SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Lucky 7. The Dow keeps its
win streak alive. Is the summer of calm overseas helping U.S. investors?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Historic vote. Workers at
a Mississippi auto plant are deciding whether to unionize as the UAW tries
to make a big push into the South.
HERERA: Pricing pressure. Generic drugs are getting cheaper and that`s
creating a barrage of bad news for the biggest player in the industry.
Those stories and more tonight on NIGHTLY BUSINESS REPORT, for Thursday,
MATHISEN: Good evening, everyone, and welcome.
The Dow eked out a gain, just a little one, but it was good enough for a
record close. The index`s seventh straight. Stocks did see a slight
pullback late this afternoon on a report that special counsel Robert
Mueller has impaneled a grand jury in that ongoing Russia investigation.
But the pullback in the stock market was small and the market for the most
part did what it has been doing, ignoring the drama down in D.C.
The final numbers look like this: the Dow Jones Industrial Average rose
nearly 10 points to 22,026, NASDAQ off 22, the S&P 500 fell five.
And while the markets were mixed today, the trend has been higher. But
what has been driving stocks?
There are a few schools of thought and one is that the global economy is
strengthening. The outlook upbeat and that Europe for a change is having a
crisis free summer.
Bob Pisani looks at how U.S. investors are being helped by markets
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The global markets are
improving because the global economy is improving.
Europe is in the middle of an economic turn around. The Spanish stock
market is up 12 percent. Germany and France up nearly 6 percent. They`ll
be more than if it wasn`t for the fact that the euro has been rallying big
time. That makes exports more expensive for European companies, many of
which are German. So, the German market, while it`s up, it`s still 6
percent off its highs of two months ago.
Emerging market economies have also improved. South Korea, Vietnam,
Philippines, Indonesia, they were all up double digits this year. And the
Chinese economy, despite concerns about government-mandated crackdowns on
credit has stabilized. Hong Kong is up 25 percent.
Stocks have been rallying this year because the global economy has been
improving and corporate earnings have been improving. Earnings for the S&P
500 companies are expected to be up 11 percent for the second quarter.
They were up 15 percent in the first quarter.
Stocks trade off of future earnings prospects. That`s what`s helping. You
can see this in rally for the Dow. Five stocks were responsible for almost
of the thousand point gains that we saw in the Dow recently. Boeing
(NYSE:BA), McDonald`s (NYSE:MCD), Apple (NASDAQ:AAPL) and Caterpillar
(NYSE:CAT), four of the five, have more than 50 percent of earnings
overseas. That`s not an accident. Only United Health did not.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: So, how is the economic and financial stability we`re seeing in
Europe this summer helping the U.S. market and investors?
Jeff Kleintop is the chief global investment strategist at Charles Schwab
and he joins us now to talk more about that.
It`s great to see you, Jeff. Welcome back.
JEFF KLEINTOP, CHIEF GLOBAL INVESTMENT STRATEGIST, CHARLES SCHWAB: Thanks,
Sue. Thanks for having me.
HERERA: I was looking at one of your notes that you sent along to us. And
it really is amazing. It says all of world`s top 20 economies are on track
to grow in 2017 and that Europe is having a very crisis free summer. It
wasn`t that long ago when we were worried about Greece and we were worried
about Portugal and Italy and the like. It`s all changed dramatically.
KLEINTOP: It really has. And one of the other things that changed around
the — let`s say in the maybe spring of this year was the concerns about
politics. You know at the beginning of the year, the thought was, well, we
know where U.S. politics ended up, but Europe had a number of pivotal
elections in the first half of the year.
They all went for the status quo. No major change there. So, the outlook
on political risk always something that`s been simmering in Europe, has
actually faded as well. So, economically, politically and from a financial
stability standpoint, things are working on all cylinders for Europe.
MATHISEN: A lot of Americans, Jeff, as you well know, are underinvested in
international equities and may be particularly in Europe, given the
troubles that Europe has had. Give some advice on that.
KLEINTOP: Yes, you know, it`s very true. Everywhere I go, people are very
focused on their whole market. They find that`s the best place to invest.
This year, I guess performance speaks for itself, right? Euro Stock 600
Index is up 18 percent in dollar terms. What an amazing return for U.S.
based investors. Missing out on that would certainly be disappointing
after so many years of seeing relatively lackluster performance in Europe.
MATHISEN: Is it too late? Is it too late to invest there?
KLEINTOP: Great question. No, I don`t think so. I — what we`re seeing
is very strong earnings growth.
Remember, there have been a couple of recessions in Europe since the last
one in the U.S. They`re earlier in their business cycle and earnings cycle
than we are here. Earnings more upside there I think and certainly, stocks
have not yet gotten back to their peaks in Europe either, or close to their
peaks in many of those countries. They have a bit more to run. Valuations
also a bit lower, Tyler. So there`s more opportunity there.
HERERA: You also make that Europe in general — I mean, every country
certainly is different. But Europe generally is overweight the financial
sector, compared to the U.S., which tends to be more overweight of
KLEINTOP: That`s right. And it tends to define the performance of the two
different major regions. We started to see the financial sector come back
and begin to perform. In fact, it`s the best performing global sector over
the last three months. Tech still did well, but financials have edged it
out, maybe rising longer term interest rates. If that trend continues and
we think there`s reason to believe it may, that`s great news for Europe
outperforming or at least maintaining this level of performance relative to
the U.S. over the second half of the year.
MATHISEN: How does a weaker dollar help American investors?
KLEINTOP: Well, it`s a wonderful thing in that when you`re returning the
money made in euros back into dollars, it buys more dollars. So, for
example, the Euro stock 500 index only up 5 percent in euro terms, but 18
in dollars. The good news is there`s no downside to that.
So, Bob talked about the threat to imports if they have giving a — having
a higher valued currency in Europe. But the fact is, Europe only has about
16 percent sales exposure to the U.S., so relatively small portion of their
sales are to the U.S. where their currency is really appreciated. So, I
don`t think it`s going to be a big hit to earnings. Instead, just a real
positive for U.S.-based investors.
MATHISEN: Jeff, thank you so much. Appreciate it. Jeff Kleintop of
KLEINTOP: Thanks for having me.
MATHISEN: One of the issues lingering over the stock market is the debt
ceiling, which the Treasury warns will be hit in September. Today, the
White House budget director told CNBC that the entire Trump administration
supports a so-called clean debt ceiling increase. That is without spending
cuts or other stuff attached. But at this point, it`s not clear whether
Congress agrees with that.
In that interview, Mick Mulvaney also said that the administration will not
raise taxes on wealthy individuals.
HERERA: It looks like the services sector may be cooling off a bit. The
Institute for Supply Management said nonmanufacturing activity grew slower
than expected last month. The services sector accounts for more than two
thirds of the U.S. economy. Meantime in the manufacturing sector, new
orders for goods recorded their biggest increase in eight months of
decline. Motor vehicle production weighed on factory activity as that
industry struggles with falling sales and an inventory glut.
MATHISEN: The labor market is getting tighter. The number of Americans
filing for unemployment benefits fell last week. Initial claims for
jobless benefits drop 5,000 to 240,000. That`s near a 44-year low.
Tomorrow, the government is expected to report that U.S. economy created
180,000 new jobs last month.
And against the backdrop of that strong labor market, the president
yesterday endorsed a Senate bill that would sharply reduce the number of
legal foreign immigrants entering the U.S., the reasoning in part is the
theory that immigrant workers, especially low skilled ones, depress wages
and take jobs American workers want.
Here to discuss immigration and the economy is Chris Varvares. He`s
cofounder and senior managing director at Macroeconomic Advisers.
CHRIS VARVARES, COFOUNDER & SENIOR MANAGING DIRECTOR, MACROECONOMIC
ADVISERS: Thank you.
MATHISEN: It is a complicated issue. A thorny one, indeed. But you would
think that when the economy has 6 million open positions and really full
employment at 4.4 percent, that you would want more workers to come in to
take those jobs and help economic growth.
VARVARES: Yes, you would. You would think that. And certainly when we
look at the skill gap and high skilled jobs available and going — wanting
for workers, anything that would allow high skilled workers to enter in
greater numbers is good for the economy, and it`s all reform proposals
would consider this in the past, fine results. It`s very positive for the
On the other hand, on the low skills side, I think the evidence is mixed.
It`s not clear what happens to wages when you allow many more unskilled
workers in. It increases demand for goods and services in the economy,
which puts additional demand for workers. So it`s not — but it`s not
entirely clear that domestic workers are displaced in that situation.
HERERA: You also make the point that would change the ratio of workers to
retirees, which also changes basically the workers paying taxes to support
some of the social programs.
VARVARES: Right. So, underneath this notion of fewer immigrants coming in
is the notion that since they tend to be younger than the indigenous
population, then as the roll forward and we see the baby boomers retiring
in ever greater numbers, the number of workers for retiree is going down.
And to the extent that we have greater immigration, that improves the
ratio, we`ll have more workers per retiree.
So, cutting immigration is sort of swimming upstream with respect to how
we`re going to fund the retirement and Medicare cost for ever increasing
numbers of retirees.
MATHISEN: You looked at some numbers, done some modeling, Chris, what
would cutting immigration to the extent — legal immigration is what we`re
talking about here — to the extent that this Senate bill that the
president endorsed at least in part yesterday, what would it do to overall
VARVARES: Yes. Well, the arithmetic is pretty simple. You know, sort of
abstracting from bunch of things that could change this number just a bit.
Legal immigration is roughly half of total population growth today. We`re
growing at about eight-tenths. If you cut the immigration part in half,
you`re talking about two-tenths of population growth coming out of the
economy and that would tend to drive about two-tenths of real economic
growth, real growth of GDP.
So, we`re — if you cut legal immigration in half, you`re going to knock
about two-tenths of the growth rate of GDP. It doesn`t sound like a lot in
any given year, but every year, it lowers the level of GDP by one percent,
25 years, the economy is 5 percent smaller.
HERERA: Which changes the ranking globally, I would think.
VARVARES: It will could and when you think about say our defense budget as
a share of GDP, and other programs that we want to fund out of the economy,
you know, it`s something that needs to be taken into account.
MATHISEN: Chris, thank you so much for your insights tonight. Chris
Varvares with Marco Economic Advisers.
HERERA: And sticking with the issue of labor, tonight, some Nissan auto
workers in Mississippi are voting on whether or not to join the United
Autoworkers Union. The outcome of this two-day vote could be historic
since the UAW has never unionized an entire assembly plant in the Deep
Phil LeBeau has more on the vote and what it says about organized labor in
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s
voting day for 3,800 Nissan workers in Canton, Mississippi. Their choice,
join the United Autoworkers or remain independent. The UAW says Nissan
workers are looking to ensure greater pay and benefits, especially for
temporary workers hired by the automaker.
DENNIS WILLIAMS, UAW PRESIDENT: The discussions I have had with workers in
Canton, Mississippi, at Nissan, they`re all concerned about the temporary
workers. They all feel for `em, right? So, if they really want to do
something down there, the first step is to vote yes.
LEBEAU: But the UAW has a long struggle to connect with auto workers in
the deep south. Yes, it represents some employees at the Volkswagen plant
in Chattanooga, but in general, the Deep South remains union free,
partially because it`s filled with rig states and many blue collar
employees in those states have never felt compelled to join a union.
A spokesperson for the Nissan says they think that`s still the case, saying
we do not believe the representation is in the best interest of the
employees of Nissan Canton.
Meanwhile, after the big three shut down facilities and laid off thousands
of workers during the recession, the UAW is a far smaller union than in the
past. In fact, since 2004, when it represented more than 650,000 workers,
the UAW has lost more than a third of its membership.
(voice-over): The vote in Mississippi will run through Friday night. If
the UAW wins, it will begin the process of negotiating a new labor contract
with Nissan, something the Japanese automaker has never dealt with here in
the United States.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
MATHISEN: Still ahead, Teva`s troubles. It`s cutting jobs, its dividend,
its earnings outlook and the stock tumbles more than 20 percent.
MATHISEN: The Senate today passed legislation to ensure that there would
be no halt in FDA reviews of drugs. The measure increases the user fees
that drug and medical device makers must pay to the agency. The revenue
raised would help pay for reviews to bring the company`s product to market.
The current law governing these fees expires at the end of September.
HERERA: Generic drug prices are falling and that is taking a toll on a
number of companies. Drug wholesaler AmerisourceBergen (NYSE:ABC) is one
of them. It saw profits tumble more than 85 percent in the most recent
quarter. It also cut its revenue growth forecast and added that the pace
of branded drug price increases could slow further as well. The
pharmaceutical supply chain which includes pharmacy benefit managers and
drug distributors has been under pressure due to scrutiny over rising drug
prices. Shares of AmerisourceBergen (NYSE:ABC) fell more than 10 percent
in today`s trading session.
MATHISEN: Meantime, the world`s biggest generic drug maker Teva
Pharmaceuticals reported a steeper than expected drop in profit and cut its
dividend 75 percent. The reason, those stubbornly low generic prices here
in the United States. Shares of Teva down 24 percent and that dragged
shares of some rivals lower as well.
Meg Tirrell has more on Teva`s troubles.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): With all
the focus of the high cost of prescription drugs in the U.S., it may be
surprising to hear that it`s the opposite problem weighing on one sector of
the industry. Generic drug prices in this country are around intense
pressure, cutting into the finances of their manufacturers.
DAVID MARIS, WELLS FARGO ANALYST: We`re on an arc that`s slowly declining
TIRRELL: Israel`s Teva Pharmaceutical today was hit hard. Its second
quarter results included a $6 billion charge based on the state of the U.S.
generic drug market. Its interim CEO told investors, quote: All of us at
Teva understand the frustration and disappointment of our shareholders in
light of these results — pledging to cut costs and pursue to sale of some
Teva also lowered its full year forecast for sales and profit, and cut its
dividend by 75 percent. Other makers of generic drugs are feeling the pain
as well. Mylan`s stock was under pressure today and Novartis Sandoz unit
which already reported results reflected the same dynamics.
Wells Fargo (NYSE:WFC) analyst David Maris says there are multiple forces
MARIS: The buyers just got smarter. And so, they`re coming back and
saying, we want to reprice, not just once a year, but maybe even twice a
year. So, that`s one part.
The other part is you`re seeing that other Indian generic players, other
players are coming into the market, and the FDA has done a really good job.
They see giant backlog. They`ve committed to clearing out the backlog.
Well, so when they approve more generics, it`s not they`re approving the
first generic, sometimes they are, but a lot of time, they`re saying, well,
high prices are caused by limited competition.
TIRRELL: The pressure on Teva comes around the anniversary of the closing
of its $40 billion acquisition of Allergan`s generic drug unit, which made
Teva the largest company in the space.
(on camera): On top of that, the Israeli drug maker is also seeking a new
CEO. It will be a big job for whoever takes the role.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
HERERA: Aetna (NYSE:AET) lifts its full year earnings outlook and that`s
where we begin tonight`s “Market Focus”.
The upbeat guidance follows the health insurer`s stronger than expected
quarterly profit and revenue. Aetna (NYSE:AET), which has exited most of
the Obamacare insurance markets, said the results were help by less
exposure to the exchanges, as well as an increase in Medicare membership.
Well, the company has no plans to re-enter the Affordable Care Act market.
It could under the right conditions.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Any business that has the kind of changes this program
has seen quarter over quarter, sometimes monthly, would not be able to
sustain their business practices for any period of time. So, when they get
it right, which it can be fixed, they`re very much can be fixed, and it`s
stable, we`ll reconsider participation.
(END VIDEO CLIP)
HERERA: Shares rose more than 2 percent to $158.54.
Avon reported an unexpected loss and said its CEO would resign next year.
The cosmetics company which is in the midst of a turnaround has been
struggling to lift sales and the most recent quarter was no different.
Overall revenue fell due to weak demand in a number of its market. The
company also said it expects to meet the low end of its full year outlook.
Shares plunged nearly 11 percent to $3 even.
Last night, we told you that insurance AIG reported better than expected
earnings. Well, today, the company said it will no longer provide guidance
on financial targets. It also said it would do away with a previously
announced capital return plan that was intended to pay shareholders $25
billion by the end of this year. AIG said it will still return capital to
shareholders, but will not target a specific amount. The shares rose
slightly to $66.06.
MATHISEN: The snack and beverage company TreeHouse Foods said it would cut
about 2 percent of its workforce in an effort to cut costs. The company
will also close two factories in Minnesota and Indiana. TreeHouse said the
layoffs will affect nearly 400 employees. Shares of TreeHouse Foods got
crushed falling almost 12 percent to $74.16.
Cost cuts helped Kellogg (NYSE:K). Top estimates for profit and revenue.
Maker of Eggo Waffles and Pop Tarts said it was helped by higher sales in
Latin America and Asia, even as demand remained weak in the U.S. The
company also completed the shift to its new snack distribution model
earlier than expected. That sent shares higher by 4 percent to $70.36.
Viacom (NYSE:VIA) reported better than expected quarterly revenue, thanks
to higher affiliate fees that helped offset a continued decline in U.S. ad
sales. The company`s 12 consecutive quarterly drop. Viacom (NYSE:VIA) is
the owner of MTV, Comedy Central and Paramount. Shares still initial fell
in afterhours trading, but they ended the regular day up nearly 3 percent
And Kraft (NYSE:KFT) Heinz after the bell reported a 50 percent rise in
quarterly profits, thanks to cost cuts and increased demand for some of its
sauce and condiment products. The company is backed by the billionaire
investor Warren Buffett and the private equity firm 3G. Shares were
volatile in the extended session as you see there, but they did finish the
regular day down fractionally at $86.51.
HERERA: Mortgage rates are holding steady, below 4 percent. Freddie Mac
reports the rate on the 30-year fixed inched up just slightly to 3.93
percent. Mortgage rates have not risen substantially despite the Federal
Reserve having increased its key interest rate four times in the past year
and a half.
MATHISEN: Despite the strong housing market, sales of luxury homes had
been lagging, that is until now.
Diana Olick takes a look at what`s behind the new boom in top of the line
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The
trouble with these super expensive homes was — well, they were too
expensive. Luxury home sales and sale prices had been lagging the rest of
the market for the past few years. But now, they`ve turned around for one
Nope, not that. Although it didn`t hurt. It`s really this —
JONATHAN MILLER, MILLER SAMUEL INC. CEO: Luxury sellers are getting back
in sync with reality, which is something that`s been lacking for the last
several years. Buyers simply won`t come up to meet their number.
OLICK: Sellers lowered prices, buyers came back and now for the first time
in three years, luxury home sale prices are seeing bigger gains than the
rest of the markets, this according to Redfin, which defines luxury as the
top 5 percent of the market`s most expensive homes. Again, because sales
are up, 19 percent in the million dollar plus range, according to the
National Association of Realtors.
All those sales caused the inventory of million dollar plus homes for sale
to drop over 9 percent. That after growing for more than a year.
MILLER: What we`re seeing is inventory declining, but that`s really list
things expiring that were significantly overpriced to begin with, something
that I call a phenomenon, aspirational pricing, where they set numbers that
had no connection with reality.
OLICK (on camera): Despite the gains, the luxury market is not nearly as
competitive as the rest of the market. Only one in 50 luxury homes sold
above list price in the past three months, compare that to more than one in
four homes in the rest of the market.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
HERERA: Coming up, we are raising a glass to the pink wine that`s red hot.
MATHISEN: Retirement balances — they are hitting new highs. According to
Fidelity, the average 401(k) balance reached more than $97,000 in the
second quarter, up 9.5 percent from a year ago. The average balance for
individual retirement accounts is now more than $100,000. The results are
due to a stock market that is near record levels as well as increased
employee and employer contributions to those accounts. It is the third
straight quarter of record balances.
HERERA: Well, everything seems to be coming up rose. Sales of the pink
wine have skyrocketed recently and its newfound fame is making it one of
the most powerful forces in the beverage industry.
Seema Mody raises a glass in New York.
SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Once
referred to as cheap and unsophisticated, thanks to smart rebranding, rose
wine is in fashion, quickly becoming the quintessential drink of the
summer. Astor Wines, the largest wine and spirit store in New York City,
has been increasing its rose selection currently with 75 still and 50
sparkling rose offerings.
LORENA ASCENCIOS, ASTOR WINES & SPIRITS: We`re going through a peak right
now and there`s also a great variety of roses, different styles, different
colors. And people just want to try new roses.
MODY: Sales are up 60 percent over the past year, more than Prosecco,
Cabernet, Pinot Grigio and Chardonnay, according to Nielsen Research.
It`s become so popular, Wolffer Estate Winery, a hundred miles east of
here, ran out of their signature Summer in a Bottle, but they have other
(on camera): What`s behind the strong demand? Well, think pink. Industry
experts say it`s the color, packaging, versatility and price typically
cheaper than champagne.
(voice-over): And in the very modern twist, social media buzz has also
contributed. The use of catchy hashtags like #yeswayrose have been
prevalent on Instagram, so much that two millennial women Erica and Nikki
started their own brand selling rose inspired apparel and accessories.
NIKKI HUGANIR, YES WAY ROSE OWNER: Every summer, we double our sales. So,
that`s a good trend.
UNIDENTIFIED FEMALE: Key customer is women, mostly.
MODY: And experts say, as rose wine evolves, with new blends and
offerings, demand will continue.
For NIGHTLY BUSINESS REPORT, I`m Seema Mody in New York.
MATHISEN: Rose sounds pretty good right about now, doesn`t it? Never had
sparkling rose. I have to try it.
HERERA: Oh, we`ll have to go try it because now, it`s time to say good
That`s it for NIGHTLY BUSINESS REPORT. I`m Sue Herera. Thanks for joining
MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great
evening, everybody. We`ll see you back here tomorrow.
HERERA: Raise a glass.
MATHISEN: After our rose.
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