ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Slide snapped. Stocks rise after a deep rout, living some investors to wonder if the market is due for a bounce.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Housing hope. Mortgage rates fall below 4 percent for the first time since last year. But is it enough to spark a revival in real estate.
HERERA: Walk in the park. But will the force be with Disney`s billion dollar investment?
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, May 30th.
GRIFFETH: And we do bid you a good evening, everybody, and welcome.
A relative calm fell over Wall Street today after several volatile sessions. Bond yields stabilized following a recent decline sparked by fears of global growth slowdown. But those concerns while still there took a backseat today at least during the trading session. The result was very modest gains for the major averages, the Dow Industrials rose just 43 points for 25,169, the Nasdaq was up 20, the S&P added five.
Now while these gains were small, some investors are wondering if they are poised to turn into bigger ones?
Mike Santoli starts us off tonight.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: After a messy may market pullback, a more than 5 percent, investors are now watching for signs of relief in the form of a bounce and the beleaguered stock indexes. The makings of such a bounce are starting to appear along the technical sentiment and seasonal front. The market has begun flashing signals that it is, quote, oversold, which simply means the indexes and the vast majority of individual stocks have fallen far below their recent trend and appears somewhat stretched to the downside. Though not the severe extremes of December when the S&P 500 sank 20 percent over three months, the current readings are in the range of where balances have tended to occur.
The actions in treasury bonds have been crucial to equities as well, but the latest rushed lower to a 10-year treasury yield of a 20-month low, beneath 2.3 percent, raising fears about a global growth and inflation outlooks, sapping enthusiasm for stocks. In the same way that stocks have appeared oversold, treasuries are looking overbought, suggesting any backup in yields would offer some relief to equities.
On the sentiment front, surveys of both individual and professional investors also show increasing pessimism, another ingredient for the reflex bounce in those indexes. On the seasonal side, stocks have a very strong four-month gain to start the year, with the S&P 500 peaking on April 30th and in such years, May has been often been weak as this one has, but in the five years when the S&P gained at least 8 percent through April and then pulled back in May as we have this year, June was up seven of those times and the average return of a month was less than 2 percent.
Now, none of this suggests the headwinds that halted the rally a month ago are about to calm down. The remains of trade stalemate with China, global growth appears fragile and the corporate earnings forecast continue to slip for the coming quarters. And back in December, the market simply ignored many similar indicators that are now evident today of a coming bounce, and they kept falling into a scary selling crescendo on Christmas Eve.
Still, the rhythms of the market often allow for a short-term relief in the form of a bounce, even in a heavily stress tape, whether that leads to a full recovery or just a temporary reprieve.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
HERERA: Corporations bought a record $1 trillion of their own shares last year and buybacks have been a driver of the bull market for the past decade, with both stocks and buybacks trending higher. But a new report from Net Davis Research says buybacks have been slowing down. In fact, some companies have been selling their shares.
So, what does that mean for the broader market?
Joining us tonight is Eric Marshall, portfolio manager at the Hodges Funds.
Nice to have you here, Eric. Welcome.
ERIC MARSHALL, HODGES FUNDS PORTFOLIO MANAGER: Thanks. Good to be here.
HERERA: You have a few reasons why you think this is going on, but uncertainty is one of the main reasons. What type of uncertainty?
MARSHALL: Well, I think as companies become more uncertain about the economy and interest rates, what`s going on with global trade, they`re more likely to take their cash flow and use it to pay down debt or stockpile it because they don`t know what the certainty of that cash flow is going to look like in the future. When they`re more certain, they`re more likely to return it to shareholders in the form of dividends or buyback programs or re-invest in the business.
GRIFFETH: Now, as we showed, there`s been a correlation for the last decade of the buybacks increasing and the market going up at the same time. If this slowdown continues of buybacks, what do you think happens to the stock market?
MARSHALL: Well, I think that buybacks have really provided an incremental buying of stocks at a time when there are fewer and fewer fundamental value investors out there because more and more money is going into passive ETFs. So, in the event that they slow down, it would be a negative. However, I think what we`ve seen in the last couple of months has been a slowdown, but I wouldn`t be too worried about it unless it really continues for an extended period of time. I think last year buybacks were up about 50 percent.
MARSHALL: From the previous year. It`s probably not going to increase 50 percent this year, but we could buy back as much as we did in 2018, and it`s still relatively early in the year.
HERERA: All right. On that note, Eric Marshall with the Hodges Funds, thanks so much.
MARSHALL: Thank you.
GRIFFETH: It turns out the economy grew slightly more than expected to start the year. According to the Commerce Department, gross domestic product which is the broadest measure of economic activity, that rose by 3.1 percent in the first quarter, alleviating some concerns of a potential recession. But the Fed`s vice chair said today that if the growth outlook weakens, the central bank would consider an interest rate cut.
Richard Clarida added that the economy is in a good place and that the level of interest rates is appropriate.
HERERA: Most economists agree that a prolonged trade war between the U.S. and China is a risk to economic growth, but today, President Trump said China wants to make a deal.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: The tariffs are having a devastating effect on China. People are fleeing the country with their companies. These companies are leaving for Vietnam, other parts of Asia, and they`re even coming to the United States because then there are no tariffs. I think we`re doing very well with China. We`ll see what happens.
(END VIDEO CLIP)
HERERA: Those comments follow reports that China has halted purchases of American soybeans. Earlier this year, the agricultural secretary said China pledged to buy an additional 10 million tons of the crop.
GRIFFETH: And a new front has opened in the trade war, rare earth minerals. China has now threatened to restrict them which could have big implications for corporate America and for our national security.
So, what are these minerals and why are they so important?
GRIFFETH: Rare earth minerals power most electronic devices. They`re used in smartphone, computer, flat screen TVs, even hybrid cars, but they`re also important to our national defense. They`re in military equipment, satellites, jet engines and radar and sonar systems.
Despite the name, rare earth minerals are actually quite common, even here in the United States, but the mining process is not environmentally- friendly. Stringent environmental regulations forced the closure of rare earth mines here in the U.S., which is why China now accounts for roughly 90 percent of the global supply and that is its most powerful bargaining chip in this trade war.
The only U.S. mine is in Mountain Pass, California, but the mineral`s mine there must still be refined and right now, the only refineries in the world are in, you guessed it, China. And starting June 1st, the mine shipments to China for refining will be hit with a 25 percent tariff which will mean higher costs for U.S. companies and higher prices for their customers.
GRIFFETH: By the way, that mine in California is building its own refining operation, and hopes to have it in operation by next year which would sharply reduce its dependence on China.
And there is a new development this evening in another trade story tonight. The White House is taking a formal step to kick-start the approval of the USMCA, setting up for a vote over the summer.
HERERA: And now to housing and another disappointing read on the spring market, but there could be some unexpected hope.
Diana Olick explains.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Potential homebuyers out shopping in April should have had a lot of incentive to sign deals. Low mortgage rates and cooling prices, but they didn`t. Signed contracts to buy existing homes fell unexpectedly compared to March and were lower than April of last year. That`s the 16th straight month of annual declines.
While they were shopping, the average rate on the 30-year fixed was relatively unchanged, in the low 4 percent range, down from over 5 percent last fall. Home prices were still higher than a year ago, but the gains were smaller. Both are a double-edged sword.
DOUG DUNCAN, FANNIE MAE CHIEF ECONOMIST: House prices have been slowing so they don`t want to step in if they think there might be an outright decline. They don`t want to catch a falling knife, so to speak, but if they think rates are going to be down for a while, they may say, well, I`m just going to wait until a house that actually fits my profile is available because rates don`t seem to be going anywhere.
OLICK: Rates actually went even lower in May and this week fell to the lowest level in a year and a half, 3.99 percent, according to Freddie Mac.
The trouble is there are too few lower priced homes for sale. Supply is plentiful on the high end and tight on the low end.
DUNCAN: Even if you can get credit on a low interest rate, if you can`t find a house that fits your financial profile, there`s not much you can do.
OLICK: Even a move up market is tight as more baby boomers age in place and don`t put their homes up for sale, and high end homes are now sitting on the market longer, as sellers come to grips with the new realities that is new expectations for prices.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
HERERA: And later in the program, with mortgage rates below 4 percent, are rates on other loans falling, as well? And is now a good time to borrow? We`ll explore that just ahead.
GRIFFETH: In the meantime, time to take a look at some of today`s “Upgrades and Downgrades”.
Verizon (NYSE:VZ) was downgraded today to neutral from buy at UBS. The analyst says that he`s skeptical of the new 5G technology will lift that stock in the near term given the rather slow rollout. Price target: $59. The stock fell 2 percent today to $56.83.
Teva was downgraded from underperform to buy from Bank of America (NYSE:BAC) Merrill Lynch. The analyst there cited the generic drugmaker`s exposure to all of the opioid litigation currently under way. The price target $9, and shares finished just under that level at $8.84.
HERERA: Citigroup (NYSE:C) was upgraded to buy from neutral at Goldman Sachs (NYSE:GS). The analyst says city can grow revenues and increase returns without interest rate hikes. The price target is $77, but the stock fell a fraction to $63.61.
Comcast (NASDAQ:CMCSA) (NYSE:CCS) was upgraded to buy from neutral at Guggenheim. The analyst says broadband subscriber gains will help margins improve. The price target is $52. The stock fell a fraction to $49.47. As you probably know, Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of CNBC which produces this program.
GRIFFETH: Still ahead, are you covered? As hurricane season approaches, insurance rates are climbing.
HERERA: Uber lost more than a billion dollars in its first report since going public, but that lost was right in line with expectations, underscoring the challenges the ride-hailing company faces to one day turn a profit. The good news: revenues rose 20 percent. The stock was volatile in after-hours trading.
Deirdre Bosa has more on Uber`s results.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Uber is so far from being profitable. The company continues to lose money as it spends big to battle competitors around the world in both ride-sharing and food delivery. It lost a billion dollars in the first three months of the year.
Now, this call also marks CEO Dara Khosrowshahi`s first analyst call with shares still trading below their initial public offering price. He has to reassure investors of Uber`s long-term vision and its path to profitability.
Uber`s cash burn is unlikely to end any time soon. CFO Nelson Chai says that Uber will not hesitate to defend its market position. But on the bright side, he has noticed less aggressive pricing by competitors.
For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa, San Francisco.
GRIFFETH: United Airlines CEO today stressed that the Boeing (NYSE:BA) 737 MAX plane will be put back into the air when it`s safe to do so, and that`s — there`s no exact timetable either.
(BEGIN VIDEO CLIP)
OSCAR MUNOZ, UNITED AIRLINES CEO: We from an operational perspective staying a couple of months out. So, we pushed it to August — August 4th I believe specifically. So, we`ll continue to monitor, see what the process goes through and when we think it`s safe to fly, we will be incredibly communicative to our customers and transparent when the flight comes back and those aircraft, I think you`ve heard I pledge to be on the first one. It`s just one of many things that we`ll make sure that we reassure our customers that it`s safe to fly.
(END VIDEO CLIP)
GRIFFETH: And United Airlines has said it will not charge passengers for switching flights if they`re willing to fly on that 737 MAX jet.
HERERA: Hurricane season officially kicks off this weekend and given the pickup in wild weather across the country, businesses and residents who are looking for insurance may have to brace for some tough news.
Contessa Brewer reports.
CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: A massive tornado swept through Linwood, Kansas, this week.
SHARON LESEMAN, RESIDENT: We heard there was a deck out there and the deck went and you could hear the bricks falling.
BREWER: It`s one of more than 1,000 tornados to hit the nation this year according to the national weather service. 30 percent more than a typical spring.
RICK ATTEBERY, RESIDENT: We contacted the insurance companies this morning. You know, they`re overwhelmed and we`re at their mercy right now before we can do too much.
BREWER: Big insurers, State Farm, Chubb (NYSE:CB), Progressive (NYSE:PGR), AIG, MetLife (NYSE:MET) and others all have exposure to the catastrophe losses from this spring`s severe weather. Late-season snowstorms and massive snowmelts, hail, wind, and the flooding.
So much water across farm fields and historic towns, flooding even closed locks on the Mississippi River and shut them to commercial barge traffic. And now, the start of hurricane season.
The National Oceanic and Atmospheric Association or NOAA, predicts as many as 15 named storms this year, two to four of which could be major hurricanes. If the forecasts are accurate, that would be a near-normal season. The Insurance Information Institute says homeowners who live in areas that have been hit by hurricanes in the last couple of years are likely to see their insurance rates go up, and specialty wind storm insurance rates are rising by 10 percent to 20 percent according to industry experts.
Businesses and homeowners who don`t already have insurance may find themselves in a tough spot. The National Flood Insurance Program is scheduled to expire tomorrow. A disaster bill continues to have language to extend it and that bill has been stuck in Congress. Regardless, trade group American Property Casual Insurance says it`s crucial, Congress tackle long-term re-authorization, rather than face frequent lapses.
CEO David Sampson says thousands of living in flood zone properties are at risk for either not being able to buy or sell a home. Thousands more will be prevented for purchasing or renewing flood insurance through the National Flood Insurance Program.
All of that makes a challenge protecting what for most Americans are their most valuable asset, their homes, very difficult, right before hurricane season starts Saturday.
For NIGHTLY BUSINESS REPORT, I`m Contessa Brewer.
HERERA: And late word tonight, the House just passed a two-week extension of the National Flood Insurance Program, but Republicans blocked the vote on a disaster aid bill which would provide a longer extension.
GRIFFETH: More folks are shopping at Dollar General (NYSE:DG) and that`s where we begin tonight`s “Market Focus”, with the discount retail chain reporting earnings and revenue that surpassed analyst expectations. The company said customers spent more on groceries, on seasonal products and home goods. The stock today rose more than 7 percent to $127 even. That is a new all-time high.
Another discount retail store, Dollar Tree (NASDAQ:DLTR), reported better than expected revenue. The company is also testing an expanded pricing strategy that includes selling products that cost more than $1. But tariffs are clouding the company`s outlook. Dollar Tree (NASDAQ:DLTR) cut its earnings forecast for the year and shares were up more than 3 percent today to $98.31.
Gannett (NYSE:GCI) is reportedly in merger talks with Gatehouse Media. According to “The Wall Street Journal,” the tie up would help both companies trim costs and bring together the two largest newspaper groups in the country. Shares of Gannett (NYSE:GCI) were up more than 1.5 percent to $7.75.
HERERA: FedEx (NYSE:FDX) will now deliver packages seven days a week starting next year. The company`s president says he believes that this will help the company serve the fast-growing e-commerce market.
(BEGIN VIDEO CLIP)
RAJ SUBRAMANIAM, FEDEX PRESIDENT: Customers are increasingly ordering online seven days a week and our online e-commerce merchants are demanding a seven-day service. So, we are now leveraging our existing infrastructure to now turn on this new service starting in January. Now, combine that with the fact that we are improving our delivery density by bringing in more packages in-house.
(END VIDEO CLIP)
HERERA: The stock fell nearly 1 percent to $158.01.
Occidental Petroleum (NYSE:OXY) is being sued by billionaire investor Carl Icahn. Icahn alleges that Occidental paid too much money for Anadarko petroleum and calls the $38 billion deal, quote, fundamentally misguided. Icahn may call a special shareholders meeting to remove and replace directors. Shares today were down a fraction to $51.91.
After the bell, Costco (NASDAQ:COST) reported better than expected earnings and revenue. The wholesale store saw a growth in its online business and rise in membership fees. The stock was volatile in after-hours trading. It closed the regular session up a fraction to $241.54.
Also after the bell, the Gap (NYSE:GPS) cut its full-year earnings forecast and reported weak same-store sales. Sales at Gap`s namesake stores fell 10 percent in the quarter and even Old Navy which had been a bright spot posted a surprise drop in same-store sales. The stocks fell sharply in after-hours trading. It closed the regular session down 1 percent to $20.60.
GRIFFETH: As we have been reporting, the yield on the 10-year Treasury note has fallen to levels we have not seen since September of 2017. Now, that means lower mortgage and auto loan rates and a renewed interest in personal loans.
Joining us to talk about all of that tonight is Greg McBride, chief financial analyst at Bankrate.
Greg, good to see you. And thanks for joining us tonight.
GREG MCBRIDE, CHIEF FINANCIAL ANALYST, BANKRATE: Thanks for having me, Bill.
GRIFFETH: Personal loans, they`ve become more popular in part because of the lower rates, but also tax changes have made them more attractive as well, right?
MCBRIDE: Yes, on a relative basis. You know, the tax law really changed the deductability of interest on home equity loans and so, people that are looking at, you know, having to put a new roof on, they need $10,000, $20,000, $30,000 and they need it quick. Personal loans have become an attractive way to do that because you can apply online and have the money deposited in your account within 48 hours, that the people with good credit, they`re finding rates that are comparable to what they would otherwise get on a home equity loan and without the appraisal waiting 30 days and have your closing and then a three-day rescission period before the funds are disbursed. On relative basis, the personal loans really stand out.
HERERA: But this is a low interest rate environment. What if that starts to change?
MCBRIDE: Yes, I think the real risk here, Sue, is that, you know, when the economy slows, we are going to see delinquencies and defaults really surging on unsecured debt, credit cards and personal loans, particularly those that were made to consumers with marginal or weak credit. You know, for now, there`s a lot of competition among lenders primarily for the consumer who has really strong credits. Those are the borrowers that can get rates in the mid and single digits. For borrowers that are riskier, we`re already seeing lenders pull back a little bit.
GRIFFETH: Who are the lenders? I mean, if I want to get a home equity loan, I go back to the mortgage company. Where do I get the personal loan? Do you go to a bank or where do I go?
MCBRIDE: You know, this is a product that banks have long offered, but they really didn`t focus on. You know, some banks that even own finance companies long ago shuttered those. And so, what we`re seeing is a lot of what you might call fintechs that have come into the space, you know, people like SoFi and Avant, you know, entities like that they`re not necessarily banks, but with the advent of technology, they`ve developed a way to get money in people`s hands very quickly and very easily.
HERERA: And these are generally shorter term loans than, say, a typical home equity, correct?
MCBRIDE: Yes. A lot of this is going to depend on now much you borrow. But, you know, generally, these are three to five year loans, maybe a little bit more if you`re borrowing more money. But that`s also why we`re not seeing the rate comes down like we are, say, with mortgage rates over the last few weeks, the long-term rates plunging. That`s brought mortgage rates down to the lowest levels since 2017, not the case with the personal loans because they`re more closely tied to short-term rates.
GRIFFETH: Greg McBride with Bankrate — again, thanks for joining us tonight, Greg.
MCBRIDE: Thanks for having me.
HERERA: Coming up, will the force be with Disney (NYSE:DIS) and its big theme park investment?
GRIFFETH: Disney (NYSE:DIS), of course, has long dominated the theme park business and now the company is expanding its footprint with Star Wars- themed attractions in California, representing the largest single expansion in that park`s history. But it comes at a time of increasing competition.
Julia Boorstin takes us to a land not so far away in Anaheim.
UNIDENTIFIED MALE: Let`s see some identification.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Star Wars: Galaxy`s Edge is Disney`s $1 billion 14-acre theme land, expanding its California park. It opens to the public Friday with another similar land opening in Orlando at the end of August.
BOB IGER, DISNEY CHAIRMAN & CEO: Star Wars is an immensely popular party and giving people who visited our parks, who have thought about visiting our parks a chance to immerse themselves in Star Wars on a grand scale, in a much richer, deeper way is a big deal, and I think it will be extremely positive for the division of the company, and for Star Wars, too. I think it will lift the entire franchise of Star Wars.
BOORSTIN: Technology is incorporated throughout the land, including the ability for visitors to program droids around the park on a smartphone, with an app that unlocks extra content, and a mobile game you can play throughout the space.
This is the main hold of the Millennium Falcon. It`s the centerpiece of the main attraction here at Star Wars: Galaxy Edge, a ride called Smuggler`s Run, and even this space here is entirely high tech and interactive, so there will be special effects like this one — inspiring visitors to come and play along.
Disney (NYSE:DIS) raising prices ahead of the debut of this new expansion. Parks chief Bob Chapeck saying they haven`t seen anything negative impact on attendance.
BOB CHAPECK, DISNEY PARKS CHAIRMAN: Bookings are very, very strong. We are trying to manage our demand, if you will. We are in a fortunate position that we probably have a lot more demand than we have supply, even in a brand new land which is expected to be to capacity.
BOORSTIN: This is just one of a range of new attractions based on established franchises opening this year at other parks, Lego Movie World open in Florida in March, Nickelodeon Universe is opening in New Jersey in the fall, and Lionsgate Entertainment World is set to launch this summer in China.
Perhaps the best comparison to Disney`s big bet on Star Wars, Universal (NYSE:UVV) Studio`s Wizarding World of Harry Potter Land which has bolstered NBC Universal`s park division. The six-acre one in Hollywood which opened in 2016 with two rides costs a reported $500 million to create, and universal is adding another Harry Potter-themed ride this summer to the three it already has at its Orlando Parks.
All of these companies are looking to get a bigger piece of the growing theme park business, with the industry projected to hit $20 billion in revenue in the U.S. alone this year.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Anaheim, California.
HERERA: And before we go, here`s a look at the final numbers from Wall Street. The Dow rose 43 points, the Nasdaq was up 20, and the S&P 500 added five.
And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera, thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a good evening. We`ll see you tomorrow.
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