Transcript: Nightly Business Report – February 1, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Focus on fundamentals.
From the Fed to jobs to earnings, why investors are looking less at Washington this week and more at the                                                                     numbers that really matter.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Lots of likes. Facebook
(NASDAQ:FB) questions earnings expectations as more people across the globe
connect on the social network.

MATHISEN: Crash test dummies. Two popular electric vehicles don`t make
the top grade for safety. We`ll tell you what happened and what happens
next.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
the 1st of February.

HERERA: Good evening, everyone, and welcome.

There was a clear theme on Wall Street today. Fundamentals matter. So
does Washington, of course. But today, good old-fashioned numbers on
profits, jobs and interest rates mattered more. Investors had to take into
account earnings and whether the results so far this earning season have
been good enough to justify the lofty stock values.

There was also the Federal Reserve which kept interest rates unchanged and
decided to keep the markets guessing on when the next rate hike will occur.

And then there were jobs and a report that showed private companies went on
a hiring spree to start the year. But let`s begin with the health of
corporate America. We are at the halfway mark of earnings season and while
the results have been positive, there were some hurdles ahead.

Bob Pisani breaks it down.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: We`re just about halfway
through earnings season. And the results have been encouraging, with
blended earnings up about 7 percent for the fourth quarter and revenues are
up more than 4 percent. That`s according to Thomson Reuters (NYSE:TRI).

Those are pretty good numbers overall. However, there`s good news here and
bad news. The good news is the 2016 earnings recession is now over. But
here`s the bad news, now the hard part starts — the markets are
anticipating double digits earnings growth in all the major sectors
throughout 2017. That`s a tall order.

Is there any chance that corporate America can really deliver on these big
expectations? That`s what the market is grappling with right now. It`s a
tall order. And part of the problem with the markets in the last few days
is maybe we`re entering this period when the market is settling into
somewhat more realistic expectations of what we`re going to get.

Here`s why. First, the fourth quarter numbers are up. That`s good news.
But they`re very uneven.

Here`s my worry — only about half the companies are beating expectations
for revenues. That`s way below normal. Now, that tells that the
expectations are already a bit too high. And that`s just the fourth
quarter.

Second, corporations are being very conservative on 2017 guidance. No one
is telling analysts to boost their earnings because of the Trump agenda or
outsize global growth. At least nobody is doing that yet.

Finally, traders are debating how much real earnings oomph we`re going to
get from lower corporate taxes. Remember, that`s one of the main drivers
of this recent rally. There is no doubt corporations will benefit from the
tax cut. We all know that.

But traders are now realizing that initial expectations that a tax cut
could boost earnings 10 to 15 percent or more are probably too high.

Finally, there`s a much broader macro question the market is grappling
with. Can a baton pass smoothly from easy monetary policy to easy fiscal
policy? Now, if it can, there might be a smooth handoff and earnings will
rise enough to justify the current prices. But if not, it could be a rocky
year for the rest of the markets.

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

(END VIDEOTAPE)

MATHISEN: Facebook`s quarterly results add to the positive news this
earning season. The company reported better than expected profits and
revenue and an increase in both daily and monthly users. The world`s
largest social network earned $1.41 a share. That was a full 10 cents
better than expectations. Revenue up 50 percent to more than $8 billion as
the company continues to benefit from its push into mobile and video.

Investors — well, they liked what they saw, sending shares initially
higher in after-hours trading, as you see there.

Julia Boorstin has more on Facebook`s thumbs up quarter.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The key takeaway
from Facebook`s earnings, the social giant outperformed expectations on
every single metric. Despite tough comparisons, revenue earnings, daily
and monthly active users all coming in better than expected.

I spoke to COO Sheryl Sandberg about what`s driving Facebook`s growth. She
said it`s more people joining the community on both Facebook (NASDAQ:FB)
and Instagram. More businesses, particularly small businesses, moving
online and bringing ad dollars with them and product improvement including
more video and the success of the Instagram stories.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: Private sector job growth gone to a strong start this year.
According to payroll processor ADP, firms added 246,000 new workers to
their rank and file. That was a lot more than expected and it was best
single month since last June.

And hiring wasn`t led by the services sector. Construction jobs led the
way this time and even the troubled manufacturing sector added 15,000
positions.

MATHISEN: Federal Reserve issued its first statement on interest rates
since Donald Trump became president, and while the Central Bank decided it
was not the right time to hike, it also didn`t offer many clues for
investors as to what may come next.

So, Steve Liesman did some digging.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Reserve
kept rates unchanged in its January meeting and kept the markets guessing
about when the next rate hike will come. The average Fed official is
forecasting three hikes this year. Markets look for June to be the most
likely next month. And the chance of a quarter point hike fell in March
after the statement from around 29 percent before the meeting to 22 percent
afterwards.

In its unanimous decision the Fed retained most of the language about the
economy in its January statement from what it used in December. It said
the economy is expanding at a moderate pace and the labor market has
continued to strengthen. It sees gradual rate increases in the months
ahead, and it will continue to maintain the size of its $4.5 trillion
balance sheet, which swelled up after the financial crisis in an effort to
stimulate growth.

But the Fed did it express more confidence in the inflation outlook. It no
longer says inflation is a result of temporary factors like higher energy
prices. And in a typical nuance meant to be noticed by markets, it said
that inflation will rise to its 2 percent target rather than it`s expected
to rise.

The Fed also noted more business and consumer confidence, which has shot up
in the wake of the election of President Donald Trump. Yet, the Fed has
not changed its economic outlook since the election, even while markets
have soared while it awaits specifics of Trump`s policies in ways possible
tradeoffs between good and bad policies. All this raises the stakes for
Fed Chair Janet Yellen`s testimony to Congress which starts on Valentine`s
Day. But it`s not expected with the Republican Congress to be much of a
love fest.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.

(END VIDEOTAPE)

HERERA: The auto sector is another key pillar of the economy. And today,
we learned that sales cooled off in January. General Motors (NYSE:GM),
Ford and Fiat Chrysler all reported monthly declines. And while January is
typically a slower month for auto demand, car buyers are purchasing bigger
vehicles like trucks and SUVs which have higher margins. In fact, Ford
said its popular F-series pickup truck saw its best start for the year
since 2004.

MATHISEN: American manufacturers expanded at their strongest pace in more
than two years. The Institute for Supply Management said that executives
are also more optimistic on the outlook for the sector. New orders higher
and the index rose for the fifth consecutive month.

HERERA: On Wall Street earnings, the Fed and those economic reports helped
stocks close modestly higher. While the gains weren`t big, they would have
been practically nonexistent if not for Apple (NASDAQ:AAPL) which rose more
than 6 percent following its quarterly results which we reported on last
night.

So, here are the closing numbers for you. The Dow Jones Industrial Average
rose 26 points to 19,890. The NASDAQ up 27. The S&P 500 gained just a
fraction.

MATHISEN: Let`s turn now to Scott Minerd for more analysis on the Fed, the
economy, and the markets. He`s global chief investment officer at
Guggenheim Partners.

Good to have you here in person.

SCOTT MINERD, GUGGENHEIM PARTNERS CIO: Great to be here, Tyler.

MATHISEN: Fantastic.

We`ll get to the Fed in just a moment. But we`ve been worried about the
level of positive anticipation in stock prices these days. Have prices
gotten ahead of themselves? Are earnings strong enough to justify the
levels that they`re at right now? Or — and is there too much good feeling
in the markets?

MINERD: I mean, certainly, we`re on a sugar high, right? The Trump
policies, which are exceptionally pro-growth, you know, should be good for
the economy. But now, we`re going through arduous task of actually getting
it implemented. And we`re starting to see some of the difficulties.

So, I think the market at this point is going to say, well, let`s kind of
pause here.

MATHISEN: Wait and see.

MINERD: And, you know, also, one thing that`s interesting is, for some
peculiar reason, round numbers are always a problem for the market. So
20,000 on the Dow I think is just going to be a consolidation area for a
while until we get more promise.

But looking at earnings, Tyler, even without the Trump tax cuts, I would
expect to see S&P earnings maybe at $135 within the next two years. So,
for investors that are truly investors, even from today`s levels, we have
pretty good upside left in stocks. But there might be a better buying
offer.

HERERA: So, in essence, the bones of this market are still good.

MINERD: Yes.

HERERA: Right? But we may be poised for a setback depending on the
rhetoric coming out of Washington. But the internals of the market still
look positive to you.

MINERD: I think so. I think that — well, I would put it another way.
The fundamentals look very good. This is a seasonably strong time. So, I
don`t really expect the market to go crashing down in the first quarter.

You know, on the other hand, I think it will be hard for to us keep one the
pace of gains we got in the fourth quarter.

MATHISEN: What did you hear from the Fed today? And bringing it back to
stock prices, are stocks able to withstand what I know you expect to be
three rate hikes this year?

MINERD: Right. I think so. I mean, first off, the Fed is in my mind
falling behind the curve, right? If you look at the real level of interest
rates today, that is the rate of interest minus inflation, we were about
zero a year ago. Today, we`re — have real rates of maybe negative — 1.5
(ph) percent, which means Feds should be raising rates aggressively and,
you know, they`re not.

So I think the Fed won`t be a strong head wind for the market. And
historically, when the Fed does start to raise rates, that`s usually in
response to a strong economy and stocks have performed well during those
period.

HERERA: And inflation. You know, for such a long period time, there was
very little inflation in the market, in the economy, perhaps better said.
And now, we are starting to see a little bit but not too much. How does
that look to you?

MINERD: Well, I think that a lot of the inflation pick up that we`ve seen
is the energy resurgence and energy prices are stabilizing here. We`re
seeing fracking activity pick up. Again, going to the Trump policies,
these are policies which are supportive of energy. Meaning production.

So, I don`t see energy prices adding a lot to inflation. And all energy
prices have to do is flatten out. And if nothing else rises, inflation
will fall.

So, while I`m not saying that we`re going back to the old levels that we
saw before, I think that we`re peaking here on inflation on a cyclical
basis and we`ll probably see some downside.

MATHISEN: And a little inflation is a good thing, right?

MINERD: I think so.

MATHISEN: Good for stocks.

MINERD: That`s right, and I think it also shows confidence. People are
spending money. That`s a good sign.

MATHISEN: Scott, great to see you. Thanks for being with us.

MINERD: Great to be here. Thank you so much.

MATHISEN: Scott Minerd, Guggenheim Partners.

HERERA: And down in Washington, the Senate has approved the former
ExxonMobil (NYSE:XOM) CEO as secretary of state. The vote for Rex
Tillerson was largely along party lines. The nation`s chief diplomat will
have to deal with a number of issues including guiding relations with
Russia, Mexico and China.

MATHISEN: President Trump will reportedly meet with a large group of CEOs
on Friday, according to Dow Jones. The meeting is expected to cover topics
like regulation, tax, trade, infrastructure development.

This comes as the White House works to develop a strategy to increase
economic growth and hiring. The CEOs are part of the president`s
previously announced strategic and policy forum. It`s not clear if all
members of that group will be there.

HERERA: Still ahead, missing the mark. If you are in the market for an
electric vehicle, there`s a pocket of them that did not earn the highest
safety grade.

(MUSIC)

MATHISEN: A jury has ordered Facebook (NASDAQ:FB) to pay $500 million in
damages. The lawsuit brought by the game-maker ZeniMax alleged that
Facebook`s virtual reality unit Oculus was based on stolen technology. The
jury found that Oculus` co-founder violated a nondisclosure agreement with
ZeniMax. Facebook (NASDAQ:FB) says it will appeal.

HERERA: The nation`s largest land lord made its Wall Street debut.
Invitation Homes, an outgrowth of private equity behemoth Blackstone priced
at $20 a share last night, and finished the trading day at that level. The
company owns and rents single family homes. It`s not the only publicly
traded company in the space but it is the largest. And it is part of a
growing way to invest in the rental housing market.

Diana Olick has more.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Does anyone want to give $110,000? $120,000?

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was barely five
years ago that big institutional investors descended on a housing market in
crisis, flooding foreclosure options and buying thousands of distressed
properties. Some thought it was a short term play, but they appeared to be
in it for the long haul.

Blackstone, one of the biggest players, launched Invitation Homes, a single
family rental company that acquired over $10 billion worth of homes in over
a dozen markets.

Today, the company went public.

JOHN BARTLING, CEO, INVITATION HOMES: What we`re doing is really bringing
the professional experience into housing when you rent a home into — when
you move into the suburbs.

OLICK: This month, mortgage giant Fannie Mae gave the company and the
sector a vote of confidence in the form of up to a billion in debt. Fannie
Mae already back multifamily apartments, but for the first time is making
the single family play.

DOUG DUNCAN, FANNIE MAE CHIEF ECONOMIST: This is a new thing that we`re
doing, trying to learn that scale of financing, or that type of financing
in the rental space.

OLICK: Others in the market which include Colony Starwood and American
Homes for Rent have seen their stock rise dramatically, over 40 percent in
the last year. They, too, could benefit from additional capital as the
sector expands.

BARTLING: I think the most important thing is that millennials have not
yet entered our space.

OLICK: Large landlords are still a tiny share of the single family rental
market but Bartling says he sees room for expansion.

BARTLING: With 15.8 million homes that are for lease in the United States,
it is larger than multifamily. There`s no reason why this industry
shouldn`t consolidate to 2 million or 3 million homes that are
institutionally owned.

OLICK: The sector is still in its early stages, much like apartment REITs
were back in the `90s. And even if homeownership does increase over time,
rentals have always been a big part of the way Americans live and always
will be.

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

(END VIDEOTAPE)

MATHISEN: The number of people applying for mortgage applications fell
last week. The decline came mostly from applications for government
insured loans. According to the Mortgage Bankers Association, total
mortgage volume dropped more than 3 percent, the double digit in FHA
applications.

HERERA: Increased membership helped Anthem beat street expectations.
That`s where we begin tonight`s “Market Focus”.

The health insurer said higher premiums for its plans led to higher profit
and revenue. Anthem also said until policymakers make changes, it`s unsure
in what capacity the company will participate in the Affordable Care Act.
Shares rose 4 percent to $160.79.

Pitney Bowes (NYSE:PBI) said weakness in several of its divisions caused
profit and revenue to miss estimates. This supplier of office solution
also slashed its full-year guidance but said its transformation initiatives
over the past four years will drive its future performance. But shares
plunged 17 percent to $13.14.

Cigarette maker Altria saw its profits soar in the latest quarter, thanks
to gains related to the company`s 10 percent stake in the beer giant
Anheuser-Busch. But overall, cigarette volumes continue to fall, hurting
sales. And the nation`s largest tobacco company said it expects that
weakness to persist through 2017. Shares of Altria rose 21 cents to
$71.39.

MATHSEN: In its first quarterly reports since separating from Alcoa
(NYSE:AA), the aerospace parts maker Arconic late yesterday reported profit
that missed estimates, while its sales were in line with those forecast.
Following the news, Arconic`s largest shareholder, the activist hedge fund
Elliott Management, launched a proxy fight against that company, saying
would it nominate new board members and seek to remove the CEO Klaus
Kleinfeld after seeing management, quote, “destroy shareholder value.” But
Kleinfeld says the company is heading in the right direction.

(BEGIN VIDEO CLIP)

KLAUS KLEINFELD, ARCONIC CO: We`ve seen the results yesterday. The
results show improvement on margins in each of the segments. I think we
have a lot of additional opportunities. I`m on one point in full agreement
with Elliott. There`s a lot more we can get as a value, and we`ll get it
as we have done in the past.

(END VIDEO CLIP)

MATHISEN: Shares rose 11 percent on the session today to $25.28.

The investment research firm Bernstein says it is bullish on corning but
nevertheless downgraded the specially glass maker stock from outperform to
market perform, on the belief that the company shares are now fully valued.
Bernstein also upped its price target on the Apple (NASDAQ:AAPL) suppliers
stock from $24 to $26. Well, it beat that. They were off 1 percent at
$26.21.

And the image publishing company Shutterfly (NASDAQ:SFLY) reported
disappointing profit and sales as the company saw lower demand for some of
its stationary brands. The company also gave weak guidance for the current
quarter and announced a new restructuring plan that would result in more
than 200 job cuts and an increased focus on Shutterfly`s mobile platform.
Shares initially tanked as much as 15 percent in afterhours trading. But
during regular session, they were up a fraction at $51.77.

HERERA: Amazon (NASDAQ:AMZN) has plans to build its air cargo hub. That
decision is part of a strategy to accommodate its growing fleet of planes.
The ecommerce company says the move would create more than 2,000 jobs and
will lessen its dependence on FedEx (NYSE:FDX) and UPS to transfer and
deliver Amazon (NASDAQ:AMZN) packages. Last year, Amazon (NASDAQ:AMZN)
said it plans to lease more plans and bought a network of trucks. The
company releases its quarterly results tomorrow.

MATHISEN: New crash tests are raising concerns about the safety of some
electric vehicles, in particular, the popular Tesla Model S. None of these
vehicles now failed test but there is room for improvement according to the
experts.

And Phil LeBeau has the details.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: A new round of crash
tests are giving some mixed results when it comes to safety. According to
the Insurance Institute for Highway Safety, two cars, the Chevy Volt and
Toyota (NYSE:TM) Prius Prime did well enough to earn the designation top
safety picks.

But the results are not as good for the Tesla Model S, which is popular
with luxury car buyers who want an electric model. According to the IIHS,
the Model S could have done better protecting the crash test dummy when the
front corner of the car was in a collision at 40 miles per hour.

DAVID ZUBY, IIHS: The forces we measured on the head suggest that an
injury might be possible had that been a human being. Similarly, we
measured elevated forces on the legs that raised concerns about the
possibility of an injury to the leg. Neither of these was so high that we
would expect life threatening injuries, but they are too high in our
opinion to earn good ratings for those body regions.

Tesla says it`s made changes to the Model S, which will improve how the
vehicle handles front end collisions the next time the IIHS conducts tests.
The spokesman added, “We expect to receive the highest possible rating in
every category, making Model S eligible for the IIHS top safety pick
award.”

Meanwhile, BMW`s i3 fell just short of the best rating possible in rear end
collisions. The company defends its electric car saying, “The BMW i3 with
its carbon fiber structure is designed to meet and exceed global safety
standards.”

One other thing stands out about these crash tests, none of the electric
cars failed any of the five types of collisions that were performed,
encouraging news for those considering buying an electric car.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: Coming up, immigrants are creating new American businesses at a
rapid pace. Tonight, two of them share their hopes and concerns for their
ventures.

(MUSIC)

HERERA: Small business owners drive job creation. According to the
Kauffman Foundation, nearly 150,000 new businesses per month were launched
by immigrants last year.

Kate Rogers (NYSE:ROG) talked to one who was optimistic about his business
under the Trump administration and another who has concerns.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: About a year ago,
Francisco Garcia decided to launch his business, Modern Architecture
Services, or MAS for short. The acronym which means more in Spanish had
him worried.

FRANCISCO GARCIA, MODERN ARCHITECTURE SERVICES FOUNDER: I was concerned
seriously about how that could sway potential clients because of having a
Spanish name. I`m concerned about that, the hesitation that I didn`t have
before.

ROGERS: Donald Trump`s first weeks in office haven`t eased the Mexican
entrepreneur`s fears with Trump signing an executive order to build the
controversial wall along the U.S./Mexico border, sparking tensions with
Mexican President Enrique Pena Nieto.

The president also took action on immigration policy, enacting a temporary
ban on refugees from seven majority Muslim nations. While campaigning,
Trump also used language some considered to be inflammatory to describe
Mexican immigrants and Muslims, even proposing a Muslim before walking his
plan back.

Garcia calls himself an anchor baby, born in the U.S. and raised outside of
Guadalajara until age 10. His parents applied for residency in the state,
packing their ten children for a three-day bus ride to settle in Escondido,
California. The entrepreneur now employs five people and says he is
disappointed in Trump`s campaign rhetoric and action on the border wall.

GARCIA: Immigrants come with I believe American values — hard work,
accountability, perseverance, loyalty to one`s family, to one`s employees.
Fairness to others in how we work together. And I just believe that the
rhetoric is just an oversimplification of complicated issues.

ROGERS: Immigrants like Garcia have become a driving force in American
entrepreneurship in recent years. Data from the Kauffman Foundation found
that in 2016, immigrants made up nearly one-third of all new entrepreneurs
in America, close to a two decade high. They`re also nearly twice as
likely as native born Americans to launch new businesses.

Adnan Durrani, CEO of American Halal and its brand Saffron Road, retails in
15,000 supermarkets nationwide. Despite Trump`s anti-Muslim rhetoric on
the campaign trail, Pakistani-born Durrani says he finds solace in knowing
his brand is growing thanks to people of all races and religions. He said
as many as 90 percent of his customer base is non-Muslim.

ADNAN DURRANI, SAFFRON ROAD CEO: We have tremendous support among a number
of different communities. And to me, I mean, you`ve got to look at the
silver lining. Trump, in terms of his tax policies, there`s policies here
that are going to spur business, and that`s what we need to look at
entrepreneurs. And I think we can mobilize, I think we can work with the
Trump administration. I think we can augment our businesses and I`m
actually very hopeful.

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

(END VIDEOTAPE)

HERERA: To read more about businesses started by immigrants, head to our
website, NBR.com.

MATHISEN: And finally tonight, a recent hospital stay apparently can`t
keep former President George H.W. Bush from attending the Super Bowl in his
hometown of Houston. The former president and his wife Barbara will
perform the pre-game coin toss between the Atlanta Falcons and the New
England Patriots.

NFL Commissioner Roger Goodell said he was honored to have them
participate, as well he should be.

HERERA: Looking forward to seeing that.

MATHISEN: Yes.

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

MATHISEN: And I`m Tyler Mathisen. Thanks for me as well. Have a great
evening, everybody.

We hope to see you right back here tomorrow night.

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) 2017 CNBC, Inc.

 

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