Transcript: Nightly Business Report – March 31, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Strong gains. The major
indexes close out the first quarter at lofty levels. Now, investors try to
figure out what`s next and what to do about it.

Betting on the banks. Their stocks have had a close start, but our market
monitor says this sector has a lot going for it. Tonight, three names he
says you should own.

Privacy protection. You browse the web or click on an app. Legislation
may free your Internet provider to mind your data and sell it. What you
can do to protect yourself.

Those stories and more on NIGHTLY BUSINESS REPORT for last day in the first
quarter, March 31st.

Good evening, everyone, and welcome. I`m Tyler Mathisen. Sue Herera has
the evening off.

Well, weekend, month end, quarter end, and what a three months it was. The
Dow turned in its sixth straight positive quarter for the first time since
way back in 2006. The NASDAQ had its best quarterly performance since
2013, and the S&P 500 saw its biggest quarterly gain since 2015.

Here are the final numbers: for the first three months of 2017, the NASDAQ
rallied the most, up 10 percent. Those gains came despite today`s
pullback. The Dow Jones Industrial Average dropped 65 points to 20,663.
The S&P 500 fell 5. And the NASDAQ was off two and three-fifths.

So, what drove the gains in this quarter and which sectors did better than
others?

Dominic Chu has some surprises among the first quarter winners and sinners.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you had stocks as
part of your portfolio in the first quarter of 2017, you have to be feeling
pretty good at least so far. During the first three months of the year, we
saw record-high levels for not just the Dow Jones Industrial, the S&P 500
and NASDAQ composite, but also the S&P 400 mid-cap index and Russell 2000
small cap index as well.

There were a lot of reasons for the optimism.

GABRIELA SANTOS, JP MORGAN ASSET MANAGEMENT: We saw a great quarter for
U.S. stocks, up nearly 6 percent quarter-to-date. This is really based on
factors. The first is that the U.S. economy continues chugging along. The
second is that the global economy is finally picking up. And the third is
U.S. company earnings are back to being positive territory.

CHU: The first quarter rally was relatively broad based with nine out of
11 sectors in the S&P 500 in positive territory. Technology stocks, like
Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) were among the best
performers, and energy stocks like ExxonMobil (NYSE:XOM) and Chevron
(NYSE:CVX) were among the big laggers. As for whether or not the market
can continue, some experts believe it will come down to what happens with
President Trump and Congress.

ADENA FRIEDMAN, NASDAQ PRESIDENT: There has been a lot of speculation
about the potential benefits of deregulation in terms of across a lot of
different sectors, including the financial sector. But I also believe at
the end of the day, investors will react to actual reactions. And so,
we`ll have to see how the year progresses in terms of tax reform or
regulator reform across different industries and see whether or not it
does, in fact, provide the benefits that everyone is expecting.

CHU: After failing to achieve an overhaul of health care legislation, a
lot of focus now falls to the idea of tax reform, which some think could be
even more difficult to achieve.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: Well, the new darling of Wall Street may be exchange-traded
funds or ETFs. Investors plowed money into these investment vehicles which
saw their biggest quarters for inflows ever.

Bob Pisani has the details.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The first quarter is in
the books and it`s been a solid one overall with the S&P up about 5
percent, but the bigger story is money continuing to flow into stocks, ETFs
that had their biggest quarter ever with $135 billion in inflows.
Investors wanted stocks from all over the world. That`s the story for the
first quarter.

Nearly half the inflows were into U.S. equities. But international funds
also had strong inflows, particularly into Europe and into emerging
markets. The big ETF winners were just plain vanilla S&P 500 index funds
like the SPY. But we also saw emerging market ETFs, and European ETFs do
well as I mentioned.

Now, there weren`t a lot of losers, but high yield ETFs, like the HYG saw
significant outflows about $1 billion in that particular fund. That`s
about 5 percent of the assets under management.

What`s going on? This is all about confidence. Confidence in the economy.
Consumer confidence, for example, is at the highest level since 2000. I
know, some skeptics have noted that the harder economic number versus not
seen a big jump this quarter, that sentiment indicators like consumer
sentiment have seen. But confidence is so high in the economy.

So, we have confidence in earnings. First quarter earnings are tracking up
roughly 10 percent. This would be the best showing in nearly six years
and, finally, confidence in the Trump agenda of lower taxes, infrastructure
spending and fewer regulations.

Now, the rest of the year will be about the tension among those three
factors. Can these incredible flows into the market continue? Well, it`s
pretty clear the Trump can influence fund flows. For example, the third
week of March, that was the first negative week since the election. And
that was the week that the House failed on its Obamacare repeal bill.

So, the Trump agenda, definitely influences sentiment and flows.

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

(END VIDEOTAPE)

MATHISEN: So, the first quarter is history. Let`s get some advice on what
to do next, with Brian Levitt. He`s a senior investment strategist with
Oppenheimer Funds.

Brian, welcome. Good to have you with us. I assume you just heard Bob`s
piece there.

BRIAN LEVITT, OPPENHEIMER FUNDS: I did.

MATHISEN: Can the stock market in the U.S. continue to make headway if the
Trump agenda gets bogged down?

LEVITT: Well, I think that the equity markets can continue to go higher.
I believe that we are in a secular bull market, so that returns are likely
to be more modest and the composition of returns are likely to change,
favoring more growth stocks than value stocks. In order for equities to go
significantly higher from here, you probably do need some carry-through
with regards to policy. And I would say that would take the form into the
Federal Reserve backing off with regards to significant hikes in interest
rates or fiscal stimulus from the administration and Congress.

MATHISEN: The fundamentals look pretty good. I mean, Bob talked about
measures of confidence, which he characterized as sort of soft measures.
We need to see better earnings.

What do you expect from corporate profits in the first quarter when they
start to get reported in a couple of weeks? And as you look out across the
year, what do you expect?

LEVITT: So, corporate earnings should continue to grind higher. If you
remember last year at this time, we had had a significant rally on the U.S.
dollar on the back of Fed tightening at the end of 2015. And that
significant rally in the U.S. dollar was a headwind to corporate
profitability and some talk of an earnings recession.

We now have companies that are beating expectations. The dollar — or
going to beat expectations. The dollar has stabilized. The economy has
improved since summer.

And so, earnings are likely to continent to go higher. Again, we don`t
expect lights out economic activity without a policy driver, but the
earnings environment for corporations continues to look sound.

MATHISEN: So, where can I put some money now? Let me suggest that I get
my big tax refund in the next couple of weeks and I got some spare cash to
put to work. Where would you recommend I do it?

LEVITT: Well, the first thing is investors should consider allocations
even outside the United States. I mean, outside the United States,
expectations are lower with regards to what type of policy stimulus you are
going to get. So, if you were to look in Europe, if you were to look in
the emerging markets, those parts of the world are actually in very nice
parts of the economic cycle as the emerging markets recover and as Europe
expands.

So, good opportunities exist. There are valuations that look reasonable.
Within the United States, we continue to like the loan market. We think
credit will continue to perform well.

And I would say that, you know, for everybody that got very excited about
value and all the value names that were going to do well in a cyclical
upturn, I think we are more in a growth environment as we continue to be in
a reasonably slow growth U.S. backdrop.

MATHISEN: How about volatility? It has been one of the lowest quarters
ever for the so-called VIX or the fear gauge. Do you expect that to pick
up?

LEVITT: Yes, I would think that you will see volatility pick up and
investors should always expect, even in a long-term bull market, which I
believe that we`re in, you are going to see bouts of volatility. You will
see, you know, market correction at some point. We have them every year,
greater than 5 percent correction every year of the last 35 years.

So, you will see volatility pick up. I think the most important thing for
investors is to not allow themselves to get whipsawed or to be too focused
on near-term events to prevent them from sticking to a long-term plan.

MATHISEN: All right. We will leave it there. Brian, thanks very much.
Have a great weekend.

LEVITT: Thank you.

MATHISEN: Brian Levitt with Oppenheimer Funds.

Well, we told you how the housing market has been faring this year. Prices
up as inventory remains tight. But what about the rental market?

There is a growing number of young Americans move out on their own. The
rental apartment market is seeing strong demand, but developers may have
overestimated just how much supply the market needs.

Diana Olick takes a look at how developers fared in the first quarter and
what that means for renters.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you are a first
time renter or looking to upgrade to a bigger, newer apartment, now may be
your best chance. Demand for rental apartments fell short of new supply by
about 100,000 units nationwide according to Real Page, a real estate
analytics firm. Rent growth is also easing.

JAY DENTON, AXIOMETRICS: You can actually get a good deal this year if you
looking to move into one of those brand-new properties. A month free, you
might be your first month free. In fact, in some places, you might get
your first two months free, once you move in to some of these new
buildings.

OLICK: The key is brand-new. Luxury buildings are seeing the most new
supply and are therefore moving to more concessions. Total apartment
occupancy is still high, but it is weakening and has been for the past six
months.

Cities seeing the biggest downturn: New York and Boston. That`s where
REITs like Avalon Bay and Equity Residential (NYSE:EQR) are the most
vulnerable, but their stocks are still doing well thanks to the recent mark
rally and the possibility of deregulation which would benefit them.

Apartment demand and rents are strongest on the West Coast, where REITs
like Essex Property Trust (NYSE:ESS) and UDR have major holdings. Multi-
family overall is still strong, but the new supply coming online this year,
especially in major cities, outpaces demand by a lot.

DENTON: Practically in every market, you`re going to see softer growth.
If you are looking at places where concessions are going to be up and the
rent growth could potentially be negative, they could be urban core
locations across the U.S.

OLICK: Apartment developers are already moving more towards the suburbs
where demand outpaces supply and the rental stock is much older. That`s
where they are likely to see the greatest returns, especially as a supply
of newly-built single family homes lags.

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

(END VIDEOTAPE)

MATHISEN: Still ahead, project derailed? What`s at stake for one of the
busiest train corridors if Amtrak doesn`t get the money it says it needs?

(MUSIC)

MATHISEN: Remember all those bonds that the Feds bought the juicy economy.
Well, as the economy improves and interest rates rise, investors want to
know what the central bank wants to do — plans to do with them. And
today, a prominent Fed official may have hinted at the answer.

New York Fed President Bill Dudley said it wouldn`t surprise him, if
instead of selling them, the Fed may let the securities mature and roll off
the bank`s balance sheet. That`s important to investors because letting
those bonds go back into the market would increase supply and with it
interest rates.

Well, one gauge of inflation has hit the Fed`s target. According to
Commerce Department, the rate of inflation in consumer goods and services
topped 2 percent for the first time in nearly five years. The inflation
measure is a part of the monthly personal income and spending report.
Personal spending showed a small gain while incomes were basically inline
with expectations.

Well, President Trump wants his administration to review U.S. trade
deficits and wants to take a tough stance with countries that abuse trade
rules. He signed two executive orders today that he says will start a new
chapter for workers and business and set the stage for a revival of
American manufacturing.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: The theft of American
prosperity will end. We are going to defend our industry and create a
level playing field for the American worker, finally. Today, I am signing
two executive orders that send this message loud and clear.

(END VIDEO CLIP)

MATHISEN: The first executive order reviews U.S. trade deficits with other
countries. The second strengthens the government`s ability to collect
fines for abusive trade practices.

Well, infrastructure spending is also high on the Trump administration`s
agenda. And as Morgan Brennan reports from Newark, New Jersey, Amtrak has
a lot at stake if it doesn`t get the funding it says it needs.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Every day, 240
trains carrying 220,000 commuters pass through a 106-year-old tunnel under
the Hudson River. The two-lane tunnel damaged by Superstorm Sandy is
actually cracking. It`s among the most pressing infrastructure projects in
America right now.

JOHN D. PORCARI, INTERIM EXEC. DIR., GATEWAY PROJECT: What that will do is
build the redundancy, four tracks instead of two, to allow commuters in
inner city passenger rail passengers to get into New York and get on to
Boston and Washington.

BRENNAN: The $24 billion Gateway plan has been years in the making.
Amtrak, New Jersey Transit, the Port Authority and lawmakers, like New
Jersey Senator Bob Menendez, have been urging the federal government to
provide the investment it pledged to begin work, starting with a bridge
replacement, which could begin right away.

SEN. BOB MENENDEZ (D), NEW JERSEY: The federal government needs to put up
its share. I am happy to consider infrastructure investment as an element
of that, but I don`t want to wait for that because I don`t know how long
that`s going to take. And every day that we wait in moving forward on the
tunnel development, it gets more costly.

BRENNAN: With this year`s federal budget still in plus and President Trump
unveiling a 2018 blueprint that would eliminate a future source of funding,
Gateway is on the line. And with it, productivity in a region comprising
10 percent of America`s economy.

PORCARI: There is no other way to accommodate those 200,000 people a day.
It would have a very direct and very dire impact. It could literally
trigger a recession regionally all by itself.

BRENNAN: If that funding doesn`t materialize or even if it`s delayed, the
existing tunnel will have to come online, one track at a time within the
next decade, a scenario that would reduce service from 24 trains an hour
down to six, creating real bottlenecks from Washington, D.C., as far north
as Boston.

Amtrak estimates that can result in a loss of up to $3 billion in economic
activity from 2025 to 2029. But if the project does move forward on
schedule, Gateway would generate $4 for every one spent. Experts say the
existing infrastructure won`t last more than two decades and with passenger
volume only expected to grow, the clock is ticking.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Newark, New Jersey.

(END VIDEOTAPE)

MATHISEN: BlackBerry`s turnaround efforts maybe becoming fruitful, and
that is where we begin tonight`s “Market Focus”.

The software and smartphone company beat expectations and said it
benefitted from an increase in enterprise customers and stronger software
sales. BlackBerry is transitioning from smartphones into a software
company. It also said it expects to be profitable sometime in fiscal 2018.
Investors liked what they we heard and sent shares up more than 11 percent
to $7.75.

Acorda Therapeutic says it lost a ruling on four of its patents for
multiple sclerosis treatment. The biotech company said it is disappointed,
plans to appeal the ruling. A quarter shares down 21 percent on that news
to $21 even.

DuPont will sell a piece of its crop protection business to rival FMC
(NYSE:FMC) and also will buy the majority of FMC`s health and nutrition
unit. DuPont said the deal will help it when approval from the European
Commission for its proposed takeover of Dow Chemical (NYSE:DOW). It also
set back the closing date for that deal a third time. FMC (NYSE:FMC)
shares popped 13 percent to $69.59. DuPont down 1 percent at $80.33.

CVS (NYSE:CVS) Health says its contract with the health insurer Blue Cross
and Blue Shield to provide specialty pharmacy services will expire at the
end of this year. The retail pharmacy said that the contract laws will not
affect the company`s 2017 financial results. But shares still fell
slightly. They were off a fraction at $78.50.

Verizon (NYSE:VZ) reportedly is preparing to launch a new live TV streaming
service. Bloomberg says the telecom giant is working with content owners
to secure licenses so it can offer an online platform where customers can
access dozens of channels. Verizon (NYSE:VZ) shares fell fractionally to
$48.75.

And now to our market monitor, who is betting that slowly rising interest
rates and potential for tax reform will benefit bank stocks. This is his
first time joining us on the program and we welcome him now.

Ryan Kelley, portfolio manager at Hennessy Funds.

Ryan, welcome. Good to have you with us.

RYAN KELLEY, HENNESSY FUNDS PORTFOLIO MANAGER: Thanks for having me.

MATHISEN: Banks haven`t had the best start to the year, neither the big
ones nor the smaller ones. What do you think is going to turn it for them?

KELLEY: Well, I think it`s just a matter of time. Right now, it`s all
about rates. When interest rates rise, these banks go up, and when they go
down, we see a sell-off in the sector.

But overall, I think that the sector remains a positive. We are looking
for a good economy, with slow and stable rising rates that should help
earnings. That will help the stocks go up overtime.

The icing on the cake will be any sort of tax reform or regulatory relief,
which should help these companies as well.

MATHISEN: All right. Let`s get —

KELLEY: We also think there will be a lot more M&A activity as well.

MATHISEN: Fantastic. Let`s get to a couple of your picks. You`ve got a
large, a mid and a small cap. Let`s start with one nobody`s heard of, Bank
of America (NYSE:BAC). Why do you like it?

KELLEY: Bank of America (NYSE:BAC), we like this company. It`s obviously
a banking bellwether. It`s the largest bank in the U.S. by deposits. This
is a company that came out of the financial crisis and had to do a lot of
restructuring and cost-cutting and have done a very good job of that.

It`s one of the cheapest of the bank names. And, primarily, that`s the
reason we like it. It`s one of the largest holdings in our large cap
financial fund.

MATHISEN: Let`s move on to Eagle Bancorp (NASDAQ:EGBN), which you call a
small mid-cap, community bank in Bethesda, Maryland. Why that one?

KELLEY: Yes, that`s a bank that`s been in a very attractive market area.
This is a typical company that we have in our Hennessy small cap financial
fund. It`s a well-run bank with a good management team. They`re an
attractive market.

It`s an efficient operator, meaning that they keep their costs low. And
because of that, it has much higher than peer returns and profitability.
It is trading —

MATHISEN: How does a bank like Eagle — how does a bank like Eagle in
Bethesda, which is a small bank in a big metropolitan area, compete with
the titans, like B of A or Chase or TD?

KELLEY: Well, that`s the great thing about the small cap banking sector is
that while there are some economies of scale, it comes down to the local
market. It`s having lenders who know their customers, who have long-term
relationships and continue to build the business that way.

MATHISEN: Basic blocking and tackling in the banking world.

And Bank United is your third and final choice. Tell us about that one
briefly.

KELLEY: This is a very fast growing bank. It`s based in Florida. Bank
United. It`s the largest bank headquartered in Florida. It`s growing
about 17 percent last year in assets. So, that`s quite faster than the
market. And yet it`s trading at about a three multiple discount to its
peers.

So, we think this is an attractive place to own this company.

MATHISEN: Brian, thanks so much. Appreciate it.

KELLEY: Thank you.

MATHISEN: Brian Kelley, Hennessy Funds.

And coming up, protecting your privacy. How much information does your
Internet service provider have about you? The answer is a lot.

(MUSIC)

MATHISEN: Here`s a look at what to watch next week. On Monday, the major
auto makers will release their monthly sales numbers. Wednesday, the
Federal Reserve releases minutes of its last meeting. That`s where
policymakers voted to increase interest rates. On Friday, the monthly
employment report for March will be released. And that is what to watch in
a busy next week.

Well, streaming music services for the first time ever are responsible for
more than half of all music industry revenue last year. According to
recording industry association of America, paid and ad supportive streaming
brought in nearly $4 billion in 2015. It accounted for a little more than
one-third of annual revenue.

Much of the increase can be attributed to the growth of services like
Spotify and Apple (NASDAQ:AAPL) Music.

But we told you earlier this week that the House of Representatives have
voted to overturn privacy protection rules for consumers, a measure that
President Trump is expected to sign. The new legislation would let
Internet providers closely monitor their customer`s browsing habits and
then even sell that information without permission.

Here to discuss what this means to you and how you can protect yourself is
Laura Moy. She`s the deputy director on the Center on Privacy and
Technology at Georgetown Law School.

Laura, do I have it right this legislation which has not yet sort of moved
through and been signed into law would do that and it would allow Internet
service providers, Comcast (NASDAQ:CMCSA) (NYSE:CCS), Verizon (NYSE:VZ),
AT&T (NYSE:T), and others to mine my data and sell it?

LAURA MOY, GEORGETOWN LAW SCHOOL: So, you`re right. What this does is it
allows Internet service providers or I should say it eliminates the rules
that would prevent Internet service providers from using or selling
information about their customers without permission. So, most Americans,
if they`re connected to the Internet, pay a monthly service fee to an
Internet provider. That`s a company like Comcast (NASDAQ:CMCSA)
(NYSE:CCS), AT&T (NYSE:T) or Verizon (NYSE:VZ), that provides them an
exchange with an Internet connection.

Because they provide that connection, your Internet provider gets a window
into pretty much everything that you do online with that connection.

MATHISEN: So, today, do I have to sign some sort of waiver that would
allow them then to mine my data sell it or they don`t have that right at
all?

MOY: So, what the rule would have done, with the rules that we have in
place would do is they would require Internet providers to get your
permission before they use that information for purposes other than to
provide service. And that`s — just be clear, we are talking browsing
history. We`re talking about app usage history, we are talking about
websites that you might visit to look up medical conditions. Websites that
you might visit that express your political viewpoint.

We`re talking about if you visit Planned Parenthood`s website or NRA`s
website. We`re talking about if you use dating apps or weight loss apps.
This is all information that an internet provider has about its customers
and can make a lot of inferences about their customer`s private
information.

MATHISEN: With apologies, it`s the family hour here, but I assume that
would collect information if people were using it to look at elicited or
pornographic websites as well?

MOY: Yes, that is absolutely true. And one thing that I think concerns a
lot of folks is that browsing history and app usage history can, of course,
tell an Internet provider or another entity, a lot of information about
one`s sexual preferences or romantic preferences.

MATHISEN: So, is there anything ki do if this becomes the law of the land
as it appears it will? Is there anything that I can do to insulate myself
from this, if I`m uncomfortable?

MOY: So, just to be clear here, the vast majority of Americans want more
privacy protection, not less. And, unfortunately, the best thing to
protect our privacy online would be strong rules and if President Trump
does sign this, as he`s expected to, then we won`t have those rules.

What you can do, you can look into some other options, if you can afford to
pay an extra monthly fee for a virtual private network, if you have the
technical savvy to do that and if you are willing to download some browser
extensions, those are some things that can help create your privacy, but,
unimportantly, it`s not as good as having strong rules.

MATHISEN: Laura, thanks very much. We appreciate it.

MOY: Thank you. Appreciate it.

MATHISEN: Laura Moy with Georgetown`s Law School.

MOY: Thanks so much.

MATHISEN: And that will do it for this edition of NIGHTLY BUSINESS REPORT.
Thanks for watching. I`m Tyler Mathisen. Have a great weekend and we will
see you Monday.

END

Nightly Business Report transcripts and video are available on-line post
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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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