SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Bounce back. Stocks staged a broad rally, ending up triple digits and pushing the benchmark S&P 500 back into the black for the year.
Wicked weather. Companies and forecasters always blame the weather and many use it as an excuse. But with this year’s weird weather patterns, could it be different this time?
And lucky ticket. A billion dollars in ticket sales goes a long way. Or does it? Where all the box office bucks go.
All of that and more for Tuesday, December 29th.
Good evening, everyone, and welcome. Tyler has the night off.
Well, investors were asking, where was the Santa Claus rally? It finally showed up at least for today. The tech sector led the way and was helped out by a rise in oil as colder weather is forecast for the coming weeks.
As a result, triple digit gains on the Dow and a 1 percent rise across the board. Here’s a look at the numbers for you, the Dow rose 192 points to the 17,720. The NASDAQ spiked about 67. And the S&P 500 was up nearly 22 and edging back into positive territory for the year.
Bob Pisani breaks down today’s rally.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks rallied today and why shouldn’t they? Oil was up modestly and Europe moved up and closed near the highs.
Now, it was a good rally, with two stocks advancing for every one declining, although on light volume, that’s no surprise. And it was a broad rally. All ten sectors of the S&P 500 were up, and it was enough to push the S&P 500 into positive territory for the year.
Now, that is not a trivial achievement. A lot of traders and firms are in the same position. They’re just on either side of positive or negative. And a few percentage points rally in the final three days could make the difference between a positive or a negative year.
Now, some of the most beaten up names in energy, exploration and production companies for example, like Chesapeake, Console and Pioneer Natural Resources (NYSE:PXD) had gains of 2 to 8 percent today, that’s respectable. Some of the biggest energy names had minimal games. ExxonMobil (NYSE:XOM), for example, moved up at the open was nearing $80 but they sold right into the rally. Same with Chevron (NYSE:CVX).
Now, this suggests to me that investors are going to be cautious about buying beaten up energy names in early 2016 because they’re beaten up. They have tried playing that game several times this year and were burned each time.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.
HERERA: Home prices continued to rise again in October according to the closely watched Case-Shiller report. But not only do the values keep going up but the gains are getting even bigger.
Diana Olick explains what’s pushing up prices.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: There just aren’t enough of these, homes for sale, newly built or existing. Sure, it’s winter. The slowest season for housing, but this winter listings are even lower than usual. That has pushed home prices up over 5 percent nationally in October compared to a year ago, according to S&P Case-Shiller. That was a wider gain than September.
The realtors associated reported less inventory in November compared to a year ago, and cited fast rising prices as one of the factors behind a steep drop in sales.
HESSAM NADJI: Affordability becomes more of a factor again going forward. So I do think it’s going to weigh on the recovery of the for sale market going into 2016 and beyond.
OLICK: Cities with the largest price gains like Seattle, Denver, and Portland, Oregon, are seeing the steepest declines in listings. Inventory in Denver was down 21 percent in November compared to October, according to Denver realtors.
But home prices are up nearly 11 percent.
NELA RICHARDSON, REDFIN: We track about 70 markets at Redfin. Sixteen of those markets across the country had double digit price increases. Still, eight years after the collapse, you know, three years after we have supposedly hit bottom, we’re still seeing these price surges. That to me is an indicator of a persistent lack of inventory that’s really keeping prices high.
OLICK: More homes usually come on the market in February as sellers get ready for the traditionally spring market. But even realtors are warning supplies are so low now, the spring market may already be in jeopardy.
For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Washington.
HERERA: So, our guest tonight says looking ahead to 2016, it’s going to be a mixed bag for the housing market. He’s Ralph McLaughlin and he’s a housing economist at Trulia.
Welcome, Ralph. Nice to have you here.
RALPH MCLAUGHLIN, TRULIA HOUSING ECONOMIST: Thank you. Happy to be here.
HERERA: So, why is it going to be a mixed bag? We just heard about the lack of inventory and strong demand. What’s mixed bag about the New Year?
MCLAUGHLIN: Well, we ran a survey earlier this year at Trulia and we actually found two sort of polar opposite effects. Home buyers on the optimistic side are actually telling us that home ownership is a large part of their American dream. Seventy-five percent tell us they do want to own a home some day. That’s very positive news.
On the more pessimistic side, more home buyers are telling us they think 2016 will be worse than 2015 for buying a home particularly when it comes to getting a mortgage, but also when it comes to renting a home, and rising rents are actually having also an impact on home buying activity, primarily because it makes saving up for the down payment which is very, very important, more difficult.
HERERA: You know, you’re in a very expensive part of the housing market out in beautiful Mountain View, California. I would assume that an increase in interest rates has a different effect in a very expensive market like yours than it probably does in a less expensive less in demand market in some other part of the country.
MCLAUGHLIN: You’re exactly right. Overall, we don’t expect increasing doctor rates to have a large impact nationally. That’s because in most markets, interest rates would have to be 7 percent, 9 percent, even 10 percent in some markets for the cost of owning to equate the cost of renting. So, that margin is still going to persist in most markets.
However in the costly coast, particularly in places like San Francisco, here in Silicon Valley, and down in southern California, you know, interest rates would only have to be about 4.5 to 5 percent for the cost of owning to equate the cost of renting. Home buyers in those markets should be aware how much an interest rate increase might impact their bottom line.
HERERA: So, how do you feel about the upcoming spring selling season?
MCLAUGHLIN: You know, we feel positive. Even though they think affordability is going to more important factor in 2016 than it was in 2015, rising prices although they impact affordability, they had also entice existing homeowners to put their home on the market. That’s particularly important in several markets where many homeowners are still underwater, even though there are booming marks like San Francisco that have seen large price increases, there’s still a large share of homeowners, you know, 15 percent to 20 percent in some markets, that are still underwater.
As prices continue to increase into 2016, that will pull more existing homeowners out from underwater and hopefully entice them to put their home on market, thus taking care of inventory shortage.
HERERA: You’ve given us a list of a few markets you think are poised for considerable growth in the spring. First on the list is Grand Rapids, Michigan.
But this is a very interesting list. It’s Grand Rapids, Charleston, Austin, Baton Rouge, San Antonio. What do those areas, if anything, have in common?
MCLAUGHLIN: So, those areas really have three primary things in common. One, they have very strong growth over past year. Two, they have high affordability, many households in those markets wouldn’t have to spend more than 15 or 20 percent of their income to buy the medium priced home. And three, they actually have very strong online search activity on Trulia in home buyers looking for homes.
HERERA: Thanks, Ralph. Appreciate it very much. Have a great new year.
MCLAUGHLIN: Happy New Year to you, too.
HERERA: Ralph McLaughlin with Trulia.
Well, from housing to shipping where UPS says it made it through the holiday season pretty well. UPS is considered an economic bellwether and the company’s CEO says heading into to 2016, the consumer is the key.
(BEGIN VIDEO CLIP)
DAVID ABNEY, UPS CEO: Going into the first quarter of next year, we’ve really got to see if this increased customer, consumer spending, is that going to start driving industrial production. Now with the strength of the dollar and some other factors we’re just not seeing it, but we’re hopeful to see that change come the first of the year.
(END VIDEO CLIP)
HERERA: And others in transportation are also betting big on the consumer. In fact, the shipping industrial is doubling down, building megaships.
Morgan Brennan explains.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call it the dawn of a new era for shipping as a mammoth vessel calls at several West Coast ports this week. It’s the CMA CGM Benjamin Franklin, an ultra large container vessel that is by far the biggest to ever arrive at a North American port. Flying under the British flag, it has capacity for 18,000 containers, about double the average ship calling out the port of L.A., where it stopped last weekend.
To put its sheer size in perspective, Benjamin Franklin is longer than the Empire State Building is tall, wider than a football field and when fully stacked reached 20 stories high. But experts say the advent of such super sized vessels also brings super sized challenges.
MARK SZAKONVI: While the larger vessels giving the carriers greater economies of scale, we’ve seen before these mega vessels can definitely test the marine terminals and the inland infrastructure. There’s always the threat of congestion and that means delayed shipments and imports and for consumers, as well, if that supply chain gets kinks in it.
BRENNAN: Laden with imports from China including apparel, furniture and electronics, the Benjamin Franklin is making a test run first to L.A. and later this week to Oakland, California. French shipping line CMA CGM which operates the vessel says it was not loaded to full capacity, only about 70 percent utilized in part because U.S. ports are not ready for these sized ships, even L.A., which after a decade of planning is the closest.
Maritime consultant Drury recently warned that more of these massive vessels and the flood of containers they bring could overwhelm docks and inland operations at the West Coast ports, making the East Coast more attractive to shippers, who may refer to divert cargo to ports that can process it faster. Still, the expectation is more of these super size ships like the Benjamin Franklin will start to enter the Trans-Pacific Trade routes in coming years, because they are very fuel efficient and they dramatically cut overhead costs for the container shipping lines.
For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.
HERERA: Meantime, that powerful winter storm continues to churn across the country, bringing with it a variety of elements to deal with from treacherous snow in Iowa to downpours and floods in Missouri, and tornadoes in Texas. It is also snarled airport travel in the midsection of the country, and now, it’s heading to the Northeast where that could be good news for the region’s struggling ski resorts.
(BEGIN VIDEO CLIP)
TYLER FAIRBANK: For our resorts, which we have resorts in Massachusetts and New Hampshire and Vermont, you know, it’s millions of dollars a year in snow making. We’re about three weeks behind our normal ski season right now. So, we have had had to heavy up on snowmaking to get us going. But we haven’t had the cold temperatures yet either.
Those cold temperatures are really what we need early on. You know, we rely upon our manmade snow much more than natural snow.
(END VIDEO CLIP)
HERERA: So, how has this is unseasonably warm weather changed the dynamics for the others in the economy other than ski resorts, of course, and will companies blame the weather pattern for months to come?
Gus Faucher joins us. He’s senior economist with PNC Financial.
Good to see you again, Gus. Welcome back.
GUS FAUCHER, PNC FINANCIAL: Thank you very much, Sue.
HERERA: A lot of this is blamed on El Nino, this weird weather that we’re having this year. So, net-net, do you think it will be a net positive for the economy or a net negative?
FAUCHER: I think it’s likely to be a small net positive for the economy. Certainly, there are areas of the economy that are being hit ski areas, sales of winter clothing, that type of thing. But other areas benefit, consumers are spending less on home heating. So, they have more to spend on other goods and services, agriculture will do well with the warmer weather. That’s good news for yields and it hurts agricultural production in other parts of the world.
So, it’s a net positive for U.S. agriculture. I think, overall, it will be a small net positive for the U.S. economy in the first part of 2016.
HERERA: In contrast to previous years where we really got slammed in many parts of the country with really, really cold weather. And that tends to be a net negative, does it not?
FAUCHER: That’s right. So, for example, in 2014, we had that big downturn in construction because of the bad weather. You know, projects couldn’t get started with the cold and the winter storms we had.
This should be a good year for construction. I think that the warm weather will benefit construction particularly in northern parts of the country and so that will be a positive, as well. So, I think on the whole, it will be a small net positive for the U.S.
HERERA: What about the retailers? Because they traditionally use weather some say as an excuse, some as a justification for either poor results or good results.
Is this going to help the retailers net-net or not?
FAUCHER: You know, I think nor some retailers those that specialize in winter gear I think it’s going to be a problem. If you will sell clothing, you have a lot of winter coats in stock. People aren’t going to be buying them if the weather’s warmer than normal. So, they’ll be hit. If you sell winter sports equipment, you’re going to be hit hard.
On the other hand, if consumers aren’t buying those types of goods, that means they have more money to spend on other things. They’re spending less to heat their homes. So, that means more money to spend.
So, I think as long as you’re not concentrated in winter related items, I think you should be doing fairly well in terms of retail.
HERERA: So, as we go into 2016, we’ll start to get some of the data from the Christmas season and the fall selling season. But a lot of this has to be seasonally adjusted.
What are your expectations for the economy in the first quarter of the year?
FAUCHER: You know, I think the first quarter of 2016 should be a solid one. I think we have 200,000 jobs per month being added. We have wages rising. We have low interest rates although they are moving a bit higher.
I think consumers are feeling the benefits of the lower energy prices we’ve had over the past year and a half. It gives them more money to spend on other things. So, I think, overall, the outlook for consumers looks pretty solid.
HERERA: On that, Gus, thank you so much. Gus Faucher with PNC Financial.
It has been a rough second half of the year for biotech investors. Coming up, a look at a possible catalyst that could jump-start the sector in the New Year.
HERERA: Believe it or not, we’re just about one month away from the Iowa caucuses which are the first major electoral event on the road to party nominations.
John Harwood is our man in Washington and he joins us now.
I think these are probably going to be the most closely watched caucuses in some time, John, because there are so many different dynamics at play especially in the Republican Party.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: That’s right, Sue. The fact that they’re taking place on the 1st of February which is a month later than they’ve taken place in 20 years means we’ve still got time for new dynamics to play out.
Ted Cruz is now leading in Iowa. He’s now considered the favorite by people watching in Iowa. If he can hold that lead and damage Donald Trump there, Donald Trump, of course, remains the national leader, very unpredictable then what happens when they go eight days later to New Hampshire and you’ve got a race between Trump and Cruz and all these establishment candidates, Christie, Kasich, Jeb Bush, Marco Rubio trying to break through there.
HERERA: If Cruz does indeed take Iowa, handicap for us what Donald Trump’s reaction or action might be. He does not lose easily.
HARWOOD: Well, I think that’s the big question. A lot of us have expected from watching Donald Trump, his behavior, what kind of a candidate he is, the fact that he’s not a conventional politician, that if he were to lose a race or face the prospect of losing an important race, he might simply declare victory and say, I’ve had my impact on the race. I’m going home.
Is he going to be somebody, if he loses Iowa, who then has the drive internally to keep pressing on and face defeat in other states to try to win this nomination? That’s what we don’t know about him.
HERERA: As we go into the New Year and it’s the election year, of course, lease a lot of speculation that nothing will get done on Capitol Hill, which might be good for the stock market. But is that actually the case when we have an election year?
HARWOOD: I think that’s likely. I think in terms of new legislative achievements is you’re not going to get very much. The budget deal that was just struck between the Republican Congress and the president sort of calms the fiscal waters for the next year. We’re not going to have a debt crisis. We’re not going to have a government shutdown. All that’s positive for the economy.
I think the one significant thing still out there that might affect the economy is the Trans-Pacific Partnership, the big trade deal that President Obama is pushing through. The question is going to be, does that get approved early in the year or do they wait until after the election because some members don’t want to vote on it before the election.
HERERA: Before the election, yes.
John, thank you as always, John Hardwood in Washington.
HARWOOD: You bet.
HERERA: Meantime, chemical giant DuPont announcing plans to lay off nearly 1,700 people, and that is where we begin tonight’s “Market Focus”.
The Delaware based company expects the layoffs to occur at its headquarters as it begins $700 million in cost-saving measures, leading up to its planned merger with Dow chemical. Shares of the company up over 1 1/2 percent to $67.57.
Cisco (NASDAQ:CSCO) Systems got a late Christmas gift when an appeals court overturned an earlier ruling in a patent dispute over Wi-Fi technology. The case had been in various courts for eight years with the Supreme Court hearing back in May. Shares of the company up over 1.5 percent to $27.77.
Qualcomm (NASDAQ:QCOM) announced it has entered a new licensing agreement with two Chinese firms for use of 3G and 4G patents. This comes after Qualcomm (NASDAQ:QCOM) struck a deal with Chinese smartphone maker Xiaomi earlier this month. And it helps to ease some fears that the chipmaker was having issues in the Chinese market. Shares up over 2.5 percent today to $50.88.
And Bojangles getting a big lift today after an analyst note called the chicken and biscuit restaurant chain an attractive stock, citing risings earnings estimates. The company has seen continuing growth in comparable restaurant while it continues to rapidly open new restaurants. Shares of the eatery up almost 9 percent today to $16.15.
It has been an up and down year for biotech invests. There have been some big gainers but also some big losers as well. In fact, last night, we told you about one company Chimerix that lost 80 percent of its value yesterday alone.
So, as 2015 winds down, Meg Tirrell looks at some biotech catalysts that could be coming at the start of 2016.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Though biotech stocks are set to beat the broader market for the sixth year in the row, the second half of 2015, was a rocky one. And many biotech investors say they’re ready for the year to be over.
January, though, brings some major news. First, a battle in Duquesne muscular dystrophy, two drugs for the rare fatal disorder are facing the FDA.
California drug maker BioMarin had a negative review by outside advisers to the regulator of its drug Drisapersen late this year. And the FDA pushed off a December 27th decision on the drug to early next month.
A competing drug from smaller Massachusetts drugmaker Sarepta faces an outside panel review January 22nd. Both could be major stock movers.
In the second week of the year, a major investor conference, the annual JPMorgan (NYSE:JPM) Health Care Conference. Hundreds of companies and thousands of investors, executives and others head to San Francisco from January 11th to the 14th where companies like Celgene (NASDAQ:CELG) provide guidance for the year ahead and major acquisitions are often announced.
And finally, at the end of the month, an FDA decision expected in hepatitis C. Merck (NYSE:MRK) may join Gilead and AbbVie with a new regimen for the viral infection.
RBC Capital Markets analyst Michael Yee says the FDA’s decision may have an impact of it as much as 5 percent on shares of Gilead, currently the market leader in hepatitis C with its pills Sovaldi and Harvoni. But price is a big question for these drugs. Investors will be watching closely to see if Merck (NYSE:MRK) offers a major discount to compete.
Investors are hoping the first month of the New Year brings better news than the last six months of the old one.
For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.
HERERA: Did you ever wonder where all that money the movies make at the box office goes? We’ll tell you who gets what and why it’s so important.
HERERA: Here’s a look what to watch for on Wednesday. Housing once again grabs the headlines with two data points. First with mortgage applications and then pending home sales for November. Analysts are expecting a solid rise which is a good sign for housing activity.
And finally, with crude being a driver for stocks recently, investors will be keeping a close eye on oil inventories.
We told you last night that “Star Wars: The Force Awakens” was the fastest movie ever to reach the $1 billion mark. But what exactly does that mean and why is it significant?
Julia Boorstin breaks down the box office economics.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: “Star Wars: The Force Awakens’” record breaking box office is great for anyone with a piece of the business. But Disney (NYSE:DIS) is the biggest winner.
Studios on average take 55 percent of ticket sales, but “Star Wars” was in such high demand, Disney (NYSE:DIS) negotiated a 60 percent plus take, according to sources. And while studios usually require a three-week run in theaters, Disney (NYSE:DIS) had the leverage to demand a four-week commitment, plus the biggest most desirable theaters.
But despite those lower ticket margins, cinema chains are still thrilled.
ERIE WOLD: This is the type of film that will drive high traffic into a theater chain and enable operators to sell high margin concessions to those patrons. And so, even though you may not want to pay that high of a rate to a studio, it’s worth to get a film like this and drives the traffic.
BOORSTIN: While that headline U.S. box office number doesn’t always mean the same thing in terms of revenue, to studios, it is a key metric of demand. It often dictates the amounts cable channels pay studios to run a film and it can be an indicator of how much revenue to expect from home entertainment.
And for theater chains, those box office numbers show how many people are spending on soda and popcorn.
WOLD: Look at concessions. You typically get a margin in the 85 percent to 90 percent range. When you think about Coke and popcorn. You throw in now that everyone’s installing full bars in theaters, that’s where the real money is being made.
BOORSTIN: And Cineplexes have been investing in more high margin ways to cash in on crowds with more food and even bars. This as they try to battle concerns that lower margins will linger when “Star Wars” blasts out of theaters.
For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.
HERERA: And finally tonight, the ride sharing service Lyft is out with a list of its top destinations for riders. And while the company is trying to gain traction with passengers, it’s also making inroads with investors, as that service hopes to gain ground on its rival Uber.
Josh Lipton explains.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: San Francisco loves its Mexican food, Los Angeles apparently has a drinking problem, and we all need our caffeine. That is what the Lyfti Awards now tell us.
Among Lyft passengers, the most visited restaurant this year was Tacolicious. That’s a San Francisco restaurant where you can order fish tacos, guacamole and very solid margaritas.
The most visited bar, that would be the Abbey in Los Angeles.
And finally, sorry Peet’s, but when Lyft passengers need their caffeine fix, they head to Starbucks (NASDAQ:SBUX).
Now, Lyft won’t say exactly how many passengers got dropped off at Starbucks (NASDAQ:SBUX) in 2015, let’s just say Venti, the company says.
Lyft continues to raise a lot of money from investors, a total now of $1.3 billion at a nearly $5 billion valuation according to CB Insights.
The question though is how Lyft can compete with its arch rival Uber which has raised nearly $8 billion and is operating in 67 countries around the world.
But Ann Miura-Ko of Floodgate, a VC firm that invests in Lyft, says that the global ride sharing market is big enough to accommodate many players and Lyft will be one. She points the company’s track record at innovation, focus on domestic growth and start strategic partners with a range of players from China to India.
For NIGHTLY BUSINESS REPORT, I’m Josh Lipton in San Francisco.
HERERA: And that does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thank you for watching and we’ll see you right here tomorrow night.