Transcript: Nightly Business Report – February 13, 2017

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

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SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stock market first. The S&P 500 is worth more than ever before. But are things getting too frothy for investors?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: High stakes meeting. President Trump meets with the Canadian prime minister to discuss the trade ties that bind the two economies.

HERERA: Wake-up call. The highest dam in the U.S. is in dire straits. But will its troubles kick start the drive to revive America’s aging infrastructure?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, February 13th.

MATHISEN: Good evening, everyone. And welcome.

Off to the races. Now, I know I’m going to regret saying this, probably sooner rather than later. But it seems like nothing, nothing, can stop this stock market right now. Investors are buying up shares, thanks in part to solid earnings and the prospect for big tax cuts.

All three major indexes pushed further into record territory today. The Dow Jones Industrial Average advanced to 20,412. NASDAQ was up 29. And the S&P 500 added 12.

But that’s not all, the S&P 500 today reached $20 trillion in market value for the first time ever — $20 trillion. That’s up from about 6 trillion at the low in 2009. The most valuable company is Apple. Its saw its market cap topped $700 billion. It’s followed by Alphabet, Microsoft, Berkshire Hathaway and Amazon.

Bob Pisani has more on today’s action from the New York Stock Exchange.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The major indices opened yet record highs yet again this morning with cyclicals like financials, industrials, tech and materials, all leading. The Dow Industrials have moved 320 points or more than 1.5 percent since Thursday morning when President Trump said he would have more news in a tax cut in the next few weeks. Wow.

The S&P 500, which is the main index, watched by professionals, topped $20 trillion in value for the first time this morning. The biggest stocks, you know, they really are getting bigger.

Now, why is that? Well, partly, it is the triumph of indexing. It is easy to push money into indexes, and the S&P 500 is the most well known index. The big just keep getting bigger and bigger all the time.

Apple once again passed a market value of $700 billion this morning, a value it first, by the way, in 2014. Now, to put that in perspective, that’s 3 1/2 percent of the value of the entire S&P 500, 500 stocks. And one of them is 3 1/2 percent, for one stock.

Now, if the S&P 500 was weighted equally among all 500 stocks, Apple would only be 0.2 percent of the index, not 3 1/2 percent.

OK. So, what could go wrong with all these bullishness? The markets are pricing in a global economic recovery, as well as President Trump accomplishing his economic goals of lower taxes, less regulation and an infrastructure spending program. That’s a tall order. But for the moment, the market is giving the bulls the benefit of the doubt.

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

(END VIDEOTAPE)

HERERA: So Bob laid it out. Is the stock market becoming too expensive?

We have two guests with differing views. Patrick Chovanec is the chief strategist at Silvercrest Asset Management. He says it’s fairly valued. While Robert Pavlik thinks that the market is not quite as cheap short term anyway.

Gentlemen, welcome. Nice to have you here.

Patrick I’m going to start with you. What makes you think that the market is fairly valued rather than overvalued?

PATRICK CHOVANEC, SILVERCREST ASSET MGMT CHIEF STRATEGIST: So, at a price-to-earnings ratio 21 times or above, there’s no way you can describe this market is cheap. But it’s all relative.

The equity risk premium, which is the additional amount that investors expect to be paid for investing in stocks versus risk-free bond, that’s narrowed a bit, but it’s still about 5.6 percent, which is well above its historic average of 4.1 percent. That means that this is not a market that’s gorging on risk. It’s actually a market that’s fairly risk averse, and it’s one in which investors are being rewarded substantially over the long term for taking equity risk.

MATHISEN: Robert, how do you handicapped the risk of the market right now? You think it’s a little pricey.

ROBERT PAVLIK, BOSTON PRIVATE WEALTH PORTFOLIO MGR: Well, I’m looking at it on a forward earnings estimate and earnings are expected to grow by about 11.3 percent. And that means the market trading around 17.5 times this current year earnings estimate.

Now, at a short-term basis, if nothing happens, if Trump doesn’t get any of this growth initiatives passed, then the market does look a little bit pricey. But if you factoring what Trump was able to accomplish, and I’m not trying to advocate for Trump, but the fact remains that he’s been able to accomplish everything that he set out to do and there’s little reason to believe that he’s not going to accomplish things like Bob laid out, like infrastructure spending, tax reform, repatriation of cash and eventually better earnings for U.S.-based corporations.

So, when you take a look at the potential for this market to go forward, I think you could easily see 2502 (ph) within the next months and even possibly hire.

HERERA: You know, Patrick, I think he said something very interesting you say that your focus on long-term investing, not short-term speculation. But given the way this market seems to be anticipating what supposedly going to come out of Washington, what is — what if we don’t get all of those things? Maybe — maybe we only get a little bit of it. How much of that is factored into your forecast?

CHOVANEC: Yes, I would not be betting on all those things happening. Our view is really based on economic momentum that that we currently see in the numbers right now. You know, President Trump can do things to help the economy. He can do things to hurt the economy. But right now, the U.S. economy, if you look at consumer confidence is at a cycle high, business confidence has recovered. More importantly, both the manufacturing and non-manufacturing surveys show solid expansion and based on a steady stream of new orders.

So, you’ve got a lot of economic momentum and it’s turning into you mentioned before earnings. Earnings are out. If you look at quarterly earnings per share, they’re up 25 percent this quarter as opposed to a quarter a year ago.

Now, a lot of that comes from the recovery of energy and materials, which really had a slump last year. But there’s a lot of — there’s a lot of earnings that’s providing solid foundation under the — under the share price increases that we’ve seen.

MATHISEN: You know, Bob, I thought I heard you say that if we based on what the president’s been able to achieve so far, you’d have to give him given the benefit of the doubt that he’s going to be able to get done what he says he’s going to get done. But I’m not sure what he’s done so far, and in fact, the biggest thing he did has been stayed by a court out in Washington state.

And, secondly, the tough stuff lies ahead, tax reform repealing and replacing the ACA. And come to some agreement on a an infrastructure program.

PAVLIK: Well, that’s true. Obviously, the country has been upset and sort of been focused on what’s been going on with the — with the travel ban. But look at what he’s been trying to accomplish with the pipelines and keeping companies —

MATHISEN: Good point.

PAVLIK: — keeping companies manufacturing here in the United States and more companies trying to move back into the United States when manufacturing. If that’s just a small bit of what we could potentially see, then I think the real potential lies going forward. I mean, take a look at the economic news of the other guest was saying.

The economic news is pointing to positive. We had a pretty good for quarter earnings report which we saw about 8 percent earnings growth. And again, you know, if we take a look at what’s going on in energy, with oil trading around $54 a barrel, I mean, it’s very likely that energy can help and with an increase on the federal funds rate, you’re going to see better earnings for the financials.

HERERA: On that note, gentlemen, thank you. Patrick Chovanec with Silvercrest Asset Management, Bob Pavlik, Boston Private Wealth.

MATHISEN: Well, the biggest holders of U.S. debt are lightening up their positions, according to Bloomberg. Japan, the largest holder of U.S. treasuries reduced its stake in December by $21 billion, and that’s the biggest decline in almost four years. China, which owns just over a trillion of U.S. treasuries, has been selling since May. Its current position sits at a seven-year low.

The reduction may be due to the possibility of rising interest rates, political uncertainty and a potential increase in inflation.

HERERA: In Washington, the focus was on trade, not with Mexico but with one of our biggest trading partners, Canada. President Trump met with Prime Minister Trudeau and amid threats from the White House to rip up NAFTA, that trade agreement that includes Canada and Mexico.

And as Kayla Tausche reports, the stakes were high, but the meeting cordial.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump offering a warm welcome to Canadian Prime Minister Justin Trudeau, his third foreign leader and ally to visit the White House since he took office. And with high stakes because of the president’s pledge to rewrite the year-old free trade deal between the U.S., Canada and Mexico.

At a press conference, President Trump said keeping jobs and creating wealth in North America will benefit Canada and the United States. When asked he said cross-border business with Canada would only see small changes.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We’ll be tweaking it. We’ll be doing certain things that are going to benefit both of our countries. It’s a much less severe situation than what’s taken place on the southern border.

On the southern border, for many, many years, the transaction was not fair to the United States. It’s an extremely unfair transaction. We’re going to work with Mexico. We’re going to make it a fair deal for both parties.

TAUSCHE: Prime Minister Trudeau emphasized 35 states list Canada as their largest export market and $2 billion in two-way trade takes place between the two countries each day. Some three-and-a-half million barrels of oil cross the border daily too, even before the completion of the Keystone XL pipeline.

It’s the movement of people where the two leaders differ. With Canada accepting 40,000 Syrian refugees as the U.S. puts a hold on its program. Prime Minister Trudeau acknowledging the two countries don’t always agree.

JUSTIN TRUDEAU, CANADIAN PRIME MINISTER: There have been times where we have differed in our approaches, and that’s always been done firmly and respectfully. The last thing Canadians expect is for me to come down and lecture another country.

TAUSCHE: Both leaders said discussions are just beginning between the two countries but have been productive thus far.

For NIGHTLY BUSINESS REPORT, I’m Kayla Tausche in Washington.

(END VIDEOTAPE)

MATHISEN: President Trump has promised to invest a lot of money, as much as a trillion dollars, in our nation’s infrastructure. And nowhere is that need for investment more obvious today than in Oroville, California. There, engineers are trying to repair a crippled spillway at the country’s highest dam.

NBC’s Steve Patterson reports.

(BEGIN VIDEOTAPE)

STEVE PATTERSON, NBC CORRESPONDENT: Well, it is now a race against time. Engineers and workers doing their best to try to get parts of these spillways shored up. They’re locating exactly where the damage is. They’re going to put some major boulders in there.

I want to show you back behind me. Take a look here — you can see the operation. There are some heavy machinery loading boulders into these white bags. Those white bags will go on those Black Hawk helicopters and the helicopters will hopefully drop it in the areas where those spillways are damaged. The secondary spillway, the emergency spillway is the one that saw significant damage on Sunday.

Engineers were very worried about that, so they called the mandatory emergency evacuation, nearly 200,000 people evacuated from their homes got into their cars, took all their belongings. They could and started driving off and then they met some significant traffic. A very scary situation for people trying to leave this area and now the work is being done to try to shore it all up for there’s another weather system that could spell catastrophe for people in this area.

That’s work that’s being done right now.

For NBC News, I’m Steve Patterson, Oroville, California.

Back to you.

(END VIDEOTAPE)

MATHISEN: All right. So, is this the wake-up call that will revive the push to fix our country’s ailing infrastructure?

Joe Kane is a senior research analyst and fellow at the Brookings Institution, joins us now to discuss.

Welcome, Joe. Good to have you with us.

JOSEPH KANE, BROOKINGS INSTITUTION: Thanks for having me.

MATHISEN: There are 87,000 dams in the United States. How many of them are substandard. Do you know?

KANE: Well, the first point to emphasize too is that not all these are federally controlled. A lot of them are under state and even private ownership. And the Oroville Dam is just, as you said, just one of 87,000 across the country. And so, these challenges are highly nuanced. They’re varied. There is going to be no one-size-fits-all approach to addressing these challenges, whether we’re talking about extreme weather events or simply aging depreciating assets.

HERERA: Given the variety of projects that are out there, I’ve seen an estimate of about one trillion dollars. But given the fact that some of these facilities, whether you’re talking about a dam or a bridge or a highway, haven’t been touched in many years, do you have a sense of whether that is a realistic figure or too high or too low?

KANE: Right. So, right now, when it comes to the strategy put forward by the Trump administration, there really isn’t a lot of certainty over the particular types of infrastructure or even a particular type of projects that would receive additional financial support. All we do know and the math behind it gets quite tricky is that there will be some form of tax credits or even additional revenue generating projects the additional private investment that would help support all of that that improvement.

But this is going to require a long-term conversation that in all likelihood is going to extend beyond the first 100 days or even 200 days of the next administration. So, this is a big challenge that’s going to be talked about for some time, not only here in Washington, but as we’re seeing in Oroville in states and localities across the country.

MATHISEN: Yes, as you look at the infrastructure from the electric, you know, production and transmission grid two tunnels and bridges and dams and so forth, I was speaking earlier today with someone who said one of the problems is that this kind of often no one person or group that is responsible that it complicated by the fact that there are so many competing interest.

How do you — how do you describe that, Joel?

KANE: Absolutely. I mean, I think if anything we see the enormity of the challenge and we tend to over empathize the federal role if anything. But we know that federal government is only actually responsible for about twenty-five percent of public spending each year on our transportation and water infrastructure, and actually 75 percent is covered by states and localities.

So, we know that this is a highly nuanced very network that needs a variety of different efforts behind it it’s not going to be just one silver bullet solution, and then perhaps you know, additional private sector involvement to play a role here too. But it’s not just transportation, it’s not just water. But it’s also telecommunications, energy, a whole assortment of different assets that are going to need attention in years to come.

MATHISEN: Right.

KANE: — that are quite frankly at the end of their useful life.

MATHISEN: Joe, thank you very much. I hope we can call on you again sometime.

Joe Kane with the Brookings Institution.

HERERA: President Trump’s pick to lead the treasury is expected to be confirmed by the Senate tonight. Former Goldman Sachs executive Steve Mnuchin would be responsible for shaping the president’s tax reform policy and the future of financial regulations.

One of his first challenges will be the exploration of the U.S. debt ceiling suspension on March 15th. Mnuchin is also a Hollywood producer. He backed the “Lego Batman” movie which incidentally claimed the top spot at the weekend box office.

MATHISEN: May he have his good luck at the Treasury Department.

HERERA: Yes.

MATHISEN: Still ahead, lawmakers slammed the big price tag of a decades-old but recently approved drug. Details, next.

(MUSIC)

MATHISEN: Two lawmakers are taking aim at Marathon Pharmaceuticals over drug pricing. Senator Bernie Sanders and Congressman Elijah Cummings wrote a letter to the drugmaker, looking for answers on its newly approved treatment for Duchenne muscular dystrophy. As we reported last week, the price of the drug will cost $89,000 in the U.S.

The lawmakers at the two of them called the pricing scheme an outrageous plan the drug is currently it’s currently available in Canada and the United Kingdom for about a thousand dollars a year. In response to the outcry, Marathon CEO is pausing the launch of the drug.

HERERA: Botox maker Allegan digs deeper into aesthetics, and that’s where we begin tonight’s “Market Focus”.

The drugmaker says it is buying Zeltiq Aesthetics for nearly $2.5 billion. Zeltiq is best known for its cool sculpting system that freezes and reduces body fat. Allergan said that deal will add to its aesthetics portfolio and also help its earnings. Allergan shares rose fraction to $246.76. Shares of Zeltiq took off, rising 13 percent to $55.93.

Restaurant Brands saw its profit more than double in the latest quarter, topping estimates. The owner of Burger King and Tim Horton’s also reported higher than expected revenue. And late in the day, “Reuters” reported the company has approached Popeyes Louisiana kitchen about a possible acquisition. Shares rose more than four and a half percent Popeyes jump 7 percent to $70.82.

Teva Pharmaceutical said strength in its generic drug business help overall revenue top expectations. The company reported a loss, but the results were still good enough to beat estimates. Teva also reaffirmed its outlook for the year. Teva shares pop 5 percent to $34 even.

MATHISEN: Volkswagen said it has entered into an agreement with Mobileye, to use the company self-driving technology and its vehicles, starting next year. Mobileye give VW access to its mapping platform that provides drivers with real-time data, about roads shares of Mobileye were up nearly 5 percent to $45.48.

Dupont and it’s spin-off Kenmore’s will shell out more than six hundred million dollars to settle lawsuits stemming from the release of a toxic chemical from the West Virginia plant. More than 3,000 personal injury lawsuits were brought against the company after it agree — after it was alleged that the substance contaminated local drinking water and cause diseases including cancer. Shares of Chemours surged 14 percent to $32.14. Dupont up 1 percent at $77.82.

And in a regulatory filing, late Friday, Hain Celestial disclose the Securities and Exchange Commission launched an investigation into health food company’s accounting practices. The filing also shows the company alerted the SEC in August that it would delay its financial results for the fourth quarter due to an internal review. Shares were off almost 9 percent to $35.10.

HERERA: Coming up, hiring our heroes, the big push being made to increase opportunities for American servicemen and women.

(MUSIC)

HERERA: Verizon is now offering unlimited data plans. The move is an about-face for the world’s biggest wireless provider and is viewed as an acknowledgement that the strategy has worked for smaller competitors, which have been aggressively pushing such plans. Last quarter, Verizon reported slowing subscriber growth. Shares of Verizon fell slightly in trading today.

MATHISEN: Well, the nation’s unemployment rate declines. The trend for America’s youngest veterans is climbing, going from nearly four and a half percent to more than 6 percent in just a few months. Experts suggest one reason is the lagging attention the military gets as the U.S. withdraws from overseas conflicts.

But there are real efforts on the way to help servicemen and women transition to civilian life.

Contessa Brewer reports from Hollywood, California.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Veterans looking for help a handout, a job. You may see it on your daily commute or on your social media feed. It’s a reality for hundreds of thousands of veterans.

BRIAN STANN, HIRE HEROES USA PRES. & CEO: We still feed around half a million veterans that are unemployed right now and over a million veterans that are underemployed.

BREWER: And for the nation’s most recent veterans, those who served since 9/11, the job situations always volatile, typically, above the national employment rate and the rate for veterans overall. In the past six months, it’s climbing again.

STANN: And they’re competing against their peer group which just graduated college and a lot of companies do not equate four years of military service to four years at the university.

BREWER: Zachary Watson left the Marines last fall and now with a full-time student.

ZACHARY WATSON, VETERAN MARINE & STUDENT: A lot of people are also realizing, OK, I can’t stay in here anymore. I got to go do something else.

BREWER: President Trump’s federal hiring freeze make it these vets especially hard because it’s the main path to civilian employment. One-third of federal workers are veterans.

J.R. MARTINEZ, VETERAN & ACTOR: The opportunities are not there. Well, now, you have to start creating them.

BREWER: J.R. Martinez survived an IED attack in Iraq. Then, he landed a role on “All My Children” and won “Dancing with the Stars”.

He says it’s tough to transition from a regimented follow orders environment to the civilian world where self-starters succeed.

MARTINEZ: We’re not necessarily the ones that are going to go out to be our own agents. I mean, that’s just not our — we sit back. We stand in the back of the room. We don’t ask. We don’t approach there’s very few that have that amazing quality.

BREWER: A number of companies are working to help make the transition to civilian life easier. JPMorgan Chase dedicated a team to recruiting veterans and then acclimating and retaining them, hiring 11,000 in the past five years.

Starbucks has hired 8,800 veterans and military spouses. And NBCUniversal and its parent Comcast partnered with the U.S. Chamber of Commerce for Hiring Our Heroes initiative.

While most Americans consider them heroes, movies and TV shows also show the struggle with suicide, post-traumatic stress, and addiction.

MIKE HAYNIE: If we let that narrative be simply about victims or heroes, I think we’ve missed an opportunity.

BREWER: Hollywood was on a mission to change those perceptions, providing a more complex and nuanced look at veterans, and thereby making them seem more employable.

DAVID GALE, “WE ARE THE MIGHTY” FOUNDER: We need more stories we need to be able to show veterans in the complexities that everyday people are.

BREWER: Former MTV executive David Gale joined J.R. Martinez and Scott Williams, the executive producer of “NCIS” for a panel about how Hollywood effects perception.

Williams says more than a third of those higher for “NCIS” are vets. That sets the tone for its stories. Real life veterans hope employers see how their experience translate to business success.

UNIDENTIFIED MALE: At 22 years old, I was in charge of an entire crew and I was responsible for being a part of the whole organization and unit of repairing helicopters that are millions of dollars. How many 22-year-olds are in charge of stuff like that?

MARTINEZ: Give us a chance to sell ourselves to you give us a chance to prove to you improved ourselves that we can and we will.

BREWER: For NIGHTLY BUSINESS REPORT, I’m Contessa Brewer in Hollywood.

(END VIDEOTAPE)

HERERA: And finally tonight, do you plan on buying chocolates for Valentine’s Day? Well, it may cost you a little less this year. The reason: good old supply-and-demand. Cocoa harvests are bigger than usual, pushing the price of cocoa futures to the lowest level since 2008. That decline has helped lower costs for Cadbury and Mondelez. And demand is also declining as consumers grow more health conscious.

And after looking at that hungry —

MATHISEN: Yes, Valentine’s Day isn’t the day to be health conscious.

HERERA: No.

That does it for NIGHTLY BUSINESS REPORT. I’m Sue Herera. Thanks for joining us.

MATHISEN: And thanks for me as well. I’m Tyler Mathisen. See you 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) 2017 CNBC, Inc.

 

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