Transcript: Nightly Business Report — June 1, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: June gloom? This month promises to be a bumpy ride for investors. And the barrage of economic reports out this week alone could really stir things up.

Business decision. The Supreme Court rules on three cases that could have big implications for the workplace, social media and homeowners.

Fighting cancer. While CEOs hail a new era in cancer treatments, one prominent physician blasts their high price.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, June 1st.

Good evening, everyone. I`m Sue Herera. My partner Tyler Mathisen has the evening off.

Well, the calendar has been flipped. It`s not only the start of a new week, but also a new month. One that historically has not been good to investors. But this June got off to a decent start. The Dow Jones industrial average gained nearly 30 points to close at 1,840. The NASDAQ rose about 13 points and the S&P 500 was up 4 points.

So, should investors expect a June swoon or surge? Because if history is any guide, the bears will be in control.

Dominic Chu has more.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The broader large cap stock market managed to polish off May with marginal gains. But history suggests we may be in for a bit of a June swoon. That`s because June has typically been one of the worst months for stock market returns.

According to market data and analytics firm Kensho, on average, over the past 10 years, all three major stock indexes have posted losses during the month. The Dow Industrial Average has finished lower in eight of the last 10 Junes, with an average loss of over 1 1/2 percent. The broader S&P
500 has finished lower in six of the last 10, with an average loss of about
1 1/3 percent. And the NASDAQ composite has finished lower in seven of the last 10 times with an average loss of nearly 1 percent.

As for what sectors managed to do the best during this time period, try the S&P 500 utilities, outperforming an average of 1 1/3 percent, and has posted gains in six of the last 10 instances. As for the worst performing sector, the industrial one, with an average loss of nearly 2 1/2 percent, and it`s been a winning trade in two of the last 10 years.

The stock market remains near at record levels, but for those who are looking for a reason to possibly lighten up on stock exposure, recent history might be a factor to consider. As usual, past performance doesn`t translate into future performance. But many traders look towards history for patterns to help them play the odds.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA: June starts with a big week of economic reports. Investors will be watching for evidence of a snap back following the lack of growth in the first quarter. It started today with an increase in construction spending in April to the highest level in nearly 6 1/2 years. The Commerce Department reports that construction spending jumped 2.2 percent to an annual rate of $1 trillion. And manufacturing activity also picked up for the first time in seven months. But another report today showed consumer spending stalled.

Steve Liesman has more on what investors should watch for the rest of the week.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a big week for economic data. That means it`s a big week for figuring out if the economy is bouncing back in the second quarter from the negative number we got on GDP for the first quarter.

We got some decent data today in the form of a positive manufacturing report from ISM. And better income numbers, though not very good spending numbers from the consumer.

Tuesday, look for factory orders and vehicle sales. And on Wednesday, look for the ADP report, along with an ISM services report, and the Fed`s Beige Book comes out in the afternoon.

Thursday, claims and productivity, en route to the big day, which is Friday, where we get the employment report, where commerce looks for
220,000 jobs to have been created in the month of May, after the unemployment rates remain unchanged at 5.4 percent.

And all of this will figure into the Fed`s calculation about whether or not and when it will raise interest rates.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: Stephen Freedman joins us now to discuss which economic report he thinks the markets will be watching most closely and how it could impact stocks and your investments this month. He`s the senior investment strategist at UBS Wealth Management.

Nice to have you here. Thanks so much for joining us, Stephen.

STEPHEN FREEDMAN, UBS WEALTH MANAGEMENT SR. INVESTMENT STRATEGIST: My pleasure.

HERERA: Which report to you is going to be the tell of the week, if you will?

FREEDMAN: Well, I think this week, it`s very clearly, the employment reports. It`s been very critical reports for two reasons. Number one, it`s going to be one of the factors that ultimately the Federal Reserve is going to be looking at closely, in terms of its assessment of the overall situation, the labor market being one of the key ingredients into its equation.

But I think it`s also an important report because ultimately, the labor markets is it one of the key pillars of consumption. And it`s going to be one of the keys to see whether the consumer can reengage after the relatively sluggish phase we`ve seen in recent months.

HERERA: And if it indeed it does come in pretty much where economists are expecting and where you`re expecting in the 200-plus arena, does that change your timetable for when the Fed will move on interest rates?

FREEDMAN: That would be broadly compatible with our expectation which is for a first hike in September. I think that`s the likeliest outcome, although I think the risks are probably skewed toward later if we were to be surprised. But I think that`s essentially what a 200-plus report would be, would imply on Friday. And I think that`s also what the market is positioned for. I don`t think that would be something which would be moving the market tremendously in either one direction or the other.

HERERA: All right. So, given that, where do you put money to work in this market? If you`re a longer term investor, what sectors of the market do you like, and what are you expecting overall from the market?

FREEDMAN: All right. So, for U.S. stocks at this point, we have to keep in mind that the market is no longer cheap, and therefore, you cannot just expect the markets to perform strongly, just based on valuations becoming more and more expensive. I think there`s a limit to that.

But ultimately, we do think there`s enough growth in earnings to be expected for this year, for earnings growth to essentially allow for some high single digit returns if you take a 12-month view. Within the U.S.
stock market, we would be favoring cyclical sectors. Our preferred sector is the technology where we have the rebound in capital expenditure for being one of the key support and drivers.

And we also look like some of the other cyclical sectors such as consumer discretionary, industrials or financials. These are all places where we think you have an opportunity to outperform the market.

HERERA: OK. Stephen, thank you very much. Appreciate it. Stephen Freedman with UBS Wealth Management.

Well, Federal Reserve vice chair Stanley Fisher is telling investors and regulators to be on guard. Speaking at the international monetary conference in Toronto, Fisher said it would be a mistake to believe that new rules have put an end to financial crisis. He also said that despite there being no current threat to the financial system, investors should not become complacent.

And one sure sign that the economy is healthy is a strong hotel industry, because when rooms are booked, money is being spent either on vacations or for business. And many said just that today at the world`s biggest lodging conference in New York, but some also warned that the tide could be turning.

Simon Hobbs has more.

(BEGIN VIDEOTAPE)

SIMON HOBBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: An air of celebration here of the NYU Hospitality Conference. Three days in New York, during which the biggest names in lodging meet shareholders and analysts. It`s a good time to be a hotelier, record levels of occupancy, allowing owners to raise room rates towards record profitability.

Of the big four brands, Hilton and Marriott continue to execute at speed, signing up more and more hotel owners to open hotels under their branding run by their management teams.

CHRISTOPHER NASSETTA, HILTON WORLDWIDE: It looks great. It`s the highest we`ve ever had, 240,000 rooms.

HOBBS: Which will deliver half a billion dollars of operating revenue down the line?

NASSETTA: Run rate EBITDA is roughly half a billion, yes.

HOBBS: So, 25 percent, 30 percent in addition to what we have now?

NASSETTA: That is right, with little or no investment of ours.

HOBBS: The problem with the hotel industry is cyclical. The good times are set to enter hundreds of thousands of new hotel rooms into the market, forcing everybody to prices down (ph). One analyst here thinks he`s hearing rumbling drawbacks, not necessarily with the big four but the real estate investment trusts, the hotel owners.

C. PATRICK SCHOLES, SUNTRUST SR. RESEARCH ANALYST: You could almost hear in the audience, the owners and the REITs are growing, because that`s competition that`s coming on to them next door.

HOBBS: Although that`s not the takeaway from the chair of this conference, who`s just opened a new 400-room Loews (NYSE:L) Hotel in Chicago.

JONATHAN TISCH, LOEWS HOTEL CHAIRMAN: Demand is outpacing supply.
There are other hotels, new hotels being built. Just look at here in New York City, 13 percent increase over the next couple years in terms of inventory. But as a whole, we feel very good about the industry.

HOBBS: But on the stock market, if analyst Patrick Scholes is right, it could prove to be a timely call to action for investors.

SCHOLES: It`s a negative for the hotel owners. A lot of new supply coming on. You don`t want that. Where for the C-corp, it`s less negative, because the new supply is a very high margin business that`s coming into their system.

HOBBS: A sober warning for the giant lodging industry, as the annual parties roll on tonight.

For NIGHTLY BUSINESS REPORT, I`m Simon Hobbs in New York.

(END VIDEOTAPE)

HERERA: The chip deal that`s long been rumored is done. Intel
(NASDAQ:INTC) said it would buy fellow semiconductor maker Altera
(NASDAQ:ALTR) for about $17 billion. The move will allow Intel
(NASDAQ:INTC) to expand beyond ships for PC`s and into smart cars and cloud computing and other applications. The deal is Intel`s largest ever and it follows Avago`s acquisition of Broadcom (NASDAQ:BRCM), which was announced last week. Shares of Altera (NASDAQ:ALTR) were nearly 6 percent higher.
And Dow component Intel (NASDAQ:INTC) fell 1 1/2 percent.

In Washington today, a Supreme Court ruling in favor of the banks.
The nation`s highest court said struggling homeowners cannot get rid of a second mortgage using bankruptcy protections, even if they owe more on their first mortgage than the home is worth. The case involved second loans held by Bank of America (NYSE:BAC), and the ruling was unanimous among the justices.

But that wasn`t the only business related ruling by the Supreme Court today. One case involved Abercrombie and Fitch (NYSE:ANF) and workplace discrimination. The other, posts on social media.

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Facebook (NASDAQ:FB) claims 1.4 billion monthly active users worldwide.
Today in another social media channel, heard the first ruling from the U.S.
Supreme Court about possible boundaries on free speech. The high court through out the conviction of a Pennsylvania man, prosecuted for making violent threats on Facebook (NASDAQ:FB) after his wife left him. The court ruled the legal standard used to convict him was too low for a criminal case.

Chief Justice John Roberts, author of the majority opinion wrote, “Our holding makes clear that negligence is not sufficient to support a conviction.” But Roberts also said the court did not need to consider First Amendment issues in deciding the case. A setback for civil liberties groups seeking broader protection from prosecution.

STEVE SHAPIRO, ACLU: The message to Internet users, to Facebook
(NASDAQ:FB) posters. But it`s not only that. It`s people who use older forms of technology as well is, you don`t have a right to threaten people.
The message to the government is, if you want to prosecute somebody for threats, you must do so in the appropriate way, and that is convincing the jury that they acted with a guilty state of mind.

PEARSON: The Supreme Court also ruled in favor of a young Muslim woman who sued retailer Abercrombie and Fitch (NYSE:ANF) when she was denied a job because she wore a head scarf in observant of her religion.
The justices said the company failed to accommodate the job applicant`s religious needs because it violated Abercrombie`s dress policy. The case goes all the way back to 2008. Abercrombie says it has granted numerous religious accommodations since then.

Consumer advocates say now employers and job applicants will have clearer rules of the road.

SCOTT MICHELMAN, PUBLIC CITIZEN ATTORNEY: What it means is that workers will be able to go into a job interview and get the protections of anti-discrimination law, without having to announce all of their religious beliefs, all of their religious practices that may need to be accommodated.

PEARSON (on camera): With one month to go until the end of the current term, nearly two cases are still undecided. At the top of the list, the future of same sex marriage and the Affordable Care Act.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson at the Supreme Court.

(END VIDEOTAPE)

HERERA: Still ahead, what CEOs from the world`s biggest drug companies say is their best weapon yet in the fight against cancer.

(MUSIC)

HERERA: At the most important cancer drug development conference of the year, CEOs of the some of the world`s biggest drug companies presented their latest data. And many agree on one thing: there`s a big new hope for cancer treatment.

Meg Tirrell has more from the meeting in Chicago.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): ASCO is the biggest cancer research event in the world. And it was abuzz with excitement about immuno therapy, drugs that unleash the power of the immune system to fight cancer.

Bristol-Myers is the leader in the space, with two medicines on the market in melanoma and lung cancer.

Merck (NYSE:MRK) also has a drug approved for melanoma. And its head of research, Dr. Roger Perlmutter, said this year is a turning point for the technology.

DR. ROGER PERLMUTTER, MERCK EVP: Abruptly, we and others began to show that we could manipulate the immune system in such a way as to reveal the pre-existing ability to actually eliminate tumors in some patients.
Over the last couple of years, those results have expanded and increased in number.

TIRRELL: Roche, AstraZeneca, Pfizer (NYSE:PFE) and others are also developing immunotherapies for cancer, with multiple data sets at the conference. One major focus, using so-called biomarkers, signatures in patient`s cancer cell that may determine who responds to which therapies.

DR. GIOVANNI CAFORIO, BRISTOL-MYERS SQUIBB CEO: Our strategy, Meg, with biomarkers is very clear, we are studying a broad population of patients in order to really understand what the role of biomarkers here.
And what we are discovering is that it is a continuum. It varies by tumor.
It varies by line of therapy.

TIRRELL: Along with excitement about the drug`s promise came a concern about their costs, particularly as they`re used in combination.
Both Bristol-Myers and Merck`s drugs are priced at more than $10,000 alone, causing doctors to worry about a new side effect, what some are calling financial toxicity.

AstraZeneca CEO Pascal Soriot said he`s considering new models of pricing cancer drugs.

DR. PASCAL SORIOT, ASTRAZENECA CEO: If you cure or really don`t come down into a chronic (ph) condition, then you become very cost effective.
Look at pricing for the treatment of a tumor type. So, instead of selling your one, two, three vials of products, I will charge for the treatment of lung cancer and come up with a price that is sustainable.

TIRRELL (on camera): Results were also presented on drugs for breast, colon and other cancers. One experimental drug for ovarian cancer drove the company`s stock up more than 70 percent midday, showing the ASCO excitement spans not just the medical community, but the investment one as well.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in Chicago.

(END VIDEOTAPE)

HERERA: OM group surges on news it will be taken private, and that`s where we begin tonight`s “Market Focus.”

The specialty chemical maker will be bought by Apollo Global Management for about $1 billion. The firm has been hurt by a slowdown in industrial activity in Europe and especially Germany, which is its largest market. Shares surged 28 percent to $34.04.

Weak Macau gambling revenue weighed on casino stocks in today`s session. MGM Resorts (NYSE:MGM), Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS) all slipped on news casino revenue in the city was down almost 40 percent. And it`s the 12th straight month of declines.

Shares of all three casino operators were off by more than 1 1/2 percent.

Management changes at Disney (NYSE:DIS). The company`s chief financial officer, James Rasulo, will step down at the end of June. The media and entertainment giant hasn`t name a successor yet, but Rasulo will stay on in an advisory roll to help in that transition. Shares at Disney
(NYSE:DIS) were a fraction higher to close at $110.96.

And strong results from PVH Corporation after the close. The company behind retailers like Calvin Klein and Tommy Hilfiger reported earnings and revenue that topped estimates and it hiked its profit outlook for the year.
The firm also announcing a $500 million share buyback. Shares spiked initially after the close. In regular trading, the stock was a fraction higher at $104.68.

Elon Musk is one of the most well known entrepreneurs, building electric cars, solar panels and even rockets. But according to “The Los Times”, his companies were developed with the help of about $5 billion in government subsidies. Today in a phone interview, Musk called the article one-sided and deceptive, and made it clear that his companies provide economic benefits such as jobs.

(BEGIN AUDIO CLIP)

ELON MUSK, CEO, TESLA MOTORS: By adding up anything that`s ever happened and including things that will take the next 20 years to happen, and putting that into a single number and playing it today, it makes it sound as though my company`s getting some huge check, which is fundamentally false.

(END AUDIO CLIP)

HERERA: Musk isn`t alone. Many big corporations receive a lot of money in government subsidies.

Eamon Javers has more on the financial relationship between private companies and public money.

Good to see you, Eamon, as always.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. Hi, Sue.
It won`t shock you to find out that Elon Musk is not the only CEO to go around the country looking for subsidies and looking for tax breaks. The libertarian Cato (NYSE:CATO) Institute did a study back in 2012 looking at what they called corporate welfare, they called it about $100 billion just in that year, 2012 alone.

They said one of the biggest areas there was agriculture. They said that the U.S. government paid out about $25 billion in corporate welfare to agriculture interest just that year, Sue.

HERERA: You know, states have been offering subsidies and tax brakes to lure companies for years now. The question is whether that`s hurting their competition, hurting themselves or is it actually a benefit in creating jobs within those states?

JAVERS: Well, that`s why they do it. Politicians like to have the ribbon cutting ceremony. They like to announce the big new company coming to town. But there are arguments that these states are hurting themselves because they`re in a bidding war with each other.

What you`d like to see is getting together in some kind of cartel with all the states banning together and saying they`re not going to do this.
Of course, competition being what it is, that`s what we don`t see. And companies take advantage of that, and the pit one state against the other, looking for the biggest tax break they can get, as they shop around for opportunities to open their new plants or their new offices, hiring a lot of local workers. That`s a real temptation for local politicians and they usually go for it.

HERERA: Is the reason, part of the reason maybe that this is coming up is because the debate on taxes and companies taking some of their businesses overseas and using money that`s overseas, not breaking it back here. Is it just the environment that is engendering this kind of discussion right now?

JAVERS: That`s definitely part of it. And part of it is Elon Musk himself. You know, he`s a big fascinating figure on the scene right now.
People are interested in him, interested in all of his panoply of companies and what they`re doing. So, so much attention on him, when it`s about him, can shed some light on this broader issue as well.

HERERA: All right. Eamon, thanks. Good to see you.

JAVERS: You bet.

HERERA: Eamon Javers in Washington.

Coming up, to lease or to buy? Why a record number of Americans are choosing one over the other when getting a new vehicle.

(MUSIC)

HERERA: And here`s what to watch tomorrow: we`ll have motorcycle sales numbers from May. Also on the data front, factory orders. And the Senate Finance Committee will have a hearing on the recent IRS data hack.
And that`s what`s on the agenda for Tuesday.

Gas prices edging higher. The average price of gasoline has increased four cents a gallon over the past two weeks to $2.84 a gallon. That`s according to the Lundberg survey. But it is a small increase compared to the 35 cent jump over the previous five weeks. And AAA says gas prices may be at or near their peak for the year.

Auto sales as we mentioned for May are due out tomorrow, and the industry is on track to deliver 17 million new vehicles this year, the most since 2001. But car buyers in America are also borrowing more, while looking to keep their monthly payments as low as possible, which is why a record number are now leasing a new vehicle.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When it comes to picking out a new car or truck, almost one in every three customers now opting to lease, not buy. Experian Automotive says a record
31 percent of all new vehicles financed in the first quarter were leases, with an average monthly payment of $405, slightly lower than a year ago.

JESSICA CALDWELL, EDMUNDS.COM: Leasing allows you to get a little more vehicle than you would get than if you would traditionally finance.

LEBEAU: Leasing has risen along with the cost of new vehicles. Why?
Partially because automakers are offering to put more tech features in our dashboards, if we pay for it, and we are paying for it. The average auto loan has jumped more than $1,000 to an all time high of just under 29 grand. And the average monthly payment is a record high of $488, spread out on average over 67 months.

Buyers are willing to take out longer loans if it means lower monthly payments.

CALDWELL: People want more cars. I think even in size, you`ve seen people upgrade to larger vehicles. But to get that, they know they have to pay more, a way to mitigate that payment is to sign up for longer loan terms.

LEBEAU (on camera): Despite more people borrowing more money, the number of loans ending in default and repossession has actually dropped last year, a primary reason why auto dealers and banks are more willing than ever to write bigger auto loans.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: And finally tonight, it doesn`t always pay to clean out your garage. A Silicon Valley recycling plant is looking for an unidentified woman who unknowingly donated a vintage Apple (NASDAQ:AAPL) 1 computer worth $200,000. She didn`t leave her name or get a receipt. The recycling company sold the piece of apple history for $200,000, and since the policy is to split the proceeds with the owner, the plant is looking for the mystery woman to give her $100,000 back.

And that`s nicely business report for tonight. I`m Sue Herera.
Thanks so much for watching.

And we want to remind — this is the time of year your public television station seeks your support. On behalf of your public television station, thank you for that support.

We`ll see you back here 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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