ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Wall Street whiplash. Stocks fall sharply then rebound, leaving investors scratching their heads as they try to navigate this market.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Economic backbone. The consumer has been powering the economy higher and some experts say that won`t change any time soon.
HERERA: Home buyer bonus. The volatility causing mortgage rates to fall, creating big savings for borrowers.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, October 3rd.
GRIFFETH: And we do bid you good evening, everybody, and welcome.
So, on the third day, the market bounced. Just when it looks like stocked were going to extend the steep declines of the past two sessions, sentiment suddenly reversed and selling turned into buying. Tech stocks led the way higher today, followed by energy.
But the day did start with more angst after a report on the services sector of the economy showed weakness. That led to concerns that the economic slowdown could end up being broader than initially thought. But it also raised expectations that the Federal Reserve will cut interest rates a third time when central bankers immediate later this month. And that apparently is what the — brought the buyers back into the market.
The Dow Industrials closed up 122 points. We`re back above 26,000. The Nasdaq was up 87. And the S&P added 23.
Mike Santoli reports from the New York Stock Exchange tonight.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Investors are in the grip of another recession scare. But the markets have been reflecting slowdown fears for months. So the crucial question now, just what degree of economic did he acceleration is already priced into stocks?
The broad S&P 500 is a mere 4 percent below its record high from late July and even a mild recession, stocks tend to fall at least 20 percent, which suggests equities would not easily shrug off an outright drop in economic activity from current levels. If the S&P is also flat for the past year, on the sectors mostly tied to the economic cycle have lagged badly and they`re valued at significant discounts to the big reliable growth stocks that have carried the indexes.
In fact, banks, retailers, transportation companies and energy producers are all now valued near their cheapest levels of the past decade. This suggests the pain has already been felt in the most economically sensitive parts of the market.
Now, whether they are cheap enough comes down to one question. Is the U.S. undergoing a temporary lull in economic growth true to trade frictions and the tax cuss receding into the past, allowing for the soft landing helped for Federal Reserve rate cuts, or will poor global growth drag a matured domestic economic cycle into recession despite lower interest rates?
It is hard to have certainty about the answer, which is why every fresh bit of economic evidence creates a high stakes moment for an anxious Wall Street. That very much includes tomorrow`s jobs report for September.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
HERERA: This week`s market volatility from all the fresh economic data probably has you a bit dazed and confused. So, we have two money managers with us now to share their views on what they`re doing and buying in this volatile market.
Joining us tonight: Nancy Tengler, chief investment strategist at Tengler Wealth Management. And John Petrides, he`s the portfolio manager with Tocqueville Asset Management.
Welcome to both of you.
JOHN PETRIDES, TOCQUEVILLE ASSET MANAGEMENT PORTFOLIO MANAGER: Thanks for having us on.
NANCY TENGLER, TENGLER WEALTH MANAGEMENT CHIEF INVESTMENT STRATEGIST: Thanks for having us.
HERERA: Ladies first. Nancy what are you doing in the environment? I mean, you have a pretty structured formula and have for some time now about how you buy stocks?
TENGLER: Well, every market opportunity in our view — I mean, every market decline is an opportunity. JPMorgan (NYSE:JPM) just came out with a study that said over the last 20 years, you know, stocks return 6 percent if you miss the ten best days, you earned 3 percent a year.
So, we look for high quality in times like these and we`ve been buying cyclical stocks, agreeing with Mike Santoli`s report. And some consumer stocks and some health care.
GRIFFETH: John, you also like it when the market goes down, right?
PETRIDES: Yes, it`s kind of like going into a car dealership, you don`t want them to markup the price of the car. You want to buy on sale. So, when the stock market sells off, that gives you opportunity to buy really high quality companies at a discounted price. You remember the goal is to buy low and sell high.
So, in this environment — in this environment, what we like is given the low yields in the market, we are looking for higher dividend income plays, where the company is paying out less than 50 percent of their earnings. So, we have protection on the yield. And we think the high dividend yielding plays are the way to go in today`s low yield environment.
HERERA: Nancy, the environment though for this market is really multipronged. You have headline risk from trade. You have the Fed in play. You have a decelerating economy in some sectors, and you put that altogether. That`s an awful lot of different things that the market and an investor has to navigate.
TENGLER: Definitely, Sue. And we have seen it this year. I mean, the volatility has been heart-stopping at times. And for the individual investor, I imagine even more so.
But — but I agree with John. I mean I`ve been buying high dividend payers for decades. And they give you some protection. And they also give you insight into what management is thinking.
These managements don`t want to cut the dividend. So, if they are raising the dividend and payout ratios low back to what John said earlier, then you have a recipe for success over the next three to five years. Valuation is a leading indicator.
GRIFFETH: John, give us a for instance. What are you buying? What do you like among those dividend payers?
PETRIDES: Yes. So, we think this environment where yields are low and volatility is high, Verizon (NYSE:VZ) is a really attractive story. I mean, Verizon (NYSE:VZ) doesn`t need an introduction. But when you`re getting a 4.25 percent dividend yield and stock is trading at 12.5 times earnings, and you have the entire mobile market eventually upgrading to 5G to the next generation, we think a high-quality franchise like Verizon (NYSE:VZ) is a no-brainer here.
HERERA: And, Nancy, what would you buy — or did you buy in this week`s volatility?
TENGLER: Yes. So, Sue, we bought Pepsi. Now, we already owned it. We added to it and then today`s earnings were excellent I wish I owned more. Just under 3 percent yield, and it`s been growing about 9 percent a year.
We bought AbbVie. That`s a 6 percent yielder, a little riskier. It`s a longer term play.
And we added to Broadcom (NASDAQ:BRCM), which is yielding about 4 percent and they`re growing the dividend aggressively like 50 percent a year for the last five years. So, we like those dividend payers that are paying out of their free cash flow.
GRIFFETH: Nancy, what are you avoiding right now?
TENGLER: Oh, well, Bill, we`re avoiding the utilities. They`re too expensive and that defensive play we think has run. We`re market — so we own no utilities. We`re market weight energy which means about 4 percent of the portfolio.
And I won be adding to energy in here. And I forgot the — the other one that I gave you.
HERERA: That`s OK.
GRIFFETH: That`s enough.
HERERA: There`s a lot of volatility in the market and I can understand where it can be difficult.
John, what would you stay away from?
PETRIDES: Yes. We are not hopping on any of the IPO trains that are out there for clients, at least for those clients that are looking for income. We think some of the valuations in the IPO market are just too crazy for our client base.
So, we think — stick with high quality, stick with income. And hit it down the fairway in this environment. That`s what we`re looking for for our client base.
HERERA: Thank you both. Appreciate it. Nancy Tengler with Nancy Tengler Wealth Management. John Petrides with Tocqueville Asset Management.
GRIFFETH: Well, today`s market rally notwithstanding, Americans are starting to shift their view of the economy. And according to a new survey just out, it`s not as bright as many once thought it would be.
Here`s Steve Liesman.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The number of the week, the ISM services index, was weaker than expected, prompting new fears of broader economic slowdown. Now both the manufacturing sector and the services sector have surprised to the downside. They both now been declining since late last year. Both now hit multiyear lows with no sense of a bottom yet.
However, neither survey is yet in the range where it is typically signaled a recession for the broader economy. UBS saying however in a commentary, the slowdown may be sooner than we forecast.
Americans are picking up on this weakness. Attitudes towards the economy took a sharp turn downward in the third quarter CNBC All America Economic Survey, 41 percent are pessimistic now about the current situation and about the future of the economy.
The poll registered the highest level of pessimism since October 2016. It represents a stark change from the heady days this time last year when the index was hitting new all-time highs. The good news, attitudes about the current state of the economy this quarter were little changed, all the action was in the outlook for the future expectations of the economy.
Just 36 percent of the public believe their wages will rise in the next year. That`s the lowest level since March 2016 and 35 percent say now is a good time to invest in stocks that unfortunately is the lowest level in three years. Just 23 percent are saying the economy will improve in the next year.
It`s the first time in the 11 polls conducted by CNBC during the Trump presidency that pessimists outnumber the optimists.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
HERERA: For some, there is an upside to this volatile market. Mortgage rates are falling again, and that`s adding up to some big savings for borrowers.
Diana Olick breaks down the numbers.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fall home buyers are getting a big bonus. Growing concern in the economy has investors rushing into bond market, causing interest rates to fall and that includes mortgage rates.
The average rate on the 30-year fixed had been falling throughout much of the summer but then made a sharp jump back up in September. Now rates are headed back down again, down enough since last Friday to save the average borrower about 25 bucks on the monthly payment for $300,000 loan.
But the more dramatic comparison is this fall to last fall. We are down well over a full percentage point from a year ago, about 1.25. So, that`s about $225 less on a monthly payment for the same $300,000 mortgage. And that`s real money for today`s cash-strapped buyers, especially those first- time buyers.
Lower rates are clearly boosting the builders. Miami-based Lennar (NYSE:LEN) reported a much bigger than expected jump in new orders for their homes.
And Chairman Stuart Miller pointed squarely to lower interest rates as the driver.
STUART MILLER, LENNAR CHAIRMAN: The market for new homes has been improving from last year`s pause as lower interest rates stimulated demand and improved affordability while the overall fundamentals of the economy have remained strong.
OLICK: Miller also said that despite all the talk of recession, lower rates are now outweighing the concerns.
Home prices are still gaining. But the gains are smaller than they were a year ago. And now with lower rates, affordability is improving. The only thing standing in the way of an even stronger housing market is that there just aren`t enough homes for sale.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
GRIFFETH: Still ahead, the 64,000 question. Can the consumer continue to prop up this economy?
GRIFFETH: Investors clearly are watching consumer related companies closely these days, since consumer spending makes up two thirds of economic activity. And it`s been the economy`s lone driving force.
Well, late today, Costco (NASDAQ:COST) said that it missed revenue estimates as the wholesale club saw a drop in its comparable same store sales. But the company did see growth in its e-commerce division. Shares initially were very volatile in after-hours trading tonight, but they did close the regular session up more than 1 percent to $289 even.
HERERA: As our guests mentioned earlier in the program, Pepsi`s fizz is back. The company reported earnings and revenue that were better than expected, thanks to increased investment in advertising and technology. That sent the stock higher in today`s session.
Frank Holland has more on Pepsi`s quarter.
FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: Strong consumer demand leading to higher than expected profit for Pepsi. Gatorade and the introduction of Gatorade Zero, some of the best performers, the sales exceeded expectations for the beverage and snack maker.
HUGH JOHNSTON, PEPSICO CFO & VICE CHAIRMAN: What we see is a consumer that likes our products and buying them at increasing rate. So, as far as we can tell, the consumer is actually doing just fine right now.
HOLLAND: The company gets roughly a third of profits from North American sales of Pepsi, Gatorade and other beverage. Those increase by 3 percent. The biggest gains came from snacks, that include Doritos and Lays Potato Chips. That division growing by more than 5 percent. Sales in Europe and Asia increasing by more than 5 percent as well.
Despite the dramatic drop in consumer confidence last month and fears of a recession, CFO Hugh Johnston says people are continuing to spend on Pepsi products.
JOHNSTON: We are certainly doing better in terms of space in the market, both in terms of the aisles as well as the perimeter of the store as well, where a lot of the sales happen because our products are so impulse. I think what`s happening more than anything is the increased advertising that we have is causing consumers to shop us more aggressively. And our customers are rewarding us.
HOLLAND: After his performance this last quarter, Pepsi says it plans to meet or exceed its sales goals for the year. Shares of Pepsi gained 24 percent this year, compared to 12 percent by rival Coke.
For NIGHTLY BUSINESS REPORT, Frank Holland.
GRIFFETH: And Pepsi is one of those consumer staple stocks that`s having a strong year, with many of the big names in that sector up double digits. Procter and Gamble is another one. Its shares have risen 32 percent so far this year.
Wal-Mart (NYSE:WMT), Pepsi, Frank mentioned that. They`re both up about 25 percent. And Kimberly-Clark (NYSE:KMB) is up more than 20 percent.
HERERA: So, Pepsi says the consumer is strong, and so does the retail industry. The National Retail Federation expects holiday sales to rise as much as 4.2 percent this year, which is more than last year. The group says the consumer is in good financial shape but cautioned the confidence could be eroded by global risk factors like trade and political rhetoric.
GRIFFETH: And that forecast has been one of the few bright spots for the market this week as the manufacturing and the services sectors slow. Can the consumer keep our economy on an even keel?
Joining us tonight, we welcome back, Charlie O`Shea, the retail analyst at Moody`s.
Charles always good to see you thanks for joining us.
CHARLES O`SHEA, MOODY`S RETAIL ANALYST: Thanks, Bill. Good to see you.
GRIFFETH: What do you think? I mean, the forecast from the retail federation is growth of 4.2 percent in sales. That`s much better than the average has been over the last five years. Do you buy those numbers?
O`SHEA: Yes, I think so. I think 4-ish — 4.2 is a little precise for me. But 4-ish, maybe some risk to the top of that.
I just think the big guys are so strong right now, and they`re going to drive pricing this holiday. I`d be concerned about margins. I don`t think the top line is going to be an issue, because I think you`re going to see the residual factors of Wal-Mart (NYSE:WMT) and Amazon (NASDAQ:AMZN) fighting the cage match we talked about in the fast. And everybody else is going to end up having to play that game.
So, I think the revenues will there. The question is for me, as it is for every holiday, how promotional does it get and do the margins hold up?
HERERA: Yes, that was my question. How much — if indeed the economy is slowing a bit, consumers may be more concerned with that price point. So, how much discounting or promotional activity do you anticipate?
O`SHEA: A lot. I think.
O`SHEA: Don`t mean to sound flippant, Sue, but I think every year, I say in our team at Moody`s says, you know, this has been a heavily promotional year. Is it more than last year?
But every year, they get more innovative. You know, the shipping is a promotion. And you`re going to see a lot of that this holiday.
The arms race is continuing. Amazon`s next day effort is going to really ramp up the holiday. Wal-Mart (NYSE:WMT) with same day available of food on a shipping basis is a big deal. Everybody is playing catch up. Target`s got Shipt, it`s leveraging that.
So, I think you`re going to see a lot of promotions. The question is — I thought is that they`re not all going to price-focused. They`re going to be convenience-focused for the consumer.
O`SHEA: But yet up in the same place is the retailer. You know, you`re cutting your margin.
GRIFFETH: Who are the winners this year?
O`SHEA: Same — I think the same suspects as usual. I think you`re looking at the Wal-Marts, the Amazons, Targets, Best Buys. I think the TJX, Costco (NASDAQ:COST), the Ross Stores (NASDAQ:ROST).
I think on the apparel side, it`s going to be interesting. And I won`t call anybody out there just because I think it`s too early there. But I think the big guys are well positioned to continue to flex their muscle and to extract share from the weaker.
GRIFFETH: Very quickly, you`re not worried about this soft revenue that just came from Costco (NASDAQ:COST) tonight.
O`SHEA: Absolutely not. I think we`re talking the second or third decimal place.
O`SHEA: And I think that, you know, it`s — that`s one of the top retailers in the world any way you measure it.
GRIFFETH: Charlie O`Shea with Moody`s — again, thanks for joining us tonight, Charlie.
O`SHEA: Thanks, Bill.
HERERA: Constellation Brands (NYSE:STZ) takes a hit from pot, and that`s where we begin tonight`s “Market Focus”.
The maker of Corona and Modelo beer posted a loss in its latest quarter, with Constellation citing losses from its stake in the marijuana company Canopy Growth. But Constellation`s adjusted earnings beat forecast and revenue was in line. Nonetheless, shares fell 6 percent to $194.26.
Amazon (NASDAQ:AMZN) is reportedly in a dispute with Disney (NYSE:DIS) over advertising on Amazon`s Fire TV devices. “The Wall Street Journal” says Amazon (NASDAQ:AMZN) is looking to sell a percentage of ads on Disney`s ad- supported apps. But Disney (NYSE:DIS) hasn`t budged yet.
If an agreement is not reached, “The Journal” says Disney (NYSE:DIS) could see a number of its apps removed from Fire TV, which is the second largest distributor of TV streaming apps. Amazon (NASDAQ:AMZN) was up a fraction to $1,724.42, while Disney (NYSE:DIS) was off about $1 to $128.15.
And a new company debut on Wall Street today. Viela Bio, which sold nearly 8 million share in its IPO at $19 a piece. The biotech company specializes in treatments for autoimmune and severe inflammatory diseases. The shares jumped more than 23 percent to $23.41.
GRIFFETH: Facebook (NASDAQ:FB) is launching a new camera-first messaging app on its Instagram platform that they call Threads. It`s going to appear to be similar to Snapchat. Threads allows users to share their status and location, their photos and videos with people that they have added to a list of close friends.
Facebook (NASDAQ:FB) shares rose nearly 3 percent today to $179.38. Interestingly, Snapchat took a hit, falling more than 3 percent to $14.30 today.
Macy`s (NYSE:M) said today that it plans to hire about 80,000 temporary workers for the upcoming holiday shopping season. The retailer pointed out that more than 8,000 seasonal workers who they hired last year ended up with full-time positions. Macy`s was up about 1 percent today to $14.80.
And GoPro shares fell after the company lowered guidance due to production delays of its new line of high definition cameras called Hero 8 Black. GoPro dropped nearly 19 percent today to $4.16.
HERERA: The race for the 2020 Democratic nomination still has a long way to go. But so far the economy has dominated the conversation.
Candidate Andrew Yang has some ideas on capitalism and taxes. And he recently spoke with John Harwood who asked Yang if he thinks a wealth tax is a good idea.
(BEGIN VIDEO CLIP)
ANDREW YANG (D), PRESIDENTIAL CANDIDATE: I think the wealth tax is an idea in spirit that makes sense given the wealth distribution. But in practice, it would have massive implementation problems. There would be capital flight. Wealthy people would renounce citizenship.
The truly wealthy in this country have zero interest in submitting to an annual audit of all of their assets. So, you would have massive compliance problems. And to me, there are better ways to make this economy fair.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Now, when you think about what you see happening and the elimination of opportunity on a pretty gigantic scale, is that capitalism`s fault? Or is it the particular intersection of capitalism and 21st century technology?
WANG: I like to quote my friend Eric Weinstein who said we never knew that capitalism was getting eaten by its son technology. And so, if technology comes along that can do work cheaper and better than we can, then capitalism loves it.
And in the old days, if you had a big, successful company, it would hire lots of workers. It would treat them well. Those things aren`t true anymore. I can start a big successful company not hire a lot of people. If I do hire them, I can make them all temp and gig contract workers, and Uber drivers and not give them benefits.
The fundamentals that we assume to be true about capitalism are now breaking down. And technology is the accelerate.
HARWOOD: You have a particular appeal to young people, I think. What would you tell them about why capitalism and not socialism?
WANG: Well, what I would say to them is I get it. That if you come of age in the era and you see this distorted version of capitalism, this inhuman version of capitalism, you would think give me anything the opposite of this.
WANG: And so, they`re being very rational and sensible. What we can do ideally is channel the energies of capitalism towards our own well being, towards our own health and life expectancy, mental health and freedom and substance abuse. How clean our water and air are, how our kids are doing.
And then if we have different measurements aside from stock market prices and GDP, then we take the best of capitalism and turn it towards things that we can all get excited about.
(END VIDEO CLIP)
GRIFFETH: By the way, when it comes to the impeachment inquiry, Yang says that he is concerned that it`s going to divert attention away from important economic issues.
HERERA: Coming up, why the NFL may have just scored a ratings touchdown.
GRIFFETH: MGM Resorts (NYSE:MGM) and the victims of the Las Vegas mass shooting that occurred two years ago this week have reached a settlement that will pay them up to $800 million. It was the deadliest shooting in modern American history with 58 people killed, more than 400 injured. The gunman sprayed bullets from his hotel room on a crowd attending an outdoor concert.
Lawsuits questioned how and why the hotel did not know that he had been hoarding high-powered weapons and appear ammunition in his room for days. MGM CEO said today that the goal has always been to resolve the matters so the victims and their families can move forward. The lead attorney for the plaintiff said the settlement represents good corporate citizenship on MGM`s part.
HERERA: After years of falling viewership, the National Football League and the networks that carry the games are getting some good news.
Julia Boorstin has more on the ratings rebound.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good news for the NFL and the TV networks paying up for its games. Last year`s ratings increase following two years of declines wasn`t a fluke. Four weeks in the league`s 100th season, overall TV ratings are up 4 percent from last year, with Fox`s first Thursday night game last week up 22 percent.
The NFL`s chief media and business officer says this reflects high powered matchups, close games, high scoring and more touchdowns. Plus, young quarterbacks. And changes to the format of games seem to be working.
BRIAN ROLAPP, NFL MEDIA & BUSINESS OFFICER: We have gone from five breaks per quarter, five commercial breaks per quarter to four, which fans really like. You know, they seemed not to be overly worried about how many commercials during the break, what they really worry about it is how many breaks there, and that has helped tremendously.
BOORSTIN: This ratings trend bodes well for the NFL`s leverage ahead of contract negotiations. Rights will become available starting for the 2022 season and JPMorgan (NYSE:JPM) predicts rights could draw as much as $60 billion from $42 billion from the last nine-year deal. While NBC, CBS (NYSE:CBS), FOX and ESPN are expected to want to hold on to rights, the question is whether tech giants scoop up games with digital viewership, including the NFL app and teams` apps, up nearly 50 percent from last year. And Amazon (NASDAQ:AMZN) has seen viewership for its Thursday night games doubled to nearly a million this year.
ROLAPP: Because we`ve been able to demonstrate that NFL games work on digital in a scalable, meaningful way, we`ve had more interest in our games from digital players than we ever have before. What that will mean in a new deal, we`ll have to see. But clearly, I think the digital companies are seeing the value of what live events generally, but NFL football, specifically can do.
BOORSTIN: It`s not all good news, though. WarnerMedia chief John Stankey saying the value of their Sunday ticket price has peaked and renewal of their higher price probably isn`t worth it. With overall TV ratings declining, the NFL arguably has a lot to lose from cord cutting and the shift to streaming on-demand content.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
HERERA: And before we go, here is another look at the day on Wall Street. The Dow rose 122 points. The Nasdaq was up 87 and the S&P 500 added 23.
And that is NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.
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