SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Warning signs? Why a century old trading strategy has some investors biting their nails and betting on a fall.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Playing catch-up? Apple (NASDAQ:AAPL) reveals a new music app but is it too late to compete in an already crowded field.
HERERA: High-tech medicine. What cancer doctors are doing to improve the course of treatment for some of their patients?
All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, June 8th.
MATHISEN: Good evening, everyone. And welcome. Glad you could be with us.
The world’s most recognizable stock market index has gone negative for the year, did so tonight. The Dow Jones Industrial Average is now in the red for 2015 as the broader market came under pressure to start this week.
The blue chip Dow index fell 82 points today to 17,776. The NASDAQ dropped 46 points, lowest level in a month. And the S&P 500 gave back 13.
Now, to be fair, the Dow’s retreat into negative territory for 2015 isn’t terribly dramatic. It’s off one third of 1 percent, and just 3 percent below its all time high.
But the decline in the Dow Transportation Average is another matter. It is now 10 percent off its high, and that diversion some believe is signaling a correction could be coming for the broader market.
Dominic Chu explains why the so-called Dow Theory has some investors quite nervous.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): If you’re one of those out there who thinks the stock market is due for a bigger pull back, there’s at least one indicator that may be on your side. Something called Dow Theory. It’s a method of analyzing historical movements in the stock market to try and predict what the market is likely to do, and it’s not looking pretty.
A big part of Dow Theory has to do with how the Dow Jones Industrial Average performs relative to the Dow Jones Transportation Average. The idea is that you want to see higher levels in the Dow Industrial be validated, or followed up by a move higher in the transportation stocks, like airlines, railroads and trucking companies.
After all, if the economy and business environment gets better, you’d expect to see more goods being shipped to satisfy growing demand.
The problem is, that’s not happening this time around. Even though the Dow Industrials remain a few percentage points away from record highs, the transportation average has been on a steady decline since last November, losing around 10 percent of its value in that span.
So, what you got is a stock market rally that’s not being confirmed by a rally in transportation stocks. That’s what had some traders worried and thinking we may be due for a broader market loss ahead.
(on camera): Of course, that’s just one take. Some stock market bulls maintain that the lagging performance of transport stock is just a temporary issue and things get back on track in the coming months. Still, others say the transportation stocks aren’t as important of an indicator today as they were in the past because we’re less of a manufacturing economy and don’t need to ship things everywhere.
Regardless, the diversions between the Dow Industrials and the Dow Transports is raising a caution flag for many in the market.
For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.
HERERA: David Lefkowitz joins us now to talk more about the Dow Transportation Average and what he thinks it’s telling us about the markets. He is the senior strategist at UBS Wealth Management.
Welcome, David. Nice to have you here. Thanks for joining us.
DAVID LEFKOWITZ, UBS WEALTH MANAGEMENT SENIOR STRATEGIST: Thanks for having me.
HERERA: So, give me your read on whether or not the transportation average is telling us that there may be a turn to the downside in this market.
LEFKOWITZ: My bottom line is I don’t think it’s telling us there’s an imminent correction coming in the broader market. I think it’s very important to look at what is driving the downside in the Dow Transports Average and when you peel back the onion, I think you’ll find there’s some very industry specific factors that are driving that downside.
For instance, 40 percent of the index is comprised of railroads and airlines. Now for railroads, they’re being hurt by lower natural gas prices. Utilities therefore are losing less coal so less coal is being transported on the rail network. And for airlines, oil prices are up and there are some worries about expanding capacity.
So, I think it’s very specific to those particular industries. That’s what is plaguing the transportation index, and I wouldn’t read — I wouldn’t read into it as a sign for the broader economy.
MATHISEN: And those transport stocks had gone up a good bit in 2014, to levels that some think got them overstretched, so maybe they’re just selling off. But I’m curious, David, as to why airlines which had a very rough day today are off as much as they are.
Sure, oil prices are higher than they were to begin the year, but they’re lower than they were this time last year. Traffic is way up. And we’re going to hear later in the broadcast that the airline industry is going to forecast record lows and profits for the airlines.
LEFKOWITZ: Tyler, it’s a good question. I do think though that this was a thesis in the airline industry that because there had been so much consolidation that the airlines were going to be much more disciplined when it came to matching supply and demand. But in the last couple of weeks, we have gotten some indication that a couple of these airlines are going to revert to their old ways, and those ways are more focused on expansion and less on profitability.
Now, we don’t know exactly how it’s going to play out, but I do think that fear of additional airline capacity leading to poor pricing is what’s troubling the airline stocks.
HERERA: David, we’ leave it there. Thank you so much for joining us.
LEFKOWITZ: Sure. Thank you.
HERERA: David Lefkowitz with UBS Wealth Management.
MATHISEN: The Dow component McDonald’s (NYSE:MCD) saw it’s sales fall in May. Something that has become a quite familiar story for the world’s biggest restaurant chain by revenue. Sales in the U.S. top market fell more than 2 percent, but Europe’s results were stronger, up 2.3 percent, and that helped total worldwide sales come in just above expectations.
Now, the company plans to stop disclosing its monthly sales beginning July 1. Shares of Micky D’s fell a little bit today. $95.32 was the close.
HERERA: Apple’s CEO Tim Cook took to the stage and unveiled a highly anticipated music streaming service. It comes at a time when Spotify and Pandora dominate that space. But Apple (NASDAQ:AAPL) says its product is different. That didn’t seem enough to lift the stock, however, which finished the day to the downside by 2/3 of a percent.
Josh Lipton has more from the Apple (NASDAQ:AAPL) developers conference in San Francisco.
And, Josh, it does seem as though Apple (NASDAQ:AAPL) is a little bit late to this particular party. What makes it different?
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, listen, I mean, Apple’s strategy has always been, they’re not as concerned with being first as they are with being right. And this was the most radical change to Apple’s music strategy we have seen in years.
The new service called Apple (NASDAQ:AAPL) Music — CEO Tim Cook billing it as really a game changer. And there’s three basic components. You’ll have a streaming service, you’ll have a 24/7 radio station, and then this new feature called Connect, the whole idea being connecting artists to fans more quickly. The cost is $9.99 a month.
The open question is whether Apple (NASDAQ:AAPL) has done enough to differentiate it’s product from the competition. There are entrenched rivals here. You think a Spotify, for example, which already claimed over 60 million users, 15 million of whom are paying subscribers. Can Tim Cook and his company now win those over?
What’s the bottom line for investors? Well, Piper’s Gene Munster crunched the numbers. He says even if Apple (NASDAQ:AAPL) does match Spotify, it would add actually less than 1 percent to revenue for 2016.
So, no material financial impact at least in the near to intermediate term. Though Munster says a new service like this does have a real benefit strategically. It upgrades the user experience and it means more importantly and more broadly more of those users stay on that iOS platform.
MATHISEN: It’s interesting, Josh, I’m a Spotify user and I pay $9.95 a month, which is roughly the same price point as the Apple (NASDAQ:AAPL) service. And I’ve got room for one of those in my life, probably not two. Certainly not three and I subscribe to Pandora as well.
Does this suggest that there’s trouble in the music download world or that Apple (NASDAQ:AAPL) is moving away from that pay per cut/pay per album download model?
LIPTON: Yes, I think you’re absolutely spot on, Tyler. It’s true that Apple (NASDAQ:AAPL) had no choice but to make this transition. Remember last year download revenues fell about 9 percent, streaming popped 30 percent. That’s what the growth is and that’s why CEO Tim Cook moving hard and fast into this new model.
HERERA: Josh, thank you so much. Josh Lipton in San Francisco.
In response to Apple (NASDAQ:AAPL) introducing its new music service, shares of Pandora traded lower falling almost 4 percent in today’s session.
MATHISEN: Well, Sue, CEOs are becoming more pessimistic. The Business Roundtable second quarter survey found that fewer chief executives expect to increase sales, investment and hiring this year. The survey also shows that CEOs are looking for 2.5 percent economic growth this year. That’s down slightly from the prior forecast last quarter.
The chairman of the group, AT&T (NYSE:T) CEO Randall Stephenson says Congress should enact tax reform and pass the Trade Promotion Authority to help support the economy.
HERERA: And business economists are also a bit down beat on growth. A new survey from the National Association for Business Economics says that the second quarter will be far weaker than previously expected. Sluggish conditions in the first three months of the year will persist into the second and drag down average growth for 2015. The group does not expect the pace of growth to exceed last year’s 2.4 percent.
MATHISEN: Meantime more consumers are feeling better about the labor market. According to the New York Fed’s monthly consumer survey, people’s expectations that they might lose their jobs hit a new low in May. But there were also signs that people don’t expect their wages or spending to grow much either. The Fed survey polls 1,200 heads of households nationwide.
HERERA: Deutsche Bank appointing a new chief executive today after the sudden resignation of the firm’s co-CEOs. The new chief at Germany’s largest bank, John Cryan, faces a tough job as he will aim to move that bank beyond a slew of regulatory and legal probes. The management shake up comes just a month after the former chiefs unveiled a cost cutting plan to help performance. Shares rose nearly 5 percent.
MATHISEN: Now to Europe where President Obama, German Chancellor Merkel and all the leaders of the Group of 7 nations discuss the state of the global economy, the threat of ISIS and those sanctions against Russia.
Carolin Roth has more now from Krun, Germany.
CAROLIN ROTH, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): G7 leaders wrapped up two days of intense talks here in Bavaria. We saw a huge police presence and thousands of protestors. But, by and large, things here on the ground were pretty calm. In terms of the official communique coming out of the G7 talks over the last two days, it was largely as expected. G7 Leaders vowed to extend sanctions on Russia over aggression in Ukraine, if need be, those sanctions could be sanctioned.
They also said they wanted to speed up the trade talks between the E.U., the U.S. and Japan. They also vowed to continue to fight the advance of ISIS, crack down on terrorist financing.
But Obama conceding in that press conference before that we do not have a fully coherent strategy on ISIS. We still need the help of the Iraqis.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We don’t yet have a complete strategy because it requires commitments on the part of the Iraqis as well about how recruitment takes place, how that training takes place. So, the details of that are not yet worked out.
ROTH (on camera): Last but not least, Greece also kept the G7 leaders pretty busy. President Obama stating in the press conference that Greece must make very, very tough choices and he was backed up by the German Chancellor Angela Merkel who said time is running out for Greece. The deadline for Greece to strike a deal with E.U. creditors is still the end of June.
For NIGHTLY BUSINESS REPORT, I’m Carolin Roth, in Bavaria.
HERERA: And still ahead, high-tech medicine. How technology is changing the way cancer doctors treat patients.
HERERA: Crate and Barrel is closing it’s flagship New York city store. The reason: rising Madison Avenue rents. The furniture and home accessories firm plans to close the location this summer after 20 years. It will not relocate this store and it will continue to operate its other downtown locations.
MATHISEN: Well, as some stores close others are planning to open in a massive new million square foot space on Manhattan’s west side. It’s a huge investment, coming at a time when brick and mortar stores are competing with online shopping sites, and paying higher and higher rents.
Courtney Reagan has our west side story tonight.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Toys “R” Us, FAO Schwarz, and now, Crate and Barrel are planning to chose retail flagship stores in New York City. But that’s not stopping one bold developer from pushing forward with plans for the country’s largest ever private real estate development that when finished will America’s fifth largest shopping destination.
And the foundation for the shops and restaurants at Hudson Yard on the far west side of Manhattan is now in place. The 2,800-acre development is being built over railways. A project spanning 10 years from start to finish, with the final phase is set to be completed in 2024.
In an exclusive interview with CNBC, Related Urban president and CEO Kenneth Himmel says despite New York’s well-known and well-trafficked shopping destinations, there’s still room for one more.
KENNETH A. HIMMEL, URBAN RELATED PRES. & CEO: We’re not going to directly compete and take the place of this incredible experience on 5th Avenue and Madison. There’s going to be an enormous amount of visitor traffic, captive market of people who live and work here already, and that’s quite different from the experience of Madison and 5th. There’s a place for all of this in New York.
REAGAN: I’m standing on the first level of what will be a million square feet of retail covering seven stories, that the developer estimates will see up to 30 million people visit each year.
The retail space will be anchored by New York City’s first Neiman-Marcus (NYSE:MCS) store, spanning 250,000 square feet and scheduled to open in 2018. Related Urban estimates Hudson Yards will generate $1 billion in retail sales annually once open to the public.
HIMMEL: We believe our retailers will average over $2,000 a square foot in sales, so that translates back into incredible productive and the rent structures that we’re offering people are a fraction of the rents that are being sustained right now on 5th Avenue and Madison Avenue.
REAGAN (voice-over): The plans also include a park and event space, as well as Coach (NYSE:COH), L’Oreal and SAP headquarters. Next year, Time Warner (NYSE:TWX) is moving here from its Related Urban space just 25 blocks north in Columbus Circle.
Even as many consumers shift to online shopping there are still things you can’t order for the web. Importantly for Hudson Yards, an exceptional dining experience is one of them. The developer is betting three floors of premier restaurant space with sweeping Hudson River views will be enough to convince consumers to turn off their computers and make dinner reservations on the fourth, fifth, and sixth floors of Hudson Yards.
For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan in New York City.
HERERA: We begin tonight’s “Market Focus” with another disappointing quarter from Sears (NASDAQ:SHLD).
The retailer extended a string of losses as sales continue to decline. And this comes even as the company has completed a number of financial moves to help profitability. Shares were off 4 percent to $39.01.
Panasonic (NYSE:PC) plans to send hundreds of its employees to Tesla’s Gigafactory in Nevada to prepare for production at that plant. The two firms are partnering up to make lithium-ion batteries for electric cars. Shares popped nearly 3 percent to $256.29.
MATHISEN: Dave & Busters reported a higher profit for the first quarter, lifted by revenue gains. On that earnings beat, the arcade and restaurant chain raised its revenue outlook for the year. Shares rallied initially after the close. As you see there, the stock ended the regular trading day slightly lower on this down day at $33.25.
H&R Block (NYSE:HRB) out with mixed quarterlies. The tax prep company beat on the bottom line, but revenue missed the mark. Shares were volatile after the bell. Before the close, the stock was off a fraction to $31.25.
FedEx (NYSE:FDX) will hike its dividend by 25 percent. The package delivery giant’s payout is now 25 cents a share and is payable in July to shareholders on record as of June 18th. Shares didn’t move initially on that news. During regular trading session, shares were off 1 percent to $179.89
HERERA: Technology and medicine. New tests are giving way to a deeper understanding of some cancers. The addition information can also change the course of treatment for patients with a rare finding. And now, there’s a new high tech tool that’s helping doctors better treat those types of patients.
Meg Tirrell has more.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Understanding the underlying genetic drivers of cancer has been a major movement in the field, but it raises the question of what doctors should do with all the information, particularly when a finding is rare. And as testing tools become more sophisticated, that’s happening more and more frequently.
DR. RICHARD PAZDUR, FDA DIRECTOR: These diseases are multiple diseases that are going to be defined by genetic sub-markers and what we call lung cancer is going to be many diseases. The real true benefit is really a greater understanding of the disease and then marrying drugs to address that disease.
TIRRELL: Cancer testing company foundation medicine says that almost two-thirds of the time in its experience, patients having mutations that’s never been seen before at the facility where they’re being treated.
DR. GAURAV SINGAL, FOUNDATION MEDICINE DIRECTOR: When a patient is found with a rare finding, which is often the case now that we’re getting very sophisticated in our testing, doctors anywhere struggle to figure out where some of the patients have been treated and understand how those patients responded or didn’t respond to other theories.
TIRRELL (on camera): There’s this idea of curbside consult, running into another doctor in the hallways of your hospital, or maybe at a medical conference like here at ASCO, and asking their thoughts on the case. But sometimes with these rare findings, the nearest similar patient could be halfway across the country.
SINGAL: Foundation medicine has been doing sequencing of tumors for the last five-plus years, and over that time, we’ve sequenced over 43,000 cases, and what we realized is in our data base, cases that may be rare in an individual institution or practice, we have actually seen before.
TIRRELL (voice-over): The Foundation says it can match 91 percent of those patients to others in its data base. It’s rolling out a new product called patient match to help doctors communicate with rare drivers of cancer and how they’ve treated them.
When a doctor gets test results back, they can request information from other doctors anywhere, who’ve seen similar cases, even if they’re only a handful and can share treatment outcomes.
The information is all anonymized to protect patient confidentially, but it’s connecting doctors in entirely new ways. It’s a movement across the industry, something ASCO, the organization itself, is also working on.
For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell in Chicago.
MATISEN: Coming up, want to invest along side Quincy Jones? A look at the music legend’s start up that could shake up part of the music business.
MATHISEN: Here is what to watch tomorrow. A read on small business optimism comes out. The jobs openings and labor turnover survey jolts as well. Automakers General Motors (NYSE:GM) and Tesla are going to hold their annual meeting and that, folks, are what to watch Tuesday.
HERERA: Despite those lagging transport stocks we told you about at the top of the program, the airline industry is set to take off this year. According to the international air transport association, airlines will post profits of nearly $30 billion, up 80 percent from last year. The surge has been spurred by a strong economy and low fuel prices.
MATHISEN: A music legend wants to reinvent a music lesson. And what better way to do that then by creating a start-up. Quincy Jones, the 27-time Grammy Award winner is one of the people behind the new company that’s part Rosetta Stone (NYSE:RST), and part “Guitar Hero” and you can invest in this project right alongside.
HERERA: Kate Rogers (NYSE:ROG) has more.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Music industry icon Quincy Jones is crowdfunding his latest business venture.
QUINCY JONES, MUSIC ICON (NASDAQ:ICLR): Whatever works. Whatever works. I think the end result is this.
ROGERS: Raising cash for a company he co-created and invested in called Playground Sessions on Crowdfunder.com., alongside the company’s CEO Chris Vance. The software platform uses video tutorials to teach users to play piano with a video game-like feel. He’s seeking $1.5 million and has so far raised $810,000.
In the age of crowdfunding, more celebrities are turning to the general public to help grow new business ideas. Equity crowdfunding allows them to put their money behind ideas for a stake in the company, unlike donation-based fund-raising with incentives and prices.
JONES: Mandela always reminded me what the word Ubuntu means. That’s the collective is always more important than the individual, and that’s true.
ROGERS: And for an entrepreneur like Vance, celebrity crowdfunding is a chance to work with a music icon and validate his company.
CHRIS VANCE, PLAYGROUND SESSIONS CEO: People all over the world has been t touched by Quincy’s music. So, to be able to invite them in and share on this journey with us as shareholders is something that we’re very proud of.
ROGERS: Playground Sessions have more than 18,000 users and more than 4,000 subscribers as well as publishing agreement with Sony (NYSE:SNE), Universal (NYSE:UVV), Warner Music and Disney (NYSE:DIS), among others.
(on camera): Celebrities turning to crowdfunding for their business ideas isn’t anything new according to Chance Barnett, the CEO of crowdfunder.com. The platform has worked with everyone from basketball star Yao Ming on a wine company to Neal Young on a music venture.
BARNETT: The way we feel about it is we’re actually democratizing the ownership and investment into these projects, where you can get a stake in these projects alongside the celebrity who is also investing their money.
ROGERS (voice-over): New regulations are expected from the FCC this year, which may open up crowdfunding to both accredited and non-accredited investors.
For NIGHTLY BUSINESS REPORT, I’m Kate Rogers (NYSE:ROG).
MATHISEN: And to read more about Quincy Jones business venture, head to our Web site NBR.com.
HERERA: And finally tonight, history was made this past weekend when American Pharoah won the Triple Crown. Our cameras were there when he achieved the sports’ greatest feat.
Robert Frank takes a look at the thoroughbred’s journey and what’s next for American Pharoah.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): American Pharoah has done what no other horse has accomplished since 1978 — won the Triple Crown. On Saturday, the 3-year colt dominated the racetrack and won the Belmont Stakes in New York, capping his wins at the Kentucky Derby and the Preakness, and taking home the coveted Triple Crown. With his misspelled name curtailed tail, and friendly demeanor, American Pharoah has quickly become an American hero and he’s also among the most valuable horses in the world.
Experts say his value is now well over $30 million. His breeding rights for sold for over $15 million and sponsors like Wheels Up and Monster beverage have paid up big time to be along for the ride.
And a lot more is likely to come for both American Pharoah and the Zayat family which owns him. They say they hope to keep racing him for the rest of the year, including the Breeder’s Cup in October, which has the $2 million purse.
And when American Pharoah heads out to stud, he could command a fee of over $100,000 or more per foal. If he stands 200 times a year, that could add up to over $20 million. Nearly twice the average pay of the Fortune 500 CEO.
For NIGHTLY BUSINESS REPORT, I’m Robert Frank.
HERERA: Get this — the “Associated Press” reports that 96 percent of the $2 wagers placed on American Pharoah Friday through Saturday have gone uncashed. For those who did cash them in, they received $3.80 for each ticket, all others probably keeping those winning tickets as souvenirs.
MATHISEN: American Pharoah had a better year than most CEOs, by the way.
HERERA: Definitely has. Yes, he definitely has. I’d keep it as a piece of history.
MATHISEN: Sure, absolutely.
HERERA: That ticket, yes.
All right. That does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera, thanks for joining us.
MATHISEN: And I’m Tyler Mathisen, thanks from me as well. Have a great evening, everybody. We’ll see you back here tomorrow night.
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.