ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Market milestone. The Nasdaq hits 9,000 for the first time ever. And the Dow and S&P close at all-time highs.
`Tis the season for gift returns. And in a twist, that could actually be a gift for retailer sales.
Losing its shine. People are leaving the Golden State in droves. And it could leave a lasting mark on the world`s fifth largest economy.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Thursday, December 26th.
And we do bid you good evening, everybody and welcome. Sue is off tonight.
The rise in stocks just won`t quit. Wall Street`s three major averages closed at record highs once again today. In fact, the Nasdaq broke through 9,000 the first time ever. It`s now risen for 11 straight sessions, making it the index`s longest win streak since July of 2009.
And it`s been quit a trip to that 9,000 level. The index was at 325 back in 1990 before the dotcom boom and bubble pushed it to 5,000 for the first time by the end of the decade.
Then came the huge decline leading to the 2002 recession. In fact, it didn`t get back to 5,000 until 2008. Only to be hit once again by the great recession. It hit 8,000 last year. And today, its first close above 9,000.
Here are the closing numbers for today with the Dow up 105 points now at 28,621. The Nasdaq rose 69 today and S&P added 16.
Frank Holland starts us off tonight on the Nasdaq`s record run.
FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: The road of the Nasdaq crossing the 9,000 mark was paved with computer chips, yoga pants and lattes. It`s not surprising that chips are a major factor for the tech-heavy index. AMD gaining 85 percent, seeing the biggest improvement since the Nasdaq crossed the 8,000 mark back in August of 2018.
Lam Research (NASDAQ:LRCX) and Broadcom (NASDAQ:BRCM) also gaining more than 50 percent. Consumer stocks also pushing the Nasdaq higher. Yoga pant maker Lululemon rising 67 percent since the 8,000 mark, Starbucks (NASDAQ:SBUX) gaining 66 percent. Charter Communications (NASDAQ:CHTR) one of the biggest cable providers in the nation gaining more than 59 percent.
The so-called FANG names, Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOG), as well as Microsoft (NASDAQ:MSFT), had the biggest impact on the index. But they were mixed on the road to 9,000. Stocks, they typically get a boost this time of year. The so-called Santa Claus rally over at the Nasdaq closing at yet another record. Some experts believe these against could be more than just seasonal.
For NIGHTLY BUSINESS REPORT, Frank Holland.
GRIFFETH: Also helping propel the Nasdaq this year has been Apple (NASDAQ:AAPL). It`s also been the best-performing stock in the Dow this year, rising about 83 percent. That gain has put apple on track for the best year in a decade.
So, where do apple and the rest of the tech stocks in the Nasdaq go in 2020?
Chris Retzler joins us now. He`s portfolio manager with the Needham Growth Fund.
Chris, good to see you. Thanks for joining us tonight.
CHRIS RETZLER, NEEDHAM GROWTH FUND PORTFOLIO MANAGER: Hey, Bill. How are you?
GRIFFETH: Far and away, most money managers we talked to on this program, when I ask your favorite sector, it`s usually technology. What about for 2020? Does the momentum continue, do you think?
RETZLER: Well, we are planning for a bit of a correction here in the New Year. We think a lot of gains where people don`t want to take those taxable gains in 2019 might be pushing that out to 2020. However, longer term, we are still very bullish on technology. When we like about it is it`s defendable on a global basis, where they can defend that technology. It`s much of what we`re fighting for against China, IP protection.
RETZLER: So we remain bullish and technology going into the next year. But we think that there could be some pullback in the early months.
GRIFFETH: As Frank Holland mentioned, the chip stocks — I mean, they had suffered a few years. But suddenly, a resurgence this year. Are — is that one of the groups you are looking at for potential pullback next year?
RETZLER: It would be an area. But semiconductors are great leading indicators for economic acceleration. So what we`ve been seeing since September is a real nice run in semi cap equipment, semiconductors which gives us some confidence that next year is still going to be a good year economically and probably an acceleration in global economic activity.
GRIFFETH: 5G, that`s to be a big — I would think catalyst for next year of growth for a lot of companies. That`s the next generation wireless technology.
Do you agree with that? Or are we getting hopes too high at this point?
RETZLER: I agree with that. However, I would break it down between two pieces. One is the actual infrastructure to make the devices which also need 5G. So as you think about mobile phones, we would expect to see 5G built into devices. However, the infrastructure to make them work we think could take a little bit more time. And that`s probably over multiple years.
So, 5G really has a long tail to its investment. And it`s much of what we are seeing in the semi conduct are land right now and we think that continues multiple years.
GRIFFETH: Chris Retzler with the Needham Growth Funds — Chris, again, thanks for joining us tonight.
RETZLER: Thank you.
GRIFFETH: And as we close on the end of the year and decade, there is a belief on Wall Street that the stocks and sectors that outperform one year often underperform the following, and vice versa.
But is the same true over longer periods of time?
Bob Pisani takes a look.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: What a decade it has been. It started out with fear. It`s ending with historic highs.
Investors have been absorbed with a search for growth. That`s why technology, the ultimate growth stocks, have so dramatically outperformed everything this decade, up over 300 percent as a group.
The bottom sectors have a notable standout, energy. Oil stocks have had no gains the last decade. So, what`s next? If history is any guide, investors should avoid the fallacy that the future is going to look exactly like the past.
We`ve often noted that stocks in sectors that outperform one year often under-perform the falling year. It`s called mean reversion. It`s the tendency for most investments to revert to long-term average and it happens over long periods of time as well.
So, look at 2000 and 2009. The top three sectors — energy, consumer staples, materials — tended to underperform in the next decade up only 80 percent. The bottom three sectors –communications services, technology, financials — they tended to outperform, up 184 percent.
This phenomenon also happened from 1990 to 2000. Technology was the best performer and it was the worst performers in the next decade.
So, why does mean reversion seem to work as an investment strategy? For the stock market, there`s two explanations. First, in a capitalist system, underperforming sectors tend to be ruthlessly restructured until they`re efficient. Then there is the old future fallacy — humans tend to buy things that keep going up in value, creating bubbles that eventually burst.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: Now, Bob just mentioned the energy sector`s lost decade. And in the year ahead, the industry faces a number of challenges still.
Brian Sullivan has our 2020 playbook.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stagnant oil prices, heavy corporate dead loads, and environmentally conscious investors selling oil and gas absolutely slammed the energy industry in 2019. All this, the U.S. reached a major milestone. Becoming a net exporter of crowd and petroleum processed for a full month the first time in 70 years. All this as the race for another kind of development, so-called rare earth minerals just began to heat up.
Here`s what to watch for in energy in 2020.
First, a wave of bankruptcies. Unless oil prices rise, the industry and investors may have to endure a number of reorganizations. Many companies are struggling with huge amount of debts., built up when oil prices were on the rise. And unless oil jumps in price, Wall Street is unlikely to let companies refinance or extend their obligations.
Second, international resources shift. Venezuela likely loses control of Citgo. After years of courtroom battles between a hedge fund and the government of Venezuela, the final battle likely comes in 2020 and it`s possible the courts ultimately rule against Venezuela, allowing Citgo to be seized, auctioned off and bought by an American company or companies.
And third, the race for rare earth minerals full throttle.
If you want to build of an environmentally sensitive project, like an electric car, or wind turbine, you need rare earth elements. These are obscure but incredibly minerals like lithium, neodymium and yttrium. China controls most of the world supplies for these critical elements, but there are many projects in the works to help the U.S. catch up. This will be the battleground to watch in 2020.
For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan.
GRIFFETH: Rob Thummel joins us now to talk more about what lies ahead for the oil market in 2020. He is a portfolio manager at Tortoise Advisers.
Good to see you. Thanks for joining us tonight.
ROB THUMMEL, TORTOISE ADVISORS PORTFOLIO MANAGER: Thanks, Bill.
GRIFFETH: And, actually, you think that in 2020 will mark a return for the U.S. energy sector.
What do you mean?
THUMMEL: Well, as Brian and others talked about, you know, 20 — the last decade was a bad one for the energy sector. But going forward, we see a lot of opportunities and catalyst for the energy sectors. The biggest what Brian highlighted, the U.S. is now a net energy exporter.
THUMMEL: So, going forward in the next decade, 2020 and beyond, there is a significant opportunity for investors to capitalize on the opportunity in the U.S. as the U.S. becomes a large supplier of all energy commodities to the rest of the world.
GRIFFETH: Do you see prices going higher and who will set those prices? Is that still OPEC with the power to do that or does the U.S. industry have the power now?
THUMMEL: Well, going forward, oil will still remain relevant, and somewhat important. But natural gas and renewables actually will be the opportunity going forward. But specifically to your question from an oil price perspective, we have got plenty of supply. OPEC is still important. But the U.S. will also play a critical role there as well.
But for the energy sector to be successful, this is the most important part of it. We just need stable oil prices. Stable energy prices. And we think the setup is pretty strong for the next decade to have stable, consistent energy prices, which still allow the companies and cash flow they are generating to grow and that`s what investors will reward going forward.
GRIFFETH: Your three winners, the stocks you like for next year. Why those three in particular?
THUMMEL: Yes, so energy infrastructure is a place here at tortoise we love for a lot of reasons.
First of all, energy is essential. And if you are going to transport energy, if the U.S. is going to export more energy, we need more energy infrastructure. We need existing infrastructure to facilitate the export growth going forward that`s going to happen in 2020 and beyond.
So, companies like enterprise products that pays a dividend yield of almost 6.5 percent. Owns critical energy infrastructure. Have raised dividend for over a decade every single year. Other companies, like Williams Company, once again another 6.57 percent dividend yielder. Magellan midstream, another 6.5 percent dividend yielder.
Investors, really, from our perspective, Bill, are starving for yield. You know, the S&P 500 yields 1.9 percent. The 10-year treasury yield is 1.8 percent. You need dividend yields as investor. And we think energy infrastructure is a great place to find some of those dividend yields.
GRIFFETH: By the way, quickly you mentioned natural gas, prices have floundered for a number of years because of oversupply. Do you see that ending at some point?
THUMMEL: Well, first of all, natural gas is one of the most critical commodities going forward. We need to lower carbon emissions basically globally, right? And the playbook in the U.S. and not a lot of people know this, but carbon emissions in the U.S. have declined in the last 10 years. One of the reasons for that is because of the increased use of natural gas in the electricity sector to generate electricity.
So that needs to be applied globally. And it will be in the next decade. And if we apply the same formula in the U.S. globally and the next decade, and eliminate coal and increase natural gas and renewables, we`ll end up reducing carbon emissions globally.
And so, we think natural gas plays a really critical role. The price — the price can stay low and that will actually boost demand going forward.
GRIFFETH: Very good.
Rob Thummel with Tortoise Advisers — again, thanks for joining us tonight, Rob.
THUMMEL: Thank you, Bill.
GRIFFETH: You bet.
Time to look at some of today`s “Upgrades and Downgrades”.
We begin with shares of Tesla. Their price target was raised to $370 from $270 at Wedbush. The analyst cited demand for the automaker`s Model 3 here in the U.S. and in Europe, which should help profitability. But the firm is recommending a wait-and-see approach to the stock itself. It`s maintaining its neutral rating right now. Stock rose more than 1 percent today to $430.94.
Qiagen (NASDAQ:QGEN) was re-instated with an underperform rating at Bank of America (NYSE:BAC). The analyst there cited the Dutch company decision to remain independent after ending takeover talks with various potential suitors, all of which was announced late Tuesday. Price target now $28. Qiagen (NASDAQ:QGEN) lost 20 percent of its value today to close at $32.91.
Spectrum Pharmaceuticals (NASDAQ:SPPI) was downgraded to neutral from overweight at Cantor Fitzgerald. The analyst cited the failure of the company`s experimental lung cancer treatment in a mid-stage trial. Price target $4. And shares of that small cap dropped by 60 percent on that news today to $3.50.
Still ahead, slow and steady stocks were a slow and steady recovery. Our market monitor has names to consider.
And a reminder that many in international markets were closed for boxing day today.
GRIFFETH: To the economy now and a couple of reports on jobs and housing.
First, the number of Americans filing for unemployment benefits fell by 13,000 last week to 222,000. Jobless claims are usually volatile around the holiday season and at the end of the year.
Elsewhere, there was a 3.5 percent pullback in mortgage applications last week. Mortgage rates themselves moved a tiny bit higher over the period, almost a 4 percent on average now.
And now that Christmas is over, `tis the season for returns. And there are more of them thanks to the rise of e-commerce.
Frank Holland is back with that story.
HOLLAND: A record $95 billion in holiday returns is projected for this holiday season with nearly half coming from e-commerce. The most returned items are expected to be women`s clothing, appliances and toys.
Moody`s retail analyst Charlie O`Shea says the growing return culture can be a boost to retailers post-holiday sales.
CHARLIE O`SHEA, MOODY`S: It`s a win for retailer if they get you in the store to return something because they get a bite at the apple. So, we think retailers need to leverage that opportunity.
HOLLAND: According to a new survey from XPO Logistics, 9 percent of brick and mortar purchases are return, compared to 30 percent of online sales. And 83 percent f those online shoppers considered the return policy before they buy. Amazon (NASDAQ:AMZN) announced free returns on millions of items this holiday season. The tech giant gets more than a third of all online sales.
UPS says it expects its peak day for online returns to be January 2nd, when 1.9 million packages will be sent back. A 26 percent increase over last year.
Those returns, they also have a growing cost for retailers. CBRE estimate retailers lose $50 billion per year because of inefficient logistics handling returns. The return culture it`s a key part of the evolving e- commerce landscape that Oppenheimer analyst Brian Nagel says is shifting to actually attracting customers to brick and mortar stores.
BRIAN NAGEL, OPPENHEIMER & CO.: Most retailers talk about buy online, pick up in store representing 50 percent upwards of 70 percent of the online sales. The consumer going online purchasing the product but then subsequently going to the store and picking it up.
HOLLAND: Estimates have online returns increasing by 50 percent or more next year while brick and mortar returns expected to increase low single digits. Companies like UPS and FedEx (NYSE:FDX) have handled many of those returns are expected to see a big boost in their volumes and their revenues.
For NIGHTLY BUSINESS REPORT, Frank Holland.
GRIFFETH: Amazon (NASDAQ:AMZN) said today it had a record breaking holiday season and its shares have seen solid gains so far this year. But the stock is also doing something it hasn`t done in years.
Deirdre Bosa takes a look at what`s next for one of 2019`s most talked about companies.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Amazon (NASDAQ:AMZN) has been one of the best performing stocks of the last decade. But it could end the streak on a more lackluster note. This year, Amazon (NASDAQ:AMZN) is on track to underperform the benchmark S&P 500 for the first time since 2014.
Back then, the company was under pressure for its lack of profit and falling operating margin. This time around, Wall Street is more forgiving of Amazon`s so-called investment year. Shares have returned nearly 20 percent so far. And many are predicting the ground work has been laid for a bigger breakout next year.
STEPHANIE LINK, NUVEEN HEAD OF GLOBAL EQUITIES: Because it`s an investment year for Amazon (NASDAQ:AMZN), and the stock never outperforms when they`re in investment year. But it does tend to outperform the year after in investment year because that`s when you see the benefits.
BOSA: Except this time could be different. Amazon (NASDAQ:AMZN) is facing new risks and the cracks are starting to show as it heads to 2020. They include declining dominance in e-commerce and cloud, rising competition, antitrust concerns and an uncertain regulatory environment in an election year.
There is also growing concerns about the safety and quality of its marketplace. Amazon (NASDAQ:AMZN) has been one of the past decades most rewarding bets. It`s far from guaranteed that it can do it again over the next 10 years.
NIGHTLY BUSINESS REPORT, Deirdre Bosa, San Francisco.
GRIFFETH: PayPal will look for takeover targets next year. That`s where we begin tonight`s “Market Focus”.
The company`s chief financial officer tells the “Wall Street Journal” there are many acquisition opportunities in the payment sector. They`ll be targeting future deals in the 1 billion to $3 billion range. Shares rose a fraction today to $109.75.
Tiffany (NYSE:TIF) said that overall holiday sales for the holiday period increased, rising 1 percent to 3 percent globally from early November through Christmas Eve. The stock rose 3 cents to $133.6.
Private equity firm KKR (NYSE:KKR) is buying overdrive. That is a digital platform that helps libraries and schools deliver digital content to users. The value of the deal was not disclosed. The stock was up a fraction, though, to $29.28 today.
And the FDA has accepted Immunomedics (NASDAQ:IMMU) application for fast approval of its breast cancer treatment. The medicine is for the treatment of an advanced form of that disease. Shares gained more than 5.5 percent today to $21.67.
All this week, we are getting you ready for the New Year bringing back familiar market monitors. And tonight`s guest has some all-weather stocks that he says will protect your portfolio during a slow, steady economy.
Last time he was on as a market monitor was in July of `18. He recommended Anthem, which is up 23 percent over that time. Apple (NASDAQ:AAPL) was up 51 percent. And Google (NASDAQ:GOOG) parent Alphabet is up 14 percent since he recommended them.
Andy Kapyrin is back with us. He`s director of research of Regent Atlantic.
Good to see you again. Welcome back.
ANDY KAPYRIN, REGENT ATLANTIC CO-HEAD OF INVESTMENTS: Good to be here, Bill.
GRIFFETH: Vanguard REIT ETF. You`re going t for slow and steady there, aren`t you?
KAPYRIN: So, Bill, I`m calling this the Rolling Stone recovery, because just when you think they are finally out, they`re not going to turn anymore, they go in and they announce another — another farewell tour, if you will. In that kind of recovery, even the Stones are slowing down, they`re not hitting as many cities as they used to.
KAPYRIN: What that means is growth is going to be there. But it`s going to be slower. And what I`ve identified are three investment ideas that I think are doing well in that slow but steady growth environment.
GRIFFETH: And you feel real estate does well in the latter stages of a recovery.
GRIFFETH: So, that`s why you like this one.
KAPYRIN: Because when the economy gets mature things slow down, you care a lot more about underlying cash flows and the stability of those cash flows. That`s where the real estate matters.
It`s basically the ultimate subscription model. You`re leased. You`re locked in for at least a year. If it`s like a commercial lease, you of ten locked in for ten years.
So, a lot of predictability, a lot of stability, and it tends to be a sector that does best when the economy is mature and going more slowly.
GRIFFETH: I guess it`s no surprise then if you go for stability, you like a utility. And you have chosen Exelon (NYSE:EXC) on in this particular case. Pretty good dividend. Why else do you like it?
KAPYRIN: So, I like Exelon (NYSE:EXC) because their geography focuses on the upper Northeast. It`s a relatively well-established and stable business model. They`re also a relatively low carbon emitter, which is becoming more important as people focus more on environmental, social and governance principles as they identify investments for the portfolio.
GRIFFETH: Finally, I`m not sure I would think of AT&T (NYSE:T) these days when I think stability. Yes, back in the day, yes. But now, they are transforming themselves into the media company with a lot of challenges right now.
KAPYRIN: So, it is precisely because of that transformation that I think they are a good bet but for a stable but slow economy. So, what they have done over the past few years. They`re gone from being a stodgy old telecom with a wireless unit that was big but that was all they really had to horizontally integrated media company.
KAPYRIN: So, they own HBO and Time Warner (NYSE:TWX). They own the actual pipes that get to that the destination, to the customer. They can really build on this.
One, they can consolidate pay off some of the debt that they used to acquire Time Warner (NYSE:TWX). Number two, they can go into a subscription model like Netflix (NASDAQ:NFLX). That`s already what they`re doing with HBO Max and HBO Go. It`s a really good opportunity for them to stabilize their business model and be more diversified and be a good bet for a slow but steady economy.
GRIFFETH: Very good. Andy Kapyrin with Regent Atlantic, good to see you.
KAPYRIN: Thank you, Bill.
GRIFFETH: Thank you. Happy New Year.
And coming up, leaving paradise why California is losing a generation of wage earners.
GRIFFETH: The federal government is taking another step to try and integrate the use of commercial drones into national aerospace. The FAA is proposing a rule that would require most drones operating in the U.S. to be equipped with remote tracking technology. The regulator says it expects all drones to be in compliance within three years of finalizing that rule.
Finally tonight, California as you may know is the world`s fifth largest economy. But a growing number of its residents are packing up and moving out.
Jane Wells tells us why the Golden State seems to be losing its shine.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: California used to be the place where everyone dreamed of going. Now, people dream of leaving.
SYDNEY MULKEY, EDUCATOR: My economic situation there was not great.
WELLS: Sydney Mulkey is a 30-year-old educator from Oakland who was living with her grandmother to make ends meet.
MULKEY: At one point, I was working three jobs. And I was just really tired. So that was kind of the last straw.
WELLS: So, she moved to Portland, Oregon, where she got the same job for more pay and was able to buy a brand-new townhouse.
Danielle and Scott Fortier are Los Angeles natives who picked up and moved their family and small business to Nashville.
SCOTT FORTIER, SMALL BUSINESS OWNER: We`ve been here six months. In the six months, we`ve already had six friends of ours, six couples relocate to the same area also.
WELLS: These are not isolated examples. The U.S. Census Bureau says California had a net loss of 190,000 people last year. That`s still a relatively small number. But it`s a growing trend.
JOEL KOTKIN, CHAPMAN UNIVERSITY PRESIDENT FELLOW: People have this image of all the old people who are frustrated leaving. But actually the ones who are leaving are family age people, people 30 to 54, that group. That`s the group that`s leaving.
WELLS: For the Fortiers, moving to Nashville has allowed them to save for retirement.
Scott no longer has to work 80-hour weeks. They traded in this 3,100 square foot house on a small lot in L.A. for a larger house on 7 acres in Tennessee, which even includes a building for their business.
S. FORTIER: Property taxes in California were $7,200 a year. And our property taxes here are $2,800 a year.
WELLS: Migration out of California could have national implications. The state`s unique culture of innovation took decades to build and benefited the entire country, attracting the best and brightest from around the world. That is not easily recreated somewhere else.
KOTKIN: There is no substitute for California. When somebody moves from California to Dallas, they may live a better life. Will they have the same impact they would have had had they been in California? I`m not sure.
WELLS: But do these millennials miss California?
DANIELLE FORTIER, SMALL BUSINESS OWNER: I think leaving our family was the hardest part.
MULKEY: Yes, I do. Especially on days like today when it`s rainy and gloomy and very dark at 7:30 in the morning.
WELLS: But California`s great weather may no longer be enough.
For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.
GRIFFETH: And before we go, a final look at the record closes and Wall Street today, the Dow up 105. Nasdaq above 9,000 the first time ever. And the S&P rose by 16.
That is NIGHTLY BUSINESS REPORT for tonight, I`m Bill Griffeth. Thanks for watching. Have a great evening. See you tomorrow.
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