Transcript: Nightly Business Report — March 30, 2015

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The bulls are back. Stocks jumped to start the week as several health care deals put investors in a buying mood.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Deadline looms. Why the oversupplied oil market is paying such close attention to any developments in those Iran nuclear talks.

HERERA: Business backlash. Companies big and small are taking a stand on Indiana’s controversial religious freedom bill.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, March 30th.

MATHISEN: Good evening, everyone. And welcome.

It was the perfect recipe for a rally on Wall Street. We had deals, a lot of them. We had talk of more stimulus, not only in China, but also in Europe. And we had a market that’s been up, but mostly down lately.

And that combination put investors in a buying mood, starting the trading week with a triple-digit gain for the Dow. The Dow Industrial Average up almost 264 points to 17,976, NASDAQ rose 56, and the S&P 500 gained 25.

Mergers in health care contributed to the optimism, the big one, Dow component, UnitedHealth Group (NYSE:UNH) said it would acquire the pharmacy benefits manager Catamaran for nearly $13 billion. Both stocks leaped on the news. UnitedHealth, one of the top performers of the blue chip average. Catamaran up, look at that, almost 24 percent.

But that doesn’t all, Teva agreed to buy Auspex for more than $3 billion, while Horizon is acquiring Hyperion Therapeutics for close to $1 billion. Those stocks also moving up.

Meg Tirrell takes a look now at what is driving these deals.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The consolidation in the health care industry continues. Health insurer United Health purchased a pharmacy benefits manager Catamaran. It’s just the latest in a series of deals in the space.

MICHAEL CHERNEY, EVERCORE ISI MANAGING: This is a market that’s going through a long-standing period of consolidation, before Catamaran was the business that was the best in rolling up the market, it was Express (NYSE:EXPR) Scripts. Express (NYSE:EXPR) Scripts had a long history of creating value through acquiring various businesses. The most — the last big one being the Medco acquisition, you know, combined at that time two of the three largest players.

TIRRELL: The results, for one, greater power for PBMs to negotiate drug prices. Pharmacy benefit managers, including Express (NYSE:EXPR) Scripts and CVS (NYSE:CVS) Health negotiate drug prices on behalf of insurers. The UnitedHealth/Catamaran deal analysts say strengthens the third largest player. That could be bad news for the drug industry, according to Les Funtleyder, whose firm E Squared owns UnitedHealth. Drug companies are already contending with pressure on some of their biggest products, specifically for hepatitis C, made by Gilead and Abbvie.

LES FUNTLEYDER, E SQUARED ASSET MGMT. HEALTHCARE PORTFOLIO MGR.: The more market power the PBMs have and HMOs have, presumably, that will lead to lower drug prices. At least that’s what the PBMs are promising. So, I think they will put pressure similar to what we saw with Gilead last year on the other classes of drugs.

TIRRELL: But it wasn’t all bad news for drug stocks today. After concerns last week that bio techs bull run was coming to an end. Further acquisitions in the space buoyed stocks once again.

Israeli drugmaker Teva said it would buy California bio tech Auspex, while Ireland’s Horizon announced it was purchasing Hyperion Therapeutics.

FUNTLEYDER: It’s going to encourage stocks to go up more. There is an assumption by investors that this isn’t the last of M&A. There will be, at least for the time being, an M&A floor underneath some of — or much of health care. The major players are looking for growth, which they really don’t have. And acquisitions in the low interest rate environment tend to be creative.

And so, they get growth, and almost any price is creative. So, they’re quite happy to do it.

TIRRELL (on camera): Both Auspex and Hyperion brings some of the most coveted assets to their acquirers — drugs for rare diseases, which face less pricing pressure than those for illness like cholesterol or asthma.

So, while questions remain about how long biotech stocks will continue to rise, one thing seems certain — consolidation is here to stay.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

HERERA: Just one more trading day left in the first quarter, a quarter that saw the return of volatility to the stock market.

Dominic Chu takes a look at what worked, what didn’t, and what investors should expect from the second.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): If they managed to squeeze out a gain, it would represent the ninth straight quarter that the large cap S&P 500 has been positive.

So, what parts of the stock market managed to be upside standouts? Some of the biggest gains came from the health care sector. Among the market’s worst performers: utility stocks fell on worries interest rates would rise later on this year. As interest rates rise, it makes a bigger dividend yield that these companies pay relatively less attractive.

Traders are now looking ahead to where the risks and rewards are for the second quarter. Some like the prospects for technology stocks, as businesses start to look at making their operations efficient.

MIKE RYAN, UBS CHIEF INVESTMENT STRATEGY: One is going to be technology. Some of these secular drivers which includes mobility, cloud computing, e-commerce and big data, they continue to drive the demand for technology.

CHU: Another big focus for investors is the energy sector, as bargain hunters have been trying to capitalize on the extreme drop in stock prices in the industry. But some experts are saying it’s too early to say that oil and gas stocks are a buying opportunity.

EDDIE PERKIN, EATON VANCE: I think there are too many people who are sniffing around energy, and believe energy to be an attractive valuation. It’s not at all clear to me that that’s the case. We’ve seen private equity funds raise big new funds. We’ve seen the flows into the sector ETFs for the energy sector.

And there’s just too much money chasing what appear to be bargains because of the sell-off we’ve seen in oil. But I’d continue to be wary of the energy sector. I don’t think it’s fully washed out yet.

CHU (on camera): The worry for many investors is that we are due for some kind of larger pullback in the stock market. And they point to the recent volatility as an indicator that we could be due for a reversal for our recent uptrend.

So, while there is optimism about stocks for the coming quarter, there is a healthy amount of caution in the market as well.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: Here to discuss this volatile market and what investors can expect in the second quarter of the year is Scott Minerd, with Guggenheim Partners.

Scott, always great to see you.

Let’s just start with that question about volatility. It has been an up-and-down quarter so far. Lots of triple-digit moves.

Is this what we should expect for the rest of the year?

SCOTT MINERD, GUGGENHEIM PARTNERS GLOBAL CHIEF INVESTMENT OFFICER: Tyler, look, I think we’re going to have a lot of cross-currents for the rest of the year. We have the looming question about whether the Federal Reserve is going to start raising rates, and when is that going to happen. We have a lot of noise coming out of the energy sector that’s raising uncertainty about energy stocks. So, I think volatility is here to stay for a while.

HERERA: Scott, what about the strength of the dollar. We saw a number of companies this past quarter when they reported their earnings, point to the strength of the U.S. dollar as a real drag for them. Others say that the dollar is topping out here. Which camp are you in?

MINERD: Well, Sue, I think we’re in a long secular trend with dollar strength, intact for some period of time. I would think that the euro would fall to parody and possibly even lower. And so, in the near term, I don’t see much relief for S&P earnings coming out of the dollar.

But none of this should be unexpected. We knew the dollar strength was going to lead to translation problems in earnings for multinationals. And the market has room to appreciate just on multiple expansion alone.

So, while I think the dollar will be a headwind for earnings, I don’t think that is going to get in the way of stock prices moving higher.

MATHISEN: You know, Scott, I realize you run different kinds of portfolios and what you do in one, you might not do in another. But broadly speaking, have you been buying or selling or holding? And if buying or selling, in which sectors?

MINERD: Well, Tyler, you know, we’re looking opportunistically at some sectors right now. You know, energy, I think it’s too early. But you need to do your homework before you get to the bottom. And nobody can pick the bottoms perfectly.

You know, certainly, the large integrated companies that pay dividends look fairly attractive. And, you know, as an investor, we look at things over sort of a three to five-year horizon, not over a quarter-to-quarter horizon.

So, I think energy for a part of a portfolio add over the next quarter or so will give really good returns for the next three to five years.

HERERA: How important is the interest rate scenario to you and your investments, Scott? Because we saw just the other day when the Fed chief Ms. Yellen said they were going to be very patient. We saw the stock market shoot up. I mean, we’re still hinging on every statement from the Federal Reserve.

MINERD: Well, you know, Sue, it’s interesting, every period that precedes a Fed rate increase in the post-war period has been associated with a stock market rally. And the reason I think that that happens is that the Fed will move only if it’s convinced that the economy is strong. If the economy is strong, that’s good for stocks.

So, I see the Fed rate increase, if we do get it in the second half of the year, say, a positive sign for equities. And history also shows us that in the period that follows a rate increase, we would expect to see equities continue to perform well.

So, over the next 12 to 24 months, if the Fed does raise rates, I could see equities being 10 percent to 20 percent higher than where we are today.

MATHISEN: Scott, that sounds like a very cheerful note on which to end. Thank you very much, Scott Minerd with Guggenheim Partners.

HERERA: So, let’s talk about the economy, which saw consumer spending rise in February, though just barely, while incomes rose more than expected.

The Commerce Department said personal spending rose 0.1 percent, a number below expectations, while personal incomes were up 0.4 percent, more than expected. The economists say part of the reason for the soft spending number was the weather effect. With snow and cold temperatures in the Northeast and the Midwest, keeping people from getting to the malls.

MATHISEN: Well, despite those spending figures, a group of business economists forecast a solid year of economic growth. The National Association for Business Economics predicts GDP will grow at 3.1 percent rate this year, which will be the best performance in a decade and compares with the growth of about 2 1/2 percent last year.

The group says a stronger job market, consumer spending, and housing investment support that optimistic outlook.

HERERA: More Americans signed contracts to buy homes in February. The National Association of Realtors reports about a 3 percent increase in pending home sales. That’s the highest reading, though, since June of 2013. Buying activity was the strongest in the Midwest and the West, while it dipped slightly in the Northeast and the South.

MATHISEN: Oil prices fell today as Iran and six world powers try to negotiate a deal on Tehran’s nuclear program that could end sanctions against that country. With only a day left until the self-imposed deadline, West Texas Intermediate settled down 19 cents to $48.68. That was well off its lows of the session. Brent also closed lower as you see there.

Jackie DeAngelis has more on why the oil markets are paying such close attention to the Iran talks.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s all about Iran at the moment when it comes to oil. With the deadline for a nuclear deal looming large, oil traders think that at least a framework will be reached to clear a path forward. That’s because Iran is one of OPEC’s largest producers, with break-evens for the country reported at over $100 a barrel, U.S. imposed sanctions are hitting the country where it hurts.

ANTHONY GRISANTI, GRZ ENERGY PRESIDENT: The Iranians, what they do is subsidize a lot of things that happen in the country, such as gas sales and things like that, and they aren’t able to do that if they’re not selling the oil. So, really, the citizens on the street feel it. The international side is.

But the Iranians can’t sell oil, they can barely fund things that they need to do, infrastructure projects, things like that. So, definitely, the last two years of sanctions have hurt them greatly.

DEANGELIS: But a nuclear deal could lead to sanctions being lifted and that could add to the decline we’ve already seen in oil prices. That’s because more Iranian oil would only add to an already oversupplied market.

GRISANTI: If there is a nuclear deal cut, Iran doesn’t get a nuclear bomb, but the Saudis have to deal with Iranian oil coming back immediately, because that’s what the Iranians want. If there is no nuclear deal, the Saudis have to worry about the Iranians getting a bomb. That really ups the mistrust and distrust and geopolitical problems in the Middle East.

I’m sure that the Saudis don’t want another million barrels of oil on an already oversupplied world market. So, I think they’ll do everything they can behind the scenes to make sure Iranian oil doesn’t come back on the market anytime soon.

DEANGELIS: We already know that U.S. supplies are robust. Last week, after another strong build, the IAEA said the level of crude in storage remained at an 80-year high for the 11th consecutive week. At the moment, there is no sign that global demand will pick it up.

So, it appears the crude conundrum continues, with some of the Wall Street firms calling for oil to go to the 30s, maybe even the 20s if the supply/demand situation doesn’t work itself out.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

MATHISEN: And a key gauge of business activity in Texas, a state known, of course, for oil production, fell sharply in March. According to a survey by the Federal Reserve Bank of Dallas, business activity fell 6 percent from the prior month. Economists believe the planned reductions in the oil and gas investments are taking a toll on that state’s economy.

HERERA: And still ahead, the controversial Indiana law that has businesses both big and small taking a stand.

(MUSIC)

MATHISEN: A new state law in Indiana is drawing criticism from the local and national business communities. Critics say the law opens the doors for businesses to discriminate against gay.

Indiana Governor Mike Pence says that’s a misperception and the law is about personal empowerment.

Mary Thompson has more now from Indianapolis.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): On the streets of Indianapolis, small businesses hang signs letting clients know everyone is welcome, because of an unwelcome law.

AMY WATT, WATT’S BLOOMING: We shouldn’t have to hang signs that say, I don’t discriminate.

THOMPSON: Florist Amy Watt’s sentiments echoed by others who see Indiana’s Religious Freedom Restoration Act as providing legal cover for businesses who want to discriminate against gays.

The backlash putting state lawmakers back on their heels and looking for a fix.

DAVID LONG (R), INDIANA STATE SENATOR: To the extent that we need to clarify through legislative action that this law does not and will not be allowed to discriminate against anyone, we plan to do just that.

THOMPSON: The business community clearly sees it as a threat to their livelihood. The local and national response now threatens Indiana’s economy. Indianapolis based Angie’s List, an online marketplace, suspending expansion plans that would have added 1,000 jobs to the state by 2019.

WILLIAM DESTERLE, ANGIE’S LIST CEO: If the atmosphere is such in the state that we can’t draw the talent that they can’t be comfortable, then I can’t commit the company.

THOMPSON: Eli Lilly (NYSE:LLY) calling the law bad for business. And Salesforce.com (NYSE:CRM) saying it will stop investing in Indiana.

Apple (NASDAQ:AAPL) CEO Tim Cook writes in an op-ed, other states considering similar proposals put their economies at risk, stating, “From North Carolina to Nevada, these bills under consideration will truly hurt jobs growth and the economic vibrancy on parts of the country where 21st century economy was once welcomed with open arms.”

Local businesses fear the law will hurt the state’s $4 billion convention business, and its future as host to big events like this weekend’s NCAA basketball championship.

Based here, the NCAA also expressed concern about the law’s impact on student athletes and its employees.

(on camera): Indiana’s Chamber of Commerce calls the law unnecessary. But northwest up here in Lebanon, Indiana, the family-owned Samson’s Leather supports.

(voice-over): In a statement on its Facebook (NASDAQ:FB) page, Samson says it doesn’t discriminate, but wants the right to refuse business that causes it to write or create something it’s not comfortable with.

Sampson told CNBC it knows other likeminded businesses, but those companies didn’t want to go public with their views.

To Watt, the law takes a bloom off a recent resurgence in Indiana’s image and economy, painting her and other Indiana businesses with an unwanted brush.

WATT: I’m not here to discriminate. I’m here to sell flowers and make people happy.

THOMPSON: In Indianapolis, I’m Mary Thompson, for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: Fidelity tries to end a Du Pont proxy war. And that is where we begin tonight’s “Market Focus”.

Fidelity Investments, which is a major investor in Du Pont, has put pressure on an activist fund led by Nelson Pelt to end its proxy fight with Du Pont. That’s according to a report from “Reuters”. That activist fund known as Trian Partners is pushing for the appointment of four directors to Du Pont’s board. But Fidelity sees the proxy fight as detrimental. The shares of Du Pont rose more than 1 percent to $72.58.

Best Buy (NYSE:BBY) plans to close some stores and consolidate its operations in Canada. With that, the electronics retailer will cut 1,500 jobs. The company warned that the move will hurt earnings. Still, shares rose a fraction to $38.75.

MATHISEN: Shares of World Wrestling Entertainment (NYSE:WWE) took a hit today. Maybe a body slam is a better way to put it. The company posted better-than-expected results, and announced that its Wrestlemania event last night was the highest grossing in its history. But investors doubt that online subscribers who took advantage of a free February promotion will stick around long term, and those concerns sent shares plunging almost 15 percent on the day to $14.09.

GNC Holdings has started selling some supplements in its New York stores again. After reaching an agreement with the state’s attorney general. The company agreed to adopt testing standards for herbal supplements that exceed FDA standards to end the dispute. Shares up 7 percent today to $49.26.

And a tough day for shares of Biodelivery Sciences. The drugmaker’s pain drug failed to meet the gain goal of late stage study. Experimental medicine is a gel that treats nerve damage caused by diabetes. The stock tumbled 24 percent to $10.51.

HERERA: Well, March can’t end soon enough for technology investors. That sector is one of the worst performers in the S&P 500 this month. Take out Apple (NASDAQ:AAPL) and its performance is even worse.

Josh Lipton takes a look at what’s pressuring tech.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The tech sector of the S&P 500 is down about 3 percent so far this month. For the quarter, it’s basically flat. In fact, this would be its smallest gain since at least 2005.

So, what’s pressuring tech? Strategists blame a rising dollar. As a sector, tech generates nearly 60 percent of its sales from overseas. That’s more than any other sector in the index. A stronger dollar can impact sales by making the price of U.S. products more expensive to customers overseas.

Strategists only see the dollar moving higher from here.

SAM STOVALL, S&P CAPITAL IQ: It goes to the U.S. economy, it’s growing because corporate earnings are appreciating, because the yield on our 10-year note is superior to that, to other yields around the globe, that it just acts sort of as a magnet to international investors, bringing in their moneys to the U.S., and that helps to strengthen the U.S. dollar.

LIPTON: A stronger dollar could prove a substantial headwind for some tech companies, according to analysts at Namura. For example, they point out that Oracle (NASDAQ:ORCL) took a 6 percent hit to revenues because of a stronger dollar in its most recent quarter. They estimate a 9 percent impact in its May quarter.

Of course, tech still has its fans. They point to expected earnings growth and attractive valuation.

STOVALL: Earnings are expected to rise in 2015 at a 5 percent clip, versus the 0.4 percent pace expected for the S&P 500. Also, the price-to-earnings ratio is less for technology at 16.2 percent, versus more than 17 percent for the S&P 500.

LIPTON (on camera): Tech investors might have a better sense of where the dollar heads from here on Friday morning when the jobs report hits. Dollar bulls say that report if it’s strong enough could provide more fuel for a rising dollar.

For NIGHTLY BUSINESS REPORT, I’m Josh Lipton in Silicon Valley.

(END VIDEOTAPE)

MATHISEN: Coming up, the silver lining for consumers as some retailers continue to feel pain from the backlog at West Coast ports.

(MUSIC)

HERERA: And here’s a look at what to watch tomorrow.

The S&P Case-Shiller home price index for January will be released before the bell. As we reported earlier, it’s the deadline for the U.S./Iran nuclear talks. And the first quarter ends. And that is what to watch tomorrow.

MATHISEN: And while the West Coast ports continue to dig out from the backlog of cargo that built up during the long-standing labor dispute, many retailers are still trying to assess the damage that was done.

Courtney Reagan has more.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It’s been more than a month since a deal was reached to settle the labor contract dispute at West Coast ports. But the pain is still present for retailers.

William Sonoma, which runs Pottery Barn and West Elm, in addition to its namesake brand, says the congestion continues to cause a material disruption, and estimates it will incur $30 million to $40 million in lost sales, with a 10 to 12 cents earnings per share hit for the year. The retailer is among the 25 largest container volume importers in the country.

Restoration Hardware says $10 million to $12 million in orders are delayed. But the home furnishings retailer is confident it will be shifted into the second quarter rather than lost.

Thirty percent of Pacific Sunwear spring goods are delayed. And the CEO called the sales hit quite significant on its earnings call, adding that even though a new sneaker was featured in windows, stores didn’t have the shoes to sell. The teen retailer isn’t expecting to get back lost sales.

Lululemon now says it expects inventory delays will hurt until at least May, much beyond the original forecast of inventory backlog through the end of January. The one thing on every investor’s mind, how long will the backlog last?

LINDA CONRAD, ZURICH GLOBAL DIR. OF STRATEGIC BUSINESS RISK: One thing that maybe has been underestimated is the cascading impact of something like this. It’s not just the goods that don’t get to shelf now, there’s also this knock-on effect those boats are not able to get over to the Far East or other places to be reloaded. So, there’s this rolling impact that should last much longer into the future than you would immediately think of when you imagined a port slowdown.

REAGAN (on camera): Conrad also says historic data shows supply chain disruptions caused share prices to fall an average of 25 percent, with impacts that linger for two years.

(voice-over): However, not every retailer is hurting. Five Below, Children’s Place and Finish Line say forward planning has and will prevent any delay or disruption. Francesca’s, Vince, and Men’s Warehouse are among those experiencing only a minimal impact.

And there could be a silver lining for shoppers. While there has been less inventory to pick from in early spring, once the merchandise does come in, retailers will likely have to discount it to catch up.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

HERERA: And finally tonight, from Fed chief to blogger, former Federal Reserve Chairman Ben Bernanke is writing about economics and finance on the Brookings Institution Web site. He’s a senior fellow at Brookings. In his first blog post, Bernanke defended his actions as the head of the Central Bank to keep interest rates low. Not only did he post his first blog, but he also made a rare public speech saying rates may not remain this low forever.

(BEGIN VIDEO CLIP)

BEN BERNANKE, FORMER FEDERAL RESERVE CHAIRMAN: The downward pressure on global interest rates will probably moderate somewhat over time. And the pressures for the trade deficit of the United States will probably moderate somewhat over time. I think those are positive factors that need to be taken into account thinking about growth.

(END VIDEO CLIP)

HERERA: Until today, Mr. Bernanke has only made limited comments on the economy since he left the Fed last year.

On that note, that does it for NIGHTLY BUSINESS REPORT for tonight. Thanks for joining us. I’m Sue Herera.

MATHISEN: And I’m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody, and we hope to see you right back here by tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, 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) 2015 CNBC, Inc.

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