Transcript: Nightly Business Report – March 28, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Surprise rebound. Stocks snap back as investors focus on the three pillars of the market — the economy, interest rates and earnings.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Securing your retirement. How you can protect your savings in a market that is more than the normal number of question marks.

HERERA: Disrupting class. What some start-ups are doing to change the way we learn throughout our lives.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, March 28th.

MATHISEN: Good evening, everyone, and welcome.

Stocks surged today as investors went shopping for equities, putting to an end the Dow’s week-long slump. Today, it wasn’t about Washington, or health care or tax reform. It was about getting back to basics — investors turned their attention to upbeat reports on the economy, comments on interest rates from an influential member of the Federal Reserve and corporate profits.

The Dow Jones Industrial Average snapped an eight-day losing streak, rising 150 points to 20,701. The NASDAQ added 34 and the S&P 500 was up nearly 17.

Let’s start with earnings. The end of the quarter is only a few days away, and already, the expectations are high.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The end of the first quarter is just around the corner. The bulls are hoping a strong earnings season may provide a market stabilizer for what is likely to be a very rocky debate over tax reform and infrastructure spending.

First quarter earnings are now expected to rise more than 10 percent from the same period last year. That would be the best quarterly showing in nearly six years.

Now, the early signs indicate the earnings might even be a little better than that. The first 12 companies that have reported first quarter numbers — Micron, and Nike, Oracle, Lennar, they’ve reported average earnings gained of about 12 percent. Those 12 have also seen the best quarterly gains since the second quarter of 2014.

And it’s not just earnings, revenues are expected to jump more than 7 percent. That would be the best growth we’ve had in five years.

So, what’s the key to these rising numbers? Well, first, the two biggest sectors are technologies and financials, they’re set to deliver earnings gains of 15 percent apiece. That’s huge. These are the two biggest sectors.

Second, energy earnings. After nearly two years of decline, you know what’s going on there, they’ve turned positive as well. So, is there any risks? Well, yes, the big one is to oil. Big oil’s ability to pull off big gains in 2017, it seems problematic. Oil is in the mid-40s, and many of the earnings estimates for oil companies would develop with oil closer to $60 a barrel. But the average price per oil this quarter is $52, and that might be enough to pull off expectations for earnings for the oil companies this quarter.

The bottom line is the markets are about to enter a seasonally couple of weeks, just prior to the April 18th tax deadlines, and any good news on earnings will be welcomed by traders.

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

(END VIDEOTAPE)

HERERA: And with a plethora of uncertainties facing the market in the coming comes, how should you position your portfolio?

Joining us now is Paul Schatz. He is a market strategist and president of investment management firm Heritage Capital.

Paul, nice to have you here. Welcome.

PAUL SCHATZ, HERITAGE CAPITAL PRESIDENT: Thanks, Sue. Thanks for you having me.

HERERA: Let’s start — you think that investors should use the weakness that we saw in the last couple of days to buy, to add to positions. Why?

SCHATZ: Well, first of all, nothing new, stocks are really still the only game in town. It’s been that way year after year after year during the secular bull market. It remains that way today. We’ve gone through an 18-month — you want to call it a stealth bear market. You want to calm it an earnings recession, whatever you like to call it.

I liken it to 1994, 2004, we had a year-long plus period where stocks kind of regained it, re-gathered themselves, paused to refresh, and now, earnings are kicking up into high gear, as Bob just mentioned. The economy is more stable, the economy is growing better than it has in a while. And the DNA markers that you typically see before a bull market ends are not present today.

So, although the bull market is very old, it’s wrinkly, it’s not over. We should peak at least 23,000 but before the bull market ends.

MATHISEN: Old and wrinkly but not over. You are describing how I feel right now, Paul.

Let’s turn to those earnings, which I think are really important. Are earnings really good and getting better or are they — were they just so bad a year ago that they look better by comparison today?

SCHATZ: Sure, Tyler. And, you are not old and wrinkly, you got many, many more years left of this.

But to your point, we’re talking about comps. Remember, the first quarter of last year was disastrous.

MATHISEN: Right.

SCHATZ: It was right at the end really to the end of that pretty good earnings recession —

(CROSSTALK)

MATHISEN: So, are corporations really that much healthier today than they were then? Or are we just looking back to a year where they batted .220, and now, by comparison, they’re doing better?

SCHATZ: I think it’s twofold. One, the comps are easy. I mean, anybody can walk over those comps. It’s not much trouble at all. But also, look at we know that whether you want to say it’s coincidental or because of the election, the economy is doing better. Look at consumer confidence. Look at what CEOs are saying.

People feel better. They feel like there is a hugely strong pro-growth agenda, the strongest since either Bush chose first term or even back to Clinton, people are feeling better, their economic prospects, the average person is feeling just a little bit better than they did. So, whether that — you know, fiction or reality, it’s certainly contributing to the economy and the markets.

HERERA: Very quickly, with the last 30 seconds, on the sector side of things, where would you put money to work?

SCHATZ: Well, assuming I had some, at least a little bit of growth or a balance portfolio, I think you have to start with large caps. I’m not sure a really aggressive investor. There’s nothing, quote/unquote, “safe” about stocks, but I definitely on any dip, any weakness, you have to be a buyer of stocks. And I look at, if you are an index investor, just stick with the S&P 500. Don’t over-think this.

If you have a little more time to research, I think Europe offers some values for people. I’m really concerned about the bond market long term. I don’t mean the next couple of months. But I would use rallies to bond market. A lot of people own tons of treasuries, regular bonds, to the exact opposite of the dollar cost averaging, dollar cost average, out of bonds, into the stocks and into some commodities, protect against inflation.

HERERA: Paul, thank you so much. Paul Schatz with Heritage Capital.

SCHATZ: Thanks, Sue. Thanks, Tyler.

MATHISEN: You bet.

All right. More now on that upbeat economic news we told you about. Consumer confidence jumped in March to levels not seen since the year 2000. The optimism driven by solid job growth, wage growth, along with rising stock prices and cheap gas.

The conference board’s confidence index is used as a gauge of future spending. And in theory as confidence rises, consumers spend more.

And that, of course, is a key part of overall growth because consumer spending, as we’re fond of reminding you, accounts for about 70 percent of U.S. economic activity.

HERERA: And home prices rose at the fastest pace since 2014 and are appreciating more than twice the rate of inflation and wage growth. According to S&P Case Shiller index, single family home prices rose nearly 6 percent in January.

As we have been reporting, lean housing inventory is helping drive those prices higher. But those high prices are also making it difficult for some Americans to transition from renter to homeowner.

MATHISEN: And now to the Federal Reserve. Of course, every investor wants to know what the second most powerful central banker in the U.S. thinks of the economy and the direction of interest rates.

And today, Vice Chair Stanley Fischer shared some thoughts with Steve Liesman.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Among essential banking colleagues, Fed Vice President Stan Fischer has generally been someone that wants to hike interest rates a little bit more, and a bit sooner. So, it’s news to the markets when he says, as he did today in this exclusive CNBC interview, that he’s aligned with other Fed members who want to raise rates just twice more this year.

With the average forecast of two rate hikes this year, does it seem to you to be about right? Should the market prepare for possibly more, possibly fewer?

STANLEY FISCHER, FEDERAL RESERVE VICE CHAIRMAN: Well, that seems to me to be about right. That is to say that’s smart forecast as well. I think the risks are more or less balanced.

LIESMAN: Part of Fischer’s reasoning, the recent failure of the Republican health care bill which he says has changed his, quote, “internal calculus” about how much fiscal stimulus should come from Washington this year. He says the Fed is right to wait and see which of the Trump administration’s policies are adopted, rather than acting preemptively.

FISCHER: It’s the sensible thing to do. I mean, you get out there and say, I expect a deficit or such-and-such a size, and tax cuts of such-and-such a size. You know, it comes from the administration. It will go through the Congress. It will be different than what went in. And we don’t — I think it’s a good way of doing it.

LIESMAN: For example, Fischer said tax cuts, if they’re enacted, probably won’t affect the U.S. economy until 2018 at the earliest. Another reason for the Fed to be cautious about counting up too much growth: the possibility of trade protectionism from the Trump administration.

FISCHER: I’m concerned about the possibility that something that all in all worked very well, which is the policies put in place after World War II and that continued until recently.

That worked spectacular for China. It worked for us. We’ve been able to buy many, many things, that we wouldn’t have been able to make had it all been up to us. So, we benefit from that as well. I’d be concerned if that basic model is overturned.

LIESMAN: So, Fischer may yet end up being a Fed official who wants to hike more and hike sooner. But he made clear he will only change his outlook when he is sure the policies are going to change as well.

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

(END VIDEOTAPE)

MATHISEN: A General Motors investor says the auto maker is not firing on all cylinders, and he has an idea to change that. Green Light Capital’s David Einhorn is now calling on GM to split its stocks into two classes. He wants one class to receive GM’s current dividends and another to be more growth oriented. In a phone interview earlier today, Mr. Einhorn explained his plan.

(BEGIN AUDIO CLIP)

DAVID EINHORN: I would compare it to an ice cream stand, that just serves chocolate and vanilla swirl ice cream. If you — if you gave investors more choice, some people like chocolate. Some people like vanilla, some people like swirl.

If you have to implement in our policy, you would wind up with one share of each. So if you like the swirl that you have today, you could keep the swirl. If you would like to have more dividends, you could sell the capital appreciation shares and buy the dividend shares. If you like just the capital appreciation, the low multiple, then you could sell the dividend shares and buy the capital appreciation shares.

(END AUDIO CLIP)

MATHISEN: General Motors is not buying the chocolate, vanilla or the swirl. They say the proposal creates unacceptable risk and is not in the best interest of shareholders. Shares of GM up about 2.5 percent today.

HERERA: And Ford Motor plans to invest more than $1 billion in three Michigan plants, adding 130 jobs. The president applauded the move earlier today on Twitter. The investments were in the works, though, before President Trump took office and the announcement comes about a week after the automaker provided a first quarter profit outlook that was below expectations.

MATHISEN: The White House wants to bring back coal jobs. In an effort to do that, the president today reversed Obama era energy policies. While the industry applauded the move, others say fixing the coal industry won’t be easy, especially now that other fuels are cleaner and cheaper.

Eamon Javers reports.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Trump administration took steps Tuesday to begin dismantling Barack Obama’s climate change effort on what this White House called his war on coal.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We will put our miners back to work.

JAVERS: In an executive order the president initiated a review of Obama’s clean power plant regulation on emission, with an eye towards rolling it back in the future. Trump also rescinded Obama’s leasing moratorium and began review of methane rules and the Bureau of Land Management’s hydraulic fracking regulations.

TRUMP: We are ending the thief of American prosperity and rebuilding our beloved country.

JAVERS: One of the problems the Trump actions will not fix for the coal industry is economic. Coal has lost market shares as natural gas has become more inexpensive and available.

The White House said it did not have an estimate of the number of jobs its actions would create.

GARY EVANS, ENERGY HUNTERS RESOURCES CEO: I see it maybe eliminating or reducing the reduction of coal in jobs. I definitely don’t see it as a revitalization of the industry. The coal industry is having to compete with natural gas. That’s been the biggest problem.

JAVERS: The energy industry largely applauded the move.

TOM FANNING, SOUTHERN COMPANY CEO: One of the greatest advantages America has is its natural resources, and now, what we can do is unleash those forces, whether it’s nuclear, or coal, or gas, or renewables, or even kind of new models for energy efficiency. To really play off in grow jobs and grow personal incomes to make lives better.

JAVERS: The White House dismissed the concerns of environmentalists who said the president’s actions could have disastrous consequences. A senior administration official here at the White House says the best way to protect the environment is to have a strong economy.

For NIGHTLY BUSINESS REPORT, I’m Eamon Javers at the White House.

(END VIDEOTAPE)

HERERA: Still ahead, conflicting signals, how you should manage your retirement savings in an uncertain market.

(MUSIC)

MATHISEN: Wells Fargo has agreed to pay $110 million to settle a customer class action lawsuit over its fake account scandal. The settlement still requires court approval and will cover customers who put in a claim that the bank opened an account without their consent. In September, Wells paid $185 million to settle with the government.

HERERA: Corporate America has always focused on policies out of Washington and no more so than now. But for the fast food industry, the unanswered questions are starting to pile up.

Sara Eisen talked to one of the biggest players in fast food, the CEO of Yum Brands.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The fast food industry has seen slow progress on the policy front, the failure to repeal and replace Obamacare in the House is denting some franchises’ hopes to mitigate health care costs for employees.

Andy Puzder, the former CEO of CKE Restaurants, parent company of Carl’s Jr. and Hardee’s no longer in contention to be the labor secretary and there have been recent executive orders cracking down on immigration, threatening one of the biggest industries that employ immigrant’s labor.

But Greg Creed, the CEO of Yum! Brands, parent company of Taco Bell, Pizza Hut and KFC, is optimistic, particularly about the prospect for tax reform.

GREG CREED, YUM! BRANDS CEO: A lower tax rate I do believe would increase investment from people, because remember, our corporate tax rate is low, but our franchisees live in individual companies. Our U.S. franchisees would have a higher tax rate than we have. So, I think lowering the tax rate, particularly as we move to be a more franchise business, would be a good thing for our industry.

EISEN: And if we get personal tax cuts, I think that would be helpful for your consumers?

CREED: Absolutely. If we can deliver tax cuts to, you know, the middle income in the U.S. and below, that — people will spend money.

EISEN: Creed is hopeful that deregulation will go a long way towards helping the restaurant industry.

CREED: We just immediate to make it simple. You just kind of have different standards, you know, when the federal government has one, and the state government has another, and the local authorities have another, it just makes it particularly difficult. And in our case, our franchisees are doing most of the investing in the U.S. and regulations can just, you know, drive them insane and drive them away from investment.

EISEN: There’s also hope that the spiking consumer sentiment after the election will translate into higher spending. Creed describes the U.S. consumer as still value-oriented.

So, despite some possible early setbacks on a policy front, the fast food industry still has a lot of room for improvement and hopes of a bump in business from Washington.

For NIGHTLY BUSINESS REPORT, I’m Sara Eisen outside Jacksonville, Florida.

(END VIDEOTAPE)

MATHISEN: Shares of Cara Therapeutics popped on positive trial results and that is where we begin tonight’s “Market Focus”.

The biotech company said its medication for a chronic condition-related to kidney disease that currently has no approved treatments in the U.S., performed well during a trial. Cara Therapeutics said it plans to discuss next steps with the Food and Drug Administration. Shares up 5 percent to $19.09.

More positive news on the biotech front. Drug makers Regeneron and Sanofi said the FDA granted approval for the company’s joint eczema drug. The treatment will carry a list price of $37,000 a year. Regeneron shares were off a fraction at $382.55, Sanofi essentially flat at $45.35.

And Carnival said strong demand for Caribbean cruises and higher on board spending helped profit top expectations. The company says it is seeing strength in the number of bookings for the remainder of the year, prompting it to raise its outlook for 2017. Carnival shares 39 cents higher at $59.26.

HERERA: Shares of Darden Restaurants continue to surge today, following the company’s stronger than expected earnings that came out after the bell last night. The owner of Olive Garden also gave an upbeat full-year forecast, profit forecast that is, and said it was taking over restaurant chain Cheddar’s Scratch Kitchen for almost $800 million. Darden up 9 percent to $82.62.

The competition between Facebook and Snapchat is heating up. Facebook launched three new features that are very similar to current Snapchat offerings, including the ability to add filter effects to your pictures and send video and photos directly to your contacts. Wall Street took it out on Snapchat today, sending shares down about 7 percent to $22.21. Facebook was up 1 percent to $141.76.

Restoration Hardware posted profit and sales that were ahead of expectations. The upscale home furnishings retailer also gave upbeat guidance for the current quarter and noted that the most uncertain stages of the company’s transformation were behind it. Shares initially rose more than 10 percent in after-hours trading, adding on to a 3 percent gain in the regular session where they finished at $38 even.

MATHISEN: With uncertainty lingering heavily in the markets these days, what should you be doing right now to protect your retirement savings?

Here with us to discuss is Ric Edelman, founder and executive chairman of Edelman Financial Services.

Rick, always good to see you.

I want to begin with a question that’s a little off topic here. Let’s assume for a moment that I as a result of this very nice run in stocks now have more stocks than I’m comfortable with — 70 percent as opposed to 60 percent?

RIC EDELMAN, EDELMAN FINANCIAL SERVICES FOUNDER AND EXECUTIVE CHAIRMAN: Right.

MATHISEN: We are talking retirement accounts here. I want to get back to 60 percent. Should I sell stocks within my tax sheltered retirement plans or outside of them to get back to my ideal mix?

EDELMAN: Given the choice, do it inside your retirement account, because that way it’s tax free. If you were to do it outside the account, you’re going to incur a capital gains tax on the sale of the securities at a profit. So, you are absolutely right, do it inside the tax deferred account.

You are also right about the fact of rebalancing back to your desired allocation model. A lot of people miss this point. And I’m really glad you’re raising it because they don’t realize that with the run-up of stocks that we have enjoyed since the election, your portfolio’s allocation is different than it was just six months ago. And if you don’t pay any attention to that, you could be taking a lot more risks today than you realize.

HERERA: What about the emotional component of investing? It’s all nice and rosy and sunshiny when, you know, we have a big rally. But when we get dips and volatility increases, the emotional aspect tends to come back in with the individual investor.

EDELMAN: You are absolutely right, Sue. It’s really fascinating. Nobody ever complains about upside volatility. It’s only the down side volatility. Everybody gets upset about. But you can’t have one without the other.

So, if you’re going to find yourself nervous because you think a market correction is in place, that the president’s agenda is now weakened because of last week’s activity on the Hill, if you are nervous and it’s causing you to lie awake at night, that is an indication that you have too much of your money allocated to equities. And this is a wonderful opportunity to rebalance that portfolio and when you do, focus on your tax deferred account. It’s the opportunity to do that.

MATHISEN: Let’s talk a little about the possibility of a correction in equities. You know, we went eight day there is a row with Dow losses. It was a long streak. But really a relatively small decline in prices.

Should you look at corrections as opportunities to buy more or what?

EDELMAN: Yes or ignore them entirely. I mean, let’s remember that we haven’t seen a week like the one we just had since September. And so, the stock market isn’t meant to rise the way it has since the November election. At one point, we were running at an annualized pace at 70 percent a year. Well, we know that’s unsustainable.

So, it’s inevitable the stock market is either going to go flat for a while, which is kind of what we seen, or even decline maybe a lot to get back to the normal rates of return, that we typically experience.

MATHISEN: Seventy percent a year from your lips to my portfolio, Ric, thanks. We appreciate, always good to see you. Ric Edelman, with Edelman Financial Services.

EDELMAN: Thanks.

HERERA: Coming up, making the grade. Why classrooms today and in the future will look a lot different than they did just a couple of years ago.

(MUSIC)

MATHISEN: A look at what to watch tomorrow: bids from companies looking to help build President Trump’s proposed Mexico border wall are due. A number of Fed officials will speak on the economy. And the U.K. prime minister is expected to trigger Article 50. That’s the mechanism that will start the process of leaving the European Union for Great Britain.

That is what to watch tomorrow.

HERERA: Speaking of which, Scottish lawmakers today voted in favor of a new independence referendum and that gives Scotland’s first minister the OK to ask the U.K. parliament for a referendum between later this year and early next year. The British prime minister has indicated that she will reject that timetable. Theresa May says that now is not the time for a vote on the breakup of the United Kingdom, because Britain is expected to leave the E.U. in 2019.

MATHISEN: Well, remember when you sat at your desk in school and listened, oh, listened so intently to your teacher as she wrote on the chalk board or he wrote on the chalk board? Well, walk into a classroom today, things are different, thanks to some startups that are turning education inside out.

Julia Boorstin, always attentive, has our story.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: With about half of the highest paying jobs now requiring some coding knowledge, a range of start-ups are looking to close the skills gap, targeting mid-career adults, looking to get better jobs, start-up Coursera has partnered with 150 universities around the world, to offer 2,000 courses, along with professional certificates and digital degrees, and custom training for companies including IBM, L’Oreal and BGC, looking to advance their employees.

RICK LEVIN, COURSERA CEO: There are many, many jobs requiring middle of high level skills that go vacant, even while many other jobs, you know, many other people are unemployed or under employed. And so, we think there is a real opportunity by giving people the opportunity to require new and better skills.

BOORSTIN: Coursera rival Udacity is focused on the tech sector. With 25,000 students enrolled in one of its nano degree programs, on topics including robotics, digital marketing and self-driving cars.

And as early as kindergarten, technology is transforming the classrooms and leveling the playing field as teachers around the world embrace software that finds best practices, hopes to manage assignments and submit evaluations.

Learning management systems, such as Brightspace and Blackboard are already a $5.2 billion industry, projected to triple in four years. And Google, Microsoft and Apple are all offering free classroom tools. And outside traditional curriculum, toy start-ups are lining up to offer kids fun ways to learn valuable coding skills.

Osmo connects iPads with real world objects, like pen and paper and blocks. It’s most popular explorer kit costs $189. Wonder Workshop brings coding to life by teaching kids to program robots called Dot and Dash. The pair cost itself $200 and has been adopted by 10,000 schools worldwide.

VIKAS GUPTA, WONDER WORKSHOP CEO: It’s almost very affordable. That’s been a core focus for what we have been trying to do is to make the technology very affordable for these teachers and for parents.

BOORSTIN: The global market for child development toys is projected to reach nearly $40 billion by 2019, with over three-quarters related to science, technology, engineering and math. Part of the growing ed tech market helping children and adults learn the skills needed for a fast changing workforce.

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

(END VIDEOTAPE)

HERERA: And before we go, here’s another look at the day on Wall Street. The Dow rose 150 points, the NASDAQ added 34, and the S&P 500 was up nearly 17.

And that does it for us on NIGHTLY BUSINESS REPORT. I’m Sue Herrera. Thanks for joining us.

MATHISEN: And thanks for me as well. Have a great evening, everybody. I’m Tyler Mathisen. We’ll 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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