ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Fed speak. The Central Bank chair calls inflation pressures transitory, and investors wonder if an interest rate cut is now off the table.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Sell in May and go away. It`s an old adage on Wall Street, but are you better off ignoring it this year?
HERERA: Textbook merger. A merger creates a powerhouse in the world of higher education just as the entire industry undergoes massive shifts.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Wednesday, May 1st.
GRIFFETH: And we do bid you a good evening, everybody, and welcome.
It was a relatively quiet day on Wall Street today until Federal Reserve Chair Jerome Powell dashed any hopes of an interest rate cut. At least that`s how the market seems to have interpreted his comments on inflation during his news conference today. During their two-day meeting, Central Bank policymakers decided to keep rates unchanged and that was not a surprise, but speculation about the future treasury yields higher and stocks lower.
The Dow Industrials fell 162 points, about the low of the session, to 26,430. The Nasdaq was down 45 and the S&P was down 22.
In Washington, Steve Liesman has more on what the Fed said.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fed Chairman Jerome Powell tamped down expectations for a rate cut in his press conference Wednesday, saying the drop in core inflation which was food and energy and less of a concern than many believe because it was likely to be transitory.
JEROME POWELL, FEDERAL RESERVE CHAIRMAN: The committee would be concerned if the inflation were running consistently above and below 2 percent. We do see good reasons to think that some or all of the unexpected decrease may wind up being transient. If we did see a persistent — inflation running persistently below, then that is something the committee would be concerned about and something that we would take into account in setting policy.
LIESMAN: Powell pointed specifically to recent shortfalls in prices for financial services and for apparel, and he believes they`ll work their way out of the data in coming months causing inflation to firm. Core inflation has fallen however for three straight months, even with a strong growth, and stays at 1.6 percent year over year, moving further away from the Fed`s 2 percent target. The market has come to believe that declining inflation could be a reason for the Fed to cut rates in coming months.
But the immediate reaction to Powell`s comment was lower stock prices and higher bond yields as the market thought twice about whether the rate cut was coming.
The Fed`s policy statement made generally positive comments on the economy and the outlook, noted that the labor market remained strong and that economic activity is rising at a solid rate.
And Powell in his press conference said some of the risks that have kept the Fed on hold have eased.
POWELL: It appears the risks have moderated somewhat. Global financial conditions have eased. Recent data from China and Europe showed some improvement. And the prospect of a disorderly Brexit has been pushed off for now.
Further, there are reports of progress in the trade talks between the United States and China. The committee views these developments along with the outlook for continued growth, a strong job market and muted inflation pressures, as consistent with continued patience.
LIESMAN: But Powell also made clear that while a cut may not be in the card, neither is a hike. In the Fed`s new policy of patience, the market will have to wait until the data more clearly signals the right path for rates.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.
HERERA: It is the First of May and investors often start this month by asking whether they should take an old adage to heart and sell in May and go away.
Bob Pisani went in search of some answers.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sell in May and go away. You know, it`s that time of year again, but this year, you may not want to sell and get out, maybe not just yet.
The “best six months” strategy has become legendary on Wall Street. Sell in May and go away means investing in the Dow Jones Industrial Average between November 1st and April 30th and cashing out and switching into fixed income for the next six months. That has dramatically outperformed and just owning the Dow from May 1st to October 31st.
So, here`s an example. If you invested $10,000 in the Dow in 1950 from May 1st to October 31st, you`d end up with a little over $11,000 today. That`s a measly gain of a little over $1,000 in 69 years.
But if you invested the same $10,000 from November 1st to April 30th, you would have had a return of over $1 million, that`s according to the stock trader`s almanac. That`s huge, and, by the way, that`s the power of compounding interest.
So, why does the Dow do better between November and May than between May and November? Well, first, there are some clear seasonal trends in market trading. The slower trading activity in the summer, back to school, end of the third quarter portfolio window dressing that`s caused stocks to sell off, in September and sometimes October, which is why September and sometimes October typically bad months of the year.
When you move into November, company`s efforts in the fourth quarter to beef up their numbers can help drive their market higher as do holiday shopping and the influx of year-end bonus money.
The bottom line is this: sell in May does not necessarily mean May will be down or even that the next six-month period will be down. It doesn`t mean that. The point is most of the market`s gains occur November through April, and that the market tends to drift sideways and is more prone to selloffs in the May through October period.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: Let`s turn to Mike Bailey now for more sell in May and go away. He`s director of research at FBB Capital Partners.
Mike, thanks for joining us tonight.
MIKE BAILEY, FBB CAPITAL PARTNERS DIRECTOR OF RESEARCH: Great. Good to be back.
GRIFFETH: You don`t think it`s a good idea this year, why?
BAILEY: We don`t — we don`t for a couple of reasons. One is if you look at what`s happened in the past six months, it`s basically been an OK period. So, the Dow is up about 6 percent. That`s not that great.
You know, if we were to look back and if the Dow was up, you know, 15 percent, 20 percent, you might say, OK, now is a chance to take a breather. But we really think, you know, the next six months we could see the same type of upside and we do want to be invested.
And the second piece is sort of looking at the alternatives. So, fixed income, if you`re going to sell your stocks now, go to fixed income, you`re really not looking at a whole lot of returns. So, I think for us, we`d rather stick with equities the next six months.
HERERA: You also make the point that you don`t just have to get it right once. In other words, when you decide to get out and shift into another asset class, but you also have to get it right the second time when you decide to go back into stocks.
BAILEY: That`s right. So, it`s two different decisions. You have to be smart on selling now and you really have to be smart by getting back in November. So, it could be pretty difficult.
Now, we could get into the behavioral pieces, too. I mean, a lot of people can get concerned about procrastinating, buying back, or anchoring to the sale price now. There are a lot of concerns now.
In fact, another way of thinking of it could be twisting it around if you`re a buy and hold investor. And perhaps, you want to always remember to buy in November. It sounds a little silly but that`s another way to think about it.
If you`ve got some cash, you`ve been saving up, put it to work in November and kind of do the same thing every year. It`s a little bit easier. You only make one decision instead of two.
GRIFFETH: But you`re staying with the market right now. Which sectors do you think will do best over the next six months or so?
BAILEY: So, you know, in general, we`re sort of diversified across the board. We do think tech continues to rally, a lot of nice growth, and sort of companies that are growing over a number of years, we see that continuing. We see health care looking a little bit more interesting, so health care names are beaten up, we like the pharmaceutical names and life sciences names.
There are interesting companies out there. We`re not major over, under and any particular sector. But health care and tech are pretty interesting at this point.
HERERA: If you wanted to go into fixed income, what part of the yield curve would you favor?
BAILEY: We still like the front end. At this point, you`re really just not getting paid a whole lot to go out the curve. You know, if you want to lock up your money for five to ten years, that`s fine, but you`re really not getting a whole lot of returns.
So, at this point, we`re really just rolling over very short term, the six- month, one-year, possibly two-year bonds a little bit more than that, but I think at this point, that`s probably the best way to go. At some point you get a better yield curve and you can go out a few more years.
GRIFFETH: Very good. Mike Bailey with FBB Capital Partners, again, thanks for joining us tonight, Mike.
BAILEY: Thank you.
HERERA: Private sector job growth grew more than expected last month. According to ADP`s payroll report, employers hired 275,000 people in April, that topped the estimates which were 180,000. The increases were concentrated in the services sector. The report is often considered an early read on the most closely followed non-farm payroll report which would be issued by the Labor Department this Friday.
GRIFFETH: Meantime, manufacturing activity hit a two-year low last month as orders of new goods declined. The Institute for Supply Management blamed trade issues and global growth headwinds for that slowdown. And separately, construction spending unexpectedly fell 0.9 percent in March after three straight months of gains. That decline was due to both a drop in private and public construction projects.
HERERA: Some of the world`s major automakers reported their U.S. sales figures for April. Nissan and Subaru posted increases while Fiat Chrysler and Toyota (NYSE:TM) saw sales fall last month. The mixed picture comes as the average price of a new car according to Edmunds is expected to climb to more than $36,700, the highest level seen so far in 2019.
GRIFFETH: Time to take a look now at some of today`s “Upgrades and Downgrades”.
McDonald`s (NYSE:MCD) was downgraded today to neutral from buy at Longbow Research. That call was based mainly on the stocks valuation. It`s near an all-time high and the analyst noted that the company`s solid comp store sales growth. The stock was down more than 1.5 percent in today`s trade to $194.17.
Corning (NYSE:GLW) was upgraded to buy from neutral at Bank of America (NYSE:BAC) Merrill Lynch. The analyst cited the potential for growth given the company`s near-term investments. Price target: $40. The stock closed at $32.31, up about 1 percent.
And Take-Two was upgraded to outperform from market perform at Cowen. The analyst calls Take-Two the most attractive opportunity right now in the video game sector. Price target $113. That stock rose 2 percent today to $99.05.
HERERA: Coming up, high school seniors are saying yes to colleges and parents are saying yes to taking on more debt. Some things to think about before signing on that dotted line.
HERERA: CVS (NYSE:CVS) issues a healthy outlook and that`s where we begin tonight`s “Market Focus”.
The company easily surpassed earnings and revenue estimates, thanks to growth in the Aetna (NYSE:AET) health insurance business. CVS (NYSE:CVS) said its pharmacies filled more expensive drugs and its new health hubs centers in Houston attracted more customers than expected. The stock was up nearly 5.5 percent to $57.33.
Humana (NYSE:HUM) also topped revenue and earnings expectations, thanks in part to higher premiums. But the company warned that its 2020 earnings could take a billion dollar hit from an industry-wide fee and a proposal to overhaul rebates. The CEO also said he would not back any legislation that would make private health coverage illegal. That`s referring to the Medicare-for-All proposals being discussed on Capitol Hill. Shares fell more than 3.5 percent to $246.16.
Sales in Asia helped Estee Lauder lift its full-year guidance for the second time this year. The cosmetics maker reported better than expected earnings on strong demand for its luxury skincare brands. But the stock was down a fraction to $170.30.
GRIFFETH: Shares of cruise line Royal Caribbean is making waves after posting strong, quarterly results. That company reported an increase in both passenger ticket sales and onboard revenue. Following those results, the stock soared by nearly 7 percent to $129.03.
Online ticketing company Eventbrite fell sharply in after-hours trading tonight after reporting a wider than expected loss. It also warned that second-quarter results could come in below current analyst expectations, and that sent the stock sharply lower in extended hours tonight. It closed the regular session at $24.15.
Also after the bell tonight, Qualcomm (NASDAQ:QCOM) reported better than expected earnings and revenue, but the CEO told CNBC that weakness in China affected their guidance. The company also disclosed it`s going receive about $4.5 billion from Apple (NASDAQ:AAPL) as part of the recent legal settlement between those two companies. The stock was volatile in initial after-hours trading tonight.
HERERA: Some are calling it a win for Wynn. Massachusetts regulators will allow the casino company to keep its gaming license in that state, but it will have to pay a multimillion fine in the wake of a #MeToo scandal that embroiled the company in a year-long investigation and endangered big casino plans for Boston.
Contessa Brewer has the details.
CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The decision to allow Wynn Resorts (NASDAQ:WYNN) to keep its Massachusetts license clears the path for the opening of Encore Boston Harbor. The integrated casino resort is scheduled to open in June in Everett. It wasn`t a sure bet.
In the 15 months since “The Wall Street Journal” first published a list of allegations against the founder of Wynn Resorts (NASDAQ:WYNN), its chairman and CEO Steve Wynn, the company was scrutinized by investigators from Nevada and Massachusetts.
UNIDENTIFIED FEMALE: You were making excuses for high-level folks that had failed to do their job.
BREWER: Those investigations concluded company executives repeatedly, over years, failed to protect employees and failed to apply their own policies to Steve Wynn after serious accusations of rape, harassment and other sexual misconduct, charges he`s denied.
And the company, its board and executives never informed gaming regulators when they learned of the allegations and settlements. The company was assessed a $20 million fine in Nevada and a $35 million fine in Massachusetts. But the Massachusetts gaming commission determined there is no substantial evidence that Wynn Resorts (NASDAQ:WYNN) willfully provided false or misleading information to the commission.
Executives and directors were also found suitable to hold the gaming license, including the only two remaining individuals from the original license application in 2013. Elaine Wynn, the company`s largest shareholder and co-founder and ex-wife of Steve, and CEO Matt Maddox.
But the commission fined Maddox $500,000 for his own failures to investigate allegations properly and ordered him to have executive coaching for leadership, an embarrassing reprimand for the CEO of a global company, but Maddox was also given credit for significant changes made by Wynn Resorts (NASDAQ:WYNN) in the scandal`s wake — new board member, new policies and a new culture.
MATT MADDOX, WYNN RESORTS CEO: This company`s never going to be about a person again.
BREWER: Gaming analysts are generally upbeat about the decision. They call it an optimal outcome and say it allows Wynn to focus on the future on a global scale. That`s especially important as Wynn Resorts (NASDAQ:WYNN) competes to land a gaming license in Japan.
But for now, the focus will be on launching its gleaming new property on the shores of Boston Harbor.
Contessa Brewer, NIGHTLY BUSINESS REPORT.
GRIFFETH: In other news, two textbook giant announced this morning that they plan to merge. Now, we have this deal that`s approved by regulators, the combination of McGraw-Hill Education and Cengage Learning Holdings will produce the second biggest publisher of textbooks and higher education materials in the United States with annual revenue of more than $3 billion.
We have the two CEOs of both companies with us tonight. Nana Banerjee is the CEO of McGraw-Hill, and Michael Hansen of Cengage, who will become the CEO of a combined company that will be called McGraw-Hill.
Welcome to both of you. Thanks for joining us tonight.
So, why merge now? And I`m curious. Who called who?
NANA BANERJEE, MCGRAW-HILL PRESIDENT & CEO: I can start if that`s acceptable.
BANERJEE: I had the chance to meet with Michael, I would say in July or August last night at a conference. We were introduced by a mutual friend and the conversation quickly led to a situation where we understood that we were looking at a common vision of what we understood of our industry, that what plagues our industry as challenges and also a vision of what would be an exciting future for us to update to. That led to more conversations and making a recommendation to our financial sponsors.
GRIFFETH: And I guess you feel doing it together you can do it more cheaply then, is that the idea?
BANERJEE: For sure. There is a basis for if you have a common core and a common backbone, you can then allow yourself to reinvest in the business that is really has been deprived of growth. So, the point is you have to find yourself an opportunity to invest in growth.
GRIFFETH: The idea I guess is to bring the cost of textbooks down. I mean, that`s a big cost for college students. How are you going to do that?
MICHAEL HANSEN, CENGAGE CEO: Absolutely. This doesn`t stop with the merger and we have started this do this way before the merger and, you know, education costs are a real barrier for students today and textbooks are a part of that.
HANSEN: So we started to introduce at Cengage, which is a subscription model that for one fixed price, instead of buying multiple textbooks, you get access to all of the textbooks and you get it online and you get it in a very affordable way.
GRIFFETH: How much is that?
HANSEN: That`s $120 a semester and that compares — or $180 a year. That compares to the average student spending around $500 today. So, it`s a significant savings for the student.
So, affordability is absolutely key to what we do and between the two companies we can continue to do this and drive even more value.
GRIFFETH: Is anyone else doing this model? I mean, Pearson is the number one textbook publisher. You guys will be the number two combined. But is anybody else using the subscription model right now?
BANERJEE: You know, there are varieties that fit. So, the McGraw-Hill is kind of the status quo and something we plan to preserve because optionality and choice is very important to us. The inclusive access model is different from what Michael described, is making the course, especially the digital platform course available to students on the first day of class, making it easier for them to buy at the point of registration at 50 percent to 80 percent lower cost than they would have bought — if they were buying from the bookstore.
GRIFFETH: College costs too much. We know that. How are we going bring the costs down?
There is no real competition as we know it. You know, students don`t shop for college the way they would shop for clothing. Colleges don`t price the way a clothing manufacturer would price, to try and lure somebody in.
So, how do you bring those costs down, do you think?
HANSEN: Well, I think, Bill, you`re hitting on the key point which is transparency and competition, right? And we have experienced this in the college textbook market. We have a lot of competition out there. There are rental companies and Amazon (NASDAQ:AMZN) is in this market, renting textbooks. There are companies that sell used textbooks, et cetera.
So we have seen the competition and the competition has frankly, led us to sharpen our pencils, to really focus on the student, the student experience and on affordability. And I think, broader, to your point, broader, every player in the system, whether it`s college, an online college or any supplier in the system needs to be held accountable to the value that they`re really having. And we are all for it, but we`re also starting at home as opposed to pointing to other people that should be doing a better job.
GRIFFETH: What do you think, there`s a drop-off in enrollment to bring cost down eventually or not?
BANERJEE: No, we hope no. Education has a very important societal role. And I do agree with the point that you made, that it has become very expensive. We as publishers of content, that is digital or print, have a role to play. We`re completely committed to that.
And in fact, one of the drivers, what we could call the mission of this merger is affordability, and we have multiple ways of doing it, choice is an important factor and bringing down the cost of production and passing it back to the student.
GRIFFETH: Well, we wish you well with the merger and hopefully it gets regulatory approval at the same time.
Nana Banerjee from McGraw-Hill, Michael Hansen from Cengage Learning, thanks for joining us.
BANERJEE: Thank you for having us.
HERERA: Bill, as we continue on education, today is the deadline for high school seniors to pick their college for next year, but they`re not just saying yes to a school, but also to a financial aid package. Students aren`t the only ones taking out the loans to cover that cost. Their parents are, as well.
So, we brought back our senior personal finance correspondent Sharon Epperson. She joins us with more on this.
It`s great to have you here. I am all ears and I am taking notes. How big of an issue is this and how much are parents having to borrow to help their kids?
SHARON EPPERSON, NIGHTLY BUSINESS REPORT SENIOR PERSONAL FINANCE CORRESPONDENT: You know, we talked about the student debt crisis and the fact that $1.5 billion is the amount of money that`s owed to student debt and 45 million borrowers, a lot of those borrowers are parents, not only students. When we look at the more popular parent loans, the Federal Parent Plus Loans, we have about 3.4 million borrowers, $87 billion that they have borrowed, $87 million, I should say, that they have borrowed. So, it`s a significant amount.
And what`s changed is the amount that they`re borrowing continues to increase and they are able to borrow more. So, while the federal student loan for undergraduates is about $6,500 in the 2017 average loan amount, it was over $16,000 for parents who are borrowing. Not as many are borrowing, but the numbers who are borrowing are borrowing much larger amount.
HERERA: So, how do these parents` plus loans differ from what we might think of as the traditional student loan?
EPPERSON: Well, the traditional student loan, of course, for the undergraduate, the most important part is the rates are a lot lower, the rates for student loans, subsidized or unsubsidized, is about 5 percent. For a parent plus loan, it`s 7.6 percent, add to that the origination fee of nearly 4-1/4 percent, and you`re talking about a $20,000 loan becomes a loan of more than $22,000 that you`re going to end up paying over a long period of time.
HERERA: You also dug up some other options that parents have. Tell us about that.
EPPERSON: You talked about this before as well. Don`t forget to contact the financial aid office. You`ve already accepted the offer, but you may want to call and say, let me just appeal this and let you know a few more things about my child, merit based or need based, or just maybe the school doesn`t have the enrolment numbers, has more money to give you. So, that`s the first call.
The next thing you need to do is look at the federal loans versus the private loans. We talked about the difference in the student loan amount in terms of the rate. Private loans may get you a lower rate depending on your credit. And final thing that everyone should do, whether you`re a student or a parent is start paying back that loan while you`re in school.
EPPERSON: Because, one, you won`t have the compounded interest on the debt, but also if you were paying on the student instead of taking out a loan, help the student max out their loans and help them pay back those loans so then they`re building their credit paying off that loan while they`re in school.
HERERA: That is a great nugget of advice.
HERERA: Sharon, thank you so much. Sharon Epperson.
GRIFFETH: And coming up, you want to shoot a basketball like an all-star. Guess what? There`s an app for that.
GRIFFETH: OK, all you basketball fans, if you ever wanted to shoot a ball like a pro, well, now you can with an app. Eric Chemi went to Brooklyn to try it out.
ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s game changing technology that`s turning amateur basketball players into the next sharpshooter. HomeCourt is an app that uses high-tech computer vision and machine learning to improve shooting.
VOICE: Forty-nine degrees.
CHEMI: Available in a free and subscription model, the app tracks shots made and missed, launch angle, leg angle, vertical and reaction time using just an iPhone. No sensors, no high-tech equipment necessary.
ALEX WU, HOMECOURT CO-FOUNDER: Today, you run, you`re using your Apple (NASDAQ:AAPL) Watch or Nike (NYSE:NKE) Run app or you can track all those miles and stuff. For basketball that doesn`t exist. So, the first problem you wanted to solve for is how do we help people easily track their shots without strong do a lot of the manual work?
CHEMI: HomeCourt is a top ten downloaded sports app in the Apple (NASDAQ:AAPL) Store and it has more than a dozen college and pro team using it, including Joe Harris (NYSE:HRS) of the Brooklyn Nets who this year led the NBA in three-point shooting and won the three-point shootout.
OK. I feel good and I did play center on my sixth grade basketball team. So —
Joe and I went head to head to test it out.
That`s pretty good.
Joe`s arc is flatter than my big arcs and his reaction time is much quicker than mine.
WU: So, you`re 420, 20 percent.
CHEMI: Oh, I didn`t stand in the right spot the whole time.
Also notice how consistent Joe`s shots are. The shots are tracked the same and mine were all over the place.
JOE HARRIS, BROOKLYN NETS: We`re in the age of analytics and technology, any time you can put that to us is to help you out to improve and get better, I`m all for it.
CHEMI: Joe plans to use HomeCourt in his youth basketball camp this summer.
As for me, I need a lot more practice. HomeCourt is backing from leading NBA minds like Steve Nash, Jeremy Lin, Sam Henkie and Mark Cuban.
For NIGHTLY BUSINESS REPORT, I`m Eric Chemi in Brooklyn, New York.
HERERA: Very cool.
Here`s a look at the final numbers from Wall Street. The Dow fell 162 points, the Nasdaq was down 45, S&P 500 slid 22.
And that is NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening, everybody. We`ll see you tomorrow.
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