year, but this year, there`s more at stake than
just the cup. The business of golf is also looking to generate excitement
around the game.

Dominic Chu reports from the Hazeltine National Golf Club in Chaska,
Minnesota.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some of the best, most
dramatic golf of the year will be played over the next few days here at
Hazeltine. The crowds gathered will be big and some estimates have a
quarter million of fans showing up for the three-day event.

And what the world of golf is hoping for is enough excitement to energize
casual golfers, as well as reach out to those who are thinking of taking a
swing at the game.

BRANDT SNEDEKER, RYDER CUP TEAM USA: It`s unlike anything we get to do
here on it tour and sport. When you show up here on Friday morning, the
first tee, and have that emotion running through you and the USA stripe or
flag on your shoulder, and realize how important this is to so many people
besides yourself, and the pressure that goes with that.

CHU: But you don`t necessarily have to be here in person to feel the
energy. This year`s Ryder Cup will have a lot of television reach, as
well, touching nearly half a billion homes in 160 countries.

It used to be that the U.S. dominated the competition, and has won 25 of
the last 40 cups ever contested. But golf has become much more global, and
European teams have won 8 of the last 10 cups. Expectations are high for
the U.S. team.

PETER BEVACQUA, PGA OF AMERICA CEO: The country is ready for a win. I
think the Ryder Cup is ready for Team (NASDAQ:TISI) USA win. But we know
it`s going to be tough. Every single Ryder Cup, it`s always an
unbelievably tough competition. This will be no exception.

CHU: Golf could use some more positive momentum. For the first time in
years, participation in the game is on the rise, all be it modestly.

But there are seismic forces at work against the industry. Most recently,
sporting goods giant, Nike (NYSE:NKE), announced they were going to stop
making golf clubs, balls and bags and focus solely on clothing and shoes.
German competitor, Adidas, is interested in selling its tailor-me golf
equipment business and gold retail outlet Golfsmith declared bankruptcy as
well.

STEVE MONA, WORLD GOLF FOUNDATION CEO: The way that golf is being consumed
is moving a bit away from the traditional “I`m going to go out to the golf
course, I`m going to spend six hours there,” into more shall I say
concentrated bites. And you`re even seeing golf moving away from the
traditional golf facility.

Innovation is going to be important, and how the particular manufacturer
has positioned himself along with the retailers to adapt to the change and
how people are consuming the game. And that`s going to be I think where
the battle is won or loss.

CHU: The thousands of fans here at the Ryder Cup in Hazeltine and the
millions watching at home could be the next step in helping golf overcome
its recent troubles.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu here at the Ryder Cup in
Chaska, Minnesota.

(END VIDEOTAPE)

MATHISEN: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler
Mathisen. Thanks for watching. Have a great weekend, everybody, and we`ll
see you back here Monday.

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.

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply