ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stocks surge. Shares continue yesterday`s strong reversal and wipe out most of the steep losses from earlier in the week.
Slowdown coming? But even as stocks rise, some warning signs are flaring
about a possible slowdown, and some are even mentioning the “R” word. What you need to do if the economy cools.
And, rising risks. How investors are using high-tech data to forecast
climate risk to their real estate interests.
All of that and much more tonight on NIGHTLY BUSINESS REPORT for Thursday, August 8th.
Good evening, everyone, and welcome. Bill has the evening off. What a
difference a few days make.
After a sharp sell-off to start the week, stocks have reversed course.
Today, investors were encouraged by a rebound in global bond yields and
some stronger-than-expected trade data out of China. Add it up, and you
have the recipe for a rally.
The Dow rose 371 points to 26,378. The Nasdaq climbed 176 and the S&P 500 added 54 and is now positive for the week.
Bob Pisani has been looking at some themes emerging in this market.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Talk about a wild ride on Wall Street. Stocks regained their footing today with the Dow surging more than 300 points. The S&P 500 bouncing back to right about where it closed last Friday. That`s a remarkable ride. Stocks got a lift as bond yields have risen off of their lows and as China`s currency has stabilized, at least for the movement.
Cyclically, economically sensitive groups like technology and industrials,
they led today`s gain. They`re now all positive for the week.
There`s two big themes emerging that investors are paying attention to.
First, is there a chance for a second trade truce between the United States
and China? Some say no, some say yes. And, second, will this brief period
of stability in stocks, bonds and China`s currency, will that last?
Well, a lot seems to be riding on the question of a possible recession in
2020. J.P. Morgan was out with a note today saying while the economic data highlights elevated recession risk, the likelihood of a downturn in the
next 12 months is still below 50 percent.
But Mark Zandi from Moody`s (NYSE:MCO) Analytics disagrees. He says the probability of a recession is more than 50 percent due to the latest rounds of tariffs.
Bottom line is this. The two biggest determinants are whether we see real
progress in trade negotiations and the success or lack of success of
central banks like the Federal Reserve to continue adding juice to the
global economy by cutting rates. It`s a tough call.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: And aside from those brokerage notes, there are some hard warning signals flashing.
Steve Liesman takes a look.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Several global and U.S. transport indicators flashing yellow and raising concerns about a deeper slowdown in the U.S. in particular, three indices that deal with shipping. The cash freight index turned negative in December and has been negative every month since including a 5.3 percent decline in June.
The shipment`s index has gone from warning of a potential slowdown to
signaling an economic contraction. The U.S. rail freight index is also
sending warning signals, down and away similar to the 2015 and 2016
slowdown that did not lead to recession and not nearly as bad as it was
back in the `08 recession.
The port of Long Beach container throughput falling 10 percent in June
compared to a year ago.
VAHAN JANJIGIAN, GREENWICH WEALTH MANAGEMENT: The global economy is slowing. I think the U.S. economy is slowing. I do expect to see slower growth. Whether we have a recession in the next 12 to 18 months, I`m betting against it. I think we will still see growth in the next 12 to 18
months, but there`s no doubt we are slowing.
LIESMAN: The source of the slowdown is largely from overseas. The effects of the weakness can be seen in U.S. exports. They subtracted a large
amount from growth in two of the past four quarters.
Oxford economics writes: Although we still think that a global recession is
far from inevitable, we now expect 2019 to be the weakest year for global
GDP growth since the global financial crisis.
It is undeniable there`s been industrial slowdown both in the U.S. and
globally. Whether it turns into a recession will depend ultimately on
whether U.S. consumers can remain strong. They`ve been buoyed by strong job gains and decent wage gains. The question is, can they keep spending at their current pace, even if the trains, trucks and airplane deliveries slow down?
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
HERERA: As we mentioned a bit earlier, stocks also got a lift today for
some positive trade data out of China and more stabilization from that
Eunice Yoon has more from Beijing.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese central banks set the value of the Yuan weaker than seven for the first time since 2008, but the fix was still stronger than what most analysts had expected.
Traders took that as yet another sign that the government here is trying to
pull the reins back on the Chinese currency. No official commentary on the
fix, but state news agency Xinhua today had a headline that reads: RMB rate against the dollar breaking seven has potential to stabilize in the future.
And the Communist Party`s “Global Times” ran a piece quoting a researcher closely linked to the Chinese Commerce Ministry who said further depreciation will not be very fast to the 7.1 or 7.2 levels. It will not
take a long time before the rate returns below seven.
In other words, expect the Yuan to maintain strength.
Separately, the July trade data was out today and surprise to the upside.
Exports rose more than 3 percent when expectations were for a fall.
Imports shrank but less than expected. It appears global demand is holding up, though exports to the U.S. contracted, showing President Trump`s tariffs are taking their toll.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
GRIFFETH: And some economic data here in the U.S. to tell you about. The
number of Americans filing first-time unemployment claims fell last week,
suggesting the labor market still remains strong. Claims fell by 8,000 to
a seasonally adjusted 209,000.
Separately, wholesale inventories were unchanged in June. Inventories rose nearly half a percent in May, so there was a slowdown in accumulation in June which could reflect the surge in consumer spending. Businesses are
carefully managing stock levels amid an escalation in the trade war between the United States and China. Sales at wholesalers dropped by 0.3 of a percent.
So, recession or slowdown, that`s the big debate. Let`s turn now to our
two guests for opposing views on the economy.
Greg Hahn says the economy is slowing. He is chief investment officer at
Winthrop Capital Management.
Matt Maley sees a recession coming. He is chief market strategist at
Gentlemen, welcome, glad you`re here.
GREG HAHN, CHIEF INVESTMENT STRATEGIST, WINTHROP CAPITAL MANAGEMENT: Thank
HERERA: Matt, I`m going to start with you. That is the big debate,
slowdown versus recession. You say the odds are above 50 percent for the
chance of a recession within the next or by the next 12 months. What are
the metrics that you are watching or seeing that make you feel that way?
MATT MALEY, MILLER TABAK CHIEF MARKET STRATEGIST: Well, you know, eventually the comments of Steve Liesman talked about — on top of those slowing numbers, we also have things like obviously lower interest rates. Interest rates have been low for a long time, but they keep going lower. A lot of people blame it because of European rates, but they`re down for a reason and — because of slower growth. At some point that spills over into other areas of the world.
We have commodity prices. Energy prices are coming down. Copper, another important commodity, that`s coming down. That shows a weakness in demand.
And then, of course, we have some of the manufacturing data here in the
U.S. It is in negative territory or slowing territory in Europe and in
Asia, but it is right on the cusp of that in the U.S.
So, as Steve said, we are highly — even more dependent now on the consumer than we have ever been, so it won`t take much of a slowdown in the consumer to cause some problems in the economy. Again, I`m not looking for an 80 percent chance of recession, but, I`m a little bit more bearish than most people, I guess.
HERERA: All right. Greg, make the case it is simply a slowdown. I mean,
you`ve got some economic statistics that are certainly in your favor.
HAHN: Thanks, Sue.
I think there are a couple of things that are going on. Right now, the ISM
numbers for manufacturing are showing a bit of a slowdown but they`re still above 50, we`re at 51.2, which is still expansion but it has slowed.
But we are looking at credit. Private credit is expanding. We are seeing
job formation in the economy. We are also seeing business formation, and
that creates jobs. So, there`s still — there`s still a healthy consumer
sector. And this economy is not rolling over.
HERERA: You also make the point, Greg, that the banking sector is
HAHN: And this is the difference. Thank you, Sue. This is different from
2007-2008, is our banking system is so strong because of capital levels. I
think when we see credit, if credit does turn, the banking sector is going
to be really strong and it is going to probably start to show itself more
in the public markets, which is a risk for investors.
HERERA: Matt, if, indeed, you are correct and we see a recession coming,
what type of complexion will that recession have? I don`t get the feeling
that you think we`re headed for a crisis, but more of a recession.
MALEY: Yes, I think there`s a big difference. I mean, the problem is the
last two recessions have been deep — of course, bear markets, been really
deep ones. Of course, the bear market — sorry. The recession we had, the
Great Recession, it is called the Great Recession for a reason, and exactly
— and the other guest is exactly right. The banking system is in much,
much better shape.
What happens with bubbles is it causes way too much leverage in the system and that`s what happened with last two recessions. This time, although there`s certain leverage in certain areas and people worried about the corporate bond market, the banking sector is very solid.
So, I think we go back to — if we do have a recession, it will be the run
of the mill kind we had from World War II, up and until the end of the 20th
century that are not — you know, they`re painful and they`re not fun, but
they don`t have the same kind of massive impact on people — on job growth and on the stock market that have really, you know, crushed people`s confidence in the past. So, even though I think it can cause problems, it will create more opportunities than it has in the past.
HERERA: Greg, two questions to you. The one caveat I would say about the
slowdown versus recession comes from the trade war. Both sides seem to
have dug in their heels. At what point does your perspective change from a
slowdown to recession based on the trade war?
MALEY: Yes, that`s a great question, Sue. The structural issue that`s
being created with the trade issues with China is going to be a problem if
it is sustained, but part of this, I don`t believe our president is going
to let it exist all the way up through the election. Part of this, too,
from a fundamental standpoint is we`re going to see supply chains shift out of China into other countries, and that will just be a restructuring. That
will take some time, but that will be a restructuring also of this trade
issue as well.
HERERA: Very quickly, I need —
MALEY: Go ahead.
HERERA: — a yes or no answer from each of you.
Greg, you first. Does the Fed continue to cut?
HAHN: Yes, absolutely.
HERERA: All right. On that note, gentlemen, thank you very much.
HAHN: Thank you, Sue.
HERERA: Greg Hahn with Winthrop Capital Management. Matt Maley with Miller Tabak.
Coming up, we`ll tell you what you can do to protect your portfolio if
indeed a slowdown comes.
Time to take a look at some of today`s “Upgrades and Downgrades”.
Goldman Sachs (NYSE:GS) downgrading Dow component Caterpillar (NYSE:CAT) to neutral from buy. The firm citing headwinds coming from production cuts in North America and China. The price target was cut to $130 a share from $156. Cat closed at $122.02, up 1 percent.
But another Dow component, Disney (NYSE:DIS), was upgraded to outperform from neutral at Credit Suisse. The firm citing bullish catalysts ahead, including releases of new “Star Wars” and “Frozen” movies. The price target was raised to $150 from $130. Disney (NYSE:DIS) finished at
$137.89, up better than 2 percent.
And Barclays initiating coverage of Apple (NASDAQ:AAPL) with an equal
weight rating. The analyst does not see a recovery in the iPhone business
and it expects growth in the company`s services business to slow. The
price target was $192. Apple (NASDAQ:AAPL) closed above that target,
ending at $203.43, up more than 2 percent.
Coming up, as the debate goes on over a slowdown, what should you do to
protect yourself? Some tips from a Wall Street pro a little later.
HERERA: Shares of both Anadarko and Occidental Petroleum (NYSE:OXY) higher after Occi completed its $55 billion deal to buy Anadarko. Anadarko
shareholders approved the deal earlier today. And oil jumped today after
China`s Yuan was more stable and speculations that falling prices could
lead to production cuts by OPEC.
But despite today`s rise, oil prices are still down about 20 percent over
the past year.
And as Brian Sullivan tells us, that might be good for consumers but
there`s plenty of pain for investors.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The drop in oil prices is good news at the gas pump but very bad news for oil and gas stock investors. Those shares have taken huge hits over the past year with investors fleeing the group as fast as they can hit sell. And what is interesting and troubling to so is how the stocks have split from oil
Now, oil and oil stocks generally trade together, either up or down, but
not really lately. Oil stocks have gone their own way, and not in a good
way. If you look at the XOP, one of the biggest oil stock related ETFs
against oil, you can see that its shares are actually trading lower than
when oil was around $30 per barrel.
One analyst explains why.
ROBERTO FRIEDLANDER, SEAPORT GLOBAL: There`s a big real look at where these EMPs are going to be in a year, year and a half. You can have crude prices dropping, you can have pipelines coming on into the year-end. At the same time, you have these EMPs that are going to be brought back and reining in cap expending. And so, that`s going to really affect the entire oil and gas chain from midrange companies down to pressure pumpers, down to oil service companies.
SULLIVAN: Half of more than oil and gas stocks lost more than 50 percent
of their value over the past year. In many cases now, valuations are below
where they were when oil was $15 or $20 cheaper. One reason are some of
the concerns about the effectiveness of newly-fracked oil wells and whether they will perform as expected.
Also, debt fears, they loom large. Many oil and gas companies funded their
growth by taking on billions in debt and as prices fall there is concern
about whether that debt will be paid.
Investor pain in the group is everywhere. These are the average returns of
stocks operating in specific parts of the United States. North Dakota,
which is higher cost, and Oklahoma hit the hardest. But Texas and
offshore, as you can see, also not immune to the investor pain.
But despite the negativity, one industry analyst says don`t lose hope in
oil. He believes that even while the United States is growing output,
other countries are not and that before long, the price of oil will turn
PAVEL MOLCHANOV, RAYMOND JAMES: The problem right now for the price is demand, and this is really where the trade war has obviously weighed so much, mostly as a matter of sentiments, psychology rather than actual impact, physical impact on demand. You know, when this trade war subsides, maybe it doesn`t end but subsides, that`s going to be a great catalyst for oil prices to go back up.
So far, that bull case has been put out to pasture. Investors continue to
dump the oil and gas stocks. But with everybody so negative, if oil prices
do turn higher, some believe it could make for a sharp reversal for this
beaten up group of stocks.
For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan.
HERERA: Kraft (NYSE:KFT) Heinz releases its first half earnings, and
that`s where we begin tonight`s “Market Focus”.
The results have been delayed because of the company`s internal
investigation into its accounting practices. The packaged foods maker
reported weak sales which made it right down the value of several business units totaling more than $1 billion. Kraft (NYSE:KFT) Heinz lowered its full year guidance as well. Shares dropped more than 8 percent to $28.22.
Symantec (NASDAQ:SYMC) is selling its enterprise security unit to the
chipmaker Broadcom (NASDAQ:BRCM) for more than $10 billion. This comes after Broadcom`s earlier failed attempt to purchase Symantec`s entire cybersecurity firm. Symantec (NASDAQ:SYMC) shares rose more than 12 percent to $22.92. Broadcom (NASDAQ:BRCM) was up a fraction to $270.98.
Advanced Micro Devices (NYSE:AMD) unveiled its newest processor chip for data centers and said it landed Google (NASDAQ:GOOG) and Twitter as
customers. The company`s new server chip uses technology from its
manufacturers to perform better without using a lot of energy or power.
The stock soared more than 16 percent to $33.92.
Zillow missed earnings estimates but beat on revenue. The real estate
website also lowered its guidance as it forecast losses in its new home
flipping business. That sent shares lower by more than 15 percent to
And after the bell, Uber lost more money than Wall Street was expected and missed on revenue. Net losses top $5 billion but most of that was from
stock-based compensation. Shares initially dropped in the after hours
trading but closed the regular session up more than 8 percent to $42.97.
Well, shares of Uber may be down today, but the market is up despite mixed signals and a growing debate of an economic slowdown. Are there moves that you should be making in your portfolio in the event the economy does indeed cool?
Joining us now with some tips is Aaron Grey. He is a wealth adviser at
Buckingham strategic wealth.
Aaron, welcome. Nice to have you here.
AARON GREY, BUCKINGHAM STRATEGIC WEALTH ADVISOR: Hello, Sue. Happy to be here.
HERERA: You make the point that the time to take a look at your portfolio
and assess your risk is when things are relatively calm.
GREY: That`s right. Really, any time is a good time to reassess and
validate that your portfolio is adequately diversified and kind of in the
right balance in terms of the amount of risk that the portfolio carries and
what you`re comfortable with experiencing. I think specifically in terms
of the diversification, you want to double check, make sure that within
your equity or stock exposure, you have both U.S. and overseas. You want
to make sure that you have both small and large value growth. You really
want to kind of maximize diversification and I`m talking specifically
within the stock side of the portfolio.
But in addition to that, it`s going to make sense to have fixed income,
maybe a little bit of cash, and maybe even some alternatives, other asset
classes that don`t have correlation to the stock or bond market to get you
really kind of the maximum benefit of diversification.
HERERA: Are you talking about things like gold?
GREY: Absolutely. Commodities would be a part of that. And there`s other
asset classes out there, other managed strategies that can demonstrate the
ability to march to the beat of its own drum, not necessarily go up or go
down with the stock market. It will experience its own volatility, but to
the extent that we can put more asset classes together in a portfolio that
demonstrate that non-correlation, it`s just going to smooth the line over
time and make the total — volatility of the total portfolio less.
HERERA: One thing that we have found in the past is that investors who
have made a decent gain in the market tend not to re-allocate even when
they have made a significant advance. Do you recommend looking at your
portfolio and if you have done well change things around a little bit or
GREY: Absolutely. That`s a great point. It`s — we have a tendency once
we have winners to let the winners run. And, for example, if you had a
target allocation of, say, maybe 50 percent stock and 15 percent
alternatives and 35 percent fixed income, if you set it and forget it,
eventually, that portfolio is going to look very different than what your
primary target was.
And if you like that 50/15/35 mix to begin with, you`re not going to own it
very long because stocks will go up, bonds will go up and down, and before
you know it you have an 80/10/10 portfolio. So, what you want to do no
matter the market is up and times are good or the market is down and times are a little scary is continuously check in on that portfolio and see how far away from the primary targets you have drifted, and be prepared when the market is up and everybody is slapping high fives, to go out and sell some of the stuff that`s up and take your profits.
On the other end of the spectrum, when the market is down 20 percent and we are on TV talking about how scary and uncertain things are, we need to be prepared to buy then and buy the things we are uncertain and a little
GREY: That is rebalancing at its essence.
HERERA: Aaron Grey with Buckingham Strategic Wealth — Aaron, thank you so much.
GREY: Thank you.
HERERA: Coming up next, an innovative way real estate investors are trying to protect themselves from extreme weather.
HERERA: For any investor, measuring opportunity against risk is critical,
and for real estate investors in particular the risks are rising due to
increasingly extreme weather. That`s why a cottage industry of companies
is stepping up to give investors a look at the future and what it could
Diana Olick has the details in the latest in her series on the rising risks
to real estate.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: When Typhoon Mangkhut ravaged Hong Kong last summer and Hurricane Florence decimated Wilmington, North Carolina, at the same time, in a tower high above Chicago, Mary Ludgin was watching. The head of global investment research at Heitman, Ludgin`s job is to measure risk across the firm`s $42 billion worth of property assets across four continents, and climate risk is the new frontier.
MARY LUDGIN, HEITMAN HEAD OF GLOBAL INVESTMENT: We see it as the unexplored risk that we need to try to quantify.
OLICK: Heitman partnered with the Urban Land Institute in a groundbreaking study on climate risk and real estate investment decision-making. It concluded that overall the real estate markets are far from understanding climate risks enough to price them in today, but those who are prepared have the potential to outperform.
LUDGIN: We wanted to sharpen our skills and our ability to underwrite the risk of sea level rise, storm surge, wildfires.
OLICK: So Ludgin turned to a brand-new category of companies, high-tech
data analysts who go well beyond current flood maps to forecast future
climate risk to real estate.
When you look out at the water around Manhattan, what is the first thing
that comes into your mind?
RICH SORKIN, JUPITER INTELLIGENCE CEO: It is beautiful and it is
OLICK: Rich Sorkin is co-founder and CEO of Jupiter Intelligence, a barely
three-year-old startup that has grown to a staff of 50, backed by $40
million in venture capital. Among its clients are the cities of New York
SORKIN: We are seeing a dramatic expansion in large corporations coming to us, saying, we need to understand the risks to this office complex or the
risk to this hotel or the risk to this neighborhood where we have hundreds
of millions of dollars of mortgages out.
OLICK: Jupiter analyzes specific properties using thousands of predictive
data points and then gives its clients a risk score, going out 10, 20, 50
SORKIN: We`re essentially physically modeling what is happening with the atmosphere and the water or the fire at a very specific level of detail,
which is now only possible because computers have gotten so powerful.
OLICK: And it goes well beyond what insurance companies forecast.
LUDGIN: Insurance is basically a one-year contract. At the end of that
the insurer gets to say, oh, we`ll keep insuring you but here is the new
cost or, sorry, insurance is no longer available given the wind risk in
OLICK: When most people consider climate risk, they`re not picturing a
gorgeous day like this along the Chicago River. They`re thinking about
hurricanes or wildfires, but cities across the globe are now investing in
new ways to protect themselves all the time against rising sea levels and
more extreme weather, and the cost of that is yet another risk to real
LUDGIN: What we`ve added into the mix is what if your insurance costs
quadruple, what if your property tax is quadrupled, does the investment
still make sense?
OLICK: The United States bases more than $400 billion in cost over the
next 20 years to defend coastal communities from sea level rise according
to a study just released by the Center for Climate Integrity and Resilient
Analytics. That includes building 50,000 miles of coastal barriers in 22
Two years ago, residents in Miami voted themselves a $400 million bond,
taxing themselves to protect their city from flooding.
SORKIN: The last 2 1/2 years have really been transformative in terms of
the way the business community all over the world is thinking about these
OLICK: For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Chicago.
HERERA: And that`s it for us tonight. We`ll see you tomorrow.
Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by ASC Services II
Media, LLC. Updates may be posted at a later date. The views of our guests
and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2019 CNBC, Inc.
<Copy: Content and programming copyright 2019 CNBC, Inc. Copyright 2019 ASC Services II Media, LLC. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of ASC Services II Media, LLC. You may not alter or remove any trademark, copyright or other notice from copies of the content.>
About NBR“Nightly Business Report produced by CNBC” (NBR) is an award-winning and highly-respected nightly business news program that airs on public television. Television’s longest-running evening business news broadcast, “NBR” features in-depth coverage and analysis of the biggest financial news stories of the day and access to some of the world’s top business leaders and policy makers.
- YouTube CEO Susan Wojcicki: Here's what to say when men are talking over you at a meeting
- The US won't vaccinate migrant children against the flu at border detention camps
- FDIC approves tweak of Volcker Rule, easing trading regulations for Wall Street banks
- Republican-led report finds Facebook has 'significant work' to earn conservatives' trust
- Kyle Bass says US interest rates will follow the rest of the world to zero — 'This is insane'
NBR on TwitterMy Tweets
Subscribe to RSS