SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stock market meltdown.
The selling was intense. The Dow and S&P 500 suffer their worst day of the
year. How concerned should you be about today`s steep selloff?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Strong foundation?
Home sales rise again in July but so do prices. And with a possible rate
hike on the horizon, is the housing market at a turning point?
HERERA: Water works. From pipe breaks to outdated dams, our series,
“The Big Fix”, looks at what is being done to address our aging water
All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
MATHISEN: Good evening, everyone. And welcome.
The selling today was serious. It intensified into the close and the
damage was ugly. Games for the year gone. The S&P 500 now negative for
2015, about 25 percent of the constituents of that index and a third of all
of the Dow components now sit in bear market territory, meaning they have
fallen 20 percent or more from their highs.
By the close, the major averages all lost at least 2 percent of their
value, the Dow Jones Industrial Average plummeted 358 points to 16,990,
breaking below 17,000, the NASDAQ off 141 and the S&P 500 shed 43 points.
As stocks fell, so did bond yields. The ten-year yield hovering
around 2 percent, its lowest in about four months. Much of the selling had
to do with uncertainty over the timing of a rate hike by the Federal
Reserve and over concerns about growth across the globe.
Bob Pisani at the New York Stock Exchange has more on the selloff and
what`s worrying the markets.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Groundhog Day
again, the same gloom and doom. Asia down again, Europe down again, U.S.
stocks down again.
Yet when I called around in the morning and asked for a specific
reason the whole market was down 1 percent to 2 percent to 3 percent, I
didn`t get an answer. Traders continued to cite a big sense of dread and
unease hitting the market for several days now.
The dread and unease centers on, first, fear of a global growth
slowdown, particularly in China and Brazil. Second, weakness in emerging
market currencies, which could trigger a cascading series of economic
problems overseas. Third, uncertainty over the Fed`s intention on raising
rates. And, finally, worries about the potential collateral damage from
the commodity collapse we`ve seen.
This concern over collateral damage is a real worry for traders. It
ranges from concerns that high-yield funds will fall further to worries
traders will start selling better performing sectors to cover their losses.
Today`s decline was pretty broad. Six stocks declining for every one
advancing on heavier than normal volume. All sectors were down 1.5 percent
to 2.5 percent.
The Dow Jones Industrial represented the declines well. Health care
stocks like Merck (NYSE:MRK), consumer names like Nike (NYSE:NKE), health
care names like United Health, and tech names like Cisco (NASDAQ:CSCO) were
down 2 to 4 percent.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stocks
HERERA: Oil prices bucked their recent trend, rising slightly today
after falling to 6 1/2 year lows yesterday. At the settlement, West Texas
Intermediate rose 34 cents to $41.14 a barrel.
But as Jackie DeAngelis reports, today`s rise is likely a temporary
blip, a very temporary blip.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: After
hitting 6 1/2 year lows, it may appear like crude oil has found support at
just about $40 a barrel. Is it for real or just a head fake?
Yesterday`s Fed minutes are a factor. They triggered weakness in the
dollar that`s expected to persist. A weaker dollar is supportive of oil.
But also, a hurricane brewing down south headed towards the Gulf. It
doesn`t appear to be a threat at the moment but these are the types of
events that can rattle markets.
Still, this week`s Department of Energy report showed us that
production is flat lining, not declining, and imports were up, leading to
an inventory build that`s definitely still a bearish sign.
JAMES WEBSTER, IHS (NYSE:IHS): The reality is that there has been way
too much oversupply and too much excitement about the fact that the U.S.
was starting to slow down, but we don`t need it to slow down. We actually
need it to drop production in order to bring to us to some sort of balance.
DEANGELIS: And it`s not just the U.S. Saudi Arabia continues to pump
10.4 million barrels a day in July. And Russia`s dramatically weakened
currency is helping it lower production costs and executive at Russia`s
state-owned Gazprom saying oil firms are weathering low prices and will
continue to increase output even as Saudi Arabia drops prices lower.
So, where do oil prices go from here and will we see that three handle
soon or ever? Traders think it`s possible to see a temporary upside bounce
before we get there. What`s remarkable, though, is that analysts are
saying once we go down into the $30s, we could stay there longer than
ERIC LEE, CITI: In the second quarter, our markets got excited about
the fact that rebalancing was happening. You know, demand was picking up
and that`s indeed been the case and supply was going to pull back in the
three buckets, OPEC, maybe, shale for sure, and non-OPEC non-supply (ph)
might see faster declines. But all of those supply forces are holding up.
So, it seems like this rebalancing process might be longer and more painful
DEANGELIS: So look out, that three handle may not be far off.
For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.
MATHISEN: Gold prices also rose today to their highest level in five
weeks. As equities fell, investors rushed into the metal looking for a
safe haven. Gold prices helped by an easing dollar following the minutes
from the last Federal Reserve meeting. We told you about that yesterday.
By the settlement, gold futures gained more than 2 percent. They now
sit at about $1,l53 an ounce.
HERERA: So, what the heck is going on in these markets? Why now and
what does it mean for your investments?
We turn to our two market guests for their analysis tonight. Jeff
Kleintop, chief global investment strategist with Charles Schwab, and
Michael Jones, chief investment officer and chairman at Riverfront
Gentlemen, welcome. Nice to have you here.
Michael, thank you for joining us in the studio. Pleasure to have
MICHAEL JONES, RIVERFRONT INVESTMENT GROUP: Great to be here.
HERERA: I`ll start with you. You think the market is overreacting
fundamentally to both what has been happening in China and also the lower
oil prices that we just talked about. Why?
JONES: Absolutely. Well, first of all, the worst scenario that we
could have had is that China would have stuck to the dollar peg and kept
their monetary policy too tight for too long. That could have given a
definite slowing in the Chinese economy that could have started a
deflationary spiral. So, the fact that they released the dollar peg, that
gives them a lot of flexibility, starts lowering interest rates and
stimulate their economy with monetary policy.
Even more puzzling to me is why anyone that isn`t in Texas or Russia
or Saudi Arabia would be upset with a three handle on oil. Most people buy
oil. They don`t produce it.
HERERA: Meaning other countries?
JONES: Most other countries and most consumers in the world. And so,
right now, consumers are getting a tremendous added boost to their spending
power as oil prices drop as prices at the pump drop. That spending power
right now is being used to pay down debt predominantly. Savings rates are
rising because no one believes that low oil prices are going to last.
With the analysis that you just saw from the Citigroup (NYSE:C)
analyst which we concur with absolutely, we think this bear market in oil
is going to be here a long time. The longer the bear market lasts, the
longer the bear market lasts, the more people will spend the extra money.
MATHISEN: Jeff, why don`t you react to what Michael just said,
specifically on oil? But also address the question of whether what we`re
witnessing today in the market is the kind of spasm we saw back during the
taper tantrum a couple years ago and whether it`s long lived or not.
JEFF KLEINTOP, CHARLES SCHWAB CHIEF GLOBAL INVESTMENT STRATEGY:
Michael made excellent points and I agree with all of those points and, in
particular, around oil, even emerging markets are more consumers than
producers of oil and these days there are exceptions to that, but that`s
Today was a dramatic day for investors, but this has been the most
widely anticipated return of volatility I can think of when the fed got
closer to hiking interest rates, markets would begin to react in a more
erratic fashion. That`s what we`re experiencing right now.
What we`re not seeing is a dramatic slow down in global economic
activity. You know, it`s hard for individual investors to keep track of
every economic statistic around the world as much as you and NBR try to
help them with that.
One of my favorite things to watch is the Citigroup (NYSE:C) economic
surprise index for the G-10 countries. That`s been rising over the last
three months, which means data on average has been beating expectations.
So, we`re not seeing a global slowdown that would justify a much steeper
decline of the market.
HERERA: So, for the individual investor who has a longer term high
horizon, Michael, is today something that they should put aside and take
the longer view and maybe look at some stocks that are out there that today
saw 2 or 3 percent decline?
JONES: Absolutely. First of all, we should recognize that today was
a bad day technically for the market. We broke through the 200-day moving
average. That`s going to take a little time to heal. So, this pull back
may extend a little bit further. We see really strong technical support
about 1977 on the S&P but we would absolutely consider that to be a very
good buying opportunity.
I`m going to echo something that Jeff said. Volatility has been well-
anticipated to be coming back to the market. Quantitative easing in the
U.S. is over. When the fed is printing 80, $90 billion a month and using
it to buy safe assets, that`s a tailwind for the equity markets that kept
volatility low for years.
JONES: That is over. And so with quantitative easing in the U.S.
over, volatility is back in U.S. markets and as long as the fundamentals
remain strong, it`s a buying opportunity.
MATHISEN: Michael says be very cautious, Jeff, on energy, materials,
those kinds of shares right now. Give me a sector that you like if someone
wanted to put some money to work after today`s selloff.
KLEINTOP: You know, I think the financial sector looks attractive
here, technology as well, particularly in Europe where you`re seeing
earnings picking up over the last few months. Even as prices for stocks
have come down, they are down about 8 percent over the last month or so.
That means valuations are down and they are looking attractive.
Tyler, you mentioned the taper tantrum back in 2013. This very much
echoes that as the Fed was looking to end QE and as stocks get volatile,
pull back a little bit, have a bottom and rebound. Financials was a better
performing sector after that in 2013.
HERERA: All right. Gentlemen, thank you so much. Great discussion.
KLEINTOP: Thank you.
HERERA: Michael Jones with Riverfront Investment Group, and Jeff
Kleintop with Charles Schwab.
MATHISEN: To the economy now, where the number of Americans seeking
unemployment benefits rose ever so slightly last week. The Labor
Department says that jobless claims climbed 4,000 to a seasonally adjusted
277,000. Despite the increase, the overall level is still consistent with
an improving labor market. Separately, a measure of manufacturing activity
in the Philadelphia area came in stronger than expected, suggesting that
the sector`s moderate expansion should continue.
HERERA: Sales of existing homes rose to prerecession levels, climbing
for the third straight month. The National Association of Realtors
reported a gain in sales of 2 percent in July, but along with the higher
sales came higher prices.
And with all of the attention now on the Federal Reserve and interest
rates, Diana Olick explains why the housing market could be the turning
BERNADETTE REID, HOMEOWNER: Really priced incredibly well for this
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: There is
definitely demand for housing.
B. REID: I think we`re good.
OLICK: So much demand that Bernadette and Randy Reid were afraid to
put their suburban Dallas home on the market.
B. REID: We`re all set.
I would find a home that I really liked, and, you know, I looked again
and it was gone. So it was pretty disappointing because I kept thinking,
well, I don`t want to put my house on the market and then be homeless.
OLICK: That fear from move-up buyers is exacerbating already tight
supplies which in turn is pushing prices higher.
The median sales price nearly 6 percent higher in July, according to
the realtors. That was finally enough to make the Reids put their home on
their market, hold this open house and make a risk on finding another to
B. REID: Even from January to even April, it seemed like the prices
had gone up even higher. So, I thought, you know what, we better — if
we`re going to do something, we need to do it now, because if we wait until
next summer, it`s going to go up again.
UNIDENTIFIED FEMALE: Here`s some information on the house.
OLICK: Higher prices are hitting first-time buyers especially hard.
They made up 28 percent of the market in July, far lower than their usual
LAWRENCE YUN, NATIONAL ASSOCIATION OF REALTORS: The first-time buyers
are getting frustrated, first in terms of affordability, prices rising too
fast in relation to people`s income and furthermore, the rents are rising
twice as fast as people`s income.
OLICK: Realtors are saying their buyers are getting more concerned
about affordability and the possibility of higher interest rates only makes
that worse or does it? Some argue that higher rates would be a result of a
better economy and a feeling from the Fed that housing is finally out of
ROBERT WETENHALL, RBC CAPITAL MARKETS: If rates are going up, you`ve
got to ask why. Is it for the right reason? And, from our perspective, if
it`s a 25 basis point hike, will that derail demand for housing?
OLICK: The Reids home did sell quickly and just to be safe —
RANDY REID, HOMEOWNER: We asked to put a contract on two homes just
to make sure that we — if we lost one, we had another backup at that
OLICK: They also increased their budget to steal a deal.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
MATHISEN: And the president of the San Francisco Federal Reserve
issued a warning for the housing market today. In a speech, John Williams
said that raising rates is an effective way to cool off the housing market.
But that it could come at a cost if the broader economy isn`t strong
enough. However, he also believes that if the housing sector and overall
economy are both doing well, then a hike in rates may keep economic
activity from getting too hot.
HERERA: And in Greece, Prime Minister Alexis Tsipras is stepping down
and calling down for early elections. Tsipras made that move after losing
some support from within his own party over that country`s bailout program.
In a televised address, he said he negotiated the best deal possible.
Elections will most likely be held next month.
MATHISEN: Still ahead, the billion dollar pharma deal that`s raising
MATHISEN: Late today, Hewlett-Packard (NYSE:HPQ) reported its final
quarterly earnings as a single company. The tech giant will split into two
on November 1.
Tonight, HP posted a 13 percent drop in earnings. They came in at 88
cents a share. That was, however, 3 cents better than estimates. But the
company also said full year adjusted profit would be below estimates,
citing weak PC sales.
Revenues came in a bit light, marking the company`s 15th revenue
decline in the past 16 quarters. And the stock was volatile in after-hours
Bertha Coombs has more on the result and the one positive in HP`s
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The one
positive take away from HP`s results is that the faster growing enterprise
sector was the best performer during the quarter. That`s where we saw the
revenues actually exceed expectations, even as the full company`s revenue
fell short for the third straight quarter.
Enterprise revenues were stronger, so were the services, both stronger
than analysts were looking for.
So, as the company prepares to split into two firms, the enterprise
and the slower growing printing and hardware business, it appears that the
Enterprise business may be on track.
Bertha Coombs, NIGHTLY BUSINESS REPORT, New York.
HERERA: We begin tonight`s “Market Focus”: with more late-day
Cloud computing company Salesforce reported better than expected
revenue and profit and raised its full year revenue guidance. The company
cited increased demand for its web based sales and software. Shares rose
initially in after-hours trading but fell during the regular session to
The retailer Gap (NYSE:GPS) reported a decline in second quarter
profits because of weaker sales at its namesakes store and Banana Republic
stores. The company did, however, maintain its full-year guidance and saw
sales rise at its Old Navy branded stores. Shares didn`t not all that move
much in after hours trading. During the regular session, the stock fell
more than 1 percent to $33.66.
Sears (NASDAQ:SHLD) posting its first quarterly profit in more than
three years. The company sold hundreds of millions of dollars in real
estate throughout the second quarter. But it did see its sales continue to
fall. Sears (NASDAQ:SHLD) ending the day down over 1 percent to $22.97.
And the clothing company Perry Ellis lost money in the quarter but
revenue came in stronger than analysts were expecting. The retailer saw
the inventories drop and margins grow and in turn it has raised its full
year guidance. Shares surged more than 7 percent to $25.18.
MATHISEN: Disney (NYSE:DIS) and Time Warner (NYSE:TWX) down graded
today by Bernstein to “market perform” renewing concerns about the state of
the television business. The analysts there said the way the companies are
being valued has to change, along with the transformation that`s happening
within the media industry. Disney (NYSE:DIS) fell a big 6 percent to $100.
It was the worst performing Dow stock today. Time Warner (NYSE:TWX) shares
fell 5 percent and the rest of the sector was dragged down along with them.
Madison Square Garden (NASDAQ:MSG), meanwhile, owners of the New York
Knicks and Rangers reported strong second quarter results. The company saw
revenue growth in the entertainment group, as well as a boost in its sports
business. The company announced back in April its intention to split its
media and sports brands into two separate entities. The stock fell today
along with the broader market, down 4 percent to $73.32.
The drugmaker Eli Lilly (NYSE:LLY) reports that its experimental
diabetes drug performed well in a large trial. The company states that the
drug cut the risk of heart attack, stroke and death among patients. The
announcement sent shares of the pharmaceutical giant up over 4 percent to
And Pepsico (NYSE:PEP) feeling the heat with the recently formulated
diet conscious customers began voicing their displeasure with the recently
reforumulated Diet Pepsi online. Pepsi announced back in April that it was
rejiggering the recipe to remove the sweetener aspartame and replace it
with Splenda. Customers have apparently taken notice. Pepsico (NYSE:PEP)
shares fell about 1 percent. They finished at $97.98.
HERERA: The Canadian drugmaker Valeant is acquiring privately held
Sprout pharmaceuticals after Sprout became the first company to win
approval for a female libido pill. The price tag was $1 billion. And that
is raising some eyebrows, sending shares of Valeant 6 percent lower in
Meg Tirrell looks at some of the questions surrounding this
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s been called
the female Viagra and today, drugmaker Valeant Pharmaceuticals made a bet
it will be a blockbuster.
J. MICHAEL PEARSON, VALEANT PHARMACEUTICALS CHAIRMAN & CEO: It`s
quite large. Certainly in the hundreds of millions for us, but hopefully,
it`s in the billions in terms of what this can do from a revenue
TIRRELL: Sprout Pharmaceutical`s Addyi showed the third time is a
charm when it cleared the FDA after two previous rejections. The drug is
approved for female HSDD, or hypoactive sexual desire disorder. Something
Sprout says one in 10 women may have. But some wonder if the drug`s market
potential will be limited by its side effects and question the billion
dollar price tag.
Safety concerns include low blood pressure and fainting, which can be
exacerbated by alcohol. Some say that could pose problems for a medicine
that`s taking chronically. Women must take a pill every day in order for
Addyi to work. That`s one reason that the female Viagra is a bit of a
misnomer. Viagra is taken only when needed working on blood flow. While
Addyi affects brain chemical.
The drug`s approval comes with controversy, after an intense lobbying
campaign, claiming sexism at the FDA. Now questions abound about how Addyi
will be marketed. Sprout says it won`t run TV commercials about the drug
for 18 months.
DR. SCOTT GOTTLIEB, AMERICAN ENTERPRISE INSTITUTE RESIDENT FELLOW:
It`s not uncommon to see companies make voluntary concessions not to engage
in direct consumer advertising for a period of time after an approval. And
we see this more and more with primary care drugs, with the agency`s
concern about a drug launch being too fast out of the gate, if you will,
too many people using the drug right away.
TIRRELL: Sprout says it will focus its initial efforts on
communicating with doctors and explaining to patients exactly what the drug
should be prescribed for. As for insurance, that`s the next question,
Sprout Pharmaceutical CEO Cindy Whitehead says she doesn`t anticipate a
problem from insurers.
CINDY WHITEHEAD, SPROUT PHARMACEUTICALS CO-FOUNDER & CEO: In
conversations we`ve had with them today, they are covering the Viagra-like
drugs for men. So, they cover them in about a tier two to tier three co-
pay, and we expect parity coverage.
TIRRELL: And it`s expected to be available in the fourth quarter.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
HERERA: Coming up, pipes burst, dams break and it`s all because of
our aging water infrastructure. Tonight, in our series, “The Big Fix” a
look at what is being done to make sure you get the water you need.
MATHISEN: Two senators are urging Japanese airbag maker Takata to
immediately recall all vehicles that used the company`s airbags. Senators
Richard Blumenthal and Edward Markey both say their call was prompted by an
accident that involved a 2015 Volkswagen. Federal investigators have
already launched a preliminary investigation into the accident and to see
whether Takata`s new airbags have the potential to send shrapnel flying
when deployed, just like the older ones did.
HERERA: Americans drove more miles in June than they ever have
before. The federal highway administration said there were nearly 4
percent more drivers on the road, that month, than a year ago, making it
the fastest growth rate since January. Cheaper fuel and improving economy
and summer holidays are some of the reasons why more people are getting
behind the wheel.
MATHISEN: All week, we`ve been looking at our nation`s aging
infrastructure and what`s being done to improve it. Tonight, we focus on
water, something everyone needs, and it`s a sector under pressure from
leaky pipes and water main breaks to dams that are in poor shape.
Jane Wells looks at some solutions as part of our week-long series,
“The Big Fix.”
UNIDENTIFIED MALE: Boy, I tell you what, that pipe is really going
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: If the 20th
century was about harvesting energy, the 21st is about managing water.
JON SLANGERUP, PORT OF LONG BEACH CEO: Clearly, the United States in
general is clearly way, way behind on infrastructure.
WELLS: There are nearly a quarter million water main breaks every
year, according to the American Water Works (NYSE:AWK) Association, 2
trillion gallons of drinkable water may be lost in large part to likes.
Nowhere is that more visible and more concerning than California, where a
drought means every drop counts.
The solution: new pipes and a whole lot of money.
MARTIN ADAMS, LA. DEPT OF WATER: We`re living right now in a
development that people when they built this city so it`s now our turn to
come in there and replace that upgrade it and make it to last for the next
hundred years of the city.
WELLS: Currently, the department said they would take 300 years to
replace all of the pipes in the city. With investment, they hope to cut
that time in half.
Then there`s the time and money being spent to upgrade America`s ports
where trade accounts for one in $3 of GDP.
Instead of one dock worker on one crane, in the future, one dock
worker will work several cranes tackling the number one problem at
America`s ports, congestion. Half a billion dollars is being spent on sci-
fi robotic cranes which moves eight times more cargo in shift. And the
port of Long Beach is spending $2 billion to build a fully electric
But as America`s ports dig deep, as important as they are to the
economy, taxpayers may not want to pay.
Finally, there`s a dam problem. There are 84,000 dams in the U.S. in
the U.S. and the American Society of Civil Engineers report card on
infrastructure gives dams a D. Now the largest reservoir in the San
Francisco Bay Area is getting a half a billion dollar makeover to replace
the 90-year-old original located 1,500 feet from an active fault line.
MARK SCHULTZ, CA (NASDAQ:CA) DEPT OF WATER RESOURCES: I think we need
to recognize that we inherited a lot of infrastructure from previous
generation and it`s our responsibility to maintain that and to see that
future generations can share in that benefit.
WELLS: All it takes is money.
For NIGHTLY BUSINESS REPORT, Jane Wells, Fremont, California.
MATHISEN: Tomorrow, our series “The Big Fix” concludes with a look at
what`s being done to improve the nation`s bridges in which 10 percent are
considered structurally deficient.
HERERA: On this volatile day on Wall Street, before we go, here`s
another look at today`s selloff. The major averages all lost 2 percent of
their value. The Dow Jones Industrial Average plummeted 358 points to
16,990, breaking below 17,000. NASDAQ tumbled 141 points and the S&P 500
We`ll see what tomorrow brings.
MATHISEN: What a day it was.
That does it for NIGHTLY BUSINESS REPORT. I`m Sue Herera. Thanks for
MATHISEN: And thanks for me as well. I`m Tyler Mathisen. Have a
great evening, everyone. We`ll see you back here tomorrow.