TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Head scratcher. The unemployment rate drops, and workers got a raise. So, why did stocks fall so sharply?
SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR: So, where the jobs are. Why some in-demand high paying positions are out of this world.
MATHISEN: And heavy lifting. Meet the man who’s cutting down on workplace injuries with his bright idea and growing business.
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, February 5th.
EPPERSON: Good evening, everyone. I’m Sharon Epperson, in tonight for Sue Herera.
MATHISEN: And I’m Tyler Mathisen. Welcome, everybody.
Well, the unemployment rate falls below 5 percent, but we begin tonight with the steep sell-off in stocks. Tech getting hit especially hard. Let’s get you to those numbers, if you dare.
The Dow Industrial Average sank 212 to 16,204. NASDAQ dropped 146, more than 3 percent. The S&P 500 fell 35. Bad day, bad week, with all the major indexes lower, NASDAQ lost more than 5 percent as you see right there.
Some say today’s decline was in response to the jobs report. Some pundits think the numbers make a March interest rate hike likelier. But as Bob Pisani report says, there’s much more to it than that, and it could spell trouble for the bulls.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Another lousy day for the markets. What’s the problem today? There was a lot of attention to new tech and social media names, like LinkedIn (NYSE:LNKD), and Tableau Software and Splunk, and Workday, they were all down dramatically.
The issue? The concern is new tech companies may have lower growth rates than everybody is assuming. That’s a killer if you’re a growth company. Now, for months, we’ve watched energy, and materials, and global industrials, weaker on concerns about oil oversupply and slower global growth.
But there’s something else going on right now. We’re seeing signs that the weakness is spreading out to new tech companies as mentioned but also broader names. So, big consumer discretionary names like Home Depot (NYSE:HD), Starbucks (NASDAQ:SBUX), Nike (NYSE:NKE), Under Armour (NYSE:UA), they were all down three to five percent today. Traders are rushing to buy defensive names like AT&T (NYSE:T), and Verizon (NYSE:VZ), both of them were at 52-week highs today.
So, what’s happened to the rallies? What happened to last Friday? Remember, the Dow rallied 400 points? It’s all gone. And that’s what happens in down markets. Bear market rallies are short and sharp and there’s no follow-through to them.
So, technically we’re not in a bear market. The S&P is only roughly 12 percent off the May historic highs. But let’s assume we’re heading for a down 20 percent market. That’s a bear market. The average bear market lasts 13 months. The S&P 500 peaked in May, so if you count it as starting in July, we’ve got another six months to go by historic averages.
My bet is we put in a bottom, though, before that. Haven’t you noticed everything moves a lot faster these days?
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.
EPPERSON: It sure does.
Well, more now on January’s employment report which was a bit of a puzzle. The economy created 151,000 jobs, a deceleration from recent months. But the unemployment rate fell to 4.9 percent and wages rose, putting more money in Americans’ pocket is.
So, was there more good in the report than bad? Hampton Pearson reports.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The January jobs report sent mixed signals about the overall economy. The pace of hiring slowed, due to declining exports and slumping oil prices. But wage growth had its biggest monthly increase in a year and headline unemployment fell below 5 percent for the first time since 2008.
Good news at the Obama White House.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: After reaching 10 percent in 2009, the unemployment rate has now fallen to 4.9 percent. Even as more Americans join the job market last month. So, this is the first time that the unemployment rate has dipped below 5 percent in almost eight years.
PEARSON: For the last three months, job growth has averaged 231,000 per month. Even with the January drop off. Companies stepped up hiring in manufacturing, retail, and food services, while cutting workers in transportation along with education. Average hourly earnings now just over $25 an hour are up 2.5 percent for the last 12 months. More people who have been sitting on the sidelines came back into the workforce improving the labor force participation rates.
MARK ZANDI, MOODY’S ANALYTICS, CHIEF ECONOMIST: We’re running out of slack. There are not unemployed and underemployed people. So, this job growth is going to slow by definition.
PEARSON: While the data may dampen concerns about a recession, some analysts say it increases the possibility of more rate hikes from the Fed.
LINDSEY PIEGZA, STIFEL FIXED INCOME CHIEF ECONOMIST: It certainly was a very disappointing report, but it’s very unlikely that one moderate headline is enough to derail the Fed from their intended pathway of continued rate increases throughout the year.
JIM PAULSEN, WELLS CAPITAL MANAGEMENT: I think we come into this with a growing fear of global recession, a growing fear of U.S. recession. And I think this report just really calmed those fears down.
PEARSON: Next week, Fed Chair Janet Yellen will have a chance to address market concerns when she delivers the Fed’s semi-annual report to Congress on monetary policy and the economy.
For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.
MATHISEN: Darrell Cronk joins us now to talk more about today’s jobs report and the market. He’s president of Wells Fargo (NYSE:WFC) Investment Institute.
Darrell, welcome, good to have you with us.
I’m going back to something your associate Jim Paulsen said, that is that this report seemed to calm whatever fears there were about a possible U.S. recession down quite a bit. If that’s the case, why did the stock market go down so much?
DARRELL CRONK, WELLS FARGO INVESTMENT INSTITUTE PRESIDENT: Yes, it’s a great point, Tyler. I agree with Jim that the report does calm the fears of recession. This was actually a much stronger report on a lot of the metrics than I think the headline numbers suggested.
But to your point, stocks again kind of faded. They faded orderly — somewhat orderly today. There was not robust selling or panic selling. But I think stocks will continue to trade off of where the price of oil goes and we had oil back down another 2.5 percent today.
EPPERSON: Darrell, seems that jobs were the gains we saw were pretty evenly distributed throughout the economy. What do you think this means in terms of what the Federal Reserve will do? Will they be on hold now? Or do you think they’re going to raise rates this year?
CRONK: Well, we don’t think this changes — this one report changes the path of the Federal Reserve. Certainly, economic data as a whole has downshifted in the month of January. And I think this report shows a little bit of that too. Although what we really did was pull forward some job growth in the month of December and gave a little bit of it back in January. So, if you balance the two reports out we really have about 200,000 jobs, on average, for the economy.
Again, it doesn’t change the pat of the Fed. The Fed has been pretty consistent with the idea that they’re on a gradual pace, they’re data dependent. We expect the Fed to increase rates at least once if not twice this year.
MATHISEN: Mark Zandi pointed out in the piece that Hampton just did the idea we should expect slower job growth at this point in the cycle. And that’s what we got today, though it was lower than estimates. Do you agree that we should figure there’s going to be a downshifting here as the labor market is tighter?
CRONK: Absolutely. We had four-plus years of 200,000 new jobs per month, which is almost unheard of in any other economic cycle. I think the important point, Tyler, is when you look at how many jobs do we need to create or does the economy need to create to keep us at a 5 percent or a 4.9 percent unemployment rate, the economy only needs to create about 85,000 to 90,000 jobs a month to keep us at this rate. Anything more than that is going to continue to push the unemployment rate lower.
MATHISEN: All right. Darrell, thank you very much. Darrell Cronk with Wells Fargo (NYSE:WFC) Investment Institute.
EPPERSON: Turning to exports, exports shrank last year for the first time since the Great Recession. The 5 percent decline can be attributed in part to the dollar and slower global growth, which has led to weaker demand for American goods.
MATHISEN: To politics now where presidential candidates on the far left and the far right are finding common ground in their dislike of Wall Street and big business.
(BEGIN VIDEO CLIP)
SEN. BERNIE SANDERS (I-VT), PRESIDENTIAL CANDIDATE: Business model of Wall Street is fraud.
SEN. TED CRUZ (R-TX), PRESIDENTIAL CANDIDATE: Today, the top 1 percent are at a higher share of our income in any year since 1928.
SANDERS: The recklessness and the illegal behavior of Wall Street drove this economy to its knees.
CRUZ: Big government benefits the wealthy and the people who are getting hammered, are small businesses —
SANDERS: Goldman Sachs (NYSE:GS) was one of those companies whose illegal activity helped destroy our economy.
CRUZ: The big banks were in the room with the Democrats writing Dodd-Frank. Driving the little guys out of business wasn’t an unintended consequence. It was the intended outcome.
(END VIDEO CLIP)
MATHISEN: John Harwood from Manchester, New Hampshire, where the primary takes place next week.
John, how unusual is it to see the far left and the far right doing the same thing? Obviously from different positions, bashing big banks, bashing big business.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s unique in modern history, Tyler. And the reason it’s happening is because of changes in both our economy and our politics.
Remember, we became comfortable during most of the 20th century with a division of Republicans as the party of business, Democrats as the party of the working person. Well, that’s changed. Republicans are much more reliant now on blue collar votes, maybe initially attracted to that party because of cultural issues, a lot of conservative Christians like the ones who supported Ted Cruz in Iowa.
But working-class voters in this economy have not been faring well so you’re hearing it from Bernie Sanders on the Democratic side on the left, Ted Cruz on the Republican side on the right.
EPPERSON: So, John, to reach out to working-class voters, how much has Hillary Clinton had to change her approach to Wall Street?
HARWOOD: Well, she has followed events and followed Bernie Sanders in toughening her rhetoric about Wall Street. She says her plan on regulating Wall Street is actually tougher than Bernie Sanders’, even as he accuses her of being in Wall Street’s pockets because of all the money she has accepted from Wall Street, and because of her husband’s centrist record. This is something that there’s sometimes a gap between the rhetoric and the actual policy, because Hillary Clinton I think remains a mainstream Democrat in terms of her policy proposals.
But Democrats and Republicans alike are condemning businesses for, say, their tax inversion strategies. This is relatively recent in terms of how common it’s been. Hillary Clinton is jumping on that, as are Republicans and Congress on the campaign trail.
MATHISEN: John, very quickly, how soon do we get down to a final four on the Republican side?
HARWOOD: I think post-New Hampshire is when we see the winnowing process. You’ve got a bunch of people competing in the — for the same slots in this race. You’ve got the outsiders, that’s both Trump and Cruz, they’re splitting that vote. The so-called establishment or mainstream side, you’ve got Rubio, Bush, Kasich, Christie, that’s going to sort out in New Hampshire because the lower-ranking candidates are not going to be able to raise the money, not going to be able to continue.
MATHISEN: John Harwood in Manchester, New Hampshire, for us tonight.
And still ahead, the right stuff on this employment Friday. We will tell you about one of the most difficult jobs to land. Boy, does that look fun.
MATHISEN: It was LinkedIn’s worst one-day sell-off ever. Shares tanked falling more than 40 percent after the company issued a weak outlook for the year. We told you about that last night. Look at that, down $83.
But not all Internet companies had the same sour forecast, though lots of them are selling off hard.
Julia Boorstin tells us what’s working for some and what’s not working for others.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: While Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) soared the day after their better than expected earnings resulted, thanks to exploding mobile ad revenue, not all Internet giants are faring so well. It’s a dark day for LinkedIn (NYSE:LNKD), the company warning about a number of headwinds including the impact of weakness in Europe, the Middle East, and Asia, hitting subscription growth. A warning ad revenue growth won’t be as strong as it has recently.
JAMES CAKMAK, MONNESS, CRESPI, HARDT & CO: What made LinkedIn (NYSE:LNKD) a premium company in terms of valuation was that predictability of the top line. Without that you’re basically going to be trading just like any other internet company. With declining, decelerating growth, the stock is going to trade accordingly.
BOORSTIN: Though LinkedIn (NYSE:LNKD) was once placed for three diverse revenue streams, now each of them is facing challenges. LinkedIn’s efforts to build an ad business outside its platform faces growing competition from Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG). Analysts say LinkedIn (NYSE:LNKD) is wise to transition away from reliance on less-valuable display ads which are also dragging on Yahoo’s results and towards more valuable sponsored updates. When advertisers are choosing where to put their dollars the ad networks Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) have successfully grown are more appealing than ever.
CAKMAK: When you think about spending in general, you know, advertising spend as a percentage of GDP has been 1 percent to 2 percent for history, and that’s not going to change. When you think about the migration of dollars from analog to digital, there’s only two companies really out there that have the scale benefits and that’s Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG).
BOORSTIN: And while Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) traded lower following LinkedIn’s dismal move, Cakmak says that’s unwarranted. They’re in very different positions as consumers, businesses and advertisers move their dollars online.
For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.
EPPERSON: And now to our market monitor who likes big technology names despite recent weakness in the sector. He’s Michael Mussio, portfolio manager at FBB Capital Partners, a wealth management firm.
Michael, thank you very much.
Last time you were in July, you recommended Danaher (NYSE:DHR), that’s down 1.5 percent. UnitedHealthcare, which is down 9 percent, and Cerner (NASDAQ:CERN), which is down 20 percent.
Now, taking a look at what you like now, moving from health care to technology, why do you say that Microsoft (NASDAQ:MSFT) might be the way to go?
MICHAEL MUSSIO, FBB CAPITAL PARTNERS PORTFOLIO MANAGER: So, Microsoft (NASDAQ:MSFT), it’s not well known but it’s growing their cloud-based business. Right now, they’re number two behind the Amazon (NASDAQ:AMZN) web services.
So, the company is growing. They’re growing sales. They’re growing profitability. In an environment where we saw what happened with LinkedIn (NYSE:LNKD) and some of these higher-valuation tech companies, some of these stable, steady eddie companies are growing at a good pace and returning capital, Microsoft (NASDAQ:MSFT) is doing that.
MATHISEN: Your second pick is another one of these tiny little companies that nobody’s heard of, Michael, Apple (NASDAQ:AAPL).
MUSSIO: Sure, yes. Apple (NASDAQ:AAPL), we’re in the middle of kind of an off-product period for the company. We’ve seen this with this stock before where it gets cheap. Apple (NASDAQ:AAPL) is still growing. And will continue to grow, wedge. And again, in an environment where the market’s trading at 15, 16 times with slow to no growth, Apple (NASDAQ:AAPL) trading at nine or ten times x cash seems pretty cheap.
EPPERSON: Now, another one that you like is one that you say has a new CFO, and new management team that is going to continue its growth. Why do you like Google (NASDAQ:GOOG)?
MUSSIO: Yes, so alphabet — Google (NASDAQ:GOOG) is recorded in there for about 11 months. Since she has arrived she’s put in some — what the analyst calls and what they’re doing in terms of capital allocation, how they’re reporting to the street, the street likes the stock. And they’re growing.
Again, 15 percent, 16 percent revenue growth last year to this year, and again to next year. The stock — they’re returning capital to shareholders. So, we still like where alphabet has to go.
MATHISEN: You know, Michael, I look at the five stocks in the NASDAQ 100 that contributed the greatest point loss this week. And you picked three of them here. Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) were the others.
Why are these very good growing blue chip tech stocks getting sold off so heavily?
MUSSIO: I think you have the baby being thrown out with the bath water a bit. There is a scarcity in the technology space for growth at a reasonable price, sort of decent multiple. You saw LinkedIn (NYSE:LNKD) today. You’ve seen these really high valuations come way, way down. We include Amazon (NASDAQ:AMZN) in that category.
And then you saw Google (NASDAQ:GOOG) on Tuesday have a great number. Stock traded to $808 to whatever it traded down to today. Nothing’s changed. So, we’d rather be in names like that than others that still have really high multiples.
EPPERSON: Well, Michael, many of these names are some of the widely held in folks’ 401(k) plans and mutual funds and everything. So, I guess you’re saying to hold on to them. Thank you so much for your insights.
Michael Mussio with FBB Capital Partners.
MATHISEN: And moving on, Tyson Food shares hit a record today. Believe that on this down today?
That’s where we begin tonight’s “Market Focus.” The meat processor reported better than expected earnings for its first quarter, also raised its 2016 guidance results, helped by a sharp drop in feed costs. Shares surged 10 percent to $57.10. Wow.
Warehouse reported a 64 percent decline in profit for its latest quarter. The reason: weak sales in its wood products segment. The company controls nearly 7 million acres of forest in the U.S. Shares fell almost 7 percent, $23.99, the close there.
EPPERSON: Steelmaker ArcelorMittal (NYSE:MT) is issuing shares worth $3 billion in an effort to strengthen its finances. The company suffered a nearly $8 billion loss last year as a result of the plunge in commodity prices. Shares of ArcelorMittal (NYSE:MT) were down more than 9 percent to $3.73.
Profit and revenue at cosmetic company Estee Lauder beat analyst estimates, thanks in part to strong online sales of makeup and hair care brands. The company also raised its sales forecast for 2016. Shares gained more than 4.5 percent to $90.99.
MATHISEN: On this jobs Friday, we look at a profession that is out of this world. In a couple of months, a select few will be chosen as the newest crop of astronauts at NASA.
Mary Thompson went to Houston find out how hard it is to land one of these jobs.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: An Air Force pilot with a master’ degree from MIT Nick Hague applied to NASA three times before being accepted as an astronaut candidate in 2013. The selection process leaving him wondering if he had the right stuff.
NICK HAGUE, NASA ASTRONAUT: I felt like I was the least-qualified person at the table.
THOMPSON: Now, after two years of training, Hague sees how his education, professional and military experience in Iraq led to a future in space.
HAGUE: Those are experiences where you show that you can operate in a stressful environment. You can — you can put your safety, your security, in the hands of others and they can depend on you for the same.
THOMPSON: Through February 18th NASA’s accepting online applications for its 2016 class.
ANNE ROEMER, NASA MGR. OF ASTRONAUT SELECTION: We’re on track I think to have a record number of applications this time.
THOMPSON: Out of the more than 6,000 applications expected, NASA’s Anne Roemer says eight to 14 candidates will be chosen. All armed with a minimum three years’ professional experience, an ability to lead and to follow, and the first tool an astronaut needs.
ROEMER: We’re looking for a degree in the right field of science, math, or engineering.
THOMPSON: Candidates who are paid between $66,000 to $140,000 a year, depending on their experience, go through a two-year training program to prepare for life in space. With its 16-hour work days and mandatory two-hour workouts.
I’m supposed to run with there?
On the ground, astronaut candidates jog or in my case walk, as they will in space. Tethered to bungee cords to keep them in place on the treadmill. And lift weights on resistance machines to maintain bone density.
Along with the physical, candidates learn the mechanical. Simulators like this one training them to capture incoming cargo ships for the international space station, or ISS.
What I am doing now is I’m getting ready for a virtual extra vehicular activity, better known as a space walk. This is done in virtual reality lab where candidates use gloves embedded with sensors to prepare for six-hour space walks where hand rails get them around the virtual station.
Wait a minute, I’ve got it now.
But as Hague says, a future job with the global crew of the ISIS requires more than just mechanical and physical school.
HAGUE: Learning Russian at age 40 is a challenge. And, you know, it’s a challenge to this day.
THOMPSON: Another challenge, waiting to fly. It may be three to five years before astronauts get their chance in space, spending the years in between in supporting roles on the ground.
In Houston, I’m Mary Thompson for NIGHTLY BUSINESS REPORT.
EPPERSON: Coming up, athletes in the work place. How a bright idea to reduce the risk of injury on the job became a successful fast-growing business.
MATHISEN: The science of ergonomics has its roots in ancient Greece. Why with all that history do workplace injuries still cost $250 billion a year in the United States, with about $120 billion spent on back injuries alone?
For one thing, ergonomics often seeks to adapt the environment to the body, a better chair, for instance. But an entrepreneur got the bright idea to develop products that help the body become a better fit for the work environment.
MATHISEN: Ask Sean Petterson about persuading hard hats to try something new, even if it could help him. He’ll probably tell you it’s a heavy lift.
SEAN PETTERSON, STRONGARM TECHNOLOGIES CEO & FOUNDER: Always someone who doesn’t have the time of day to listen. There’s always someone who knows exactly how much pain that they’re in. There’s the people who see that guy and say, I want to be that guy.
MATHISEN: The hard-working guy or woman has to stay healthy to make a living. Peterson calls them industrial athletes. His gear aims to protect them. Keep them in the game.
RALPH STEELEY, ELECTRICIAN: Bending down, picking up tools, moving heavy equipment around, it’s always a part of his job. Your back is very important to you.
MATHISEN: Peterson looked to his late father for inspiration. He was a contractor, a roofer, who suffered a heart attack and died on the job when Sean was just 16. Memories of watching his dad exercise, doing pushups on the roof, made Sean realize that millions of construction workers, people who build our roads and bridges and so many others, risk their ability to make a living every day.
PETTERSON: We notice there’s a huge lack of design attention. And real focus on these people that are essentially the backbone of America.
MATHISEN: As a student at the Rochester Institute of Technology in 2011, Petterson started his project with little more than a few straps purchased at home depot.
PETTERSON: This is load redistribution device.
MATHISEN: By early 2015, StrongArm Technologies began selling the V-22. It’s a simple-looking harness but took years of job site feedback, input from ergonomics specialists as far away as Sweden, and hundreds of thousands of dollars in business plan competition winnings to develop a pulley system that uses the force of the load that’s being carried to tighten or loosen the harness. That adds support through the shoulders, neck, and spine.
PETTERSON: Pull back on my shoulders, it’s going to give me that perfect neutral spine you’re looking for when lifting.
MATHISEN: Now, workers building its new office at the Brooklyn navy yard are trying out a lighter version.
ERWIN PORTER, ELECTRICIAN-WIREMAN: It helps me turn my whole body. It keeps me level in a way that I won’t hurt myself.
ANNOUNCER: StrongArm Technologies.
MATHISEN: When Just Works honored StrongArm as its startup of the month at Brooklyn’s Barclay Center back in November, Peterson saw an opportunity. This week, the team that converts the court used by the NBA’s Nets to ice used by the NHL’s Islanders, well, they began trying the flex.
COREY JEFFERSON, BARCLAYS CENTER CONVERSION TEAM LEADER: You’re part of the team. And if you’re not strong, that means that somebody else has to pick up the slack.
PETTERSON: Industrial athletes building an athletic court, it’s the coolest juxtaposition ever.
MATHISEN: Another StrongArm product, the Ergo Hug provides leverage to help nurses lift patients, aiming to reduce the 35,000 nursing injuries that cause employees to miss time on the job every year. By September, after just nine months on the market, the industrial giant 3M (NYSE:MMM) bought a minority stake. StrongArm’s 2016 sales are expected to top $3 million. But in just one month, the company says it is more than halfway there.
Peterson says 3M’s presence validates his heavy lift.
PETTERSON: To see them going home with less pain, that’s what keeps you going.
MATHISEN: Bright idea, bright kid.
StrongArm’s been selling to retailers who in turn sell in bulk to businesses that are paying anywhere from $200 to $700, depending which item and how many they’re buying.
EPPERSON: Well, that is NIGHTLY BUSINESS REPORT for tonight. I’m Sharon Epperson. Thanks so much for watching.
MATHISEN: And thanks from me as well. I’m Tyler Mathisen. Have a great evening, everybody. We will see you on Monday.