Transcript: Nightly Business Report – January 4, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue

The Dow tops 25,000 for the first time, marking the fastest 1,000-point
sprint ever for the blue chip index.

wondering why the markets are soaring, look no further than the economy.

MATHISEN: And buzz kill. Attorney general cracks down on the marijuana
industry, signaling big changes for that budding business.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
January 4th.

HERERA: Good evening, everyone, and welcome.

There was no winter chill on Wall Street today. The stock market remains
red-hot. The Dow plowing through a new milestone, 25,000, and it did so at
a record pace. It is the latest show of strength that has taken that blue
chip index up more than 25 percent over the past year.

The economy is growing. The labor market is strengthening as evidenced by
today`s private payroll jobs report. Corporate profits are rising.

And it didn`t go unnoticed by the president.


barrier, 25,000. And there were those who say we wouldn`t break 25,000 by
the end of the eighth year. We did in fact break 25,000, very
substantially break it, very easily.

So, I guess our new number is 30,000. But what it means is every time you
see that number go up on Wall Street, it means jobs, it means success, it
means 401(k)s that are flourishing.


HERERA: So, here are the final numbers: the Dow Jones Industrial Average
advanced 152 points to 25,075. The Nasdaq added 12. The S&P 50 10.

Bob Pisani takes a look at the first big milestone of 2018.


Quite an impressive move, considering it hit 20,000 January 17th last year,
almost exactly a year ago.

Many are still amazed that the market keeps advancing. But it`s not
incomprehensible rally. “Reuters” reported China expected GDP growth
around 6.5 percent as a goal in 2018. The Japanese market just closed at
its 26-year high. Europe was up nearly 2 percent. Eurozone businesses
reported their strongest activity since 2011.

And the ADP report was much greater than expected. This has been a trend
recently. Economic reports continued to come in above expectations. And
don`t forget, tax cuts have added fuel to record earnings. Instead of S&P
earnings growth up 10 percent in 2018, strategists and analysts are talking
about 15 percent earnings growth.

OK. So, what could kill the rally? Historically, the two biggest killers
of bull markets have been recessions, number one, and two, aggressive Fed
rate hikes. There`s no recession on the horizon. If the economic data
continues to surprise, the Fed may get more aggressive. But that`s a story
for later in the year.

The bears also argue the market is expensive. It`s true, but when you have
an economic expansion like this, with a rise in earnings, the multiples can
be higher than normal.

The final bear argument, that a terrorist at or a serious conflict with
North Korea may drop the markets, well, that`s a real concern, but the
markets have learned not to price in these events unless they`re imminent.

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


MATHISEN: So which stocks played a major role in taking the Dow to its new

Our Dominic Chu takes a look at that one.


year for the Dow to march from 20,000 to 25,000. Now, let`s take a look
some of the names that really powered that big 5,000-point move, because we
all know the Dow Jones Industrial Average is a price weighted index. So,
the stocks with the highest share prices actually move the index the most.

That being said, check out that move — 5,000 points in a little under a
year. The biggest contributor to the Dow during that span, Boeing
(NYSE:BA), the aerospace giant, which added nearly 900 points to that
5,000-point rally. UnitedHealth Group (NYSE:UNH), 429 points added.
Caterpillar (NYSE:CAT), 407 points; 3M (NYSE:MMM), the industrial
conglomerate, 406 points, and home improvement retailer Home Depot
(NYSE:HD) adding 355.

Now, if you add these up, roughly, you`ll see that just about half of the
Dow`s gains between 20,000 and 25,000 were just these five stocks alone.

But it`s not all positive. Some of the names didn`t fare all that well.
Check out some of these. The pharmaceutical giant Merck (NYSE:MRK) has
dragged the Dow by 27 points during that same time span. General Electric
(NYSE:GE), no surprise there, it`s not a big high priced stock anymore but
still, it dragged 82 points off the Dow`s performance. And then, Big Blue,
IBM, an underperformer, has dragged 114 points off the Dow.

So, as we talk about the march for the next leg higher in the Dow Jones
Industrial Average, we`ll talking about whether or not these stocks can
turn around or whether the momentum in shares like Boeing (NYSE:BA), Home
Depot (NYSE:HD) and others can maintain that point upside.



HERERA: To the economy, where U.S. employers created 250,000 jobs last
month, much more than expected. It is the latest report pointing to
strength in the economy.

And as Steve Liesman tells us, it`s the economy that`s playing an important
role in the stock market`s rally.


surges take flight on the hot air of just hopes and dreams. But this one
seems to have some solid economic data keeping it afloat.

We got more proof of that today with an ADP report suggesting 250,000 jobs
created in the private sector in December. That was far more than the
consensus, and far more than economists expect for tomorrow`s jobs report
from the government.

ADP adds to a running series of economic surprises that`s seen Goldman
Sachs` economic surprise index surge to new levels. Bottom line is the
street keeps underestimating the strength of this economy.

All of that adds up to overall economic growth that for three straight
quarters looks to be running well ahead of potential of just around 2
percent. The second and third quarters in fact offered the first
consecutive quarters of growth since 2014. And the CNBC Rapid Update for
the fourth quarter estimates are still healthy for a 2.7 percent growth

There are definitely reasons for caution. The stock market has high hopes
for the effect of tax cuts. And those tax cuts better deliver to justify
recent market gains. In addition, the Federal Reserve is raising rates as
many as three times this year, in part to slow the economy.

But for now, better growth and bigger corporate profits are providing real
buoyancy for the stock market.



MATHISEN: Well, it seems like nothing, nothing, four days into this New
Year, can slow the raging bull market. One bear says the conditions are
ripe for a potential correction over the next couple of months. But a
market bull says there`s still plenty of room to run. And tonight, we are
bringing them together. Oh, what a fun food fight will be.

Phil Blancato is bull. He is the president and CEO Ladenburg Thalmann
Asset management. Barry James is the president of James Advantage Funds.
And Barry is our bear.

All right. I think, Barry, the burden should be on you to make the bear
case here. You think we can have a 15 percent or more correction in either
the first or the second quarter. Give me the three reasons why and the one
reason, the one thing I should do about it.

Number one, the Federal Reserve is not turning on the juice. They`ve
turned it off. They are doing quantitative tightening. Ninety-three
percent of the rally was associated with quantitative easing. So, if you
have quantitative tightening, that could be something.

A necessary precondition is extended valuations. Price to sales on the S&P
are the highest they`ve ever been. You look at other measures like P/E
ratios are maybe not as high as they were in the late `90s, but they are
back where they were in 1987.

In addition, we have the Federal Reserve raising rates, not at the pace we
saw in `87. But 1987, Bob was talking about no recession, I agree with
that, but half the time, half the time you get these 15 percent downturns
when there is no recession in sight. So, it can happen.

So you`ve got some pieces of the puzzle in place that are necessary
conditions for a pullback. They don`t necessarily mean there will be one.
We would say lower your equities, especially in the e-commerce area.

There`s a mania in there. It`s very similar to the last six bubbles that
we`ve studied. And we would say that would be the area that would be the
one that would be the most dangerous.

HERERA: There`s a lot in there, Phil, pick apart, certainly. But you do
think that there is more room to fly. Why?

Well, when you look at the composite of what`s going on, it`s pretty
powerful. I mean, when you infuse expensive stocks, they`re not cheap,
they`re roughly 3 percent of the historical average on the S&P, but when
you infuse a tax cut, that`s going to push your P/E higher and justify the
higher price.

Secondly, I don`t disagree the Federal Reserve is getting a littler more
aggressive. But look at where interest rates are. We all grow up with
rates being significantly higher. Companies are earning more than the cost
of their debt. And until that changes, until rates go much higher, it`s
not effective. You don`t have to really about it.

So, cheap debt, a tax cut, and then you mentioned on your dialogue, the
economy is doing pretty well. Couple that with global expansion. So, I —
when you think about U.S. market, we have been the bellwether, the leader.
OK, maybe this is an opportunity to rotate a little bit, to diversify, have
emerging markets which are going well. Europe being much cheaper.

But I don`t think it`s going to come to an end simply because of low
interest rates, a healthy economy, expanding economy. And I don`t agree
that stocks in my opinion are not —

MATHISEN: So, let me push back on the bull a little bit, and, Sue, you can
push back on the bear if you`d like.

HERERA: You got it, we`ll double team.


MATHISEN: There are a lot of expectations built in here that the economy
is going to do very well and that profits will come in nicely and that
there`s going to be an investment boom in this country. What if some of
those things don`t come true, or if, for example, the market becomes
dissatisfied with even good economic or corporate news?

BLANCATO: Good point. And by the way, 15 percent corrections, those are
relatively healthy, they`re not a bad thing, it`s kind of like a brush
fire, you clean up the brush.

But in this case, it`s really hard to draw that scenario with the interest
rates this low and earnings where they are. You`ve given everybody a shot
of steroids here to really pump up earnings with this, you know —

MATHISEN: With the tax cut.

BLANCATO: That`s a significant reduction, especially in that small and
mid-space. And that`s why, in these first six months, you get a pass.
Beyond that, OK, fair dialogue. But the first six months, you`ve got too
much of a benefit coming from it.

HERERA: Barry, let me turn to the Fed. There are those who think — I
understand the Fed is tightening. But to Phil`s point, we`re coming from
such low levels that the impact on that might be somewhat muted, even if
they do become more aggressive in the face of slightly increasing

JAMES: That`s absolutely true. And although the one thing, you know, this
is kind of surprising, when you look at tax cuts, I just wanted to address
that, historically, from Kennedy through G.W. Bush, after the tax cut, one
year later, stocks don`t do very much, because it was all built in ahead of
time. And we`re just seeing the effects today of people being able to
digest the tax cuts that came out of at Christmastime. So, it`s only
natural that they`re opening up their presents and stock prices are rising.

In terms of the low interest rates — yes, 1987, it grows very rapidly, it
went very high. We`re not anywhere near that. And I would — I would
agree that that is not the precursor, but quantitative tightening, and
they`re going from $10 billion a month to $50 billion a month. I think
that that`s going to be a backdrop that will eat away at some of that

MATHISEN: Gentlemen, you were very nice to one another. Thank you very
much. You can come back again.

Phil Blancato of Ladenburg Thalmann Asset Management. Barry James, always
good to see you, with the James Advantage Funds.

HERERA: We turn to Washington now where President Trump wants to open
nearly all waters to offshore drilling. The proposal lifts a ban imposed
by President Obama. It gives the energy industry access to drilling rights
in most parts of the Pacific, near California, and in the Atlantic, near
Maine and the eastern Gulf of Mexico.

Interior Secretary Ryan Zinke said the country is embarking on a new path
for energy dominance in America.

MATHISEN: A seismic shift could be coming to the relatively new legal
marijuana industry. Attorney General Jeff Sessions today reversed a number
of Obama era guidelines that discouraged the federal government from
interfering with state legalized marijuana. And it comes just days after
weed went legal in California.

Aditi Roy is in San Francisco tonight.


companies ushered in the legalization of recreational marijuana in
California with fanfare, a blow from the federal government. Attorney
General Jeff Sessions gave U.S. attorneys the green light to aggressively
enforce federal laws against marijuana, even in states where it is legal.

Reaction was swift. Democratic Leader Nancy Pelosi saying the decision,
quote, bulldozes over the will of the American people and insults the
democratic process under which majorities of voters in California and in
states across the nation supported decriminalization at the ballot box.

Cannabis entrepreneurs are also weighing in, one telling me it could be
devastating for business and would energize the black market. Others are
saying the industry would move to DEFCON 5 because of this. And the vice
president of Marijuana Business Daily says the move will sow more seeds of
uncertainty and businesses could be in for a bumpy ride.

But some businesses remain bullish. The CEO of another cannabis company,
Baker, says, we remain optimistic about the state of the industry.

And the executive vice president at Aurora, a Canadian cannabis company,
tells me the effect will be a positive for large Canadian producers like
Aurora, because it will drive U.S. investment and investors north of the
border to publicly listed Canadian companies.

It remains unclear how the federal law will be enforced and whether medical
marijuana companies could be targeted as well. Analysts had predicted that
California`s recreational marijuana market will be worth $6 billion by

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.


HERERA: Still ahead, are computers and smart phones worldwide at risk of
being hacked because of a flaw in a popular chip?


MATHISEN: The Securities and Exchange Commission has a warning for
investors. The chairman, Jay Clayton, urges extreme caution on
cryptocurrencies like bitcoin. He said that his agency is pursuing some
bad actors, but added that regulators may not be able to return lost
investments to investors.

HERERA: And Merrill Lynch is banning clients from investing in bitcoin.
According to “The Wall Street Journal,” the bank`s roughly 17,000 financial
advisers cannot pitch investments related to the cryptocurrency. They also
cannot execute client requests to trade Ggrayscale Bitcoin Investment Trust
which is traded over the counter as opposed to a formal venue like the New
York Stock Exchange. The bank has concerns about the suitability of that

The latest move expands an existing policy barring access to newly launched
bitcoin futures contracts.

MATHISEN: We told you last night about a reported flaw in Intel`s chips.
And tonight, there`s a big concern among businesses and consumers that a
vast number of consumers and smartphones maybe susceptible to hacking.
Shares of the world`s largest chip maker fell again in trading today by 2
percent on an up day.

Josh Lipton has the details.


high alert. Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and Google
(NASDAQ:GOOG) are scrambling to push out software fixes to two security
vulnerabilities that could impact millions of computers all over the world.
The bugs, called Spectre and Meltdown, make everything from smartphones to
servers potentially vulnerable to hackers. Intel (NASDAQ:INTC) confirmed
reports that its chips are vulnerable, but CEO Brian Krzanich told CNBC
that it`s not just Intel (NASDAQ:INTC), that many other tech manufacturers
and their devices are at risk too.

BRIAN KRZANICH, INTEL CEO: I can`t tell you exactly on the other guys, on
the other products, exactly which ones are affected. But definitely most
of the modern high performance processors that you see in leading edge
products, across that array that you talk about, phones, PCs, everything,
are going to have some impact.

LIPTON: But rival AMD seemed to push back on that point, saying in
statement, due to differences in AMD`s architecture, we believe there is a
near zero risk to AMD processors at this time. In response, investors have
sent AMD stocks surging higher. On the other hand, Intel (NASDAQ:INTC) has
been under pressure.

Importantly, Krzanich said there is no evidence that any hacker had
actually taken advantage of this vulnerability. It`s a risk that, as far
as we know, no one has exploited. And Krzanich says there`s already a fix
to the problem. Intel (NASDAQ:INTC) does not expect any material financial
impact from the issue.

Tech giants are moving quickly, updating their cloud services and products,
to protect businesses and consumers. For example, Microsoft (NASDAQ:MSFT)
has already updated its Internet Explorer browser. Google (NASDAQ:GOOG)
has updated its public cloud service. Apple (NASDAQ:AAPL) has yet to
comment on the issue.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.


HERERA: Macy`s (NYSE:M) is cutting thousands of jobs. And that`s where we
begin tonight`s “Market Focus”.

The retailer said it would eliminate about 5,000 positions this year as it
shutters more stores to streamline operations and cut its costs. The
announcement comes after Macy`s (NYSE:M) reported a 1 percent rise in
holiday sales and said it was narrowing its full year sales outlook. But
Macy`s (NYSE:M) also raised earnings expectations. Nonetheless, shares
fell 3 percent to $24.49.

JCPenney said steady foot traffic and strong demand for jewelry and makeup
helped the department store chain see positive same-store sales in the
latest quarter. The company`s e-commerce business also picked up steam.
And JCPenney also reaffirmed its fiscal 2017 outlook. Company shares were
off a penny to $3.69.

And Sears (NASDAQ:SHLD) is planning to put more of its struggling stores on
the chopping block. The retailer said more than 100 Sears (NASDAQ:SHLD)
and Kmart stores across the country will close their doors by April.
Sears` shares closed down nearly 5 percent to $3.58.

MATHISEN: And sticking with retail, Walgreens Boots Alliance said a rise
in prescription orders helped that chain grow overall revenue and same-
store sales, even as the company`s business underperformed. The results,
along with profits, were above street expectations. Walgreens said it was
hiking the lower end of its earnings guidance for 2018 and it expects to
close its $4.5 billion acquisition of 2,000 Rite Aid (NYSE:RAD) stores this
spring. Walgreens shares fell 5 percent to $71.60.

And Walgreens rival CVS (NYSE:CVS) said it expects a $1 billion gain as a
result of the new tax law. The pharmacy and retail chain also said
operating profit will likely rise between 1 percent and 4 percent this
year. Shares climbed more than 2 percent on the session to $75.13. Costco
(NASDAQ:COST) said same-store sales rose more than 11 percent in December,
helped by demand in the U.S. and abroad.

The world`s largest wholesale club retailer also said its e-commerce
business perform well. Shares initially rose on the news but then they
fell fractionally to finish the regular session at $189.10.

HERERA: And many industries are still trying to figure the full impact of
the recently passed tax bill. But there is one sector that most agree will
likely be a big beneficiary, and that is manufacturing.

Morgan Brennan explains.


manufacturers have been largely upbeat about the tax overhaul and for good
reason. One model estimates manufacturers will see the biggest tax
savings, more than $260 billion from 2018 through 2027. Not only will many
likely benefit from a lower corporate rate, but two big changes could be
game changing — the shift to a territorial system and the adoption of full

Nearly all of America`s trade partners have territorial systems. Experts
say implementing a similar model here in the U.S. will help manufacturers
better compete against foreign rivals. And the expectation is at least
some of the money will be reinvested stateside.

system will in fact allow companies to move the cash back based on the tax
that they paid in each jurisdiction. And it will actually I think promote
certainly a level playing field and a fairness for U.S. companies to be
able to operate kind of on a normal basis.

BRENNAN: Factor in full expensing which will enable companies to deduct
the full purchase of new equipment up front, and there`s much more impetus
to invest and expand. Caterpillar (NYSE:CAT), Rockwell Automation
(NYSE:ROK), and Deere could all win in two ways. The tax cut will help
their bottom lines and also encourage other companies to buy more of their

INCH: There`s no question, this is the biggest market in the world. And
now that the playing field has been leveled with Europe, Canada, and
elsewhere, I think companies are increasingly going to look to position
their operations closer to customers. It just makes a ton of sense that
there will be a degree of investment spending brought back to the United

I wouldn`t overplay it, it`s not necessarily going to happen quickly, but
it can happen over time.

BRENNAN: And only time will tell how many new jobs all of this actually
creates. After all, automation and other technology is also rapidly
transforming factory floors. But whether it`s tax experts or Wall Street
analysts or even the manufacturing companies themselves, the widely held
belief is these changes will staunch the decades-long erosion of the
American industrial base, meaning fewer jobs lost to places like Asia and



MATHISEN: Coming up, the big chill all along the East Coast.


storm bearing down on New England, bringing business all but to a halt.
I`m Contessa Brewer. Coming up on NIGHTLY BUSINESS REPORT, we break down
the hows, the whys, and whats to come.



MATHISEN: Insurers will have to pay more than $130 billion in claims for
2017. That is the most ever. Hurricanes, fires, earthquakes pushed
insured losses to a record last year, according to a new report from the
German reinsurer, Munich Re. Total losses, including uninsured ones, about
$330 billion. That`s the second worst in history.

HERERA: The massive winter storm that`s hitting the east coast is packing
heavy snow, very gusty strong winds. Cities from North Carolina to Maine
were under blizzard warnings. And as the storm intensified, about 4,000
flights were canceled and local economies came to a near standstill.

Contessa Brewer is braving the cold for us tonight in Boston.


BREWER: A blizzard bearing down on Boston, no way for this to be business
as usual. With two to three inches of snow coming down every hour and
visibility dangerously low, the Massachusetts governor urged workers to
stay home and off the roads if they can.

UNIDENTIFIED MALE: No, no, because I got to pay the rent. There`s no
staying home.

BREWER: Claude Brown (ph) and his co-worker are out in it. A ticket for
standing on the street.

UNIDENTIFIED MALE: Forty-five bucks.

BREWER: Just another challenge to getting their construction jobs done.

UNIDENTIFIED MALE: Well, now, we have to move the van because it`s a
parking van. Later on tonight, we`re going to have to shovel.

BREWER: The roads are bad, in spite of the salt. The plows working
overtime to keep Maine roads clear. Thousands of flights canceled, planes
grounded across the Eastern Seaboard. A snow day for schools, a workday
for many.

Power companies in Massachusetts hired extra crews to tackle broken power
lines and downed trees. After more than a week of frigid temperatures, the
trees are brittle and susceptible to snapping in blizzard force winds of
between 30 and 60 miles an hour. New Englanders themselves may be somewhat

UNIDENTIFIED FEMALE: I just came from the gym. I just went for a swim
this morning. There we people there. But the good part is I had my own
lane. But it`s, you know — we`re hardy, so we can be out and about.

BREWER: Roughly 60,000 companies in Boston, many of them closed for the
storm, hospitals, hotels, and others, provided overnight accommodations for
essential staff. The Patriots football players are hard at work too, with
coach Bill Belichick telling the team they better show up on time for

The next phase following the snow is a dangerous, brutal cold snap.
Especially vulnerable will be those who lose power.

In Boston, Contessa Brewer, NIGHTLY BUSINESS REPORT.


MATHISEN: I`m glad I`m here in a nice, warm studio.

Before we go, here`s another look at the record setting day on Wall Street.
The Dow advanced 152 points, topping 25,000 for the first ever. Nasdaq
added a dozen, and the S&P 500 was up almost 11.

HERERA: What a day.

MATHISEN: Cold night, cold day.

HERERA: Yes, cold night. Drive carefully if you`re out there.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for
joining us.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great
evening, everyone. Stay warm. We`ll see you tomorrow.



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