Transcript: Nightly Business Report – February 19, 2018

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Good evening, everyone,
and welcome to this special edition of NIGHTLY BUSINESS REPORT. I`m Tyler
Mathisen.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: And I`m Sue Herera. Welcome.

We are about a month and a half into the New Year and what a year it has
been. Volatility has returned to the stock market like few expected.

MATHISEN: And tonight, we will take a look at what that means for you and
your money and offer, hopefully, some investing ideas for a market that
seems to have a mind of its own.

HERERA: That`s right. And that is where we begin with the stock market.

Never before have we seen the Dow Jones Industrial Average fall nearly
1,600 points in a single session, at least until this year. The stomach
turning moves lower and dramatic moves higher are happening at warp speed
and as Dominic Chu reports, the volatility we`ve seen will go down in the
history books.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: After months and years
of market calm, volatility is back and it came back with a vengeance over
the past few weeks. It`s been so long since investors have had to deal
with the falling stock market that many may have forgotten what it looks or
it feels like.

The middle of 2016 through the beginning of 2016 saw the S&P pull back by
around 16 percent, as concern about the Chinese economy and global growth
took a bite out of markets. Even during all the commotion surrounding the
United Kingdom`s 2016 decision to leave the European Union didn`t have this
big of an effect. That so-called Brexit vote only shaved around 6 percent
from the S&P.

Another interesting way to look at the lack of volatility up until this
point is how long we`ve hovered near a record high level for stocks.
According to LPL financial market strategist Ryan Dietrich, the S&P 500
traded within 5 percent of record high levels for over 400 trading days in
a row. That`s the longest streak on record. Many experts think that the
recent volatility isn`t over. After such a long stretch of inactivity, it
may take more than just a week or two to get back on track.

In the meantime, financial advisers are busy counseling clients and
answering questions about how to react to the up and down market. What it
has done is given investors a reason to reevaluate their risk tolerance and
portfolio construction, reinforcing the idea that the level of stock market
exposure one has should depend on how imminently they plan on using the
money.

The longer term horizon you have, the less worried you should be about the
market gyrations we have like these. But if you`re retired, getting close
to it or need the money for college or down payment on a house sometimes
soon, it may not be appropriate to have a lot in stocks. Whatever your
circumstances, if the resent market melee has you worried, it may worth
talking to a financial adviser to see if you`re positioned correctly in the
market.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: And joining us now to talk about what we have been seeing in the
markets and what could lie ahead is Michael Purves, he`s chief global
strategist at Weeden.

Mr. Purves, welcome. Good to have you with us.

One of the things I think we probably can all agree on is that this market
is not 2017`s market anymore. And that there are two things that investors
haven`t had to think b about in years that they`re now finding themselves
having to think about. Rising inflation or the prospect of it and rising
interest rates.

MICHAEL PURVES, WEEDEN CHIEF GLOBAL STRATEGIST: That`s absolutely right.
We`re starting to see volatility, something we haven`t seen in a long
period of time. Dominic was mentioning when you have volatility, the VIX
going up, for example, although you would see bond yields going down. And
what`s happened over the last couple of weeks is that bond yields are not
going down. And I think that`s really starting to raise some unsettling
questions for investors.

HERERA: What about the volatility? You know, it was so violent on those
couple of trading days. Do you have a feeling that is over? Was it linked
to any particular instrument? What`s your take on that?

PURVES: Well, there`s been a huge industry that`s developed over the last
few years of effectively selling volatility. And that`s an investment or
trade that works great until it doesn`t. What happened over the last two
weeks is really, it`s what you`d call on Wall Street, the short squeeze.
And just happened to be these volatility instruments. And so, it created a
lot of sort of market violence that we don`t normally see.

And there will be aftershocks from that. But I think the question for
investors who have the 12 or 24-month time horizon is really anything that
different than it was back in early January, besides these reverberations
from the volatility squeeze.

MATHISEN: With that as a backdrop, do you think the stock market is going
to churn higher albeit potentially with more volatility.

PURVES: I think that`s right. The fundamentals are really good. It`s
kind of interesting to note that over the last two weeks, the outlook for
expected earnings for the S&P 500 actually increased almost 2 percent.
That`s not my numbers, that`s consensus.

And the fundamentals are really strong here. So, what I`m expecting is
we`re going to have a few weeks of choppy trading. Ultimately, I think
what you`re going to start seeing is the U.S. equity market continued to
rally forward. But going forward as interest rates go higher, that will
mean more volatility. So, I think both volatility and the market will
reach higher later through this year.

HERERA: So if you had to commit, if you have a longer term time horizon
and you want to commit some cash to this market, where do you see
opportunity?

PURVES: Well, I`d say right now, what you — the best thing to do is just
sit back and wait for some of these aftershocks to play out a little bit.
You don`t need to rush in tomorrow there. But I think, you know, good,
solid companies that have been working over the last couple of years, the
tech sector, for example, I think will continue to do quite well,
regardless of where interest rates happen to be going.

I also think the financial sector is another good area where it will
benefit from a higher interest rate environment and the volatility that
we`ve just been discussing will help their trading businesses as well,
which had been pretty lackluster over the last couple of years.

MATHISEN: Michael, thank you so much. Michael Purves is with Weeden and
Company.

HERERA: Well, some say the stock market is taking its cues from the bond
market. Treasury yields are starting to rise and that`s causing stocks to
adjust. But where do interest rates head from here?

Steve Liesman takes a look.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: One of the reasons
for heightened volatility in stocks is more uncertainty about the outlook
for interest rates. There`s a lot for equity investors to figure out about
just where interest rates and the Federal Reserve will go from here.

On the supply side, the Fed is reducing the balance sheet. Ramping up to
$600 billion a year and increasing the supply of treasuries on the market.
Government borrowing is set to rise, back up to a trillion dollars a year
to finance the deficits among other things from the tax cuts.

And the right rate will rise to reflect better growth numbers in the
economy. At some point, a higher treasury yield will begin to compete with
the return for stocks. The long rate in turn feeds back on the Fed.
They`ll set a short-term rate at the rate to continue economic growth, but
if growth is better, they could view that rate, the short rate that is,
being higher than it is now.

So far, New York Fed President Bill Dudley says the market turmoil hasn`t
hurt the economy, or changed the rate outlook, at least not yet.

WILLIAM DUDLEY, FEDERAL RESERVE BANK OF NEW YORK PRESIDENT: Having a bump
like this really has virtually no consequence in my view of the economic
outlook. My outlook hasn`t changed because the stock market is a little
lower than it was a few days ago. It`s still up sharply from where it was
a year ago. That said, if the stock market were to go down precipitously
and stay down, and that would actually feed into the economic outlook and
that would affect my view in terms of what`s the implications for monetary
policy.

LIESMAN: Dallas Fed President Robert Kaplan added that market corrections
can be healthy. We`ll hear more from the Federal Reserve on February 28th
when the new Fed Chairman Jerome Powell sits for testimony before Congress.
It`s the first time he`ll take questions at the helm of the Fed.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Well, when the Fed does raise rates, interest rates on deposit
accounts also tend to rise, albeit slowly. The Fed`s latest rate hike is
yet to result in more money in saver`s pockets. So, with the Fed expected
to raise rates, three, maybe even four times this year, when will being a
saver pay off?

Here to discuss that is Kimberly Palmer, banking and personal financial
expert at the personal finance Website, NerdWallet.

Welcome. Good to have you with us, Kimberly.

KIMBERLY PALMER, NERDWALLET PERSONAL FINANCE EXPERT: Thanks for having me.

MATHISEN: You know, when rates go up, I notice very quickly that the rates
on my credit cards go up. My rates on my home equity line go up. The
prime rate goes up. That`s all the rates that banks charge to borrowers.
But the rates on savings accounts don`t go up nearly as fast.

I guess this is how banks make money, isn`t it, Kimberly?

PALMER: That`s right. The traditional banks have been slow to raise their
interest rates that they`re paying savers on their deposit accounts. But
at the same time, we have seen more movement with online banks who are
offering more competitive rates. So, we`ve seen those rates on savings
account go up to 1, even 1.5 percent. But you`re right. The traditional
banks have been slow to increase those rates.

HERERA: But if they did increase those rates, wouldn`t it behoove them to
do so because you would keep your money in that bank longer.

PALMER: That`s right. From a consumer`s perspective, it`s very appealing
when a bank raises the rates and it encourages people to put more in their
savings account, because consumers, of course, want to make sure they are
earning as much they can on their savings.

MATHISEN: You mentioned something very interesting and I want to probe it
a bit. You said I believe that the online banks pay hire savings rates.
If I want to buy a CD or put $10,000 in a savings account, is that where I
should look first? And how do I do it?

PALMER: Absolutely. There are, of course, a lot of factors at play, but
one of the smartest moves for consumers to make right now is to spend some
time looking online, comparing the different rates that banks offer because
you will often find that the online banks are offering more competitive
rates.

MATHISEN: Where can they do that comparison, Kimberly?

PALMER: Well, you can do it at NerdWallet, of course.

MATHISEN: I had to — had to give you. That`s called a, you know, Roger
Federer could have smashed that.

(LAUGHTER)

MATHISEN: Go ahead. NerdWallet is a good place to do that.

PALMER: That`s right. It is. You can easily compare rates. I mean, for
consumer, it`s so important to make sure you`re earning as much you can for
your savings. So, that`s really the bottom line for consumers.

HERERA: You know, I`ve talked to some who say I`m uncomfortable with an
online bank. What do you look for when looking at an online bank to
potentially put $10,000, $20,000, $30,000 into it?

PALMER: That`s such a good question because security is absolutely the
number one concern. You always want to check first of all that it`s FDIC
insured and then you also want to make sure you understand how to access
your money. Are they on an ATM network? Can you easily take out money
when you want to? Will you be able to keep fees to a minimum?

Those are all the important questions to ask.

HERERA: So, are more and more people using these online banks or are they
still inclined to just go with the familiar name that`s either the corner
local bank or one of the big multistate banks?

PALMER: We actually are seeing a lot of growth in interest in online banks
and there`s a growing comfort level with online banks. So that`s a trend
we`re seeing over time, as people seek to get higher returns on their
money.

HERERA: All right. Kimberly, thank you so much.

PALMER: Thank you.

HERERA: Kimberly Palmer with NerdWallet.

Still ahead, trying to figure out what you should do with your money in a
volatile raising interest rate environment? We have two guests and a lot
of ideas.

(MUSIC)

HERERA: The topics that we`ve been discussing a lot have been higher
interest rates, which we just did, and rising volatility. With that in
mind, let`s talk about what stocks could benefit from those two themes.
Here with us to discus three picks that could do well in more volatile
market is Chris Bertelsen, president of Aviance Capital Management. And
we`re also joined by Bill Smead, who will focus on three stocks that are
expected to benefit from rising rates. He`s the CEO of Smead Capital
Management.

Nice to have you with us, gentlemen.

Bill, I`m going the start with you if I could because we just talked about
the fact that banks aren`t necessarily passing along those higher rates,
but you found a couple of stocks that you think will benefit.

Let`s start with your first one, Amgen (NASDAQ:AMGN). Why do you think it
will be the beneficiary?

BILL SMEAD, SMEAD CAPITAL MANAGEMENT CEO & CIO: When the economy gets
stronger and interest rates rise, ultimately, you`ll also get a contraction
of price earnings ratios. Companies that produce their own capital become
much more valuable than companies that demand capital. So, if you have
loads of cash on your balance sheet, generate high free cash flow and have
a lot of demand for your product regardless of what the economy does, life
should be pretty good and that pretty much describes Amgen (NASDAQ:AMGN)
who — and then lastly, it also trades at a very, very low price to
earnings ratio in relation to the rest of the market, which also is a very
positive in a more defensive environment.

MATHISEN: All right. So, Chris, in this scene, your motivation is to pick
stocks that might benefit from increased volatility. But your three
choices are very interesting in light of what`s been going on in
Washington. They are Lockheed, Raytheon (NYSE:RTN) and Northrop. That
feels like a play to me on defense spending in the U.S. and around the
world.

Why are they also good in a volatile market?

CHRIS BERTELSEN, AVIANCE CAPITAL MANAGEMENT PRESIDENT & CIO: Absolutely.
The old sports analogy, the best offense is a defense, really applies here.
And you could certainly play defense, pun intended, by owning these
companies. Just take a look at the volatility burst that we`ve had. These
companies were down maybe 2 or 3 percent at most when the market was
falling off 10, 11 percent from its high and year-to-date, they`re up 8 to
11 percent and they`re really participating as the economy grows.

Never underestimate the power of the government to either make a business
run or to maybe hold it back a little bit and with the $700 billion budget
pass to a defense spending and the rest, they will actually really benefit
each quarter of earnings for I think the next eight the to ten quarters. I
think you have it, really a situation where you can kind of own these
companies, understand that when you have a tough time, that they won`t hurt
you.

HERERA: You know, Bill, let me go back to you on Bank of America
(NYSE:BAC), which is your second pick. Obviously, they would benefit from
the rising rate environment in terms of loans and things like that, but why
else do you like it?

SMEAD: Well, first of all, there`s 86 million people between about 23 and
41, and they are forming households now at very large numbers. For
example, 65 percent of the views on Zillow are millennials, so as their
economic activity picks up, the amount of little transaction charges that
they`re doing at the bank goes up significantly and you`ve stated in your
prior segment that over the course of the last eight to 10 years, Bank of
America (NYSE:BAC) found out everybody that will have money on deposit with
them that doesn`t care about what their return is.

Any money that`s still sitting in savings and checking accounts now is
obviously not rate sensitive people and, you know, your prior guest has a
wonderful idea for those motivated to shop, but most people are lethargic
and also want all their money at just one or two places, especially the
older you get. If someone passes away and they`ve got money in 20
different financial institutions, you`ve got a real headache on your hands
as heir.

MATHISEN: Absolutely. That is certainly the truth.

Chris, one of the other things that I notice about the stocks you mentioned
— again, Lockheed, Raytheon (NYSE:RTN) and Northrop, these are dividend
payers.

BERTELSEN: Absolutely. And they consistently raise their dividends fairly
aggressively. Now, they`re not really high yielders, but it would be like
owning the five-year U.S. treasury. You`re getting at least that type of
yield — a little more in Lockheed. And I think that continues as they
pass cash and cash flow back to the investor.

HERERA: And, Bill, you get to tell me about Walgreens Boots Alliance. Now
we know that particular area of the market has seen a lot of consolidation.
There are deals going on. I would assume it`s a little bit of a play on
that as well.

SMEAD: Well, let me jump on the nice pile that our other guests provided.
Bank of America (NYSE:BAC) will probably see some of the most amazing
dividend growth. It`s just about ever had because they have been
restricted by the CCAR Federal Reserve requirements on how much they can
pay in dividends and historically, they paid about 50 percent of their
profits out in dividends. Their estimates — I think average estimate this
year is 210 for this year, which means in normal year, they`d be paying
$1.05 and that`s more than double what they`re paying now.

So, they should have big dividend increases. Walgreens has been, you know,
they are a dividend aristocrat. They`ve raised their dividend every year
since the beginning of time practically and they`re gushing free cash flow
and if, in fact, they`re able to buy the other 70 percent of
AmerisourceBergen (NYSE:ABC), that`s just going add a big another bunch of
copious free cash flow.

HERERA: All right.

SMEAD: And their divided — their dividend increases will be substantial
and, again, you`ll notice — Bank of America (NYSE:BAC) is more play on a
stronger economy then Walgreens and Amgen (NASDAQ:AMGN) are both companies
that I don`t think it really makes a whole lot of difference what the
economy does. We`re going to be excited on them regardless.

HERERA: Gentlemen, thank you so much.

BERTELSEN: Thank you.

HERERA: Christopher Bertelsen with Aviance Capital Management, Bill Smead
with Smead Capital Management.

MATHISEN: And coming up, why spring has sprung early for real estate.

(MUSIC)

HERERA: That old groundhog recently predicted there would be six more
weeks of winter, but the housing market doesn`t agree. Rising interest
rates and falling supply have buyers out early, hoping to get a jump on
what could be one of the most competitive housing markets in history.

Diana Olick has more.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This half-million-
dollar Denver home was listed for sale last Thursday.

UNIDENTIFIED FEMALE: Yes, I like this one a lot. And this is 587?

UNIDENTIFIED FEMALE: Five-eighty-seven, just came out in this first.

OLICK: And it already had 37 showings before the Saturday open house.

MARTIN MATA, REDFIN AGENT: There`s just simply not enough homes to go
around for people looking to buy them.

OLICK: The supply of homes for sale right now is at a record low not just
in Denver but nationwide. Demand is surging and that has shoppers out
early, hoping to get a jump on the spring market.

BRITTANY STOROZ, PROSPECTIVE BUYER: It`s kind of the offseason right now,
but I`m definitely still experiencing a decent amount of competition. I
thought I was kind of at a higher price point where it would be a little
bit easier for me to get a place without a lot of competition, but I`ve put
down two offers so far and both times been beaten out by cash offers.

OLICK: It`s stories like that that have Eric Daniels (ph) and Alexa Karras
(ph) out looking early as well.

UNIDENTIFIED FEMALE: We haven`t put in any offers or anything, but we
understand it`s a really tough market.

UNIDENTIFIED MALE: So, we`re sort of doing everything we can to be
prepared, to make a good offer in a competitive market without
contingencies and that sort of thing.

OLICK: Not only are potential buyers facing low supply but also high
prices and rising mortgage rates — a not so perfect storm that has the
usually busy spring market starting in winter.

MATA: In the short term, I strongly believe that`s going to cause a lot
more by side demand. You know, as people try to get into a home before
interest rates get to a point where they can no longer afford a home that
they would like.

OLICK: Higher rates could throw some cold water on overheating home
prices.

UNIDENTIFIED FEMALE: And they have a whole basement for the kids.

UNIDENTIFIED MALE: That`s true.

OLICK: But demand is so strong right now that even higher rates are
unlikely to cool the competition.

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

(END VIDEOTAPE)

MATHISEN: So what trends might we see during this spring selling season?
Here to discuss her outlook is Skylar Olsen, senior economist at Zillow.

Skylar, I`m Tyler. Welcome. Good to see you. Skylar and Tyler.

SKYLAR OLSEN, ZILLOW SENIOR ECONOMIST: Thank you.

MATHISEN: All right. So, everybody keeps talking about how low inventory
is. There just aren`t that many houses for sale in many markets. Why is
that? Why aren`t people putting their houses up for sale?

OLSEN: You know, actually, over time, the number of newly listed homes
that are going out on the market are relatively stable, right? It`s going
to — it`s increasing right now, for example, a newly listed homes.

It will continue increasing until it peeks around May for the home shopping
season. This is when the listings start to pick up. The rub is that
demand is so hot that those homes are coming off the market almost as soon
as they get on it. So homes listed at the beginning of the month are not
necessarily available at tend of the month so, if we look at daily
inventory, how many homes are available on any given day, that`s 10 percent
lower than it was last year and last year, we would have been having a
pretty similar conversation.

MATHISEN: What impact do you think higher mortgage rates is going to have
on that demand?

OLSEN: You know, I think, you can think the effect might be there, right?
But they`re likely to be small and one of the reasons why that is is
something we may expect, or if expect rates to go up in the future, then
I`m going to move quickly now. The thing is that demand is already so
strong relative to the supply out there that we might not notice, right?

In terms of really seeing a significant cooling, there are a lot of pent-up
homebuyers that have expected to buy homes, that have been looking to buy
homes, you know, that have been bidding on homes and losing out on those
bids, and frankly, there are a lot of other barriers to moving into the
market and becoming a homeowner such as saving for that down payment that
in the mortgage rate, which has historically even at higher, as high as
it`s been since 2014, it`s historically still very low.

MATHISEN: You call this a seller`s market and likely to be so as far as
the eye can see. If I`m a buyer, a bidder, in one of these seller`s
markets, what are the two pieces, three pieces of advice you would give me
to give me the best chance to get the home I want?

OLSEN: Yes, I think first off, you know, really consider the reality that
you`re going to lose your first bid. You know, across the nation, this is
a national average that the typical homebuyer has to submit at least two
bids to win that home. In a hot market like a lot of the coastal cities,
like Seattle for example, expect to lose four or five before you win that
option.

When that happens, you know, you cannot stop aggressively saving for a down
payment because if you lose that bid, home values are not going to stop.
They`re going to move around you, right? And it takes aggressive saving,
continually saving just to keep up with that down payment share like say 20
percent, or if you`re not there, 10 percent that you otherwise would have
expected.

Next, you know, really identify what your min spec is, right? The minimum
requirements that you have —

HERERA: OK.

OLSEN: — in where you`re looking because you`ll have to get flexible.

HERERA: On that note, thank you so much, Skylar Olsen with Zillow.

OLSEN: Thank you so much, too.

MATHISEN: Before we go, Sharon Epperson leaves us with some reminders on
what to do and not to do during periods of extreme market volatility.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Tyler, you
know, it has been a roller coaster ride that many never expected. The
recent swings in the stock market have been especially tough for long-term
investors who often buy and hold. But now, they may have gotten a little
spooked.

So, here are some tips on how to ride out this wild market.

First of all, you know it, don`t panic. Just remember your goals. There`s
a reason you started investing.

You set a goal. It could to save for college or fund your retirement.
Whatever you plan, take a few deep breaths I`m into yoga now — and stick
to your plan. The money is there for the long haul and then it`s probably
better to be in the market, where over time, it`s going to grow.

The next thing is don`t hit the sell button until you`ve reassessed your
risk. If you`re losing sleep over the market turmoil, your investment mix
may be too aggressive. After last year`s gains, your portfolio may need
some tweaking. Rebalance, diversify your holdings and if you need cash for
a large purchase in two or three years, rethink that stock exposure.

And finally, don`t go it alone. Talk with an adviser. Speaking with a pro
who`s weathered this kind of market moves before may give you a much needed
gut check. And it`s their job, especially in times like these, to calm you
down and if you need it, to help you rework your investment strategy —
guys.

(END VIDEOTAPE)

HERERA: Sharon Epperson, thank you.

And thank you for watching this special edition of NIGHTLY BUSINESS REPORT.
I`m Sue Herera.

MATHISEN: I`m Tyler Mathisen, have a great evening, everybody. And we
will see you tomorrow.

END

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