Transcript: Nightly Business Report – June 13, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: New highs. Stocks soar and
tech shakes off a recent slide as investors wonder if this market is
getting too expensive.

A heated hearing. The attorney general comes out swinging in testimony
about Russia and Wall Street watches.

Great Fed expectations. The central bank is widely expected to raise
interest rates again tomorrow. So why aren`t savers benefiting?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, June
13th.

Good evening, everybody, and welcome. I`m Sue Herera. Tyler Mathisen is
off tonight.

It is the 19th record close for the Dow this year and the 23rd for the S&P
500. A recovery in tech stocks from their worst drop of the year helped
propel the broader market as well today. Investor attention turned to
Washington. Both the testimony from Attorney General Jeff Sessions and the
Federal Reserve`s two-day policy meeting. More on those stories in just a
moment.

But, first, here`s a look at the numbers. The Dow Jones Industrial Average
rose 92 points to 21,328. The NASDAQ advanced 44. And the S&P 500 was up
nearly 11. And with stocks at or near new highs, a new survey shows that a
record number of investors say stocks are overvalued.

Bob Pisani has more.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets are back in
record territory after snapping a two-day tech slump. But beyond tech, a
broader debate is emerging over whether equities overall are overvalued.
Bank of America (NYSE:BAC) released the results of a global fund manager
survey today and 44 percent of respondents said they think the stock market
is expensive. It`s the highest level ever. Roughly 50 percent believe
global profits will continue to improve. That`s good news, but it suggests
that the markets are vulnerable to profit weakness down the road.

You might think the biggest risk in investors` minds is a potential selloff
in tech, that`s a big mover. But that`s not even close, China`s
heightening credit problem is by far the biggest risk, managers believe,
followed by the risk of a crash in the global bonds market and then a delay
in tax reform in the U.S. It might be surprising to see tax reform delays
assigned such a low number on the risk scale. You might think the Trump
agenda is the primary phenomenon underpinning the rally.

The fund managers don`t seem to think so. So, with tech stocks, the big
winners this year, it`s no surprise, fund managers say the tech-heavy
NASDAQ is the single most crowded trade followed by European equities.
Finally, what would it take to kill the equity rally? A lot of equity
traders are still worried about a sudden rise in bond yields. Sixty-four
percent said it would take ten-year treasury yields to move to 3.5 to 4
percent for equity bear market to start. We`re a long way from that one.

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

(END VIDEOTAPE)

HERERA: The bank stocks also got a lift after the Treasury Department
released a broad plan to change the rules regulating the financial sector.
The report calls for streamlining rules on big Wall Street banks, as well
as small and medium-sized banks.

Among the recommendations: a restructuring of the Consumer Financial
Protection Bureau, scaling back the Volcker Rule, which bans banks from
engaging in certain types of risky investments, paring back the annual
stress tests on banks to twice a year, and modernizing the Community
Reinvestment Act. The report wants to look at that law and how it can
better meet its purpose.

As a result, most of the bank stocks rose in today`s trading session.

Investor optimism is indeed fueling the overall stock market, albeit a
shrinking one. And that is because there are fewer than half as many
stocks to choose from than they were just 20 years ago. Today, there are
about 3,600 listed company compared to the 7,300 back in the late 1990s.

Mark Lehmann, president of JMP Securities, and Todd Rosenbluth, director of
ETF and mutual fund research at CFRA, join us now to talk about what this
winner-takes-all market will mean for you.

Welcome, gentlemen. Nice to have you here.

MARK LEHMANN, JMP SECURITIES PRESIDENT: Thanks, Sue.

TODD ROSENBLUTH, CFRA DIRECTOR OF ETF AND MUTUAL FUND RESEARCH: Thanks,
Sue.

HERERA: Mark, let me start with you. How dangerous is this for the
individual investor or concerning is it for the individual investor?

LEHMANN: I think for the individual investor, the fewer choices that you
have, obviously, is an alarming thing to think about. But I think also for
the individual investor, over time, it`s always been tough to own
individual stocks. I think owning a broad portfolio and owning mutual
funds and other ways to be participant in the market as opposed to a narrow
list of stocks is always been a good idea, and this narrowness is only
inflated by what you just described, which is the number of equities to be
bought. I still think a broader portfolio and spreading your risk amongst
equities is a much better idea than owning individual stocks for most
investors.

HERERA: And, Todd, we`ll get to that point about individual stops in a
second. But one of the other factors is, of that shrinking pool of stocks,
an even smaller number of stocks control most of the revenue that is
generated by those companies. So argue the individual stock portion of
things compared to the broad exposure you could get from an ETF.

ROSENBLUTH: Yes. So, we`re big believers that past performance isn`t
indicative of future results. What we`ve seen is individual active
managers struggle to keep up with the benchmark. Just this year alone,
about a third or a less than a third of those active managers are
outperforming the S&P 500 index. High fees play a role into that. But an
index-based approach from an iShares or a Vanguard or Century (ph) product
offers a great diversification and a low cost structure that is appealing
to many individual investors.

HERERA: Mark, do you think that that will change, not the indexing but the
number of companies that choose to list? I mean, there are many reasons
why we`re seeing a shrinking pool of stocks. Some of it is M&A, some of it
is the IPO market has dried up. Do you see this situation chaining at all
or not?

LEHMANN: It`s slightly better, Sue. I mean, this year has been a better
year in terms of the number of IPOs for the first five months of the year.

Secondarily, the performance of those IPOs has been quite good. And
nothing helps an IPO market than performance. There`s that demand pull
from investors. It`s not to any level like we saw back in the `90s or
early 2000s. But usually, demand and performance reign supreme.

The other thing I point out is there was this kind of infinite amount of
capital and still is for some of the private companies, and some of the
companies that decided to stay private longer. Uber, which is obviously on
the cover of everybody`s newspaper today has stayed private much, much
later than any company could have or would have stayed public 20 years ago.
And maybe some of the news of today and some of the illiquidity that some
of the investors has may push towards an IPO over some of those companies
as opposed to staying private longer.

HERERA: Mark, let me stay with you. If you decide to pick individual
stocks, you know, one of the problems is, with the smaller pool, you`re
getting in with everybody else, which drives up the stock price, which
leads people to think that, well, maybe this stock is too rich.

Can you work around that phenomenon, or not?

LEHMANN: Well, if you`re going to check individual stocks, obviously,
you`ve got to be good. You`ve got to be really, really patient. You`ve
got to really find the kind of companies that have the kind of expanding
marketplace that some of the big winners that you`ve talked about have. I
think you`ve got to be very cautious because owning individual stocks is
fraught with peril.

But there clearly are these winners that we`ve talked about. And although
a lot of people are out there talking today about how expensive they are
and whether time to worry —

HERERA: Right.

LEHMANN: — people had these conversations six months ago, a year ago, two
years ago, and guess what? Those stocks have outperformed the market
because fundamentals are that big.

HERERA: Todd —

LEHMANN: So, I think you`re really got to watch what you`re investing in
over the long term.

HERERA: Very quickly, if you were to pick a broad based EFT that perhaps
would fight the phenomenon that we`ve been talking about, where would you
put your money?

ROSENBLUTH: Yes, I mean you can go into — one, I think you can go with
well-diversified ETFs like IVV or VOO. You certainly can go with the more
value-slant (ph) to what is, so that hold stocks that have not risen as
much. So, IVE which is an iShares S&P 500 value, ETF is a good way of
going, instead of piling into the Apples, the Googles, the Facebooks, you
can get diversification for a number of stocks in a very low-cost manner.

HERERA: OK. Gentlemen, thank you so much. Mark Lehmann, Todd Rosenbluth,
we appreciate your perspective.

LEHMANN: Thanks.

HERERA: Inflation precious appear muted after a rise to start out the
year. The producer price index which measures prices that businesses
receive from customers was unchanged in May as energy costs recorded their
biggest decline in more than a year. Though prices were flat from the
prior month, they did advance nearly 2.5 percent from a year earlier.

And that report on inflation comes as Federal Reserve policymakers meet to
discuss the direction of interest rates. A decision is due tomorrow. And
it`s something that investors, money managers, and economists will be
watching closely.

And Steve Liesman surveyed them to get a sense of what they think about the
Fed and the market.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The CNBC Fed survey
ahead of the Federal Reserves meeting shows 100 percent of our respondents
expect a Fed rate hike tomorrow at the meeting. Fifty-four percent say
that third rate hike this year will happen in September and 64 percent say
the balance sheet will begin to decline by December. That`s quite a bit
earlier than was believed earlier this year.

Looking at the outlook for the Fed funds rate, you can see the three rate
hikes this year, up to 1.4 percent, 2.1 percent in 2018, then a little bit
more modest in 2019, leading up to 2.8 percent which they believe is a
terminal rate. And that`s just a bit below where the Fed`s own forecast is
for 2019 and for the long run, kind of pessimistic when it comes to the
stock outlook, 2,429 is the current level, going up to 2,442 for the rest
of this year. They think most of the gains are in this year. But a little
bit more in the 2018, up to 2,562 for 5 percent.

But some optimism as to the reasons why stocks are at current levels.
Earlier this year, 82 percent thought it was expectations for fiscal policy
from the new Trump administration. That`s come way down, 29 percent, 63
percent now believe what`s underpinning markets are economic fundamentals
and earnings.

Now, when it comes to the outlook for growth, that`s come down a bit, in
part because they factored out policy expectations. It was 2.5 percent in
January, it`s come down to 2.25 percent. For 2018, it was 2.75 percent,
it`s now 2.45 percent.

And you can see the reason, how much growth was factored in. From policy
stimulus, it had been a quarter point, almost all gone for 2017. Forty
basis points was factored in from Trump policies for 2018, now, that`s just
0.2 percent. And what that reflects is an expectation that if there`s
going to be fiscal policy, it`s going to happen next year, not this year.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: And if the Federal Reserve does hike interest rates tomorrow, it
will be the fourth time in this rate hike cycle. But savers aren`t yet
benefiting from that. We`ll take a look at why a bit later in the program.

Traders were watching the late afternoon hearing on Capitol Hill where
Attorney General Jeff Sessions testified on Russia. And he was fiery from
the get-go.

(BEGIN VIDEO CLIP)

JEFF SESSIONS, ATTORNEY GENERAL: The suggestion that I participated in any
collusion, that I was aware of any collusion with the Russian government to
hurt this country, which I have served with honor for 35 years, or to
undermine the integrity of our democratic process, is an appalling and
detestable lie.

(END VIDEO CLIP)

HERERA: John Harwood is in Washington for us tonight.

John, he answered some questions but he refused to answer others. So, did
we learn anything new? What was the big takeaway?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Not a lot new. It
wasn`t like James Comey`s testimony last week. What we saw from Jeff
Sessions was, as you played in that clip, a very emotional defense of his
honor, his patriotism, his integrity, defended himself more than he
defended President Trump.

He provided some additional detail about how he says he responded to James
Comey when James Comey expressed that he was uncomfortable with a meeting
the previous day with the president. He affirmed part of Comey`s statement
which is that there was a meeting on the 14th of February, that the
president did have everyone else leave the room other than James Comey, so
he could be alone with the president.

However, Jeff Sessions refused to say whether the president had ordered
everyone else to leave or refused to characterize in any other way the
president`s statements to him about why he fired James Comey.

So, there was a mix, and some of the senators were frustrated.

HERERA: Yes, they did seem frustrated. How did this compare in general to
the FBI director`s hearing last week? We certainly seemed to learn things
in that testimony that we did not know before.

HARWOOD: This was a lot more partisan session with Sessions. The
Democrats were pressing him. They felt that he misled Senator Al Franken
during his confirmation hearing about, saying that he had not had any
communications with the Russians. Senator Sessions somewhat angrily
responded that he was saying in context to the question Senator Franken
asked, he was responding accurately.

And Republicans were very strong in defending their former colleague.
People like Tom Cotton and John Cornyn and others where standing up for
Jeff Sessions. So did Jim Risch of Idaho.

So, it didn`t advance the ball that much on the investigation. The big
takeaway was Jeff Sessions saying, I`m an honest guy and I didn`t collude
with the Russians.

I have to add, though, that Jeff Sessions had not been accused of colluding
with the Russians, there had just been questions raised about his contacts.

HERERA: Indeed. John, thank you. Appreciate it. John Harwood in
Washington.

Still ahead tonight, OPEC promised to hold its production cuts. But that
appears to be easier said than done.

(MUSIC)

HERERA: One health insurer is doing what most others are not. It`s
planning a broad expansion of its Obamacare offerings next year. Centene
(NYSE:CNC) plans to sell plans in three additional states — Kansas,
Missouri, and Nevada. It will also expand in six states where it already
sells Affordable Care Act plans. Aetna (NYSE:AET), Humana (NYSE:HUM) and
UnitedHealthcare have largely quit the Obamacare markets.

North Dakota`s oil production rose in April, complicating OPEC`s attempts
to stabilize the global energy market. And North Dakota isn`t the only
one.

Jackie DeAngelis explains.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: OPEC promised to
hold its production cut through the first quarter of next year. But it
looks like some cheaters are emerging. The oil cartel`s monthly report
confirming that production was up in May from April, an increase of a
little less than a half million barrels a day. Libya, Nigeria, Iraq, all
boosting output.

OPEC also thinks U.S. production will rise year over year due to the
increase in shale production, a little less than a million barrels per day.

Can demand increases absorb the excess oil? Not exactly. OPEC sees demand
rising year over year but only a little more than a million barrels a day.
That`s not a lot.

SCOTT NATIONS, NATIONSSHARES PRES. & CIO: I think prices will go lower,
$45 is a critical level for crude soil. And we tested that this week. So,
if we get below $45 a barrel, then the market is going to say OPEC is not
abiding by its own cuts. We always had doubts about whether or not this
would hold, and would see that everybody now it looks to be cheating. It`s
tough to see how we don`t revisit some of the more recent lows, say $40 a
barrel.

DEANGELIS: But there`s a reason OPEC didn`t play all its cards at the last
meeting. It could make deeper cuts from the more cash-rich countries like
Saudi Arabia. The Saudis said they`ll hold back some additional exports to
the U.S. and Asia in July. That could help, but some argue it`s not
enough.

NATIONS: I don`t see any reason that the Saudis are going to cut
production. They have to fund all of their social programs. We know that
Saudi Aramco wants to come to market with an IPO. They want to show as
much production as possible, they want to show as much revenue and net
earnings as possible. I don`t see how Saudi Arabia would decide to be the
hero among the OPEC countries and cut while everybody else is cheating.

DEANGELIS: Crude isn`t moving as it usually does this time of year. Less
robust driving demands in the U.S. is another problem for prices. AAA says
national average for a gallon of regular is $2.33. That`s down a nickel
from a year ago.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: Cost cuts helped results at H&R Block (NYSE:HRB) and that is where
we begin tonight`s “Market Focus”.

The tax preparation company also said promotions and impactful marketing
helped to grow profit, while a drop in tax returns cost revenue to remain
flat. The company also hiked its quarterly dividend to 24 cents per share.
H&R Block (NYSE:HRB) shares were initially higher in after-hours trading,
adding to a 2 percent gain during the regular session where they closed at
$26.99.

Sears (NASDAQ:SHLD) is cutting about 400 jobs in an effort to cut costs and
turn around its struggling business. The retailers said the layoffs will
come from the company`s headquarters and support functions. Shares were
off by more than 2.5 percent to $6.85.

Cheesecake Factory blamed bad weather for its outlook being cut for the
quarter. The restaurant chain said it now see same store sales falling one
percent. The company also said it expects the new forecast to negatively
affect margins and earnings. Shares fell nearly 10 percent to $52.58.

And the lawn and garden company Scotts Miracle Grow also blamed poor
weather and is cutting its guidance but for the full year. The company
said tighter inventory management, changes in merchandising strategies and
bad weather in its core market hit its sales and the company now expects
sales and earnings to come in lower than expected. Nonetheless, shares
rose a full 7 percent to $89.83.

As we mentioned earlier, the Federal Reserve is expected to raise interest
rates for the fourth time tomorrow. Since it began its rate hike cycle
back in December of 2015, savers have gotten nothing. The yield on the
traditional savings accounts and CDs have remained relatively flat.

So, at what point will savers see benefits from rising rates?

Scott Brown is the chief economist at Raymond James and he joins us now to
talk about that.

Good to see, Scott.

SCOTT BROWN, RAYMOND JAMES CHIEF ECONOMIST: Nice to be with you.

HERERA: You know, it seems that rates are always going up on adjustable
rate mortgages and credit cards, but they don`t seem to be going up on CDs
and savings accounts. Why is that?

BROWN: Well, deposit rates have always lagged the Federal Reserve rates on
their way up. That`s just the way it is. Banks aren`t particularly, you
know, competing against themselves very aggressively at this point to
attract deposits. Over time, we should see a gradual increase. But bear
in mind that this interest rate path that we`re on now from the Fed is a
lot shallower than past cycles.

We`ve had two increases in the last three years, two this year, counting
one expected tomorrow. But this is a very slow pace. So, we don`t really
see deposit rates rising very rapidly. So, you know, it`s a bit of a
problem for savers.

HERERA: Yes, it is a problem for savers. And I think you make an
interesting and good point, because for those of us who remember when
interest rates were going higher at a more rapid pace, you did see CD rates
that were much more attractive for savers and that`s not the case now,
partly because of some of the economics in the economy as it stands.

BROWN: Well, also, you know, we`re looking out in the future, and one of
the interesting things about tomorrow`s Fed meeting is that we`re not just
looking for what the Fed is going to do with interest rates, but what sort
of signals we`ll get about the pace of future rate increases.

And we`ve got this division going on between the market, which seems not to
be expecting a whole lot more from the fed, maybe about a 50 percent chance
they may end up raising rates once more by the end of the year. In
contrast, you know, we get every other Fed meeting, this dot plot, which is
the expected year-end federal funds target rate for each of the —
forecasts from each of the Fed officials.

And those dots are not really likely to move too much. And that implies
that the Fed is looking for probably two to three rate increases in each of
the next couple of years.

HERERA: You know, it`s interesting that we`re not seeing more competition,
is it not, between or among the various banks out there for consumers`
money. I mean, we saw Goldman Sachs (NYSE:GS) come out with a much higher
rate offered on some investment products than others. Would you expect to
see, as the Fed starts to increase rates, more competition?

BROWN: I think you may see a little bit more, obviously, with this latest
rate increase. And, typically, what happens is that, one bank will raise
its deposit rates and others will be forced to follow to remain
competitive. But again, I don`t think there`s a whole lot of upward
pressure in the short term. This is likely to happen over a period of
time.

But even still, when we look at the end result, you know, we`re looking at
the Fed probably ending this tightening cycle at a much lower rate than we
have in the past. So, you know, investors are still not going to get rich
on their savings and checking accounts. They may end up earning more money
than they have in past years. But it`s not like it was a couple of years
ago. That`s largely due to the demographic changes, the slower labor force
growth.

HERERA: Absolutely. Scott, thank you so much. Scott Brown with Raymond
James.

BROWN: My pleasure.

HERERA: Coming up, game on. What the video game industry is betting will
be the next big thing.

(MUSIC)

HERERA: Uber`s CEO is taking a leave of absence. Yesterday, we told you
the move was likely. And today, it was made official. What`s not clear is
how long Travis Kalanick, who also founded the ride-hailing company, will
remain away. His direct reports will run that company.

The decision follows an investigation into sexual harassment at Uber and a
list of recommendations to improve the company`s culture. Those
recommendations include the addition of board seats, an oversight committee
for issues related to diversity and ethical practices, and the prohibition
of romantic relationships between employees and superiors.

The video game industry is always looking for the next big thing. And
players are always looking for the next big game. The two groups are
converging at the biggest video game event of the year.

And Julia Boorstin is there.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: E3 is drawing
around 55,000 gamers and industry executives here to the Los Angeles
Convention Center to check out the latest gaming hardware and software.
The biggest console announcement this year is from Microsoft (NASDAQ:MSFT).

PHIL SPENCER, MICROSOFT HEAD OF XBOX: Today, we`re proud to welcome the
newest member of our Xbox family, fittingly named Xbox One X.

(CHEERS)

BOORSTIN: The new console costs $499. $100 more than Sony`s comparable
PS4 pro. But it features higher definition graphics.

YUSUF MEHDI, MICROSOFT CORPORATE VP: If you want the ultimate, if you want
the best in gaming, the most powerful console, and gamers want the most
powerful console, you want a true 4K gaming, the only place to play that is
Xbox One X.

BOORSTIN: Sony (NYSE:SNE) unveiled a number of new games, but no new
console. Its PlayStation 4 continues to dominate. Sony (NYSE:SNE)
announcing that the PS4 has sold over 60 million units, with 26.5 million
subscribers to its PlayStation plus service.

Not just the console makers looking to that subscription revenue. Game
makers have also shifted their focus, away from the one-time sale of the
game to ongoing digital transaction.

One of the games Electronic Arts (NASDAQ:ERTS) unveiled, its new “Star Wars
Battlefront 2”, which features low cost virtual goods to drive what`s
called micro transactions, which add up to an increasingly important source
of revenue. EA and other game makers are also investing in e-sports to
keep their gamers engaged.

ANDREW WILSON, ELECTRONIC ARTS CEO: We`re bringing e-sports to
Battlefield. Again, 20 million players, we`re bringing new maps, a whole
e-sports component to that game. So, we think it`s going to be a
meaningful thing for us.

BOORSTIN: While there are always plenty of VR demos here, that virtual
technology still hasn`t tipped to the mainstream.

MIKE VORHAUS, MAGID ADVISORS PRESIDENT: This is not hundreds of millions
of people experiencing VR. This is not the year it`s going to hatch into a
big chicken.

BOORSTIN: But with game stocks including Activision Blizzard
(NASDAQ:ATVI), Take-Two Interactive and EA trading their all-time highs,
investors think they`re plenty of room for the industry to grow.

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

(END VIDEOTAPE)

HERERA: And before we go, here`s another look at the 19th record close for
the Dow this year and the 23rd for the S&P 500. Today, the Dow rose 92
points, 21,328. NASDAQ advanced 44. The S&P 500 was up nearly 11.

And on that bullish note, that`s NIGHTLY BUSINESS REPORT for tonight. I`m
Sue Herera. Thanks for joining us. Have a great evening. See you
tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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Business Report is not and should not be considered as investment advice.
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