Transcript: Nightly Business Report — June 26, 2015

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Weekend cliffhanger.
The big issue hanging over the market could come to a head this weekend as Greece and its creditors resume talks tomorrow.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Historic ruling. The Supreme Court gives same-sex couples the right to marry, and that could have implications for business.

GRIFFETH: Left in the dust. It`s been a big year for small caps, but can the run continue in the second half?

All that and more tonight for NIGHTLY BUSINESS REPORT, this Friday, June the 26th.

Good evening, everybody. I`m Bill Griffeth in tonight for Tyler Mathisen.

HERERA: And I`m Sue Herera.

A major ruling from the Supreme Court, and a mixed close for stocks.

But we begin tonight with Greece where the clock is ticking. Today, that indebted country rejected a five-month extension of the bailout and with no deal yet, that means Greece is one day closer to missing a key payment deadline. Talks with its creditors will continue this weekend, but significant differences remain with next week`s June 30th deadline fast approaching.

The Greek finance minister is holding out hope that an agreement to release much-needed funds can still be reached, as Prime Minister Alexis Tsipras calls an urgent of his cabinet.

Steve Sedgwick has more from Syntagma Square in the heart of Athens.

(BEGIN VIDEOTAPE)

STEVE SEDGWICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Friday night in central Athens, and young Greeks are gathering in Syntagma Square, right in the heart of the capital city of Greece. They`re not gathering for a Friday night out. They are gathering for yet another demonstration, this time sponsored by the communist party to protest against the terms laid down by creditors in this continuing battle to avoid a Greek default.

Late on a Friday evening, we thought we might have a proposal that would work for the Greek people. It was a 15.5 billion euro extension to the second bailout package from creditors including the ECB, the IMF and European Commission but that was immediately turned down by the Greek Prime Minister Alexi Tsipras and his finance minister, Yanis Varoufakis. They said this was unacceptable to Greece.

It was blackmail, is the way the Greek prime minster put it.

ALEXIS TSIPRAS, GREEK PRIME MINISTER: The European Union foundation principles where for democracy, solidarity, equality, mutual respect, these principle were not based on blackmails and ultimatum.

SEDGWICK: The conditionality attest that extension of financing for Greece, included more pension reform, more VAT reform, and changes to the tax code that the Greeks have put forward earlier in the week. It looks like as we head to more negotiations in Brussels over the weekend, that the Greek default is still very much on the cards.

This is Steve Sedgwick, for NIGHTLY BUSINESS REPORT, in Athens.

(END VIDEOTAPE)

GRIFFETH: Well, investors did remain cautious today ahead of that meeting in Brussels that could decide Greece`s fate. Nike (NYSE:NKE) rose more than 4 percent today on better than expected earnings, which we told you about last night. That increase accounted for more than half of the Dow`s gains today.

But the NASDAQ went the other direction as results from Micron weighed on that index. Micron was down sharply today. By the close, the blue chip average of the Dow rose by 56 points to 17,946, the NASDAQ down 31 points, the S&P 500 was just a fraction lower. For the week, the major averages all down fractionally.

So with Greece looming and a shortened holiday week ahead of us, what should investors be looking for when the opening bell rings come Monday?

Bob Pisani has more from the New York Stock Exchange.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks were a little changed today, despite no deal in Greece and a 7 percent drop in the mainland China stock market. Many feel that a deal will be made at the last minute in Greece or that if they do default, it will not affect other markets.

Now, next week marks the end of the first half of the year and many are arguing that the U.S. economy is showing signs of improvement. That means the U.S. stock market would be the place to be in the second half of the year even if there is a rate hike.

Speaking of an improving economy, we`ll see if that trend continues next week when there will be a lot of data in a short amount of time due to the July 4th holiday. Housing has been strong recently, for example, including home prices. We`ll get pending home sales, that`s contracts signed for May on Monday and a look at home price trends on Tuesday.

We`ll get our first look at June`s economic data on Wednesday with manufacturing PMI and the most important report, the June`s jobs report will be out on Thursday.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

HERERA: Steve Dudash joins us to talk more about the markets and the week ahead. He is president and investment strategist at IHT Wealth Management.

Welcome back, Steve. Nice to see you.

STEVE DUDASH, IHT WEALTH MANAGEMENT PRESIDENT: Nice to see you, too.
Thank you.

HERERA: What else are you expecting? Some are expecting a lot more volatility, one, because it`s a holiday shortened week, but, two, because it`s so data heavy.

DUDASH: Yes. There`s a ton of data. As you were talking about with Greece, I think a lot of people have been holding their money off of the sidelines for this weekend to see what the final results happen and after that, you can see a lot of volume next week.

Again, it`s the middle of the summer. You`re not going to get anything crazy. But you should see more than your average amount.

GRIFFETH: The big number, as we mentioned, the jobs number out on Thursday morning.

Would a strong jobs report be good or bad news for the stock market?
In other words, we`ve had very strong consumer data coming out lately.
Would this be the number that pushes the Fed towards raising rates sooner rather than later?

DUDASH: Yes. I mean, a lot of people feel that way. If unemployment keeps going down like it`s expected to keep doing and the jobs report looks good again, which is a lot of people are expecting, it`s pretty much going to seal the deal that we`re going to see an interest rate hike this year, and now, the real question starts to become, again, given that Europe doesn`t completely fall apart, is it one hike or is it two hikes before the end of the year, and what does that really mean to the bottom line interest rate?

HERERA: Yes. And the other issue is, there really aren`t too many places left to put your money.

DUDASH: Right.

HERERA: And so, stocks really — yes, it is — it`s been a real conundrum for a lot of investors. So, how do you weather that volatility and still remain fully vested in stocks if you`re a long-term investor?

DUDASH: I mean, that`s the hard part right now, right? Because buying into bonds right now is very difficult to do knowing that — I mean, what are you going to do? Buy a five-year bond and make 1 percent over the year for that and likely know from two years from now, you`re going to hold something that`s worth 20 percent less?

The stock market is probably fairly valued right now, maybe a little on the high side. There is a risk of a pull back. So, which evil do you pick?

I think most of our clients are working towards the stock market side.
We think that consumer confidence is going to go up a little bit more.
It`s hard to make an argument no to be in the U.S. market right now, but it`s not as easy to do a year or two ago.

HERERA: All right. Steve, thanks. Have a great weekend. Appreciate it.

DUDASH: Yes, you, too.

HERERA: Steve Dudash, with IHT Wealth Management.

GRIFFETH: Speaking of consumers, they were much more optimistic about the economy this month. The University of Michigan`s consumer sentiment index rose 6 percent from a month ago to a five-month high. The metric asked consumers to measure things like their prospects for the national economy and their own personal finances.

HERERA: A landmark ruling in Washington today as the Supreme Court voted to legalize gay marriage across the country. Hampton Pearson has the reaction out of the nation`s capital and more on how that decision could impact business.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the Supreme Court, crowds cheered on a history-making day for the gay rights movement.

The Supreme Court says same-sex marriage is now legal in all 50 states.

The court ruled 5-4. The Constitution guarantees for equal protection and due process means states cannot ban same-sex marriages.

Justice Anthony Kennedy, a conservative, joined with the court`s four liberals in crafting the landmark decision. Kennedy said not allowing same-sex couples to marry creates a stigma for their children. Quote, “Without the recognition, stability and predictability marriage offers, their children suffer the stigma of knowing their families are somehow lesser.”

Chief Justice John Roberts, among the dissenters, defended traditional marriage between a man and woman, saying, “A state`s decision to maintain the meaning of marriage that has persisted in every culture throughout human history can hardly be called irrational.”

President Barack Obama speaking at the White House Rose Garden hailed the ruling as a milestone in American justice.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: There`s so much more work to be done to extend the full promise of America to every American.
But today we can say, in no uncertain terms, that we`ve made our union a little more perfect.

PEARSON: Thirteen states have gay marriage bans still in place and leading Republican presidential candidates saw the high court`s decision as far from perfect. Jeb bush said, “I believe the Supreme Court should have allowed the states to make this decision.” Wisconsin Governor Scott Walker expressed similar concerns, “I believe the Supreme Court decision is a grave mistake.”

MAYOR BILL DE BLASIO (D), NEW YORK: I pronounce you married!

PEARSON: In New York City, Mayor Bill de Blasio officiated two same- sex marriages on the steps of city hall. Experts say those and other same- sex couples stand to benefit right away. They are now eligible for the same tax breaks on their benefits as traditional couples.

TODD SOLOMON, MCDERMOTT WILL & EMERY: This has a pretty significant impact on companies that offer benefits to same-sex spouses. In particular, it now eliminates all the differences between same-sex spouse coverage and opposite sex spouse coverage which primarily was in the area of taxation of benefits.

PEARSON: On Monday, the Supreme Court will bring down the curtain on one of its most historic terms, with rulings on the authority of the Environmental Protection Agency to regulate greenhouse gases and a critical decision on capital punishment.

Hampton Pearson, NIGHTLY BUSINESS REPORT at the Supreme Court.

(END VIDEOTAPE)

GRIFFETH: Still ahead, why tempers are rising along with the temperatures on some California parks.

(MUSIC)

HERERA: Excessive rain is taking a toll on the agricultural markets.
Concerns over crop damage sent corn and soybean prices to their highest levels in months. Wheat prices were also up on fears that those storms could prevent crops from being gathered.

GRIFFETH: Meanwhile, farmers in California want some of the rain to head west. The hugely important agricultural sector in that state is suffering from the opposite problem, a lack of water, and access to that precious commodity and new rules from the state are causing a lot of confusion.

Jane Wells has more from Byron, California.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s going to be a long, dry summer in California. And tempers are rising with temperature.
The state has ordered some of the most senior rights to water to cut usage but the response has been silent. Nearly 70 percent of those water users have ignored a deadline to prove they are complying.

RICK GILMORE, BYRON BETHANY IRRIGATION DISTRICT: There`s confusion and we need to basically find out, you know, what this finally means because everybody is confused.

WELLS: And confusion breeds lawsuits, including one expected by the Byron Bethany Irrigation District or BBID, which turned off the water to farms this week under state orders unless farmers would pay $650 an acre, more than 30 times normal, fifth generation farmer Mario Arnaudo can`t afford that.

MARIO ARNAUDO, CALIFORNIA FARMER: We were told about this two weeks ago or three weeks ago so what we did was irrigated everything we could as fast as we can to keep everything living a little bit longer.

WELLS: He`s ready to sue, too. Turns out, no one is really sure they have to cut back since the state said in another lawsuit, the curtailment order it sent out June 12th was only informational, not enforceable.

GILMORE: The June 12th letter had more of threatened tone to it.
Now, we`re finding out there are advisory notices. It`s almost like looking at a stop sign and telling you what the speed limit is.

WELLS: Next door, the water situation looked critical in the community of Mountain House, a billion dollar development financed by the public pension giant CalPERS which nearly went under during the recession.

The high temperature Friday was expected to top 100 degrees.

JOHNNY KASEGIAN, MOUNTAIN HOUSE RESIDENT: We`re not watering the grass and we don`t wash the car. The car is filthy.

WELLS: Residents were told they might lose all water this week until the state relented due to health and safety. Now, Mountain House is guaranteed water, only through the end of the year.

HERRIEZE JONES, MOUNTAIN HOUSE RESIDENT: We went to Safeway
(NYSE:SWY) and we bought approximately 25 cases of water. Just in case.

WELLS: Meantime, the state is warning it is getting spot checks of people getting curtailment orders to see if anyone is cheating and this alfalfa field owned by the Arnaudo family, it`s not getting any more water this year unless some miraculous falls from the sky.

For NIGHTLY BUSINESS REPORT, Jane Wells, Byron, California.

(END VIDEOTAPE)

HERERA: Shares of Seres Therapeutics is more than doubled in the firm`s Wall Street debut, and that`s where we begin tonight`s “Market Focus”.

The drug maker, which specializes in using bacteria to treat infections, priced shares at $18 a piece, which was above the estimates.
The stock closed at $49.36, a gain of 174 percent.

Finish Line also higher on strong results. The sports apparel retailer posting earnings and revenue that topped consensus. This as its merchandise assortment improved and promotional activity eased. Shares popped 4.5 percent to $28.22.

GRIFFETH: Honda restated its financial results for the business year after booking expanded airbag recall costs. The new numbers are down 19 percent from the year before. This as its top air bag supplier, Takata, is at the center of that huge recall of millions of vehicles, because airbags can violently explode. The stock was up a fraction to $32.86.

Microsoft`s chief executive Satya Nadella has outlined some straight forward goals. In an internal memo to employees out today obtained by GeekWire, he said employee`s of the tech giant should empower every person and every organization on the planet to achieve more. Specifically, Nadella wants to impact productivity and improve the company`s Cloud platform. Shares of Microsoft (NASDAQ:MSFT) down slightly to $45.26.

HERERA: The small caps are seeing some big returns. With only a few trading days left in the first half of the year, small caps are outperforming their big cap rivals by quite a bit.

What`s driving them and will the trend continue into the second half?

Dominic Chu takes a look.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: So far this year, the small cap Russell 2000 index hovers near record highs and it`s up 6 percent. Compare that to the large cap S&P 500 which also sits near record highs. But it`s only up 2 percent year-to-date, or the Dow that`s up just half a percent. So experts believe it`s a game of playing catch-up for the small cap stocks.

MIKE RYAN, UBS CHIEF INVESTMENT STRATEGIST: After having underperformed last year, small caps came in this year trading a bit cheap relative to the large cap companies. So, I think what you saw is that partially, they made up lost ground from last year and then also important drivers of stronger domestic growth, less vulnerability to a stronger dollar.

CHU: The belief by many investors is that small cap companies more closely tied to the prospects of a domestic U.S. economy and less prone to the shocks felt by larger companies who operate in a lot of global markets.

But more dependence on the U.S. economy is a double-edge sword and a turn for the worst domestically could derail the small cap rally.

RYAN: If we were to see an environment where there was something threat to the economy or significant volatility introduced because of a change in Fed policy, which we`re not expecting, I think those are the things that could perhaps undermine either the earnings momentum within small cap companies or the environment for those people investing in small caps.

CHU: But there is a case to be made for people taking a balanced approach in keeping some large caps in your portfolio. If some of the major overhangs in the global markets clear up, investors may want some exposure to possible global growth, which some large cap stocks may provide.

BRUCE MCCAIN, KEY PRIVATE BANK CHIEF INVESTMENT STRATEGIST: We have favored the larger cap stocks, not only because I think as we put some of the energy concerns behind us, that you`ll get better performance from those — from that level but also some of the general trends we think are shifting more to the international.

CHU: The stock market has been relatively calm through the first half of the year and, if volatility picks up in the second half, having a diversified portfolio may help insulate investors from bigger shocks.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

GRIFFETH: Now, even though large caps have underperformed the small caps, that`s where our market monitor is still finding opportunity. Now, last time he was with us on this program back in February, he recommended these stocks. Abbott Labs, which in the last three months is up 10 percent. Accenture, which has gained 13 percent since he was with us in February. And Medtronic (NYSE:MDT), which is up about 1 1/2 percent in that time.

He, by the way, is Jason Pride, director of investment strategy at Glenn Mead, an asset management firm with $29 billion under management.

So, Jason, you still like these stocks. I guess that`s the definition of long-term investor anyway, isn`t it?

JASON PRIDE, GLENMEDE DIRECTOR OF INVESTMENT STRATEGY: Well, you know, this is an interesting environment. We`ve got — we`ve got the U.S.
equity markets which are a little bit overvalued. I believe one of your guests has already commented on that earlier.

And international markets, which are at the discount. That`s really where you take risk, but in order to offset and really manage an overall portfolio, if you`re going to take your risks by picking up a little bit more small caps because the valuation is better there and a little bit international because evaluation is a lot better there, you need to de-risk what you`re doing in the large cap space. You can do that by playing in equity income, kind of quality dividend growth sort of focus.

And when you do that, you pick up things that are primarily, you know, the better valued opportunities right now are in the health care space, even with the run that we`ve seen in Abbott Labs, and you find little opportunities across the board with things like Accenture, a global IT outsourcing firms which has great growth prospects, but are really nice stable franchise, nice dividend and nice growth in that dividend overtime.

HERERA: So, you`re almost using these as a hedge against the riskier side of your portfolio. But with a gain of —

PRIDE: That`s basically what we are doing.

HERERA: Yes, in Abbott Labs, up 10 percent, and Accenture, up 13 percent, you`re not tempted to take a little bit of a profit there?

PRIDE: Well, you know, we have been taking a little bit of a profit.
We`ve actually added to our small cap exposure recently. We`ve been keeping a healthy international equity position. But really, these act as a nice offset towards otherwise a slightly riskier exposure and other parts of our equity portfolio, and the fact that truthfully we`re also overweight equities at this point in time, and underweight fixed income.

So, we really need something to provide balance in the portfolio. And one of the most attractive opportunities to do that is this equity, income quality space, whatever you want to call it, but the idea of playing defensive within your large cap portfolio.

GRIFFETH: Very quickly, I know a lot of our viewers, income and equity markets look to utilities which have been beaten down perhaps anticipating higher rates. Would you look there and see value there at all?

PRIDE: See, that`s an interesting dichotomy that is happening today, is basically, the things that typically could categorized as high income or high growth, those are the overpriced areas and the safety area of quality defensive equity, things that I call dividend growth or equity income, those are the areas that are more attractive. So, it`s not a situation where you want to chase either the highest growth or the highest dividend.
You actually want to go for the things that are the most stable within the large cap space. That`s not true across the board.

GRIFFETH: Point well-taken. Jason Pride of Glenmede, good to see you again. Thanks for joining us tonight.

PRIDE: Thanks for having me.

HERERA: Coming up, they made their fortunes in China. So, why does someone wealthy want to leave that country?

(MUSIC)

GRIFFETH: Here`s what to watch next week. It`s the end of the quarter and the monthly, believe it or not. So, lots of data, including a read on manufacturing and since the markets are closed on Friday for Independence Day, the Labor Department will release the June employment report on Thursday morning. Another read on the jobs market will come with a report on private payrolls as well.

And that`s what to watch next week.

HERERA: Some of the biggest consumer companies in the world are getting hit by a double whammy, a sluggish economy and a changing consumer.
And today, executives from some of the very companies were in New York, telling investors what they plan on doing about that.

Sara Eisen has more from the consumer goods summit in New York.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: When it comes to the basics, food, beverage and household products, consumers are holding back. And for the giant companies behind those brands, growth is hard to come by.

From Coca-Cola (NYSE:KO) to Campbell Soup (NYSE:CPB (NYSE:CPF)) to Nestle, profits are coming from cost cuts and higher prices, not sales growth.

PAUL BULCKE, NESTLE CEO: We are part of a society, and generally, the economy is not growing so nicely. So, we are part of that. But I do see lots of opportunity anyhow. So, we have been growing through the crisis every year and that is what`s nice.

EISEN: Economic problems, including slowdowns in emerging markets like China and Brazil and sluggish growth in the U.S., Europe and Japan is also changing consumer taste.

BULCKE: There`s natural or gluten-free, there`s new concepts coming up and we have to link and connect with these trends.

EISEN: Nestle for instance says it is removing fake yellow dye from Butterfingers. Kraft (NYSE:KFT) is doing the same with mac and cheese.
It`s too soon to tell whether consumers are actually responding to ingredient changes by the companies. But until economic growth comes back in force, especial in emerging markets, the companies are struggling.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

GRIFFETH: By the way, safety regulators are investigating complaints about Ford`s F-150 pickup trucks. Those are the top selling vehicles in the country right now. As many as 250,000 pickups could be impacted by this probe which is looking into reports that the power brake assist can fail, making it hard to stop in some of those vehicles.

HERERA: And finally tonight, even as the Chinese government introduces new economic reforms, many of China`s wealthy are leaving that country in droves, and they are doing it in an unusual and controversial way.

Eunice Yoon has more.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China is seen by many as a land of opportunity, now home to more than 3 million millionaires. But a 2014 survey found that two of three polled are looking to emigrate.

Julie Xi (ph) is joining the exodus of wealthy people leaving China.
She made her fortune manufacturing clothes in the southeastern city of Xoju (ph).

UNIDENTIFIED FEMALE: A lot of young people don`t like this type of work anymore. So, I want to look for new business opportunities.

YOON: So, Xi is moving to America because there, she says, she feels free.

Can I take a look around?

UNIDENTIFIED FEMALE: Yes, sure. Of course.

YOON: Immigration agents, like Anna Yang, help affluent Chinese qualify for the U.S.` EB5 visa program, a scheme where foreigners invest at least half a million dollars into an American project in exchange for a green card.

Young said the average wealth of her clients is about $1 million in assets.

YOON: Why would they want to leave?

ANNA YANG, JOIN VISA GENERAL MANAGER: Pollution. And I think their main concern of them, when they get rich, they are thinking of better education for their kids and better lifestyle, I should say.

YOON: Hi.

We caught up with Xi after she moved to New York. She invested
$500,000 into a gold mine in Idaho for her green card. Xi is hoping to start a business in the U.S.

UNIDENTIFIED FEMALE: In the U.S., everything is very reasonable.
Chinese might not be used to that. I like a place with rules.

For rich people in China, government policies affect how you establish your business. Success is not about how hardworking you are, but whether the country supports your industry.

YOON: The Chinese government is hoping to appeal to people like Xi, promising to clean up the environment and squash corruption as more of its citizens demand a modern, healthier society.

But so far, the China dream hasn`t included enough assurances for Xi to want to return home soon.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon, in New York.

(END VIDEOTAPE)

HERERA: And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for joining us.

GRIFFETH: I`m Bill Griffeth. Have a wonderful weekend, everyone.
We`ll see you again on Monday.

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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