TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Shopping list. The third quarter in the books, it was one of the worst in years. What does it mean, if anything for the fourth? And how should you invest?
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Down to the wire. The House passed the short-term funding bill that averts the government shutdown for now.
MATHISEN: Under the hood. Why a growing number of investment choices in your 401(k) may look like mutual funds, but aren’t.
All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, September 30th.
HERERA: Good evening, everyone, and welcome.
A big finish to what was the worst quarter since 2011. And for investors, it was a volatile and turbulent three months. During that time, investors saw all three major indices enter correction territory and witnessed an intraday plunge on the Dow of more than 1,000 points.
For the quarter, the Dow Jones Industrial Average fell about 7.5 percent. The NASDAQ fell about the same. And the S&P lost 7 percent.
Energy, materials and health care were the worst performing sectors, all down double digits. The utility was the only group to finish higher in the quarter with a gain of more than 4 percent. But on what is historically the worst day of the year for stocks, stocks finish with a big bang. The Dow soared 235 points to 16,284, the NASDAQ gained 102 and the S&P 500 rose 35 to put it back above 1,900.
Dominic Chu now with a look at what my lie ahead for the market and your money.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you’re confused about where the market is headed, you’re not alone, especially after the kind of volatility we’ve seen. Economically sensitive sectors like energy and raw materials performed the worst over the past month and the past quarter, while dividend-paying sectors with less economic sensitivity performed well, like utilities and consumer staples.
So, can history give us any insight into what we can expect as we approach year end?
Many experts say that on average, the fourth quarter is a seasonally strong time for stocks. But what about the years like this when the market’s already looking weak as we approach the holiday season?
The analysts at the Spoke Investment Group took a look 30 times since the S&P 500’s inception that we’ve been negative on the index heading into the fourth quarter. It managed to post gains a little more than half the time, but the average return was actually negative by a little over half a percent.
Many experts think there are reasons to be more cautious these days.
RICHARD MADIGAN, J.P. MORGAN PRIVATE BANK, CIO: The biggest concerns I think short term are global growth, disinflation, and then earnings momentum. On global growth, we’re seeing slower growth. Disinflation is coming through because of energy. So, lower energy prices are ultimately good for consumption, but it’s a lower inflation dynamic.
Much more importantly, I think it’s the earnings dynamic and earnings right now have an awful lot to prove in the third quarter, the fourth quarter and then the outlook for next year.
CHU: But it also means that there maybe opportunities to find attracted investments at lower prices and that’s what many portfolio managers are trying to do.
SUSAN FULTON, FBR CAPITAL PARTNERS, PRESIDENT: We like housing and all the kinds of things related to housing. We’re buying Lowe’s right now. We have always owned it or owned it for a long, long time, and we’re adding to it because it hasn’t won up quite as much as the others, and we like the drug distribution sector.
CHU: The takeaway here is that the jury is still out. There are plenty of stats and supporting evidence for both bulls and bears. But will there or won’t there be a Santa Claus rally this time around?
For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.
MATHISEN: Ho, ho, ho.
And now our guest has stock picks that he says could make you some money in the fourth quarter. He’s Michael Tyler, love the last name, chief investment officer at Eastern Bank Wealth Management.
Michael, good to see you. I’m just going to call you Tyler — no, I’m going to call you Michael. Do you expect to pay —
MICHAEL TYLER, EASTERN BANK WEALTH MANAGEMENT: Well, I know you like it.
MATHISEN: Do you expect a rally into the final quarter this year? And if so, why?
TYLER: Well, I think — the answer is yes, I do. And the reason is that we’re at an inflection point. Right, we’re all terrified about third quarter earnings, but let’s face it. When this is a quarter when we’re seeing the biggest impact year on year for lower oil prices, and the biggest impact year on year from a stronger dollar, and those two things alone knocked about eight percentage points off of S&P 500 earnings this year.
So, looking ahead to next year, and, you know, October is when people start rolling their estimates forward and start thinking about next year’s earnings, we’re not going to have those headwinds.
So, I think that the overall opportunity set here when looking for an improvement in earnings because you are losing that huge headwind.
HERERA: So, let’s talk first about sectors that you like and then Ty and I will drill down on what stocks you like, particularly in those sectors. So, give me the three sectors that you think will perform well into the end of the year.
TYLER: I think you’re looking at a wide array, but in particular, I would highlight energy, which is got whacked big time. Oil 24 percent year-to-date after a horrible year last year and I think it’s getting to the point where you have to look at value there. Second, I’d look at some technology companies, and third, I’d look at some financials. In each case, you’re looking at positive seasonal trends and you’re looking at the potential benefits of a rate hike as well.
MATHISEN: All right. Let’s drill down a little bit farther — within those sectors, give me a buy list for the fourth quarter. You go first, dealer’s choice — which sector do you want to go with and give me a name or two?
TYLER: I’ll give you a couple of names of each. In technology, we really like PayPal. It’s a relatively new company. Just spun out of eBay (NASDAQ:EBAY) over the summer. It’s unloved. It hasn’t yet found an analyst following to speak of, and people really aren’t sure what it’s going to be able to do.
But we’re pretty confident that they’re looking at about 20 percent earnings growth and it’s also trading about 20 times earnings, which for a tech company with that kind of growth, with tremendous appeal from Mimco and the Braintree products among the millennials, so I think that’s set to go pretty well.
You can shift over then to the tech — to the financial sector, where we think that the banks and the investment banks have a good opportunity here, number one, if we’re worried about the market, we’ll see some trading games but number two, if and when the Fed raises its rates, I think there’s a benefit to the large banking sector as well. So, we’ll look at companies like Bank of America (NYSE:BAC) or Morgan Stanley (NYSE:MS) as potential successes there in the fourth quarter.
In energy, I think go with the integrated oils for two reasons. Number one, a company like Chevron (NYSE:CVX), you’ve got a 5 1/2 percent dividend yield on a cash rich very healthy company, despite the fact that oil prices are way low. That’s a very appealing floor evaluation in my opinion. And on top of that, this is the time that they’re going shopping looking for some interesting things to buy on the cheap.
So, I think that they can do some very creative business here building up their portfolio.
MATHISEN: All right. From one Tyler to another — Michael Tyler, with Eastern Bank Wealth Management — thanks for being with us.
TYLER: You bet. Thank you.
HERERA: The House of Representatives late today approved a short-term funding bill to avert a government shutdown, sending it to President Obama to sign in to law ahead of the midnight deadline.
Eamon Javers has been following all the drama for us from Washington.
So, Eamon, now the clocks are kind of reset until December 11th but why that date, who’s going to be in charge next time we have a government shutdown crisis?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, Sue, that’s the date they agree on. This was a bipartisan vote today, to kick the can down the road to December 11th. In the end, we saw more Republicans voting against it than voted for it, but a bunch did vote for it. All the Democrats voted for it. So, that was enough to pass this measure and kick the can down the road.
Ultimately though, it’s going to be up to the next speaker of the House to figure out how to get this measure through once more. In a very fractious Republican conference, it doesn’t appear to be in the mood to cut any deals whatsoever. Even with their Senate Republican colleagues, let alone the president of the United States who they’ve all campaigned against.
MATHISEN: So, is there any likelihood that Mr. Boehner and his remaining month as speaker will be able to go over the head of his caucus and do a funding bill that goes beyond December 11th and resolves some of the other big items including the debt ceiling, forging a coalition of more moderate GOP members and Democrats?
JAVERS: You know, anything is possible, and what we’ve learned in the past week, that’s really true. The Boehner resignation surprised a lot of us who watch Congress, but at the end of the day, Boehner is not a going rogue kind of a guy. I don’t see that in the cards right now.
The question is, will they be able to come up with some kind of a deal between the House Republicans and Senate Republicans that they can live with and then get the president to sign on to it? That’s just an unknown and, of course, we’ve got the debt ceiling, we’ve got the Export-Import bank, we’ve got the highway bill. We’ve got a bunch of other very contentious spending-related issues, all of which the House Republican core conservative group has vowed to fight on.
And so, how they resolve that is just anyone’s guess at this point.
HERERA: And what about the president and the new team he’s going to have to deal with? What does that landscape look like to you?
JAVERS: Well, the president came out after Boehner announced his resignation and said, you know, look, ultimately, John Boehner is a good man, he’s a patriot, but he’s dealing with a conference that doesn’t know how to negotiate. And I think the president’s patience has been relatively worn thin here. I mean, he thought he had a difficult time with John Boehner. Just wait until he deals with the next guy.
HERERA: On that optimistic note, Eamon, thank you very much — Eamon Javers in Washington.
MATHISEN: And now to the economy and the labor market. The private sector created 200,000 jobs since September. That was slightly better than estimates, and the best reading in three months.
The job gains were across sectors with increases reported in construction, trade, transportation and utilities. This report on the private sector comes two days before the monthly government employment report is due out. The Federal Reserve, of course, watches the labor market closely as it decides whether to raise interest rates for the first time in nearly a decade.
HERERA: And while labor market showed some gains, manufacturing in the Midwest contracted this month. The Chicago purchasing managing index fell to its weakest level since May as the strong dollar and weak overseas demand pressured exports.
MATHISEN: The head of the International Monetary Fund is concerned about the global economy.
Christine Lagarde calls the global growth rate disappointing, and uneven and penned her concerns on the prospect of a rising interest rates in the U.S. and a slowdown in China
(BEGIN VIDEO CLIP)
CHRISTINE LAGARDE, IMF MANAGING DIRECTOR: Well, there is recovery, don’t get me wrong, but it’s definitely slowing down and it is less than the recovery we had last year. And we don’t forecast next year to be much more than what we eventually end up with this year.
(END VIDEO CLIP)
MATHISEN: Lagarde said the risk of low growth for a long time is something she calls the new mediocre looms closer.
HERERA: And the World Trade Organization has cut its global trade forecast. The group says World Trade will grow by about 3 percent this year. And that slightly lower than previous forecast. The WTO says that number could be cut further if China’s economy continues to slow. If the refugee crisis grows or if the Federal Reserve raises interest rates.
HERERA: Still ahead, why UPS sees big returns in a sector that touches all of us.
MATHISEN: UPS is making a big bet on the health care industry as part of its long-term strategy. The world’s largest package delivery company opened a new distribution center in New Jersey dedicated to the transportation of health care-related products — everything from medical devices to specialty drugs.
And as Morgan Brennan explains from Swedesboro, New Jersey, UPS sees big money in delivering these time sensitive and sometimes life saving goods.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Pharmacist, high security storage areas, temperature controlled aerated containers. This is UPS’ Louisville, Kentucky, health care hub, one of 50 especially designed warehouses catering to shipments of medical drugs, surgical devices and biologics like blood and DNA samples.
This may look like an ordinary part of the warehouse, but it’s actually a zero degree Fahrenheit freezer, for temperature sensitive medical supplies are store before shipped out to hospitals, research facilities and other kinds of laboratories.
UPS is best known for delivering ecommerce packages, but the shipping giant has also been building a network dedicated to these time and temperature sensitive highly regulated health care products that need to move carefully around the globe.
While the company doesn’t disclose the financials of this business, it does say it’s a fast-growing revenue stream in a market it pegs at $70 million globally and counting.
JOHN MENNA, UPS: Health care by contrast, is a fairly stable throughout the year in terms of the business. Investments we’ve made return fairly good margins and fairly good financial returns to the company pretty much throughout the whole year.
BRENNAN: For medical device company, Exact Sciences, UPS developed plans to ship its Cologuard product, a screening test for colon cancer, that ships from UPS’ warehouse to patients’ homes and then unto laboratories.
KEVIN CONROY, EXACT SCIENCES CEO: Time is of the essence here. So, this — they have a three-day commitment on the outbound leg and then an overnight commitment on the inbound leg of the shipping. And that is really critical. It’s really changing the whole paradigm about colon cancer screening and UPS is right in the middle of it.
BRENNAN: And UPS isn’t the only one collaborating with health care companies. FedEx (NYSE:FDX) and DHL had made significant investment in their health care supply chains as well. Experts say health care logistics is growing at a faster rate than GDP, driven in part by increased regulations.
SATISH JINDEL, SJ CONSULTING GROUP PRES: The medical profession is focused on reducing costs of the services and as a result, the cost of goods and logistics that tie in which is where UPS and FedEx (NYSE:FDX) are involved in moving in smaller percentage is creating an opportunity for them to support the profession.
BRENNAN: Once the community is here in Swedesboro, New Jersey, where UPS just opened a brand new facility exclusively dedicated to high valued medical devices, including equipment on a Wednesday for spinal surgery in hospital on Friday.
For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan in Swedesboro, New Jersey.
HERERA: Less than half of all consumers have the new chip credit cards. That’s according to a new survey. As we’ve been reporting beginning tomorrow, new more secure credit cards will become the standard across the country. These credit cards have chips in them so you’ll no longer swipe. But according to creditcards.com, only 40 percent of consumers have the new so-called smart cards in their wallet.
MATHISEN: And that’s only one of the problems. While the credit cards hailed as an answer to counterfeit card fraud, they can only prevent fraud if the business or retailer has the systems to read the cards. And while retailers are on board, gas stations and ATM operators have up to two more years to be compliant and leaves plenty of time for criminals to steal your information.
Mary Thompson reports.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chip enabled cards are said to be safer, but they still have a soft spot, though its magnetic stripes on the back. The strips carry information a criminal can steal taking a toll on card issuers.
OWEN WILD, NCR (NYSE:NCR): The cost in the industry as it relates to card fraud is reaching over $3 billion.
THOMPSON: At ATMs and gas stations, this information is stolen by skimming. Criminals put illegal devices if a pump or ATM card reader, and the device scans information from the mag stripes. NCR’s Owen Wild says criminals then put information to their own use.
WILD: Criminals then are using that data either to clone counterfeit cards or to use that card data to make a card not present transactions using your card information.
THOMPSON: A chip card will eliminate counterfeit card fraud for in person payments, but only if the retailer or business has a system to read the chips. If not, the system reads the mag stripe, which again, can be easily counterfeited.
To push adoption of chip card technology, come Thursday, retailers will start carrying the cost of fraudulent transaction if the client presents a chip-enabled card, but the retailer business doesn’t have the system to read it.
Gas stations start assuming liability for these transactions in two years, and for ATM operators in one year, if they use the MasterCard (NYSE:MA) network, two years if they use Visa (NYSE:V), with the costs making the pumps and cash machines chip-enabled ranging from a couple of hundred bucks, to a couple of thousand, experts expect a slow transition meaning, criminals will target these machines creating pain at the pump for gas stations and unwanted withdrawals at ATMs.
For NIGHTLY BUSINESS REPORT, I’m Mary Thompson.
HERERA: Pfizer (NYSE:PFE) hikes the full year outlook, sending shares higher, and that is where we begin tonight’s “Market Focus”.
The drug maker upped its full year revenue and adjusted earnings forecast. This is as the firm recently acquired its smaller rival Hospira (NYSE:HSP). Shares of the Dow component were up one percent to $31.41.
Twitter’s search for a chief may have come to an end. According to Re/code, the social media’s founder, Jack Dorsey, who has been serving as interim CEO for the past few months, is expected to be named CEO. Dorsey will continue to run Square, which is a payments company he also founded. Shares of Twitter rose more than 5 percent to $26.94.
Synaptics (NASDAQ:SYNA), a company that makes touch-screen technology used in phones, reportedly rejected an offer from a Chinese investment group. According to Bloomberg, that bid valued the firm at almost $4 billion. Shares popped 27 percent to $82.46.
MATHISEN: And Western Digital (NYSE:WDC) on the other hand accepted a bid from a Chinese firm. China’s Tsinghua plans to take a 15 percent stake in the data storage company. The stock rose 15 percent today to $79.44.
Meanwhile, Paychex’s results beat estimates on both the top and bottom lines. The company saw its earnings rise more than 20 percent. Growth in the firm’s payroll and human resource services units helped results. Shares were 3.5 percent higher at $47.63.
Mixed results from Costco (NASDAQ:COST) to tell you about. The warehouse retailer easily beat estimates on the bottom line, but revenue slipped below consensus, which the company blamed on lower fuel prices and a stronger U.S. dollar. The stock was up a fraction, nonetheless, to $144.57.
And PBF Energy is buying one of ExxonMobil’s refineries out in California. The deal has a price tag of about a half a billion dollars. Shares of PBF popped in initial after hours trading. During the regular session, the stock was up more than 2 percent to $28.23.
HERERA: A growing number of investment choices in your 401(k) may look like mutual funds. But they’re not. Collective investment trusts now account for about $2.5 trillion or 16 percent of 401(k) style plans. Up from a little bit more than $1 trillion just a few years ago. They are similar in some ways to mutual funds, but very different in other ways.
So what do you need to know?
Here to tell us is David Blanchett, he is the head of retirement research at Morningstar (NASDAQ:MORN).
Good to see you, David. Welcome back.
DAVID BLANCHETT, MORNINGSTAR HEAD OF RETIREMENT RESEARCH: Thanks for having me.
HERERA: Let’s start first of all with basically what the CITs are, these collective investment trust.
BLANCHETT: Sure. They’re a lot like mutual funds. I think the biggest difference for investors is that there’s no tickers. You can’t just go on Morningstar (NASDAQ:MORN).com or another Web site and figure out, you know, how the fund invests and what its performance has been.
MATHISEN: Are these operated by mutual fund companies? Are they operated by banks and trust companies? And does therein lie the sort of regulatory and structural difference?
BLANCHETT: So, they’re operated banks and as opposed to being SEC regulators, OCC, and so that’s why they’re different structures.
HERERA: What about in being insured or fees? I would assume some of the 401(k) plans want to use this because it may be lower but is that the case?
BLANCHETT: It really is. And so, where you see CITs used often, they’re about 60 percent of 401(k) plans today, larger 401(k) plans because the average CIT costs about 20 basis points less than the mutual fund comparative.
So, if you’re a really large plan, you want a low cost option for an index, for example, the CIT could be the way to go.
MATHISEN: How common are they? How many 401(k)s offer them?
BLANCHETT: So, about 60 percent. And they’re becoming a lot more common because I think more are focused on reducing costs and CRTs are willing to do that.
HERERA: All right. One of the questions I have, if you can’t just punch in the symbol for it, where do you find evidence of their performance and or their track record or both?
BLANCHETT: So, it is more difficult. I think that if an individual wants to know about their past performance, usually there are going to be fun facts, the performance of the fund, et cetera.
MATHISEN: Can I get daily pricing on these things?
BLANCHETT: You cannot. They have to be valued quarterly. But you won’t see daily pricing, because they’re really only utilized inside a 401(k) plans but most plans or most CITs should have daily plans.
MATHISEN: Excuse me, if I go on my 401(k) Web site, I may get a price or value on that particular fund that could be three months old?
BLANCHETT: Right. So I think where you’d see that more likely is the more illiquid type of CITs like, for example, direct real estate. So, I think if you’re buying a liquid CIT that includes like large cap stocks, that won’t be a problem at all.
HERERA: All right. Thank you so much. Appreciate it, David. Good to see you again.
BLANCHETT: Thanks for having me.
HERERA: David Blanchett with Morningstar (NASDAQ:MORN).
MATHISEN: And coming up, there’s a new SUV on the market and it’s like nothing you’ve ever seen before, including the price tag.
HERERA: Here’s a look at what to watch for tomorrow. Automakers will report their car sales for September. Another read on the labor market with a read on the number of Americans who filed for unemployment benefits. The ISM manufacturing index is out, which is an important read on economic activity and that’s what to watch for on Thursday.
MATHISEN: College athletes looking to get paid for their participation experienced a setback today. A federal appeals court struck down a plan to let schools pay players up to $5,000 a year. This is athletes lobbied for financial compensation and as college football and basketball generated millions through TV deals and merchandise.
HERERA: Ford is issuing six separate recalls for nearly 400,000 vehicles, including vans, cars, trucks, and SUVs. The automaker says a small number of accidents have been reported related to issues with its cars. The vehicles involved are the company’s Windstar minivans, its Espace (ph), Mercury Mariner, and its F-150 truck among others.
MATHISEN: Tesla is hoping X marks the spot with the latest vehicle the Model X. After two years after delays, the money losing automaker delivered the first versions of its luxury electric SUV last night just outside of San Francisco.
Phil LeBeau takes us for a ride in the new car with doors that have everyone talking.
ELON MUSK, TESLA: Welcome, everyone, to the Model X launch.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s not your typical luxury SUV. And again, Tesla is not your typical auto company.
The Model X is an electric SUV with a base price of just under $80,000 and falcon wing doors that Tesla says will make it easier to get into the second and third rows even in tight parking lots.
For Tesla, building the Model X in the same plant as its only other vehicle, the Model S, will show if it can make the jump from being a niche auto maker to one with multiple models, facing numerous challenges.
JACK NERAD, KELLEY BLUE BOOK: Well, if the Model X launches well and gains great consumer enthusiasm, consumer satisfaction, it certainly bodes well for other Tesla launches in the future.
LEBEAU: Fully charged, the Model X can go up to 150 miles and yes, it does come with ludicrous mode, meaning on some models, you can 0 to 60 in 3.2 seconds.
The future is finally here for Tesla, and its customers who have waited and paid a hefty price for the Model X.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Fremont, California.
MATHISEN: I just — I just think more things should come equipped with a ludicrous mode. I don’t care what it is. I just want a ludicrous mode.
HERERA: You just want a ludicrous mode.
MATHISEN: Coffeemaker, my computer.
HERERA: At 132 k, you should get a ludicrous mode.
OK, that does it for NIGHTLY BUSINESS REPORT tonight. I’m Sue Herera. Thanks so much for joining us.
MATHISEN: And I’m Tyler Mathisen. Stay ludicrous, everybody. Have a great evening. We’ll see you tomorrow.
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.