TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: November nerves. A tightening presidential race and a Fed meeting put investors on edge today, as a month that is historically good for stocks gets off to a rocky start.
High gear. The auto industry remains on track for near-record sales this year.
And, open enrollment. Why one health insurance startup sees opportunities, not obstacles in the Obamacare exchanges.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, November 1st.
Good evening, everyone. And welcome. I’m Tyler Mathisen. Sue Herera is off tonight.
Well, maybe it’s the election, and that tightening presidential race. Or maybe it’s this week’s Fed meeting, and the prospect of higher interest rates. If not now, then maybe at next month’s final Fed gathering of 2016.
Whatever the reason, stocks stumbled on this first trading day of November, and Wall Street’s fear index, the VIX, moved higher. So did gold prices. But the Mexican pesos fell against the U.S. dollar. Some see its value as a proxy for Donald Trump’s White House chances. The better his odds get, the lower the peso.
Midday, the Dow Jones Industrial Average broke below 18,000. The S&P below 2,100. But the blue chip Dow recovered some, still it ended down 105 points at 18,037. NASDAQ was off 35 and the S&P 500 dropped 14.
Bob Pisani has more on today’s stocks slide.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s the first day of November, and normally, this is a good time for stocks. November is the number one month for the Dow and presidential election years, that’s according to the Stock Trader’s Almanac.
It’s also the start of the best six months period. That’s the period from November through April when the markets tend to strongly outperform the period from May to October.
All right. So, why are the traders so miserable? Because the Fed and the election is making everybody crazy. Look at what happened today. On word that the election was tightening, the CBO volatility index, that’s the VIX, went over 20 intraday. It’s a sign that traders are reaching for protection.
Election jitters may even be affecting shopping. Retailers went down again today after having a poor month in October, many analysts citing distractions from the election as a factor.
And the Fed isn’t helping. Rising bond yields, including a spike up in the last week, has pushed the small cap Russell 2000 down five of the last six sessions, the lowest level since July. Small cap stocks tend to underperform during periods of higher rates. And other interest rates sensitive sectors are having a terrible time. High yield stocks, REITs, telecom stocks, all way off highs.
What’s it mean? It means we’re caught in a situation where every market’s report is going to be layered with a dose of political observation, in the near future and a dose of Fed-watching, and those who want to talk about the earnings situation, or something equally relevant like wage growth — well, you’re all just going to have to wait.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.
MATHISEN: With one week to go, and investors on edge, where does this election stand?
John Harwood is with us now.
What do the latest polls show, John?
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Bob mentioned that “Washington Post”/ABC tracking poll that showed Donald Trump for the first time in months, one point ahead of Hillary Clinton. That remains an outlier. And the reason that campaigns tend to look at averages of polls is because you could have one that goes one way high or low. In the averages, RealClearPolitics is down to 2.5 points in favor of Hillary Clinton —
HARWOOD: From six. So, that lead has been cut in half.
Also down in the “New York Times” and “Huffington Post” averages. She still has a lead, though, and we will see just in the next couple days whether the movement that has closed this race, which is largely Republicans coming home to him continues.
MATHISEN: The question really is, how close is he getting in some of those key battleground states? He’s got to thread a lot of needles, most especially Florida and Ohio. But even that doesn’t get him there.
HARWOOD: Exactly. Mitt Romney won 206 electoral votes in 2012. Donald Trump has got a chance to pick off Florida, Ohio, Iowa, Nevada. OK? That’s good.
If he gets all those states, he still only is at 265. Then he’s got to go to another tier of states where he’s clearly behind outside the margin of error — places like Wisconsin and Pennsylvania, Michigan. The other thing that is true is that there are two states that Hillary Clinton is threatening to take away from the Republican column.
So, Trump, if she is able to win North Carolina and Arizona, that 206 that Trump started with goes down and he has to win more of those swing states. Tough order.
MATHISEN: There are a variety of scenarios, aren’t there, under which they could actually tie.
HARWOOD: There are. And —
MATHISEN: Unlikely, but possible.
HARWOOD: That’s right. And that’s largely because two states, Nebraska and Maine, split their electoral votes. So, for example, if Donald Trump wins the second district of Maine, that is one electoral vote that would be added and there are various combinations of states that put in at 169. That one vote would put him at 270.
MATHISEN: If it is a tie, it goes to the House of Representatives, right?
HARWOOD: Yes. And, you know, part of the scenario for Evan McMullin, who is the independent candidate running in Utah is to deny anyone an electoral majority and throw it to the House. He has some outside hope that House Republicans, who he served as an aide, might turn to him.
I think that’s quite unlikely. I think if it goes to the House of Representatives, Donald Trump is going to be the president.
MATHISEN: John Harwood, thank you.
HARWOOD: You bet.
MATHISEN: All right. Now to the Federal Reserve, which began today a two-day meeting. It’s a policy meeting, a big one. The central bank will issue a statement on interest rates tomorrow. But few expect it to make a move, especially with the outlook for the economy so muted.
Steve Liesman surveyed some of the nation’s top economists and money managers to see what they think about the Fed, the economy and outlook for growth.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It will be Santa that brings the next Fed rate hike, not the great pumpkin. The latest CNBC Fed survey finds 100 percent of correspondents say they expect no Fed rate hike when the announces its policy statement in this Halloween week on Wednesday.
But 86 percent of the respondents say they expect the rate hike in the Fed’s December meeting, roughly a year after the last hike.
Overall, the 39 respondents, including economists, fund managers and strategists, expect modest rate hikes in the years ahead with the funds rate rise just over 1 percent by the end of 2017.
The economic outlook, though, remains muted with growth forecast to be around 2 percent this year and next, and the stock market rising only a few percentage points. Though, some are more optimistic than that.
JAMES PAULSEN, WELLS CAPITAL MANAGEMENT: I think the stock market is going to respond favorably to the end of the election. They’re going to get comfortable with the Fed normalizing rates and I think they’re going to react very well to the return of earnings momentum and sales momentum that we’re starting to see right now.
LIESMAN: The chance of recession, 23 percent in the next year with the biggest stretch of the U.S. economy coming from global economic weakness.
JOE LAVORGNA, DEUTSCHE BANK: We have no ability on the monetary side to respond to it, because rates are already near record lows, arguably low rates are hurting and the fiscal side is paralyzed in part because we’re going to likely have divided government next year. So you tell me, when you’re growing 1 percent something, unless global growth is a lot better, you at any road, you at any pothole, you’re in trouble, you’re in a recession.
LIESMAN: The survey also found Wall Street disagrees over the benefits of low interest rates, roughly a third think they help the economy, a third say they hurt and another third say they have little effect.
For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.
MATHISEN: Manufacturing activity in America expanded at a modest pace in October for the second straight month. Faster production offset a slow down in orders. The Institute for Supply Management says its index of factory activity across the nation rose 0.4 percent, the slight increase follows a weak performance this year, thanks to a drop in oil prices, a rise in the dollar, and weak global growth.
Well, those factories may have been kept busy by automakers. The annual pace of sales last month topped year-ago levels and was much better than expected.
And as Phil LeBeau reports, trucks and SUVs led the way.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Need proof Americans are as enthusiastic as ever to buy a new car or truck?
Check out General Motors. Last month, the automaker sold more than a quarter million vehicles, one of its best months of the year. And the average price they were sold for was up $1,000 compared to the same month a year ago.
Overall, GM sales dropped almost 2 percent in October. Not quite the decline seen by Nissan, Toyota and Fiat Chrysler. Ford delayed releasing its monthly sales because a fire at the company’s headquarters, caused complications with the corporate computers. Those numbers will come out later this week.
But overall, the industry remains on pace to match or fall slightly below the record auto sales we saw last year. And that’s because demand for new vehicles remains high, thanks to strong consumer confidence, low interest rates and a wave of new vehicles with the latest technology and options.
The bottom line: Americans are more willing than ever to pay for a new vehicle, especially trucks and SUVs, which remain red-hot sellers due to low gas prices, which means even those models that get relatively poor mileage are attractive right now.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
MATHISEN: Take a guess. How many U.S. auto and auto parts manufacturing jobs have been lost over the past ten years? A million? A half million?
The answer, according to the Bureau of Labor Statistics is about 133,000 off of a base of a little more than a million. So what happened to those jobs? Why were they lost? Where did they go?
Here with answers is Bruce Belzowski, associate director of the automotive analysis division at the University of Michigan Transportation Research Institute.
Bruce, welcome. Good to have you with us.
What happened to those jobs?
BRUCE BELZOWSKI, UNIV. OF MICHIGAN TRANSPORTATION RESEARCH INSTITUTE: Well, if you look over the last ten years, it’s the recession. And that the major issue having to do with that had to do with the reduction in sales that happened, and particularly during the recession, where you look at your previous segment that talked about sales being at record levels, we’re looking at over 17 million vehicles a year. But now that at that time, it went down 11 million. So, the factories had —
MATHISEN: Go ahead.
BELZOWSKI: Some of that went to — some had to go — deal with the reduction in market share by the manufacturers, which also led to retirement, because of the people who are close to retirement, taking retirements, but also major layoffs.
MATHISEN: So, obviously, some of those jobs that were lost in the recession, when I guess the total number of employment in the auto industry fell to its trough, have come back. So, we’re now at something like 925,000 or 930,000.
From the beginning of NAFTA to today, how did jobs in the auto business compare?
BELZOWSKI: Well, NAFTA, of course, is a group of trading partners, U.S., Canada and Mexico. So, you’re looking at both sides of the U.S. You’re looking at trade with Canada, as well as Mexico.
Some of the result — data I was looking at recently showed that auto manufacturing in Mexico went up about — first of all, between 1994 and 2000, there was no changes in manufacturing. There were no manufacturing losses. But from 2000 onwards, it was dramatic.
So that Mexico increased their manufacturing in automotive, cars, as well as suppliers, maybe about 50, 60 percent. And U.S. went down about 50, 60 percent.
Now, it’s easy to say, well, obviously, all — everything went to Mexico. But it’s not quite that easy. When you look at what happened in Mexico, there’s foreign manufacturers who increased their manufacturing in Mexico during that time.
MATHISEN: The non-U.S. manufacturers.
BELZOWSKI: And Volkswagen.
MATHISEN: Non U.S. manufacturers.
BELZOWSKI: Exactly. Exactly. Toyota has a plant there. So there’s some of that that went on during that time, as well.
MATHISEN: All right. Bruce, thank you very much. Bruce Belzowski with the University of Michigan Transportation Research Institute.
Well, it was a volatile day for gas prices. Futures hit their highest level in eight years at one point today after an explosion cut off a major fuel artery.
Though prices did fall back a bit on word the disruption may not be as bad as feared, there are still lingering concerns and Jackie DeAngelis has the details.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The country’s biggest fuel pipeline shut down for the second time in two months, an explosion last night not only kicked Colonial Pipeline’s main line offline, but also line two. That caused gasoline prices to spike at the outset.
But there is good news. Line two is now operational, line one is expected to be up and running on Saturday. That took some of the air out of the earlier price spike.
But the entire event had the energy markets on edge. The Colonial Pipeline is old, and any disruption can ripple through the market and be felt at the pump. The big concern was that we’d see a repeat in the shutdowns in September that sent gas prices higher by 20 cents to 30 cents in some parts of the south, or potentially worse since two lines were impacted.
Now, experts say that some areas of the southeast may only see price hikes up about 5 cents. Damage to Colonial main line is closely watched, because it runs from Houston to the East Coast, supplying refined product roughly 50 million Americans. Line two, which transports less was used in the previous case as a means for bypass.
SCOTT NATIONS, NATIONSSHARES: We saw wholesale gasoline get above $1.60 a gallon, the wholesale price. They’re still up 5 cents a gallon. But crude oil and gasoline futures have both been moving lower over time, and we would expect to see that as anymore bad news from the pipeline.
DEANGELIS: Gasoline finished the day up about 5 percent higher, not getting everything back because stakes are high to deliver on the repair estimate. Should the outage be prolonged, the risk is that this could be worse than last time, with shortages and price hikes running not just through the South, but up to the East Coast.
For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.
MATHISEN: Still ahead, finger-lickin good. What Yum China is doing to get more diners into more of its restaurants in the world’s second largest economy.
MATHISEN: Shares of Yum China rose in their Wall Street debut. The spinoff from Yum Brands is the exclusive licensee of Yum Brands in China, which includes KFC, Taco Bell and Pizza Hut. Got that?
All right. The CEO of Yum China has plans for expansion in that country.
(BEGIN VIDEO CLIP)
MICKYPANT, YUM RESTAURANTS CHINA CEO: We’ve got about five stores for every million of population. And that’s under penetrated in our view. We can triple the number of stores. So, we see this as a market in the long-term that will have more Yum restaurants in China than we have in the United States. So, we could get 20,000 restaurants here.
(END VIDEO CLIP)
MATHISEN: Wow. As for shares, they finished their first day of trading up 8 percent.
Eunice Yoon in Shanghai looks at some of the challenges Yum China faces.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Curry rice bowls and wraps made with Peking duck. No, this isn’t the menu of a Chinese restaurant but a KFC in China. For decades, Yum Brands, the company behind KFC, has tailored its menus to the Chinese, make this market Yum’s biggest outside the U.S., with 7,300 restaurants spread across the country.
But in recent years, Yum has struggled. Food safety scandals and a surge in anti-U.S. sentiment have depressed Yum sales and profits. The issue, says American restaurateur Bob Boyce says that KFC and Pizza Hut have gone from the place to be to just another place.
BOB BOYCE, BLUE FROG FOUNDER: Consumers are looking at KFC has a quick meal and from a convenience standpoint. I wouldn’t say it’s very aspirational these days.
YOON: So, Yum is experimenting with new menu items, like fried calamari and improving the dining experience.
Yum is reaching out to those up and coming consumers with Pizza Hut. In China, Pizza Hut is going more upscale. The company is renovating the restaurant to give them a sophisticated look and feel.
Still, Yum faces fierce competition. From global chains like McDonald’s and local players, too. The smartphone revolution in China cities has given diners an endless menu of options with the click of an app.
BOYCE: KFC got into delivery, and used to be kind of the only — again, the only game in town. Now with these apps, it basically brings to the home any restaurant in the market at any price range. There is now hyper competition, and so, anyone — any one restaurant can compete with the big boys.
YOON: Turning up the heat on Yum.
For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Shanghai.
MATHISEN: Pfizer cuts profit forecast for the year and that is where we begin tonight’s “Market Focus”.
The nation’s largest drug maker blamed the lower guidance on costs associated with discontinuing an experimental trial for a cholesterol treatment. The company also reported lower profit for the quarter that missed analysts’ estimates by a penny. Revenue did see an increase, though. Shares ended the day down 2 percent at $31.07.
An increase in crop exports at Archer Daniels Midland. The results easily beat expectations. The agricultural company expects that export momentum to continue into the next year, meeting a rosy outlook for profit margins. Shares soared 7 percent to $46.75.
And Gannett which owns “USA Today” and other papers said it was ending acquisition talks with the media company Tronc, because terms of the deal were not acceptable. Tronc is the publisher formerly known as Tribune. According to Bloomberg, though, Gannett reported issues funding the nearly $700 million transaction. Tronc shares plummeted 12 percent to $10.54. Gannett off 2 percent to $7.59.
Valeant reportedly making a push to sell its stomach drug division to Japan-based Takada Pharmaceuticals. The Wall Street Journal says the deal, which is valued at about $10 billion could be reached in the coming weeks. The report also added another bidder may be involved in the sale talks. Valeant shares soared more than 33 percent on the day to $23.86.
And Bernie Sanders speaking out once again against drug price increases. Today, the Vermont senator criticized the price of Eli Lilly’s diabetes drug Humalog, saying, quote, “Why has the price of Humalog insulin gone up 700 percent in 20 years? It’s simple. The drug industry’s greed.”
Sanders also sent out a second tweet attacking the price of another treatment the company makes.
In response, Lilly told CNBC it isn’t the only one to blame, saying, quote, “A permanent solution that gives everyone who uses insulin reasonable access will require leadership and cooperation across many stakeholders, including manufacturers, PBMs, payers and policymakers.”
Shares of Lilly off about 1 percent at $72.98.
Well, if you’re shopping for health insurance, open enrollment on the Affordable Care Act’s exchanges begins today. But this time around, there are significant challenges. As we have been reporting, premiums are spiking and insurers are pulling out of those exchanges.
But that’s not stopping one startup insurance company in Colorado from launching its Obamacare plan.
Bertha Coombs reports tonight from Denver.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For startup insurer, Bright Health, Colorado was the perfect place to launch a new Affordable Care Act plan.
BOB SHEEHY, BRIGHT HEALTH CEO & COFOUNDER: One is it’s a state that prioritizes health. People in Colorado prioritize their health. Number two, it’s a regulatory political environment that’s a proactive, positive, progressive.
COOMBS: The former United Health executive’s timing is either prescient or fool-hardy. Nearly half of Colorado ACA enrollees will be in the market for a new health plan this year. After UnitedHealth and Humana pulled out, while Anthem and Rocky Mountain Health scaled back due to big losses. What makes Bright Health think they’ll do better?
SHEEHY: We feel the Bright Health’s model will be a differentiator of the market place.
COOMBS: They’re partnering with the state’s largest health system, Centura Health, as their sole network provider. The promise to consumers is better access and care within that closed network.
TOM VALDIVIA, BRIGHT HEALTH CMO & COFOUNDER: What we’re really focusing on is how can we help people connect with that individual provider.
COOMBS: But the key is to get the pricing right, especially here. More people in Colorado tend to buy their health insurance without ACA subsidies. But 38 percent of the market, compared with about 15 percent of the market nationally.
If they could attract younger, healthier people with those low premiums, Bright Health as a shot at keeping costs in line.
DOUGLAS HOLTZ-EAKIN, AMERICAN ACTION FORUM: Geography matters in health care and we do have places that have better risk pools than other places.
COOMBS: The startup hopes to enroll 20,000 to 30,000 people, but says this year is about building a successful plan.
SHEEHY: How well do we operate? What’s the customer experience? How does digital technology working work?
So, it’s really a full set of metrics that will be looking at to determine success for Bright Health.
COOMBS: For now, their venture backers are willing to be patient when it comes to bottom line metrics, profits.
Bertha Coombs, NIGHTLY BUSINESS REPORT, Denver.
MATHISEN: Coming up, trash talk. Can a gas-guzzling garbage truck be turned into a clean electric machine?
MATHISEN: Garbage trucks. They weigh a lot, they stop, they start, they idle, they burn up a lot of fuel. And they’re among the dirtiest vehicles on the road.
But now, the cofounder of Tesla wants to make them cleaner and greener.
Aditi Roy explains.
ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: This garbage truck to be the next big thing in the trash-hauling industry. All because of something you don’t see and barely hear. Inside the truck is a powertrain made by Tesla cofounder, Ian Wright. Wrightspeed, Wright’s new company, makes cleaner powertrains for what he calls the dirtiest vehicles on the road — garbage trucks, buses, and delivery trucks.
IAN WRIGHT, WRIGHTSPEED CO-FOUNDER: Well, they do a lot of stop go, and therefore, they waste a lot of fuel. They burn a lot of fuel and they waste a lot of it. So, by going to electric drive, we can save a vast amount of fuel and save a lot of money.
ROY: Wright his says his range-extended electric powertrains are quieter, use 67 percent less fuel, and produce 63 percent fewer emissions. The powertrains cost $200,000, about half the price of a brand-new garbage truck. Wright says customers can also save $40,000 a year in both fuel and maintenance costs. Wrightspeed sold 15 powertrains to The Ratto Group which provides trash and recycling services to Sonoma County.
But there is competition. Motiv, a private Bay Area company, has been making all electric powertrains for Google shuttle buses and Chicago’s trash trucks, among other clients since 2009.
Wright says his powertrain, fueled by a gas turbine, has advantages over a purely electric one.
WRIGHT: It’s actually cleaner than pure electric, because the engine we use for the on-board generator is a gas turbine, and that burns cleaner than the average mix of U.S. power stations. So, it’s actually cleaner not to plug it in.
ROY: Wrightspeed just completed a $30 million deal to provide powertrains to New Zealand’s largest urban bus operator. And Wright says it’s working on a potential deal with Mac Trucks, a Volvo subsidiary.
For NIGHTLY BUSINESS REPORT, I’m Aditi Roy, Santa Rosa, California.
MATHISEN: And that is NIGHTLY BUSINESS REPORT for tonight. I’m Tyler Mathisen. Thanks for watching. Have a great evening, everybody, and we’ll see you back here tomorrow evening.
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