TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: More hikes ahead. A
strengthening economy puts the Fed on track to raise interest rates but the
market reaction left some investors confused.
Curb appeal. Home sales post their sharpest drop in three years as
ownership becomes less and less affordable.
Plus, mountains of debt. Why the White House is now considering action on
student loans, $1.5 trillion issue.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
Good evening, everyone, and welcome. Glad you could join us. Sue Herera
has the evening off.
Well, the economy is improving. Growth is picking up, inflation ticking
higher. That`s how Federal Reserve policy makers describe the economy
according to the minutes of the Central Bank`s latest meeting, that
signaled that the Fed is on track now to raise interest rates this year.
Markets greeted the news with a strong bout of volatility. Stocks first
spiked higher and then they fell very sharply as bond yields rose. The Dow
Jones Industrial Average closed down 167 points to 24,797, its second
straight day of losses. Nasdaq was off 16, the S&P 500 fell 15.
Kayla Tausche starts us off tonight with a closer look at the Central
Bank`s latest plan to keep raising rates.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal
Reserve`s January meeting was the first since tax reform passed. That`s
one big reason the Fed pointed to a stronger growth outlook than before.
Business may use the money to grow and add capacity, even though companies
are still deciding how to allocate their savings. While the Fed warned of
upside risks from that growth, Kevin Hassett, the White House chief
economist, doesn`t expect the economy to overheat.
KEVIN HASSETT, COUNCIL OF ECONOMIC ADVISORS: What we have here is a
supply-side stimulus which is going to increase supply and I think allow us
to grow without getting inflation out of control.
TAUSCHE: The Federal Reserve plans to raise interest rates gradually this
year and next, and says for now, that strategy remains appropriate.
The markets treating the minutes from this Fed meeting, the first of eight
this year, as tea leaves for the new Fed`s direction and investors will get
more information next week. Newly installed Fed chair Jay Powell will be
testifying in front of Congress twice.
DAVID KELLY, JPMORGAN CHIEF GLOBAL STRATEGIST: I think Jay Powell will
have to establish his credentials as a new Fed chair and I think part of
that is going to be to say something pretty negative about the amount of
fiscal expansion here and express some worries about the rise in the
federal budget deficit.
TAUSCHE: The January meeting took place before a bipartisan budget deal
expanded spending and before a January jobs report with wage growth so
strong, it spooked the market, spurring a sharp drop in stocks. Days
earlier, Fed members found signs of broad wage growth to be absent, leading
the Fed to keep its wait-and-see approach to inflation intact.
KELLY: I think inflation is rising gradually a lower dollar and higher oil
prices this year are pushing inflation up a bit. There`s a little bit of
wage inflation. But overall, the modern American economy just isn`t that
prone to basic consumer inflation. What I think the Federal Reserve is
becoming more worried about and you could actually see this in the in their
minutes his asset prices.
TAUSCHE: One worry raised by more Fed members in January imbalances in the
market thanks to high valuations and high levels of corporate debt.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.
MATHISEN: So why was the stock market reaction to the minutes from the
Federal Reserve meeting so intense and so all over the place?
Bob Pisani takes a look from the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Talk about a confusing
day, stocks were modestly higher all day until the minutes from the Federal
Reserve`s January 21st meeting came out at 2:00 p.m. Eastern Time. So,
traders liked what they heard.
The Fed said there were very few signs of a broad-based increase in wage
growth. Traders have been worried that inflation is picking up and that
higher rates would kill the rally. So, the Fed saying and we`re not too
worried was greeted as a positive sign and bond yields initially dropped.
But then it all turned around. Bond yields moved back up from about 2.91
percent on the 10-year to 2.95 percent, and predictably, the market just
turned around everything went down. What happened?
So, it was widely noted right after the Fed minutes came out that this
meeting before the January jobs and wage report came out which both were
stronger than expected and the meeting also occurred before President Trump
signed a new budget that contains a significant increase in deficit
The bottom line is this: after thinking about it, most traders seem to
agree that the Fed held the meeting today with all the information that`s
come out since, the Fed would sound more aggressive when it comes to hiking
interest rates than it did in the January 31st meeting. That`s how fast
all of this is changing. I know it`s confusing.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
MATHISEN: Well, the Central Bank is widely expected to raise interest
rates next month, the first of what many market watchers say could be three
rate hikes this year, maybe even more. But the president of Philadelphia
Fed today — that he said today that he thinks just two interest rate
increases will be appropriate this year. Patrick Harker did say however
that he would be open to additional hikes if the economy shows that more
are needed. That`s called an open mind.
All right. Let`s now turn our attention to those January Fed minutes that
were released today and joining us to offer his thoughts on the economic
outlook and more is Mark Zandi, chief economist at Moody`s (NYSE:MCO)
Mark, always great to see you. Thank you for joining us.
What did you make of these minutes that the market at first sort of saw
benignly and then saw seemingly in a different way?
MARK ZANDI, CHIEF ECONOMIST, MOODY`S ANALYTICS: Yes, well, I think the Fed
was just more sure about things. They`re more sure about the economic
growth that`s coming, that we`re going to see strong above potential growth
falling unemployment and they were more sure about inflation that we`re
going to get back to that percent inflation target. So, more growth, more
inflation I think, you know, that makes investors a little bit nervous
about higher interest rates, higher bond yields and of course that gives
stock investors agita. So, you know, I think the Fed was just more sure.
MATHISEN: If they had had this meeting — let`s play a game of
hypotheticals here — with the benefit of knowing what that jobs report was
going to be on February, what the budget deal was going to be, would they
have been even more optimistic about growth and hence more hawkish?
ZANDI: Yes, absolutely. I mean, particularly the budget deal. I mean one
economic data point no big deal you need a string of economic data.
ZANDI: The budget deal, the spending, I mean that was all deficit financed
that`s going to add — yes, you know a half a point to additional have a
point to growth this year and another half a point next year on top of an
economy that`s already growing above — above potential with an
unemployment rate that`s headed into the three. So, yes, I think as a fed
we`re sitting down today, they would be even more hawkish than what came
through in those January meeting.
MATTHEWS: I`m going to ask the great Zandi to give me his numbers. What
do you — put your — put your turban on and tell me, what do you see for
growth this year? What do you see for inflation, unemployment? What are
your benchmarks here?
ZANDI: Yes, I mean, I think we`re going to be close to 3 percent growth.
That means that unemployment will decline. So, the unemployment rate is
just over four. By this time next year, it`s going to be closing in on 3.
That means inflation is going to accelerate, that means the Feds really got
to get moving here.
I think, you know, they say three rate hikes, 25 basis points, a quarter
point each time, more likely it`s going to be four and then probably four
next year. So, I think investors, they`re adjusting to this new reality.
I think they are more adjusting to do.
MATHISEN: The trick is not merely in the current environment, Mark, is it
what the Fed does with interest rates, but what they do with the roll off
of securities from their balance sheet and that side of tightening plays a
role here too.
ZANDI: Yes, good point. I mean, I think that`s kind of on autopilot, they
told us what they`re going to do and I think they`re going to stick to that
script. But that does add to the prospects for higher long-term interest
rates because, you know, up until a year ago, two years ago, the Fed was
buying bonds. Now, they`re letting those bonds roll off as you say.
They`re not buying bonds.
And you throw in into the mix the fact that the government, the treasury is
going to be issuing lots of bonds to pay for all these deficit finance tax
cuts and spending increases. So, demand, supply means higher long-term
interest rates. So, we hit — we saw the 10-year treasury yield hit a new
four-year high today. It`s probably going to go higher and, of course,
that makes life more difficult for stock investors.
MATHISEN: Mark, it`s always great to see you. Thank you.
ZANDI: Thanks, Tyler.
MATHISEN: Mark Zandi with Moody`s (NYSE:MCO).
All righty. Housing is a critical part of the economy, as we all know.
And what we`ve just been talking about certainly plays a role in that. And
today, two new reports out showing a spring slowdown at this the very
busiest time of the year for real estate.
Diana Olick has more.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Demand for housing is
UNIDENTIFIED MALE: Just three bedrooms, right?
OLICK: Actual home sales are not. January sales of existing homes dropped
more than expected for the month and we`re down as surprising 5 percent
compared to a year ago, the biggest annual drop in three years. The
problem: another big drop in supply, down nearly 10 percent compared to
last year, and affordable supply is even lower.
Sales are dropping all on the lower end of the market, steepest for homes
priced under $100,000. And still down between $100,000 and $250,000.
Sales are actually gaining on the higher end, but more than half of the
market exists on the low end. That`s a problem, even more so because these
numbers represent January closings. That is deals made before mortgage
rates started to rise.
LAWRENCE YUN, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF REALTORS: The
mortgage rates are rising for good reasons of economic expansion and strong
job growth wages beginning to rise but anytime mortgage rate rise, it holds
back some buyers on the margin.
OLICK: Rates are now up more than half a percentage point since the
beginning of this year. Last week, mortgage applications to buy a home
fell for the second straight week and are barely higher than a year ago.
That means home sales could be lower in the next few months as well.
The realtors are begging for new construction but builders are not that
active on the low end because of sky-high construction costs. The realtors
are also now making a plea to investors who bought all those foreclosed
homes during the recession, asking them to sell.
YUN: The price appreciation has been very good, but the future rent growth
may not be as bright as what it had been so if the investors begin to
unload, there will be a welcoming trend for the housing market currently as
we need more inventory.
OLICK: That however is unlikely. Rents and rental occupancy are both
strong and investors have spent millions of dollars not just on homes but
on renovations and new management infrastructure. There`s no compelling
reason other than generosity to the rest of the housing market for them to
get out now.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
MATHISEN: And to read more about the fall and existing home sales and
housing affordability, head to our Website, you know it, NBR.com.
Well, the Supreme Court today limited protections for corporate
whistleblowers. The ruling states and whistleblowers are not shielded from
being fired under a federal law unless they have reported the potential
wrongdoing to the Securities and Exchange Commission. The decision narrows
the SEC`s interpretation of the 2010 financial overall known as Dodd-Frank.
The ruling was unanimous.
All right. Time now for some upgrades and downgrades in the market session
today. Regeneron downgraded to hold from buy at Canaccord. The firm cites
for Regeneron`s decision to no longer provide guidance for its macular
degeneration treatment and increased competition for an eczema drug. The
price target lowered to $356. Shares fell nearly 2 percent to $317.51.
Match Groups rating was downgraded to neutral from overweight at JPMorgan
(NYSE:JPM). The firm calls the stock fairly valued, sees few catalysts
ahead and the price target is unchanged at $42 a share. Shares fell
fractionally to just under $42 a share.
Palo Alto Networks (NASDAQ:PANW) upgraded to positive from neutral at
Susquehanna. The firm expects Palo Alto to report solid quarterlies later
this month. The price target lifted there to $195 a share. The stock rose
about 1 percent to $164.40.
And still ahead, would breaking up big tech be good for shareholders?
MATHISEN: China is set to overtake the U.S. as the biggest nuclear energy
nation. A new report puts China on track to more than triple its nuclear
energy capacity over the next 20 years. Now, China`s push into nuclear
power comes as that country puts an emphasis on clean energy. The U.S. has
been the global leader in nuclear power since the 1960s.
Well, Dish Network reports disappointing revenue and that is where we begin
tonight`s “Market Focus”. The satellite TV provider added more subscribers
in its online streaming service, but wasn`t enough to offset declines in
the company`s core satellite business. Profits improved largely because of
a billion dollar benefit tied to that new tax law. The stock off 3 percent
Advance Auto Parts (NYSE:AAP) reported better than expected quarterlies,
though revenue did slide. The company said it is working to grow its
market share and improve margins. That was enough for investors. They
sent the stock up 8 percent to $114 on the nose.
And the electric utility Southern (NYSE:SO) Company reported better than
expected earnings despite a drop in customer usage. The company said it
plans to pass along savings from the new tax law to its customers.
(BEGIN VIDEOI CLIP)
THOMAS FANNING, SOUTHERN COMPANY CHAIRMAN & CEO: We did benefit from a
lower tax rate. The net effect of that — now, I`m speaking very broadly,
every company`s going to be a wee bit different, but we will be able to
reduce rates we believe in about the 5 to 7 percent range, and do the
things necessary to restore our financial integrity, our credit metrics.
(END VIDEO CLIP)
MATHISEN: Southern (NYSE:SO) Company shares fell a percent to $42.92.
And an activist investor is urging Bloomin Brands to make changes that it
says could double the restaurant operator`s stock price. The hedge fund
Barrington Capital wants Bloomin to spin off its smaller brands into one
company and run Outback Steakhouse as a standalone business. Shares of
Bloomin rose 5 percent to $22.02.
Meantime, Broadcom (NASDAQ:BRCM) cut its offer to buy Qualcomm
(NASDAQ:QCOM) following Qualcomm`s move to raise its bid for NXP
Semiconductors (NASDAQ:NXPI). Broadcom`s revised $79 a share offered, down
from $82, was met with disdain. Qualcomm (NASDAQ:QCOM) said the new
proposal made an inadequate offer even worse. So, there.
A potential merger between Qualcomm (NASDAQ:QCOM) and Broadcom
(NASDAQ:BRCM) would represent the largest technology acquisition to date.
Broadcom (NASDAQ:BRCM) shares off fractionally, $248.62, Qualcomm
(NASDAQ:QCOM) down nearly a percent, $63.40.
And after the bell, the streaming service Roku issued disappointing revenue
guidance. That offset a surprise profit in the most recent quarter.
Shares initially plunged in the after-hours market but finished the regular
day down a tick to $51.10.
Amazon (NASDAQ:AMZN) has launched a line of consumer health products
challenging pharmacy retail chains. The products are produced by private
label manufacturer Perrigo (NASDAQ:PRGO) and include items ranging from
ibuprofen to hair regrowth treatments. The move by Amazon (NASDAQ:AMZN)
could spark a price war and pressure drug store profit margins. That is
why you see drugstore stocks lower today. And today, Amazon (NASDAQ:AMZN)
shares hit $1,500 for the first time ever. They closed just below that
Well, there`s a growing conversation now over big tech`s dominance and
whether industry titans have gotten just too big. In a “New York Times
(NYSE:NYT) Magazine” article called the case against Google (NASDAQ:GOOG),
critics say the search giant is squelching competition before it begins.
So, should the government step in?
The author is one of the country`s leading business journalists, Charles
Duhigg. He highlights how easy it is for Google (NASDAQ:GOOG) to weaken
another business. Mr. Duhigg is a Pulitzer Prize-winning writer for “The
New York Times (NYSE:NYT)”.
Charles, welcome. Good to have you back.
CHARLES DUHIGG, WRITER, THE NEW YORK TIMES: Thanks for having me.
MATHISEN: What is the main gripe that companies have against Google
(NASDAQ:GOOG) and why do they say that it is illegal not just not just
unfair but illegal what they`re doing?
DUHIGG: Well, what companies say is that Google (NASDAQ:GOOG) has become
so big that it`s essentially a gatekeeper right Google (NASDAQ:GOOG) is the
front door to the Internet at this point. And so if Google (NASDAQ:GOOG)
makes decisions that mean that your Website won`t show up and some of
Google`s decisions have negatively impacted whole categories of Websites
such as competing search engines, search engines that might look at a
specific type of product like airline tickets or finding good deals online,
if Google (NASDAQ:GOOG) decides that that kind of Website shouldn`t be
prioritized, if it doesn`t show up on the first or second or third or
fourth page of Google (NASDAQ:GOOG), then they essentially become invisible
impossible for anyone to find.
And in fact, European authorities have agreed that last year, the European
Commission ruled that Google (NASDAQ:GOOG) was an illegal — was using its
monopoly might, its dominant power, in illegal ways and fined the company
over $2 billion and ordered them that they — to change.
MATHISEN: What did your personal research show? What do you find when you
go in and use Google (NASDAQ:GOOG), do you get suspicious that they`re
burying things or what?
DUHIGG: Well, it`s definitely true that there`s some types of things that
you search for now where the results that come up from Google (NASDAQ:GOOG)
are not necessarily always in the users best interest, right? The Federal
Trade Commission has found this in the United States. European authorities
have found this.
And oftentimes what happens now at the top of a Google (NASDAQ:GOOG) page
is that it gives you results that are essentially ads. It`s not completely
clear I think to the common user that it`s an ad, it`ll say sponsored in a
little corner on the box at the top of the Google (NASDAQ:GOOG) page. But
what users should understand is that companies are buying the right to
appear on that page. It`s not necessarily the lowest price that you`re
going to find for a particular product, it`s a company that has paid for
the ability to be at the top of that page.
That`s also true of Amazon (NASDAQ:AMZN) and basically every other large
Website at this point.
MATHISEN: I`ve certainly seen that in my experience that when I go and
look for a hotel, often the first two or three are sponsored content and
then I get down into the lower ones.
Let`s talk about its dominance in search because that`s where it really is
the dominant player. But there are other search engines. There`s Bing.
There`s Yahoo (NASDAQ:YHOO). And there are other players as you say that
are more nichey. How have they been disadvantaged or is Google
(NASDAQ:GOOG) just the brand name here and better?
DUHIGG: Well, it`s a great question, right, because they this is the
argument that many of Google`s defenders as well as the company itself
makes, which is there are alternatives and one you didn`t mention is
DuckDuckGo, which is a website that promises not to look at any of your
information as you use it to search.
The thing I would ask anyone watching this is when`s the last time you went
to Bing or DuckDuckGo in order to conduct a search? We basically don`t,
right? And this is a characteristic of the Internet economy. There`s a
winner-take-all effect where Google (NASDAQ:GOOG) has become dominant
because it`s a great search engine.
DUHIGG: But then that raises this question, does that mean because it`s a
great search engine that it should live by certain special rules, rules
that don`t apply to anyone else but they give everyone a fair chance when
they go online?
MATHISEN: Well, it`s a — it`s a wonderful and a very complete article.
If you — if you get a chance to read it over the weekend, I certainly
Charles Duhigg`s work is always terrific. Thank you very much.
DUHIGG: Thanks for having me.
MATHISEN: You bet.
Coming up: why the White House is taking a new look at a one and a half
trillion dollar issue.
MATHISEN: AT&T (NYSE:T) has named the first cities that will get its fifth
generation wireless broadband. 5G will be rolled out initially in Atlanta,
Dallas, and Waco, Texas, with plans to install it in 12 cities by the end
of the year. 5G expected to be more reliable and offer internet speeds 10
to a hundred times faster than current 4G broadband technology.
And a new survey shows that Americans are planning to use their tax refunds
this year, either to pay down credit card debt or to add to their savings.
That`s different than in past years when most of them said they typically
go out and spend the money they get back from the government. Last year,
the IRS issued nearly 112 million refunds averaging about $2,900 apiece.
Well, the Trump administration is proposing new types of health care plans,
ones that would not meet some of the Affordable Care Act standards. The
Department of Health and Human Services said alternative plans would help
lower premiums. Critics caution though that these plans would be less
comprehensive and could deny coverage based on pre-existing conditions. It
could also draw healthy people away from the Affordable Care Act`s
The Trump administration has also signaled that it is open to a kind of
mileage tax. The White House today praised an experimental program in
Oregon as a way to find new revenue sources to help pay for the proposed
infrastructure program. In Oregon, volunteering motorists are charged a
fee of 1.7 cents for each mile they drive on state roads. In return,
drivers get rebates for state fuel taxes. As of the end of 2016, only 700
people we`re participating in the program.
And meantime, the White House is looking at a way to help student loan
borrowers get out from mountains of debt, but it does come with a catch.
As Scott Cohn reports from San Jose, the proposal would make it easier for
borrowers to erase their student debts through bankruptcy.
SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Step on to almost any
college campus like San Jose State here in California, and it`s hard to
find a student who isn`t here at least in part on borrowed money.
JENNIFER LE, SAN JOSE STATE UNIVERSITY: Yes, I have a lot of student
JEFFREY BALTAZAR, SAN JOSE STATE UNIVERSITY SENIOR: Kind of look at
$20,000 for all two years that I`m hoping to pay off eventually.
COHN: Student loan debt has gone no place but up, now approaching one and
a half trillion dollars, more than doubling in just the last decade. And
along with it, the level of defaults, eight and a half million borrowers in
default or more than one in ten student loans.
But beyond that, an entire generation of students like Jennifer Le facing
crushing debt just as they enter the economy.
LE: You know, you want to come out on a fresh start but you`re actually
holding all this weight of money that you feel like you`ve worked so hard
COHN: One of the things that make student loan to have such a drag on the
economy is that it`s so hard to get rid of. The interest rate is higher
than on most other loans and a 40-year-old federal law makes it next to
impossible to get relief even by declaring bankruptcy.
Activists have long been calling for a change in the law and now the Trump
administration is seeking public comment on at least changing the way it`s
enforced. An attorney who works with troubled borrowers says it`s a start
but not enough.
ADAM MINSKY, ATTORNEY: We`re seeing the programs that can provide the most
benefits to borrowers like defense to repayment, like income-driven
repayment, public service loan forgiveness — we`re seeing those programs
targeted for elimination.
COHN: The administration has taken aim at student aid in its proposed
budget, slashing Pell Grants for low-income students, ending federal work-
study programs and ending an Obama era crackdown on student loan servicers,
easing the bankruptcy restriction, risks leaving more students with a stain
on their finances just as they start their careers.
And there`s another risk, the more debt is wiped out, the greater the cost
to the taxpayers, which is why the bankruptcy rules were put in place to
For NIGHTLY BUSINESS REPORT, I`m Scott Cohn, in San Jose, California.
MATHISEN: All right. Before we go, let`s take another look at the day on
Wall Street. The Dow yo-yoed much of the day, finished down 167 at 24,797,
second straight day of losses there. Nasdaq off 16 and the S&P 500 fell
Well, that`ll do it for NIGHTLY BUSINESS REPORT for tonight. I`m Tyler
Mathisen. Thanks so much for being here. Have a great evening everybody
and we hope to see you right back here tomorrow night.
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