Transcript: Nightly Business Report – December 13, 2016

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

Funded in part by HSS.

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SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: So close. The Dow inches towards 20,000. What investors should and should not do as the market closes in on this big round number.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: One day away from a possible interest rate hike. But as rates rise, will the stock market rally be slowed or stopped?

HERERA: Mall-icious activity. Shopping malls have become fertile ground for cell phone hackers. What you need to know to protect yourself.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, December 13th.

MATHISEN: Good evening, everyone, and welcome.

Dow 20,000. Not so long ago, like for instance, in February of this year, reaching that landmark number seemed a ridiculous idea. Preposterous, even.

Well, not any more. Today, the Dow Jones Industrial Average came within 50 points of that milestone, didn’t make it there. That one will have to wait for another day. Maybe tomorrow, may be not for months. Or even more. Who knows?

But what we do know is that today, roughly five weeks from the election and six from the inauguration of Donald Trump as president, the three major stock market indexes finished the session at all-time highs, again. The blue chip Dow index added 114 points to 19,911. It’s seventh straight record close. NASDAQ up 51, S&P 500 gained 14.

And later in the program, we’ll look at what investors should keep in mind when stocks hit these big numbers.

HERERA: But don’t forget. Tomorrow, the Federal Reserve meets for a second day, and many expect policymakers to raise interest rates for the first time in a year. And the path of interest rate increases could be a pivotal factor for the market and investors.

Steve Liesman tells us what some of the top economists and money managers are looking for.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Big questions heading into tomorrow’s Federal Reserve meeting after all the changes in the markets and politically. Wall Street, according to the CNBC Fed Survey, seeing a more aggressive Fed in the years ahead when it comes to interest rates, and while they generally approve of the policies of President-elect Donald Trump, they worry that the stock market may be too optimistic and Trump’s trade policies could hurt growth.

Here are the expectations: 96 percent saying the Fed will raise rates at the meeting tomorrow, 44 percent say the next rate hike is coming in May. You can see when we look at the expectations for rate hikes that it’s come higher. What was 1.1 percent projected in November for 2017 now up to 1.3 percent. They see rates rising, the Fed funds rate rising to 2.1 percent to 2018 and all the way up to 2.7 percent in 2019. That’s 50 basis points higher than was expected before the November meeting by our respondents.

The market — the respondents do think the market has gotten a little bit ahead of itself, 56 percent saying the market is too optimistic about Trump’s policies, 42 percent saying they are realistic.

And looking at what they think about Trump’s policies, generally positive. Three quarters say they’re positive about individual tax cuts proposed by the president-elect, 89 percent like the deregulation that’s been talked about. And 92 percent, they really like the business tax cuts. But looking over here, 73 percent have a negative view on Donald Trump’s trade policy.

Put it all together, and the outlook for gains in the stock market are maybe more muted as suggested by the recent gains. Respondents see just a 4 percent rise for S&P 500 for next year and 9 percent by the end of 2018.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: What matters even more than whether the Federal Reserve raises interest rates tomorrow is what the Central Bank says about the future. And what it does in 2017.

Darrell Cronk is president of the Wells Fargo investment Institute.

Darrell, welcome. Good to have you with us.

DARRELL CRONK, WELLS FARGO INVESTMENT INSTITUTE PRESIDENT: Thank you, Tyler.

MATHISEN: What are the odds that in 2017, the Federal Reserve sees an economy growing faster than maybe anticipated, fiscal stimulus that causes the economy and deficits to expand maybe a little bit, and inflation picking up and they decide to move more aggressively than we anticipate? What are the odds of that?

CRONK: I still think that’s a fairly low odds scenario or probability scenario. Maybe a 1 in 4. Certainly, I think we’re going to hear in the press conference tomorrow, Chairman Yellen say that they — the Fed wants to remain data-dependent. It needs to see the follow-through. Not just of the new administration’s policies, but growth continuing to follow through and inflation to your point taking that next leg of up shift, Tyler.

HERERA: What are you going to be listening for tomorrow from the Fed chief, and what is the market going to be listening for?

CRONK: So just like was outlined earlier, we will have all eyes on their expectations for this next year. I think what you will hear from them is they’re not going to price in any reliance on fiscal policy, stimulus or changes. I don’t think you’re going to see them price in any adjustments to trade. They’re simply going to tell the message of remaining data-dependence, Sue. And they want to see the data before they make any monetary action.

HERERA: Has the bond market and has the currency market already done some of the Fed’s work for it?

CRONK: Yes, Tyler. I think the bond market has largely done a lot of the work for the Fed, and is in some ways given them air cover. The two-year treasury today closed at 1.16 percent. So, when you think about where short-term rates have come, the Fed is actually in theory tomorrow playing a little bit of catch-up to what the bond market has already done and the strengthening dollar has done some of the work for them on tightening monetary and economic conditions.

HERERA: And very quickly, if indeed they do raise interest rates tomorrow, is that already factored in to this market that has had such dramatic moves to the upside recently?

CRONK: I think it is, sue. You know, the Fed funds futures say it’s almost 100 percent probability they move tomorrow. I actually think the equity markets, depending on the language in the press conference, might rally off of it or continue this rally.

I don’t think it — I don’t anticipate it to be a negative event for the markets.

MATHISEN: Darrell, thank you very much for being with us. Appreciate it.

CRONK: My pleasure.

MATHISEN: Darrell Cronk with Wells Fargo Investment Institute.

HERERA: ExxonMobil’s CEO is Donald Trump’s pick to lead the State Department. As we have reported yesterday, Rex Tillerson is a long-time CEO and deal-maker who has extensive business ties overseas. In a statement, Mr. Trump said Tillerson will, quote, “promote regional stability and focus on the core national security interests of the United States.”

The president-elect also chose the former governor of Texas, Rick Perry, to be the next energy secretary. In 2011, though, the Department of Energy was among the agencies that Perry said he wanted to eliminate.

MATHISEN: The head of OPEC, the cartel of oil producer, said Exxon’s Rex Tillerson will be a great asset for the incoming administration. He made the comments just days after entering into a production cut agreement designed to end the global glut of oil.

And today, Jackie DeAngelis caught up with him in Washington.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: OPEC Secretary General Barkindo is in Washington today, speaking at the Center for Strategic and International Studies.

He was able to comment on President-elect Trump’s nomination of ExxonMobil CEO, Rex Tillerson, for the position of secretary of state.

MOHAMMED BARKINDO, OPEC SECRETARY GENERAL: Rex Tillerson I know personally. He’s a very accomplished gentleman, very measured, very broad, and bringing in very wealth of experience in the corporate world. And through that experience, has built a very credible network across nations, across continents. He would be a great asset.

DEANGELIS: Secretary Barkindo will be in New York City tomorrow to speak with members of the Wall Street community about everyone can work together on the progression of the energy industry.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis, Washington, D.C.

(END VIDEOTAPE)

HERERA: And the closely watched OPEC deal to cut production could result in an oil deficit by the first half of next year. That’s according to the International Energy Agency. Oil stockpiles will decline by about 600,000 barrels a day in the next six months. The decision to limit supply should shrink that glut that has kept prices historically low. Today, domestic crude rose fractionally to just under $53 a barrel.

MATHISEN: One day after Bill Gates announced that he was starting a $1 billion clean energy tech fund. The founder of Microsoft met with President-elect Trump. The fund will focus on innovation, to make clean energy more attractive to companies on a cost basis. And innovation is what he discussed with the president-elect.

(BEGIN VIDEO CLIP)

BILL GATES, MICROSOFT CO-FOUNDER: We had a good conversation about innovation. How it can help in health, education, impact a foreign aid and energy, and a wide-ranging conversation about the power of innovation. Thank you.

(END VIDEO CLIP)

MATHISEN: Gates said that innovation can drive down the cost of clean energy, and make it cheaper than so-called dirty energy.

HERERA: Still ahead, why this is the most wonderful time of the year for hackers.

(MUSIC)

MATHISEN: Another blow to Wells Fargo. The bank failed its so-called living will test for the second time. Regulators will now place restrictions on the firm until the problems are solved. Large banks must submit a living will or blueprint that regulators can follow, should the bank fail. The blueprint is designed to prevent the failure from bringing down the entire financial system, and burdening taxpayers. Wells Fargo says it is disappointed by the ruling.

HERERA: Small business optimism has skyrocketed since the election. A survey of owners shows the sharpest rise since 2009 with all of the sentiment increase coming after Election Day. According to the National Federation of Independent Business, small businesses like the idea of a unified Republican government, and believe they will benefit from Donald Trump’s plans to cut corporate taxes.

MATHISEN: Eli Lilly cuts the price of its insulin drugs for some customers and that’s where we begin tonight’s “Market Focus”.

The company said it would slash the retail prices of its insulin medications up to 40 percent through a new discount program. Beginning in January, uninsured patients and those paying high deductibles will be eligible to receive those discounted medicines. The shares rose 1 percent to $68.64.

Quest Diagnostics is investigating a data breach that compromised the personal information of 34,000 customers. The lab testing company said an unauthorized third party hacked into the company’s network, and obtained lab results and telephone numbers. Shares were up 24 cents at $91.95.

Anheuser-Busch InBev will sell its Central and East European-based beer brands to Japan’s Asahi Group for nearly $8 billion. Anheuser-Busch previously agreed to sell those assets to win regulatory approval for its $100 billion merger with SAB Miller. Shares were up 1 percent at $105.05.

HERERA: Google’s parent, Alphabet, is spinning off its self-driving car project into a business called Waymo, which will operate as a stand-alone unit. That move could signal Alphabet’s desire to bring autonomous driving to market and monetize its technology. Shares of Alphabet rose almost 1 percent to $815.34.

And VeriFone’s shares continue to rise following the company’s better than expected earnings after the bell yesterday. The payment system maker issued guidance for next year that came in below expectations but investors still uploaded the results. VeriFone shares soared 8 percent to $17.85.

MATHISEN: Have you shopped online lately? The answer is probably yes. And there is a growing chance that you bought something big and bulky. And that means the companies that bring you those oversized items have to make some costly changes.

Morgan Brennan reports tonight from Metuchen, New Jersey.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Toy cars, big-screen TVs, even trampolines. Big-ticket items that destine for door steps. Experts say online sales of these oversized goods are now growing faster than the rest of e-commerce. FedEx’s regional vice president of ground operations, Scott Burns, says these big shipments that can’t fit on normal conveyor belts now comprise 10 percent of company volumes.

SCOTT BURNS, FEDEX REGIONAL VICE PRESIDENT: It’s growing. I mean, hence leaning into nonconveyables. The business is growing, the consumer wants to ship it, they’re willing to pay for it, we’re willing to build capacity for it. So, the numbers are up year over year. They continue to increase as does e-commerce does in general.

BRENNAN: This New Jersey annex came online earlier this fall when FedEx rolled out to, in part, handle these bigger, bulkier items like furniture and rugs that consumers are increasingly buying online.

The facility can sort up 50,000 packages per hour. With specialized equipment that streamlines how nonconveyables are processed. Historically, these items require more human handling. Take up more space on trucks and often require two or more employees to deliver.

During the peak holiday season, that additional effort can have big ripple effects, as companies scramble to get hundreds of millions of packages delivered on time. Analysts say it’s a double edged sword.

DONALD BROUGHTON, AVONDALE PARTNERS: It’s a great opportunity both on the cost as well as the profit side. You know, as I said, FedEx and UPS are delighted with the depth that e-commerce has reached in the marketplace. By they’re a little bit bedeviled by the breadth.

Those items — those large items that need to be delivered and installed, the new refrigerator, put together, the bicycle, the barbecue grill, requires some expertise, and extra service.

BRENNAN: That extra service means extra fees. Both FedEx and larger rival, UPS, have changed the way packages are priced. The oversized shipment boon has also created opportunities for smaller logistics players with XPO Logistics, TransForce and privately held Pilot Freight Services competing with pricing and even throwing in services like furniture assembly upon delivery.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan, Metuchen, New Jersey.

(END VIDEOTAPE)

HERERA: But if you do decide to shop the old fashioned way and go to a mall, there are some precautions you should take. Because as Andrea Day reports, hackers are lurking.

(BEGIN VIDEOTAPE)

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call it the holiday hustle. Hackers working overtime to get a piece of the billions spent this season.

VARUN KOHLI, SKYCURE VP OF MARKETING: This is a great time for hackers to do business.

DAY: And especially vulnerable are transactions made right from your smartphone. According to the experts at Skycure, if you download certain apps on your device or connect to Wi-Fi at the mall, you could be opening up more than just your wallet.

KOHLI: You have pictures, you have credit card information. All of this information is at risk.

DAY: The mobile security firm ran tests at the nation’s busiest malls and found that just like some stores offer Wi-Fi, so do the criminals, creating fake Wi-Fi hot spots, just waiting for you to connect.

KOHLI: Every transaction that you are doing on your cell phone is actually going through the bad guys.

DAY: On Skycure’s list of the top ten riskiest malls, each one had more than five fake Wi-Fi networks. The fashion show mall in Las Vegas topped the list, with 14 bad networks. So, how do you spot the bad Wi-Fi? He says criminals often put the word “free” in the name.

KOHLI: We found Macy’s free Wi-Fi in Denver. We found Bloomingdales free Wi-Fi in Philly. These Wi-Fi had nothing to do with those brands. These were fake Wi-Fi networks.

DAY: And malicious Wi-Fi isn’t the only scrooge in town. He says hackers are creating fake apps that look like the real deal. Like this one called Amazon Rewards, found in third-party app stores not controlled by Apple or Google, and trying to lure you in with deals that don’t actually exist.

KOHLI: This looks exactly like Amazon app, uses the real logo, but in fact, stealing information in the background and sending users to fake websites with fake coupons.

DAY: We reached out to all the businesses mentioned here. Amazon tells us, quote, “We encourage customers to download content only from sources they trust. The fashion show mall says it takes security very seriously. And does periodic audits of our Wi-Fi systems and did not find any suspicious public networks.”

To avoid malicious apps, only download apps from the official Apple and Google stores. And when you use Wi-Fi at the mall, any hot spot with the word “free” in the name is probably not a good idea.

For NIGHTLY BUSINESS REPORT, I’m Andrea Day.

(END VIDEOTAPE)

MATHISEN: Coming up, why investors get excited when the stock market indexes hit big round numbers.

(MUSIC)

HERERA: Here’s a look at what to watch for tomorrow. As we reported, the Federal Reserve is widely expected to raise interest rates and Fed Chair Janet Yellen will hold a news conference. Retail sales and producer prices for November are due out. And Donald Trump’s team hosts a summit with leaders from the tech industry, and that’s what to watch for tomorrow.

MATHISEN: As the Dow marches towards 20,000, some investors are looking for new stocks to buy, and increasingly difficult task in this rising market.

Contessa Brewer went to visit an investment club in Warner Robbins, Georgia, to learn how they do it.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: As members of the Middle Georgia Investment Club file into their December meeting, they keep the small talk short and dive into some serious money business.

UNIDENTIFIED MALE: If we hit just, you know —

BREWER: With a $264,000 portfolio, and 23 percent growth this year, the 11-member club is factoring President-elect Donald Trump’s position into their own.

RICHARD HARNICK, MIDDLE GEORGIA INVESTMENT CLUB MEMBER: You’re going to look at your banking industry, now that Trump is going to be elected president. You’re going to look at the energy, gas, oil. And then you’re going to fall away from pharmaceuticals. Both of us made comments, negative, about the pharmaceuticals.

BREWER: Their biggest stock holdings in AT&T, Cognizant Technology and Magna International, an automotive supplier. They just dumped their stake in the biotech Gilead.

HARNICK: Another concern is with the Affordable Care Act. You know, you don’t know the results of what they’re going to replace it with, if they’re going to replace it with anything, OK? So there’s a lot of uncertainty.

BREWER: In a region that relies on Robbins Air Force Base for its economy, defense spending is suddenly getting more debate from the club. After Donald Trump’s tweets calling out Boeing and Lockheed Martin.

TOM LUCAS, MIDDLE GEORGIA INVESTMENT CLUB MEMBER: He would just look at a few things like the one plane, Air Force One. Costs too much.

UNIDENTIFIED MALE: I agree with that.

LUCAS: We need to cut that.

But he’s going to fill up military in other ways that I think is going to more than make up for a few of the losses.

BREWER: The market rallies also making buying difficult. The club is sitting on 22 percent of its portfolio in cash.

SCOTT VANDERSALL, MIDDLE GEORGIA INVESTMENT CLUB MEMBER: A lot of times, we walk away and there just wasn’t anything to buy, because everything was overvalued.

WANDA SMITH, MIDDLE GEORGIA INVESTMENT CLUB MEMBER: A lot of the stocks have — they’re high now, hitting their peak. So you have to just watch. But they’re still good stocks out there.

BREWER: This month’s research focus, internet stocks, which the club doesn’t own.

HARNICK: Facebook is a buy.

BREWER: After much discussion, the club made a unanimous decision to buy 75 shares of Facebook. What took so long? The club’s guidelines demand five years of stock performance to consider. And Middle Georgia Investment Club says it’s taking a long view.

And now, you’re in it together so you know that you’re going to rise together or fall together.

UNIDENTIFIED MALE: Exactly.

UNIDENTIFIED MALE: Exactly.

BREWER: No matter the new president’s policies or cabinet picks, the investors here are confident and optimistic in their strategy together.

For NIGHTLY BUSINESS REPORT, Contessa Brewer in Warner Robbins, Georgia.

(END VIDEOTAPE)

MATHISEN: And the Middle Georgia Investment Club has seen new interest from potential members since the election and this comes as the overall number of investment clubs has declined over the past decade.

HERERA: But as the Dow Jones Industrial Average approaches the 20,000 level, some investors are getting caught up in the frenzy and the excitement of the big round milestone number. But why is that? And what should you keep in mind when stocks do hit these big numbers?

Frank Murtha is a doctor of psychology and cofounder of marketpsych.com, and he joins us with some answers.

Frank, welcome. Nice to have you here.

FRANK MURTHA, PH.D, MARKETPSYCH.COM CO-FOUNDER: Thanks very much.

HERERA: So, what is it about the big round number that is so exciting, and it’s usually on the way up, not on the way down?

MURTHA: Yes. That’s quite true. Well, for one thing, these big round numbers like Dow 20,000, they draw people’s attention. There is an awful lot of people out there who are not paying very close attention to their portfolios, but they hear, oh, Dow 20,000. Boy, maybe I ought to — and have they finish that sentence can actually lead them to do something they wouldn’t normally do.

In addition, it conveys a sense of accomplishment. It’s kind of an illusion, but it almost feels like something great has been accomplished because we have crossed this somewhat arbitrary threshold, and it also conveys a sense of completion. I think for a lot of investors looking at the stock market, especially when there is a little bit of anticipation, something like a milestone feels like a finish line.

MATHISEN: Right.

MURTHA: It almost feels like you’ve got to — you know, turn the page, a new chapter now. And it’s something to be aware of —

MATHISEN: I think we in the media are obviously a little bit complicit in this problem. We probably share some of the guilt in fanning the interest in it.

What typically happens after a major milestone like 10,000 or 20,000 is hit? Do people take that sense of accomplishment and say, OK, I made 20,000, I’m getting out? And does the market go down? What happens?

MURTHA: Well, the data are mixed there. I can tell you that since Dow 10,000 came about, every successive thousand-point milestone after that, the market pulled back within a month. Pulled back each month a little bit after that.

So, it really does depend. There are so many x-factors that lie just beyond the psychological reaction.

HERERA: So, what should you do, then? What are some of the dos and don’ts as we approach this number? How do you analyze and keep your emotions in check?

MURTHA: Well, sometimes it can be difficult to keep perspective, but that’s what this calls us to do. I mean, here’s another number to throw out there. Dow 40,000. That sounds kind of crazy to talk about right now. But it was just six years ago during the Obama administration, we were actually under 10,000. So we have come that far. That’s the equivalent move of going to Dow 40,000 just six months from now — pardon me, six years from now.

So, you want to bear in mind, these numbers can play a little bit of tricks on your mind.

And the other thing is this: if you find yourself asking a question like, boy, if the Dow gets to 20,000, I think I might want to do X, ask yourself, why is it that I’m not doing that right now?

HERERA: When we’re so close. Yes.

MURTHA: Yes.

HERERA: All right. Dr. Frank Murtha, thank you so much, with marketpsych.com.

MATHISEN: And before we go, as we focus on that big tempting round number, here’s another look at the Dow as it inches closer to 20,000. The blue chip index added 114 points today to 19,911 — 911. Hmmm. NASDAQ, there’s the NASDAQ. It was up 51 points. The S&P 500 up fourteen and three quarters to finish at 22.71.

HERERA: We’ll be their lifeline, regardless of what happens, right?

MATHISEN: 911, give us a call.

HERERA: All right. That will do it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks so much for joining us.

MATHISEN: And I’m Tyler Mathisen, thanks from me, as well. Have a great evening, everybody and we will see you back here 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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