Transcript: Nightly Business Report – December 30, 2016

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

Funded in part by HSS.

(COMMERCIAL AD)

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Out with the old. Wall
Street says goodbye to 2016 and investors are probably sad to see it go.
But what will the beginning of 2017 hold?

CONTESSA BREWER, NIGHTLY BUSINESS REPORT ANCHOR: Bringing in with a raid.
Nearly two dozen states will hike the minimum wage in 2017, but what might
a Trump presidency mean for the federal wage?

GRIFFETH: And smartening up. Why experts think smart homes will make
their mark in 2017, and what homeowners and buyers should know.

All that and more for this Friday, December the 30th.

Good evening, everybody, and welcome. I`m Bill Griffeth, in tonight for
Tyler Mathisen.

BREWER: And I`m Contessa Brewer, in for Sue Herera.

While 2016 is gone on Wall Street, but definitely not forgotten. After
what was the worst start to the year, the major averages all had their best
performance in several years. As for today, it wasn`t all fireworks and
streamers to end 2016 with stocks ending on a three-day losing streak.
Today, the Dow lost 57 points to 19,762. The NASDAQ fell nearly 49 and the
S&P dropped 10.

But here come the big numbers. Are you ready for this? For the year, the
Dow rose nearly 13 1/2 percent, its best performance since 2013. The
NASDAQ gained 7 1/2 percent, and the S&P jumped 9 1/2, the best showing for
both since 2014.

Oh, let`s not forget about oil here. Domestic crude soared 45 percent, its
biggest gain in seven years.

GRIFFETH: Not bad.

So, now that 2016 is out of the way, how are the markets setting up for
January and beyond?

Bob Pisani looks into his crystal ball for us tonight.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: What`s next for the
markets, despite some disappointment about the failure to hit Dow 20,000,
the markets enter January in excellent shape. The S&P 500 is less than 1
percent from an historic high and most stocks are continuing to advance
rather than decline. Good news. The trading community is focused on what
will drive markets higher in 2017 and what speed bumps might occur along
the way.

So, there`s two topics dominating the conversation. First, is this Trump
rally going to translate into more consumer spending? And second, how much
will the expectations of a tax cut in the fiscal stimulus program really
make a difference in earnings in 2017?

The pragmatists are insisting that investors are wildly optimistic about
translating this improved consumer sentiment and hopes for more tax cuts
and infrastructure programs into higher earnings. But the optimists are
insisting consumer sentiment and business sentiment surveys are already
improving, and that even modest tax cuts could increase earnings 10 percent
or more.

Now, who is right? Well, the impact on earnings from more consumer
spending would be moderate, maybe up 3 percent, but that`s still important.
But as we saw this year, the benefits are likely to accrue to a small group
of retailers as well as restaurants, travel stocks and possibly auto
manufacturers.

But the impact on earnings from a corporate tax cut across the board?
Well, that`s potentially very significant for everybody. Some estimate it
could boost overall earnings as much as 20 percent for the S&P 500.

Finally, the impact from an infrastructure program is likely negligibly for
2017. This is very industry specific, mostly around industrials like
Caterpillar (NYSE:CAT) and materials names. And most agree, this is pretty
much a 2018 event.

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

(END VIDEOTAPE)

BREWER: Let`s turn to Kevin Caron to talk about what he is expecting from
the markets in January. He is a market strategist at Stifel Private Client
Group.

It`s great to see you here, Kevin.

KEVIN CARON, STIFEL PRIVATE CLIENT GROUP MARKET STRATEGIST: It`s good to
be here.

BREWER: When we are looking at January specifically, how important is the
employment report next week?

CARON: Well, it is important for a couple of reasons. Some in terms of
the economy, some a little bit more in terms of politics. So if you look
at what the Fed has been doing, they have been responding late in the
cycle, starting to increase interest rates, and they`re obviously going to
be keying in on the employment data next week. We`re thinking that maybe
if you get a number as high as 200,000, given the data has been strong.

And then politically this sets up, it will be the last employment report of
the Obama administration, and the one that sets the tone for the incoming
Trump administration.

So both in terms of economics, what the Fed is going to do and politics,
this will be an important number.

GRIFFETH: Beyond that, though, Kevin, we all know the rally since election
day, a lot of it is predicated on what the Trump administration will be
able to achieve economically, a tax cut of some kind, some sort of
infrastructure spending program. Do you think the market has priced all of
that in or have we gotten too far? What do you expect to happen here?

CARON: No, I think the rally actually began back in June with the
improving data globally, but there has been a strong rally since the
election and some of it has priced in in improvement in terms of lower tax
rates. But it really hits on two fronts. Number one, it`s going to bring
potentially, if it gets passed and we`ll have to see what actually comes,
it does lift earnings but it also affects how companies allocate capital
going forward.

So, it could actually provide a tonic to real growth in the economy that
could extend well beyond the initial impact of a reduction in corporate
income taxes.

BREWER: What are the head winds or the challenges you are looking for to
see this kind of continued growth?

CARON: Well, there are three of them. The first one would have to be
valuations. We`ve got a $25 trillion stock market sitting on an $18
trillion economy, forward looking earnings multiples are wrapped 20 percent
higher than normal. They`re not at extremes but we have to account for
that.

Number two, you have to look at stock buy backs, which have been an
important source of return to investor, and those have slowed down.

And then lastly, I think that you have to just be mindful of the fact that
the data has been strong and it could cool somewhat. So, as we move
through the year we`re going to have to be very watchful of the data and
how it comes — how it transpires. But those would be the three things we
would be looking for.

GRIFFETH: So, headwinds and tailwinds — I`m curious which category you
put the Fed in for 2017 as they expect to raise rates maybe three, maybe
even four times in 2017?

CARON: Yes, I think that would be a headwind because the market has not
set up for that. There`s been a bit of complacency on the part of the
market. The Fed has been very easy during a period of exceedingly large
slack in the economy, but that slack has been coming in. So, as we push up
against the latter part of the cycle and particularly if you get some more
chance of a fiscal push, that might put some more pressure on the Fed to
raise faster than the market is currently expecting, and we`d have to make
— we`d have to be a little watchful that doesn`t go too far.

BREWER: Well, clearly, all of the other folks at steeple private client
group have already flown the coop for the holiday weekend.

Kevin Caron, thank you so much for joining us. I appreciate your time.

CARON: Thank you for having me and happy New Year.

GRIFFETH: All right. Now what does wall street expect from stocks in
2017?

Dominic Chu polled the experts.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is the season when
Wall Street analysts and strategists forecast what the next year will hold,
and next year we may not see many moves in the overall market. Here is
what we are talking about.

If you look at the overall forecast for what the market`s going to be, the
Wall Street strategists we polled think that on average in the middle,
we`ll see a 2,325 move in the S&P 500, which means it`s only about 3
percent higher than where we are right now. The low end of the forecast
comes from Wells Fargo (NYSE:WFC). They think it is going to be around
2,280. That`s pretty much flat from where we are right now.

On the high end, an optimistic one, RBC Capital Markets which thinks 2,500
for the S&P 500. That`s about 10 percent higher. Now, if you look on a
chart, we kind of laid it out for you here about where things will move
because over the course of the past year, we haven`t moved in that wide of
a range. Still though, the general trend has been up after the lows we saw
early on in the year.

This line right here, the low end, orange, means we`re just about flat all
year long. Green is the middle. On the yellow side, we`ve got the high
end of the range.

So, as you talk about the moves of the market next year, keep in mind
markets don`t move in a straight line like that extrapolation there.
However, we could however see muted returns this time around at least if
Wall Street strategists have their way.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

BREWER: As for global markets, Great Britain following Brexit gained more
than 14 percent this year, the first time positive in three years. For the
most part, Europe was higher with the exception of Italy, which fell 10
percent. As for Asia, Japan and Hong Kong were barely higher, and China
had worst year since 2011, down 12 percent.

Michelle Caruso-Cabrera makes bold predictions about what to expect
internationally in the upcoming year.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: 2016 was
the year of political revolt. Double down on that for 2017. Predictions
aren`t worth making unless they`re bold, so here is number one.

E.U. disintegration. There`s going to be a new vote in Italy in the spring
and the euro skeptic party I think comes to power. That could spell the
end to the currency the euro.

My second prediction, a Thatcherite France. Lots of assumption that since
Donald Trump won, that means Marine Le Pen will win. She`s also a Euro
skeptic. But she`s actually not that radical when it comes to her economic
policies.

Far more radical, Francois Fillon, who evangelizes Margaret Thatcher from
the United Kingdom. That`s radical for France. He is going to win.

Prediction number three, guess who is coming to dinner? President-elect
Trump will host state dinners for both leaders of Russia and Mexico, maybe
at the same time.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.

(END VIDEOTAPE)

GRIFFETH: Bold predictions.

Speaking of Russian President Putin, he ignored his own foreign minister`s
suggestion to retaliate against U.S. sanctions levied in response to
Russia`s alleged cyberattacks to interfere in our presidential election.
Mr. Putin instead said that he would not expel American diplomats like the
U.S. did to 35 Russian officials. Meanwhile, Donald Trump tweeted about
Mr. Putin`s “great move on delays. I always knew he was very smart.”

But a new report serves up as a wake-up call for the government and for
corporate America.

Our Josh Lipton joins us now from San Francisco.

Who authored this report and why did they publish it, Josh?

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: So, Bill, this is a
new joint report from the FBI and the Department of Homeland Security in
which really U.S. authorities are sort of laying out their case of why they
argue it was the Russian government that hacked those Democratic Party
organizations and operatives, and really laying out the case going through
the tools, the tactics and the techniques they say these Russian hackers
used. They talk about these two Russian groups and these two campaigns,
one in the summer of 2015 another in the spring of 2016, and they say those
campaigns have actually continued. They say they continue right into
November, just days, they point out, after the election, guys.

BREWER: OK. So, when the president and the State Department announced the
sanctions against Russia and they also announced that they`re going to
declassify the kind of tactics that the cyber criminals, the cyber
intelligence and cyber civilians were using in the attack, how much of that
is new information to our tech community and how much of it was already
known?

LIPTON: I think there was a great deal that was already known. I do think
though this report did make an impression. You know, I spoke to Steve
Groveman (ph) who is Intel (NASDAQ:INTC) security`s chief technology
officer. He said when he looked at the report, he read through those 13
pages, that coupled with the statements from U.S. intelligence agencies,
that to him convinced him this attack did originate with the Russians.

What also impressed him was just as he went through the report, what was
interesting to him were the kinds of tactics that were used. These were
not new tactics. They were not novel. They weren`t even all that really
complicated according to Groveman. They were really very simple,
straightforward, tried and true hacking attacks we know of like spear
phishing, for example.

GRIFFETH: So, as long as we figure out what the tactics are, anything
American companies can learn from the report as far as their security goes?

LIPTON: Yes, I think because we do know what the tactics are, according
to, you know, CTOs like Groveman, he does think there are lessons for
American companies. For example, because these are spear phishing attacks
that, again, Bill, I sent an e-mail to you, I pretend to be a friend,
family member or colleague and I trick you into opening an attachment or
clicking on a link and unwittingly giving me your password. Because we
know that it`s human error, the biggest thing American companies can do
according to CTOs, educate and train your workforces.

We know hackers will continue. We know the methods might not even change
so much and that`s why these lessons are so important, guys.

GRIFFETH: All right. Josh Lipton in San Francisco — thanks, Josh.

BREWER: Coming up, why our market monitor thinks you should be in
healthcare in 2017.

(MUSIC)

GRIFFETH: So, as the calendar flips to January, workers in 19 states will
ring in the New Year with raises as the minimum wage rises in those places.

Kate Rogers (NYSE:ROG) tells us where and by how much.

(BEGIN VIDEOTAPE)

PROTESTERS: When do we want it? Now! When do we want it? No!

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: 2016 was a banner year
for wage advocates with major milestones in the fight to raise pay for low
wage workers. Across the country, 19 states will ring in the New Year with
pay increases on or before January 1st.

In addition, nearly two dozen cities and municipalities will hike wages,
giving some 12 million low wage workers a raise. Currently 29 states and
Washington D.C. have wages above the federal floor of $7.25 an hour. A
number that hasn`t moved since 2009, despite pushes from congressional
Democrats and the Obama administration.

The new wages increases don`t impact that number but many are significant.
For example, workers in Arizona will see a raise of 24 percent from $8.05
an hour to $10 an hour. While employees in Washington state and
Massachusetts will have the highest minimum wages in the country at $11 an
hour. Over the next several years New York and California will increase
pay at the state level to $15 an hour, thanks to a law signed in 2016.

JAMES PARROTT, FISCAL POLICY INSTITUTE: I think there was an expectation
not a lot would happen in 2016 at the Washington, D.C. level, so there was
redoubled focus on the state level. The Fight for 15 campaign has been
generating successes. New York state increased the minimum wage for fast
food workers in 2015.

There was a lot of activity to pass landmark legislation, to improve family
leave policies. So, there`s been a lot of focus at the state level. The
campaigns are working, and hopefully, you know, progress at that level will
continue.

ROGERS: But critics say continued mandatory increases may wind up hurting
the nation`s smallest companies.

RICK BERMAN, EMPLOYMENT POLICIES INSTITUTE: Quite frankly, these are
people with very low margins. Some of them are making 2 percent to 5
percent on a dollar of sales, and they cannot pass these increases on to
their customers. I mean, if they could raise their prices tomorrow to
cover these wage increases, obviously they would have raised their prices
before they had to. The smart money knows that this causes unemployment
effects, and I don`t think that the politics should Trump the economics.

ROGERS: One thing that advocates on both sides of the argument can agree
on, there`s likely to be little movement at the federal level with Donald
Trump in office. Trump spoke out in support of a $10 federal minimum wage
on the campaign trail, but when Andy Puzder as his labor secretary nominee,
and Republicans in control of Congress, an increase from today`s $7.25 an
hour seems near impossible.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

BREWER: Apple (NASDAQ:AAPL) reportedly plans to cut iPhone production and
that`s where we begin tonight`s “Market Focus”.

According to report from the Nikkei which cited data from the tech giant
suppliers, Apple (NASDAQ:AAPL) will cut production of its iPhones by 10
percent in the first quarter of 2017. The report added the reductions
likely will focus on the 7 and 7 plus as there`s been weak demand for those
models. Shares fell fractionally to $115.82.

Cabela said the Federal Trade Commission requested additional information
regarding the hunting and fishing retailers pending the $4.5 million merger
with Bass Pro Shop. But Cabela said it expects to win antitrust approval
during the first half of next year. Cabela shares were off 5 percent to
$58.55.

GRIFFETH: Iconix Brand says it has entered into an agreement to sell its
Sharper Image brand to toy maker 360 Group for $160 million. The Sharper
Image sells home tech devices like massage chairs. Iconix said it plans to
use the need proceeds to trim down its debt. Shares rose by 4 percent to
$9.34.

And chip maker Qualcomm (NASDAQ:QCOM) said it has settled legal disputes
with Chinese electronics company Meizu. Earlier this year, Qualcomm
(NASDAQ:QCOM) sued that company, alleging that it infringed on Qualcomm`s
patents for wireless phones, and as part of the settlement the two entered
into a patent licensing deal. Shares of Qualcomm (NASDAQ:QCOM) fell by 1
percent to $65.20 today.

BREWER: And our final market monitor guest for 2016 is betting on
healthcare in the New Year. He is Richard Steinberg, president and chief
investment officer at Steinberg Global Asset Management.

Great to see you today, Richard.

RICHARD STEINBERG, STEINBERG GLOBAL ASSET MANAGEMENT PRESIDENT & CIO:
Thank you.

BREWER: Let me ask you. I know you think that the healthcare industry is
unwanted and unloved. Why do you love the Ensign Group so much?

STEINBERG: The stock has been beat up some. They are a leader in the
skilled nursing, assisted living facility area. Stocks trading at 14 times
earnings. We have a $31 target. We think it is really cheap, playing on
the aging of the population theme.

GRIFFETH: Rich, you are the classic value investor. You wait for a
company to hit your area of buying opportunity, and you think Cerner
(NASDAQ:CERN) Group is in that area right now, yes?

STEINBERG: Yes, Cerner (NASDAQ:CERN) is super cheap, trading at three year
low in P/E and other valuation. They`re the leader in it healthcare, and
the digitization in hospitals bill and the upgrading in systems makes it
look super cheap to us. We have a $64 target and we think there`s a mode
of safety around that and the estimates look pretty good for 2017.

BREWER: In fact, a lot of hospital stocks got a hit after Trump election
on his threats to Obamacare. So, what`s that doing in general to stocks
like Cerner (NASDAQ:CERN)?

STEINBERG: You`re starting to see a little bit of a bid coming in in the
health care names as the rotation out of some of the big cyclical names
have occurred. So, we think that the trend could continue for people
looking for bargains.

GRIFFETH: Allergan (NYSE:AGN) Pharmaceuticals, that`s another area that
Donald Trump has talked about, you know, with the fear if Hillary Clinton
were elected there would be price caps put on the company. Even Mr. Trump
has talked about that.

So, what about a company like Allergan (NYSE:AGN) or somebody in that
category?

STEINBERG: Allergan (NYSE:AGN) is a special pharma name like you said.
You know, their big product, the product everybody knows about is Botox,
which tends to be a cash purchase. It got hammered when the Pfizer
(NYSE:PFE) deal overseas fell apart. We think it is really, really cheap –
– one of the cheapest names in the group. We have a $375 target. And
today when I was looking, it`s now in the top 25 in the S&P value index.
So, if money goes towards value, Allergan (NYSE:AGN) will catch some of the
cash coming into the indexes and ETFs.

BREWER: And just generally speaking when we`re looking at this industry,
what would happen if Congress decides to side with President Trump and take
— and Obamacare takes a hit?

STEINBERG: Yes, I think that these names already are trading at valuations
that reflect that. So, I think where we`re buying them we`re giving
ourselves some safety in terms of free cash flow and the P/E ratios, and in
a diversified portfolio these look the cheapest to us right now.

GRIFFETH: By the same token, what would be the catalyst to move these guys
higher? What are you waiting to happen to get to the price targets you are
after?

STEINBERG: I think as you`ve seen kind of a bloated market that needs to
digest itself some, you will see some rotation. Again, I think value is
going to out perform growth. So you will start to see bargain hunters
coming into healthcare because it underperformed last year.

BREWER: Richard Steinberg with Steinberg Global Asset Management — thank
you for joining us. Happy New Year, sir.

STEINBERG: Happy and healthy New Year, guys.

GRIFFETH: Thanks, Rich.

Coming up, getting smarter about smart homes. We`ll explain.

(MUSIC)

BREWER: We know the housing market has been hot, and now we know just how
hot. Zillow says the total value of the U.S. housing market grew nearly 6
percent this year and now stands at — are you ready for this? — almost
$30 trillion. That`s a record high. It also means the market has regained
all of its value lost during and after the housing crisis.

GRIFFETH: Finally tonight, 2017 will be the year of the smart home. At
least that`s what some industry analysts are predicting right now. The
technology was popular this year but not as much as it could have been
because one thing stood in its way of its growth.

Diana Olick explains for us tonight.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It helps save energy.
It protects you. It lets you manage your home while you are away. It is
in a word smart, but smart home technology is still not really on the
average homebuyer`s wish list.

THERESA TAYLOR, REAL ESTATE AGENT: It`s not something that my buyers are
asking for.

OLICK: Real estate agent Theresa Taylor says it`s not that they don`t like
it. It`s that they don`t know enough about it.

TAYLOR: I think if they knew the benefits about how it could save them
money, it would be a more attractive feature and, you know, start —
instead of being at the bottom of the list of things people want, it
probably would move up to the middle.

OLICK: In 2016, 80 million smart home devices were delivered worldwide, a
64 percent increase from 2015 according to a new report from IHS (NYSE:IHS)
Markit. That`s your nest, your august smart door locks, ring smart
doorbells, and a big chunk of it was personal home assistance like Google
(NASDAQ:GOOG) Home and Amazon`s Alexa.

But analysts say 2017 will be the year of the smart home because the
companies behind the technology will be smarter about educating their
consumers.

BLAKE KOZAK, IHS (NYSE:IHS) MARKIT PRINCIPLE ANALYST: The consumers today
are incredibly confused as to, you know, what is the value they`re getting?
You know, they could be — a consumer could be spending upwards of $1,000
if they go to the retail market and they don`t understand, you know, what
value? Are they getting energy savings? Is it simply fun and they`re not
going to want to use it, you know, in a couple of weeks` time?

OLICK: Companies will also broaden from home security and thermostat
specifically to home appliances. So, let`s say your ask your personal home
assistant for just the right meat loaf recipe and then you choose one, and
then it preheats your oven to the perfect temperature.

KOZAK: They`re looking to create a total ecosystem.

OLICK: The focus for 2017 also will be lowering prices and enhancing
security to prevent cyberattacks, as bigger companies acquire smaller tech
providers, it should be easier to integrate and simplify all of the
systems. But in the end, the key to selling consumers on the smart home is
helping those consumers be smarter.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

BREWER: But until they can clean the bathroom.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Contessa Brewer, thank you
for watching.

GRIFFETH: I`m Bill Griffeth. Have a great evening, everybody. Happy New
Year. We`ll see you again on 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.

 

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