Transcript: Nightly Business Report – September 2, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Bounce back. Stocks
close sharply higher getting back yesterday`s steep losses. So, where can
you find value in a market that gets whipsawed seemingly every day?

Continued expansion. That`s what the Fed says about the economy. So,
with the economy growing, is this the ground work the Fed needs for a rate
hike?

And, off target? They`re offered by more than 80 percent of
employers` 401(k) plans. But what happens when your target date fund
misses the mark?

All that and more for Wednesday, September 2nd.

Good evening, everybody, and welcome. I`m Sue Herera. Tyler Mathisen
is off this evening.

Stocks rebounded solidly from yesterday`s sharp sell-off as investors
turn their attention to a rap of mostly economic data. A couple of pieces
offering support early was the strongest pace of productivity growth in a
year and a half, along with a drop in labor costs. The private ADP survey
of job growth was steady and that also helped a bit.

Add to that, the Feds` view that the economy is growing and you had a
recipe for a stock bounce. By the close, the Dow Jones Industrial Average
rose 293 points to 16,351, the NASDAQ rose 113, and the S&P 500 added 35.

Bob Pisani delves a little deeper into the rally.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets
started up and stayed up. Why was there a rally?

Firs, China was relatively quiet.

Then, oil rallied in the middle of the day which was a surprise
because the weekly inventory report showed another bill. The oil rally
helped oil names like ExxonMobil (NYSE:XOM) turned around and that
contributed to the rally in the middle of the day.

Now, the icing on the cake came in the last half-hour when the Dow
rallied an additional 100 points. Now, unlike some days in the last couple
weeks, there were no orders to sell stocks at the close.

In the middle of the day, the Fed released its Beige Book report and
the tone was very positive on the U.S. economy. They noted that economic
activity continued expanding across most regions.

Most traders interpreted this to mean that a rate hike by the Fed in
September was definitely not off the table. But the markets seemed to
shrug off those concerns.

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

(END VIDEOTAPE)

HERERA: And that ADP private payrolls report is an important
precursor to Friday`s job numbers and it came in just shy of expectations,
but still showed steady job growth — 190,000 positions were created in
August. Estimates called for 200,000 jobs. The sectors leading the gains
were trade, transportation, utilities and construction. That continued
growth in jobs was baked into the Federal Reserve`s so-called Beige Book
which gives the snap shot of economic conditions around the country. That
tightening labor market was no doubt a factor in the Fed`s determination
that the economy continues to expand. Something supported by the reason
look at second quarter GDP, which topped 3.5 percent.

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The latest
snap shot of economic conditions around the country found robust housing
and auto sales driving an economy that continues to expand. The Fed says
11 of its 12 regional banks found their local economies growing at a
moderate or modest pace from July through mid-August, following a rebound
in overall economic growth in the second quarter, to 3.7 percent.

Labor markets are also tightening in many parts of the country,
driving up workers` wages, especially in highly skilled jobs, from
construction to information technology.

And the latest Fed Beige Book will be on the table when monetary
policymakers meet in mid-September to consider raising key short term
interest rates for the first time in nearly a decade. Leading economists
say, part of the Fed do a mandate however is not being met.

STEVEN RICCHIUTO: The reality of the situation is, even though the
economy is slowly getting better, the inflation numbers are not getting
better, and we`re nowhere near the Fed`s target ban.

PEARSON: Meanwhile, the oil industry in the Midwest continues to be
hit by the sharp drop in energy prices, and consumers remain cautious when
it come to spending the money saved from lower gasoline prices.

And the summer rebound in the economy happened before the recent
downturn in China.

CARL TANNENBAUM, NORTHERN TRUST: We really don`t have a handle on how
all of this Asian mess is going to come back and affect U.S. GDP growth.
And, unfortunately, the Beige Book, while encouraging I thought is —
predates a lot of the turmoil that we`ve seen coming out of Asia.

PEARSON: For the Fed, Friday`s all important jobs report could make
or break the dead lock over raising interest rates when monetary
policymakers meet in two weeks.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.

(END VIDEOTAPE)

HERERA: Mortgage applications spiked last week. Up more than 11
percent, after a strong sell-off in the market briefly pushed interest
rates lower.

Diana Olick looks at the drivers behind the numbers.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: We knew this was
coming. Lenders early last week said their phones were ringing off the
hook.

Here`s what happened — as the stock market plunged, investors headed
to the safety of treasuries, pushing their yields down and interest rates
followed those yields. So, even though rates were down barely two days and
down barely an I think a of a percentage point, it was enough to push
mortgage refinance applications up 11 percent for the week, purchase
applications were also higher but only by 4 percent. It takes a lot longer
than two days for a person to say, OK, now I`m going to buy the house.

But interesting also was the big jump in applications to refinance
adjustable rate loans or ARMs, bringing their share to the highest in
almost a year. ARMs are very popular among jumbo borrowers on pricey
houses them get a lot more bang for their refi buck, so they are even more
rate sensitive.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick.

(END VIDEOTAPE)

HERERA: The transports, which are seen as a barometer for economic
health, were one of the best performing sectors on Wall Street today.

But the group has been battered so far this year, solidly in
correction territory. But does the sell-off provide an opportunity?

Morgan Brennan looks at some names that some on the streets say could
be poised for growth.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Dow Jones
transportation average is down 15 percent for the year, underperforming the
broader market. But analysts say the steep sell-off created some longer
term buying opportunities for those not being a part.

Transport stocks poised to grow even as the global economy doesn`t.
Take FedEx (NYSE:FDX), which is down almost 13 percent in the past month
alone. Citigroup (NYSE:C) recently added the parcel carrier to its
recommended list.

CHRISTIAN WETHERBEE, CITIGROUP: You have strong e-commerce growth.
That is the secular story that is continuing to show growth. The second is
the company already has a head start in terms of cost cutting which would
help deal with the international market slowdown. And the third is back to
that valuation point, relative to peers and against itself, it is very
inexpensive.

BRENNAN: There is also opportunity in trucking. Swift Transportation
has shed 23 percent this one month. But according to FactSet, analysts`
average target for the stock is 60 percent higher than its current price.
For truckload carriers like Swift, Werner Enterprises (NASDAQ:WERN) and
Knight Transportation (NYSE:KNX), cheap fuel has been a tailwind, not only
does it lower operating costs but savings translate into more spending by
consumers and more demand for trucks.

Railroad stocks, which have been beaten down the most, may also
provide some possibilities. Union Pacific (NYSE:UNP) is a name a number of
analysts liked for the long term.

WEATHERBEE: The stock is trading at least a turn below its historical
average. And we think as that earnings growth reaccelerates into 2016,
there will be some realized value. Plus, Union Pacific (NYSE:UNP) has some
interesting optionality in terms of balance sheet, rewards to shareholders.
So, we think the company is in a position to accelerate its buyback and
ultimately give a little bit of money back to shareholders and generate
some growth in this low growth environment.

BRENNAN: Then, there`s Expeditor International of Washington. The
logistics provider has managed to buck the downward trend, up almost 5
percent in the past month.

Today, it held its first ever investor day, saying it`s considering,
quote, “limited acquisitions to boost growth”, a big shift for a company
that has never done them before.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: Investors are scaling back on their exposure to stocks amid
all of the crazy volatility. According to a survey by the American
Association of Individual Investors, retail investors cut their equity
allocations to a 10-month low of 65 percent. They`re putting more money in
cash, withholdings rising nearly 19 percent. Also noteworthy, bond and
bond fund allocations rose fractionally in August to more than 16 percent.

The nation`s second largest pension fund might be following suit and
protecting itself from these market swings. CalSTRS or the California
State Teachers Retirement System is considering a significant shift away
from some stocks and bonds. That`s according to public documents. This
would be the most aggressive move by a retirement system, as it could shift
as much as $20 billion of its portfolio into treasuries.

So, where do you find value in this market? Our guest tonight is a
value investor, and he says the big moves have presented selective
opportunity. He is Eddie Perkin, chief equity investment officer and
portfolio manager of the large cap value fund at Eaton (NYSE:ETN) Vance.

Welcome, Eddie. Nice to have you here.

EDDIE PERKIN, EATON VANCE: Thanks for having me, Sue.

HERERA: You know, this has been a tough market for a lot of people
who want to add to their portfolios, because of the fact that markets
generally fully valued. Are you now starting to find some pockets of
opportunity?

PERKIN: We are starting to see some pockets of opportunity. I
wouldn`t buy the whole market. I think the market broadly is still around
fair value so I think you have to be picky and you have to be selective.
Some of the areas where others were seeing value, I am not.

So, for example, the energy sector I don`t think has washed out yet.
I still see further downside in that sector.

But I do think in parts of the tech sector, in the consumer
discretionary sector where you have long term secular mega trends that you
can participate in, there are some good values.

HERERA: We`ll get to your picks in a few minutes. But one thing that
has been looming large this week is the Federal Reserve. And we got the
Beige Book out today.

What message did you gain from the Beige Book if anything at all as to
how it pertains to what the Fed is going to do?

PERKIN: I think it was further confirmation of what we`ve been saying
all year, which is the U.S. economy that is in pretty good shape. It is
plotting along steadily. It looks OK. The consumer side of the economy
looks particularly good.

In our conversations with company executives, we hear similar messages
that the U.S. economy is in pretty good shape. As was said earlier on the
program, some of the dislocations and uncertainty in Asia has yet to find
its way into the numbers. It may still be too early for that.

But everything else being equal, today`s Beige Report is another step
in the direction of higher rates in a couple of weeks.

HERERA: OK, let`s talk about the stocks. You mentioned the fact that
you don`t think that energy has hit bottom yet, but one of your picks is
Occidental Petroleum (NYSE:OXY). What makes it different than the others?

PERKIN: It`s kind of an in-betweener. So, it`s neither a major
integrated company, nor is it a pure-play E&P company. It`s got elements of
both businesses so in the downturn will trade with the E&P sector and be
unfairly punished. It`s got a very conservative balance sheet.

So, we`re looking for companies within the energy sector that can play
offense amidst the downturn. That can do smart things with conservative
balance sheets. And I think Oxy is one of the companies that can do that.
It has a very attractive dividend yield of 4.3 percent. So, it`s a name
that we like a lot.

HERERA: Do you think that that dividend is safe?

PERKIN: I do. They`ve got a conservative balance sheet. They can
make money at these oil prices. So, I think the dividend is safe at Oxy.

HERERA: Let`s go on to Kroger (NYSE:KR), a grocery store, defensive
play certainly, but a very competitive industry.

PERKIN: Very competitive industry. They`re doing a lot of smart
things. They`ve been in a price war with Walmart for over a decade but
that seems to have come to an end. They`re investing in health, natural
foods, organic foods. That`s driving comps store sales.

So, it`s a very well-run company, with growth in front of it and yet
it is, as you said, a defensive stock. We`ve been surprised how much it`s
pulled back with more cyclical parts of the market. And so, we think it is
a good entry point to be adding to Kroger (NYSE:KR) position.

HERERA: And Google (NASDAQ:GOOG) is also on the list. You cite the
new CFO there as one of the reasons why you like the stock.

PERKIN: I do. Ruth Porat from Morgan Stanley (NYSE:MS), I think it`s
bringing it to financial disciple to Google (NASDAQ:GOOG), which they`ve
not had. It has been an engineer-led, software engineer-led software
company. Now they`ve got a serious CFO in place who I think will bring
some financial discipline.

They spend a lot of money in R&D. I think many of those things like
driverless cars may bear fruit. So we want them to continue to invest.
But they`ve got $70 billion on the balance sheet. If you need that out of
the valuation, it`s only at 15 time the earnings which is a market multiple
for a company that is growing a lot faster than the broad market.

HERERA: All righty. Thank you, Eddie. We really appreciate your
perspective. Eddie Perkin with Eaton (NYSE:ETN) Vance.

PERKIN: You got it.

HERERA: Coming up, the stage is set for a legal showdown over Uber
drivers and the outcome could have a wide ranging impact on the sharing
economy.

(MUSIC)

HERERA: As Bob Pisani mentioned earlier on our program, oil prices
resumed their climb today after getting hammered yesterday. Domestic crude
ending up nearly 2 percent to $46.25 a barrel.

President Obama`s Iran nuclear deal seem to be in the clear after
Maryland Democratic Senator Barbara Mikulski said she would support the
plan — 34 senators now support the deal, meaning it will survive any
congressional vote.

Joining us with more from Washington is Eamon Javers.

So, Eamon, the president, this would be a major foreign policy victory
for him.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It would
absolutely. And Barbara Mikulski said this would be one of the most
serious votes that she`s taken. She said that she spent hours in briefings
going over the details of the Iran agreement, ultimately concluding that
this is the best way to keep Iran from getting the bomb.

Now, the key with that 34-vote number the president now has, it is
expected that Republicans are going to offer a vote of disapproval of this
Iran deal. If they pass that, which they appear to have the votes to do in
the United States, President Obama is then expected to veto that. But the
34-vote support that he`s got in the Senate means that he is likely to
sustain that veto, meaning he can block any resolution of disapproval here
of this deal.

HERERA: You know, a number of our Middle Eastern trade partners and
allies are very upset about this deal. What does it do for relations
between the United States and some of those Middle Eastern countries?

JAVERS: Well, I think you can see it when you look at how this is
playing out within the Democratic Party politically. A lot of Democrats
are very concerned about taking this vote to Democratic senators and said
they won`t do it because they`re concerned that it raises the level of risk
for the nation of Israel. They say that`s just not something they`re
comfortable doing.

We`re going to have to see how the other ten Democrats who haven`t
indicated yet which way they`ll go, will break on this. The concern over
the impact on Israel is really the animating force of this debate here.
We`ve got a lot of Republicans against this deal, some Democrats. And
we`ll see how many Democrats ultimately end up opposing it.

The president is going to get his way here. If there are a lot of
Democrats opposing him, that will be bad for him politically going into the
fall.

HERERA: We do a lot of business with Israel. There are a number of
pioneering countries that are listed here in the United States. Does this
have the potential to disrupt business relationships with individual
companies that do business here in the United States, and maybe centered in
Israel or other Middle Eastern countries?

JAVERS: It doesn`t seem like it will have that effect. One of the
big unknowns here is what the effect of lifting the sanctions on Iran will
be over time in terms business opportunities for western companies, trying
to get into Iran. Obviously, when you think of Iran, you start to think
about oil and other industries.

But the question is, what other kinds of companies might be able to
move into the Iranian sphere and start to do business there. That`s one of
the big unknowns here. And I think a lot of companies will be approaching
that pretty gingerly, at least the first.

HERERA: All right. Eamon, thank you so much as always.

JAVERS: You bet, Sue.

HERERA: Eamon Javers.

DreamWorks could be splitting from Disney (NYSE:DIS), and that`s where
we begin tonight`s “Market Focus”.

According to “The Hollywood Reporter”, Steven Spielberg`s studio,
DreamWorks Animation, will part ways with the media giant next year. The
company is reportedly in talks with Universal (NYSE:UVV) Pictures. Shares
were up 3.5 percent to 2015. Universal (NYSE:UVV) Pictures is owned by
CNBC`s parent company, which produces this program.

The truck and engine maker Navistar recorded its 12th quarterly loss
in a row, results suffered from restructuring and warranty costs.
Separately, the firm said the Securities and Exchange Commission is
considering penalties against it. This is related to a strategy for
complying with the mission`s regulations. Shares tumbled more than 4
percent to $16.62.

Valeant announced its eighth acquisition of the year. The
pharmaceutical company is buying a surgical device maker called
Synergetics. The firm makes equipment for ophthalmology and neurosurgery.
Valeant shares were more than 3.5 percent higher to $232.18. Synergetics
surged 50 percent to $6.59, but it`s worth mentioning Synergetics is a
small cap stock.

Amgen (NASDAQ:AMGN) had some positive drug data to report today. The
firm says its experimental bone density drug was more effective than an Eli
Lilly (NYSE:LLY) treatment that is already on the market. Separately, a
court declined the company`s request to block Novartis from launching a
copycat version of its drug. The stock was up more than 3 percent to
$152.29.

Lannett saw its shares rise after the close after announced it will
buy the generic drugmaker Kremers Urban for more than $1 billion. Shares
surged as much as twenty percent in after hours trading. By the close the
stock was unchanged at $47.29.

Philip Morris` Indonesian arm is reportedly gauging demand for a
rights offering for nearly $2 billion. The cigarette seller is reportedly
in talks with investors and could start taking orders by the end of the
month. The stock was 1 percent higher to $78.70.

Planet Fitness posted late earnings that beat expectations in its
first report as a public company. Sales were also better than analysts
were expecting. Shares rose initially after hours before falling back. At
the close shares were up more than 1 percent to $18.50.

A federal judge in San Francisco dealt a blow to uber by granting
drivers class action status in an ongoing suit over employee
classification. The drivers want to be deemed as employees, not
independent contractors as they are today.

And as Kate Rogers (NYSE:ROG) tells us, this is important since the
independent contractor classification is key to Uber`s operations.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Of the bevy of
sharing economy lawsuits that have cropped over employee classification,
Uber`s will be the one to watch. It stands to greatly impact the sharing
economy model which relied heavily on independent contractors.

REBECCA SMITH: Recently, we`ve heard of Shift and Instacart and
Luke`s, changing to an employee model. At some point, someone at Uber will
likely say, the game is over. It is time to take responsibility for our
employees.

ROGERS: Uber, which is now valued at $51 billion, could be on the
hook for workers` compensation, unemployment insurance, Social Security and
more if the plaintiffs succeed. After whose eligible to participate in the
class, it`s those who stopped driving before June of 2014 or those who
started driving after June of 2014, and opted out of the company`s
arbitration clause. Those who drive for transportation company and those
registered with Uber as a corporation cannot be part of the class, this
includes one of the plaintiffs.

Uber said it will likely appeal the decision and in a blog post at the
scope of the class is much smaller than originally sought, less than 15,000
drivers. Uber told CNBC in a statement, quote, “Partners use Uber on their
own terms and there really is no typical driver, the key question at issue.
At a hearing over class status in August, Uber`s outside counsel Ted
Boutros said this case could negatively impact the sharing economy.

TED BOUTROS, UBER`S COUNSEL: There is a real chance that this class
actions, if they were to spin out of control, could really interfere with
this booming part of the economy, which I think everyone agrees is highly
beneficial, both to the individuals who are, for example, driving for Uber
and other competitors.

ROGERS: Potential damages are hard to calculate. Drivers in the
class would be able to recoup tips which Uber advertises as being included
in the fare. But according to the plaintiff`s attorney, Shannon Liss-
Riordan, are not distributed to drivers. More evidence is needed to
determine additional reimbursements for gas and maintenance.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: More than 80 percent of employers offer target date funds in
their 401(k) plans, and those funds often become the default options for
employees. And the recent swings have taken their toll on some of those
funds. So, what do you do now? Some thoughts coming up next.

(MUSIC)

HERERA: Here`s a look at what to watch tomorrow. We will get the
weekly jobless claims number ahead of Friday`s big jobs number. The
challenger job cut report is out. That`s going to tell us where the
layoffs are occurring. A read on international trade is also out. And
that`s what we`re going to watch for on Thursday.

Recent swings in the markets may have many retirement investors
worried as some target date funds missed the mark. It`s important since
target date funds are popular and often the default option in many 401(k)
plans.

Sharon Epperson who brought this up last night joins us with more on
that.

They are really popular.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: They`re
really popular because they`re relatively simple to use.

HERERA: Right.

EPPERSON: You don`t have to think about your asset allocations in
target date fund because it`s done for you. It automatically is going to
get more conservative over time and move from stocks to bonds. And so,
those who don`t know exactly what funds to pick for their 401(k) or their
retirement plan often opt for target date fund.

HERERA: It does the work for you, basically.

EPPERSON: Basically, it does. But you have to pay attention in
market volatility to really at all times but especially now, to really the
funds that are inside that target date fund and how much is allocated to
equities versus fixed income. We took a look from Morningstar
(NASDAQ:MORN), some of the funds that they`ve looked at for those who are
retiring this year in 2015.

And you look at a fund like the Wells Fargo (NYSE:WFC) Advantage Dow
Jones 2015 fund. That is mostly fixed income. That is done significantly
better in recent weeks.

HERERA: Yes, look at that.

EPPERSON: Compared to the Fidelity Freedom Fund there for 2020. So,
when you look at those, and also take a look at what is happening over a
three-month period, a five-year period, rather, so you have a longer period
of time. There you see that they`re comparable, more comparable in terms
of the gains that they`re getting. But the point is that you need to look
inside these funds and many people don`t.

HERERA: I was just going to — that was the next question. How many
people actually do that? Do we have a gauge? Because it — you really
kind of check the box. That`s what most people do.

EPPERSON: Yes, that`s what most people do. Most people actually
don`t do anything with their 401(k). You know, they figure they`re
contributing to it and some people think — well, my company is offering
this and they`re going to allocate it for me anyway and it is a default
option for many people.

But you need to do your homework and just make sure it fits with what
risk you want to take. If you want to stomach the volatility that we`re
seeing right now, all the stock volatility, being allocated, more into
equity and equity funds makes sense. But if you don`t, you want to be more
in fixed income.

HERERA: You know, a lot of people have to feel as though they`re
behind or they have to work longer.

EPPERSON: Right.

HERERA: So they might want more equity exposure than their age would
normally dictate.

EPPERSON: Very important point, Sue. We`re really looking through
target date and not to that certain point because you could spend a decade
or more in retirement.

And the other thing to consider is that, when you`re looking inside
these funds, make sure that you understand exactly what the different types
of investments are, how much is allocated. They`re just mutual funds, how
much of those funds allocate to equities versus fixed income.

HERERA: Always good advice, Sharon.

EPPERSON: Sure.

HERERA: You`ve got it covered for us. Thank you.

All right. That does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue
Herera. Thanks for joining us. And we`ll see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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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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