Transcript: Nightly Business Report – July 12, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR:  The rally builds.  The Dow follows the S&P 500 into record territory.  But not everyone thinks stocks can stay hot.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR:  Pay raise.  The country’s biggest bank plans to hike wages for its lowest paid employees and the CEO called it the right thing to do.

MATHISEN:  Big opportunity.  Will Amazon’s one-day shopping bonanza be a boon for some small sellers?

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, July 12th.

EPPERSON:  Good evening, everyone.  I’m Sharon Epperson, in tonight for Sue Herera.

MATHISEN:  And I’m Tyler Mathisen.  Welcome, everyone.

Well, it took more than a year, but stocks are at new highs.  Again, today, the blue chip Dow index follows the S&P 500 into record territory.  All those obstacles like Brexit slowing global growth, they were on the back burner for now.  Japan hinted at more stimulus, oil prices rose, energy stocks followed and investors regained their appetite for risk for at least this day.

The Dow Jones industrial average gained 120 points to 18,347.  The NASDAQ added 34, a new high for the year, and S&P 500 rose nearly 15.

EPPERSON:  So, what happens if you factor in dividends in this year’s returns?

Bob Pisani has some more positive news for investors.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The S&P is at a new high, but it has been there really all year if you include dividend gains of roughly 2.2 percent.  The S&P 500 has hit record highs ten times in 2016, once you factor in those dividends.

How important is this whole gain?  They count for half of the S&P’s total returns over long periods of time, so since 1988, the S&P 500 is up about 720 percent.  The total return for the S&P 500 which includes reinvested dividends has gained over 1,400 percent.

Now, think about this: your actual returns on owning the S&P 500 are twice what the price index indicates since 1988 if you reinvested the dividends.  So, smart investors have known this for a very long time.  In fact, ETFs that are dividend-weighted have been hitting historic highs this week as well, like the O’Shares Dividend ETF.  Some are O’USA, they invest in quality stocks that pay dividends.  The biggest holdings are Johnson & Johnson (NYSE:JNJ), Exxon, Verizon (NYSE:VZ), AT&T (NYSE:T) and Microsoft (NASDAQ:MSFT).  The current yield is 4 1/4 percent.

So, here’s the bottom line: the major indices may be at new highs, but since dividends are such an important part of returns, don’t expect investors to immediately abandon high dividend stocks for other riskier parts of the market.

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

(END VIDEOTAPE)

MATHISEN:  Well, despite another record-setting day on Wall Street, our guest tonight isn’t quite convinced that this isn’t anything more than just a bounce back rally.  She’s Rene Nourse.  She’s president and CEO of her own money management firm, Urban Wealth Management.

Rene, welcome.  Good to have with us.

RENE NOURSE, URBAN WEALTH MANAGEMENT PRESIDENT & CEO:  Thank you.

MATHISEN:  You called this a relief rally, but you don’t think the relief is going to last.  Why not?

NOURSE:  I really don’t think so.  In fact, I call it a silly putty rally.  This has really been I think a bounce back with all of very challenging information we’ve had over the past few weeks.  And I’m very, very cautious, very concerned that this rally is just not going to last and it’s going to run out of steam.

EPPERSON:  Why do you think, Rene, that we’re going to see a pullback?  I believe that’s what you believe and what is causing it?  What are your major concerns here about the market?

NOURSE:  My concerns are this — we’ve had six consecutive quarters of declining earnings per share growth as far as corporate earnings are concerned.  In addition to that, five consecutive quarters of sales decline.  So, I don’t think that number one, we’ve got enough push here in the market to continue to maintain those high valuations.  Right now, forward earnings per share for the S&P 500 is at 24.  And it’s very, very — excuse me, not forward, but forward is 18, but back looking back is 24.

But there’s very, very high price earnings valuations that I just don’t think are going to be sustainable.

EPPERSON:  One of the things that you’ve said is that you believe we’ll see a pullback of 8 percent by October.  Now, you’re not alone there thinking we’re going to see a pullback.  Goldman Sachs (NYSE:GS) also saying we’re going to see a 5 to 10 percent pullback from recent highs.

One of the things that they mention as a concern is decelerating buybacks.  Is that a concern of yours as well?

NOURSE:  Exactly.  In those instances where we have se earnings per share punch up, it’s been because of the earnings where the share buyback.  So, once that’s taken out of the picture, I think that we’re going to have a deflation that will take place in the earnings balloon.

MATHISEN:  So, let’s think about what could go wrong with your forecast here.  If earnings start to pick up and a lot of people think that maybe the trough has been hit.  Might that not support these higher prices?  And I agree with you.  They look a little pricey to me.

NOURSE:  Well, you know, I’ve thought about that.  And actually, since the beginning of the year, I’ve taken a very cautious stance and started raising cash.  We had dividend-paying issues.  So, if I’m wrong, I’m on the side of still participating in the market with more dividend paying issues as you just pointed out just prior to this segment.

So, we’re still in the market, but I still want to have some money available to take advantage of some growthier names.  This has been a value-oriented market really for the past year.  We’ve really not hit any significant new highs except here in the past few days.  So, once the air comes out balloon, I’ll be at the ready to buy some good growth names.

MATHISEN:  All right.  Rene, good to hear kind of against the grain perspective.  We appreciate your time tonight.

Rene Nourse with Urban Wealth Management.

NOURSE:  Thank you.

EPPERSON:  Meanwhile, on the other side of the globe, an international tribunal in the Hague has ruled against China and in favor of the Philippines in the maritime dispute.  The decision concluded that China has no legal basis to claim historic rights to a major part of the South China Sea, which sees $5 trillion worth of trade every year.  China’s president rejected the decision, something we reported was likely to happen.

The issue is an important one to the U.S. since the U.S. has repeatedly challenged China’s rights to the sea and has increased naval patrols.

MATHISEN:  In the U.S., job openings fell to their lowest level of the year in May.  The Labor Department chose there were 5.5 million openings down from a record high.  The decline corresponds with the weak employment report that was issued that month.  But experts say they do not think that this report is evidence of a sharp deterioration in the labor market.

EPPERSON:  Meanwhile, the head of the nation’s largest bank is raising the company’s minimum pay for thousands of low paid employees.  In a “New York Times (NYSE:NYT)” op-ed, J.P. Morgan Chase CEO Jamie Dimon says it’s important to a growing concerns surrounding income inequality.  He wrote, quote, “A pay increase is the right thing to do.  Wages for Americans have gone nowhere for too long.”

The base pay for 18,000 employees, that include tellers and customer service workers, will rise to as much as $16.50 an hour over the next three years.  Their pay currently stands at $10.15 an hour.

MATHISEN:  So, is this the right move by J.P. Morgan Chase’s CEO Jamie Dimon?  And will other businesses raise minimum pay for their low wage employees?

Joining us to discuss is Harry Holzer, professor of public policy at Georgetown University.

Professor Holzer, good to see you.  We’ve seen Starbucks (NASDAQ:SBUX) do this, J.P. Morgan Chase.  Walmart also making raises.

Is it your view that it is better policy for companies to make these decisions on their own or to have government step in and try and boost wages for low paid people by raising the minimum wage?

HARRY HOLZER, GEORGETOWN UNIVERSITY PROF. PUBLIC POLICY:  Well, it’s definitely good when companies do this on their own, because they’re doing it in their own interest.  Right now, whether it’s Starbucks (NASDAQ:SBUX) or J.P. Morgan Chase or Walmart, there’s a few different reasons why they do this.

Number one, as the labor market is gradually tightening, they feel some pressure to do this, so they can continue to hire and retain good workers.  And, secondly, companies often see it in their interest to do this because it might raise the productivity of worker, raise their ability to hire productive workers over the long term.  So, it’s definitely a good thing when companies make this choice.  Now, of course, a smaller number of companies do this.

So if you want the wage increase to occur for a much larger number of people at the bottom, then the government has stepped in, has to raise the minimum wage, many more workers benefit, the only downside is that some companies might cut back on hiring because it becomes more expensive for them to do so.

EPPERSON:  Well, that seems to be a major concern, of course, among those who are saying that say if it is raise by too much, that will cost too much and therefore, jobs will be lost.  But I’m wondering if some of these companies are doing this also because they either have state mandates or they see that coming down the road even ahead of a federal minimum wage hike.

HOLZER:  Well, that might be one more reason why some of these companies are doing that right now.  As I said, even in the absence of the higher state minimums, the companies might do so any way because the labor market is tightening.  And the likelihood of these extra laws might be just one more reason pushing them in that direction.

MATHISEN:  Two questions and I apologize in advance for assuming my cynical hat.  Mr. Dimon is a progressive and thoughtful CEO.  I mean, progressive with a small P, not in the political sense.  But I wonder if in light of the fact that so many people in both political parties have whacked on the banks, he’s trying to get out ahead of a political issue by offering low wage employees a raise.  That’s number one and number two is, the other cynic in me said, OK, so he’s teller but I’ll bet you five years down the road, they’re going to be fewer bank tellers.

HOLZER:  Well, you maybe right on one or both of those points.  I’m sure whatever the reason is, Mr. Dimon is doing this because he believes it’s in the interest of his company to do that.  Now, maybe it’s just for reputation, for good press.  Although I think there’s probably good economic reasons to do that on top of the good press.

Now, the second issue that you raised, he’ll have fewer tellers.  That’s possible.  But I’m less convinced to that because he’s choosing to do it.  And I don’t think he would choose to do something that would cause him to cut back on employment positions a few years down the road, so, it’s less sort of that.

Now, if the government, that is a bigger risk with the government mandates, you know, when the government mandates a hire wage when it’s not chosen by the company, the risk somewhat is greater risk of that.  But really, the amount of risk depends on how high the government’s pushing.  I don’t worry a lot about the minimum wage going up into the $9 or $10 an hour range.  We are a lot more about going higher.

MATHISEN:  I take your point basically.  My heart agrees with you that he’s doing this because he thinks it’s the right thing to do and a right thing to do for J.P. Morgan Chase.  Harry Holzer with Georgetown University — we’ll have you back soon.  Thanks again.

HOLZER:  Thank you.

EPPERSON:  Still ahead, the latest fast growing online security threat, with some unusual targets.

(MUSIC)

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES:  Our entire way of life in America depends on the rule of law, that in this country, we don’t have soldiers in the streets or militias setting the rules.  Instead, we have public servants, police officers, like the men who were taken away from us.

(END VIDEO CLIP)

MATHISEN:  Obama speaking today at the memorial service for the five officers killed in last week’s sniper attack in Dallas.  He called on Americans to reject despair during these tough times, (INAUDIBLE) for unity, and said the nation is not as divided as it seems.

EPPERSON:  On the campaign trail, Hillary Clinton got a long awaited endorsement from former rival Bernie Sanders, who called her best person for the job.

John Harwood joins us now from Washington.

And, John, what will the Sanders endorsement really do for Clinton at this point?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, there’s nothing more important, Sharon, in modern presidential politics than having a unified party.  You need to have 90 percent of your party in order to be competitive given the polarization that we have.  She isn’t quite there yet.  This endorsement from Bernie Sanders can help her get a little bit closer to that, not a night and day difference in the race, but it does give her a boost at a time when Donald Trump is struggling to unite his party.

MATHISEN:  Are there young people who backed Bernie Sanders, broadly speaking?  Are they likely to turn out for Hillary?

HARWOOD:  Well, so far, she’s doing quite well against Donald Trump with 18 to 29-year-old voters.  He can help inspire more enthusiasm for her.  She’s shown during the campaign that while she beat Bernie Sanders, he has fire, the enthusiasm with a certain segment of the population.  He can help her get some of that turnout.  So can President Obama, who’s very popular with those young voters, too.

EPPERSON:  The Republican convention coming up next week.  The current environment what we’ve seen in Dallas and numerous cities.  Is there a fear of violence in Cleveland as well?

HARWOOD:  There is concern about that.  Look, Donald Trump has been an electric candidate so far.  He’s inspired very strong feelings from his supporters and people opposed to them and I think in the current environment, everybody is on edge about that possibility.  Nobody would bet on it, and we haven’t seen significant violence at a convention since 1968 when the Democratic convention erupted in Chicago, but it’s certainly not out of the question this time.

EPPERSON:  All right, we’ll be watching.  John Harwood in Washington.

MATHISEN:  AMC entertainment takes advantage of a falling British pound and that is where we begin tonight’s “Market Focus”.

AMC will buy London-based theater chain Odeon and UCI Cinemas Group from a private equity firm for more than a billion dollars.  AMC still plans to pursue its proposed acquisition of Carmike Cinemas (NASDAQ:CKEC), despite facing opposition from that company’s shareholders.  Shares of AMC up 7 percent to $29.80.

The data storage company Seagate will layoff more than 6,000 employees in an effort to cut costs.  The company also reported better than expected revenue for its preliminary quarterly results and raised its earnings forecast.  Shares of Seagate had their best day in more than four years, rising nearly 22 percent to $29.35.

And share of the drug maker Sage Therapeutics surged today on news that the company’s drug for treating post-partum depression showed positive results during a key trial.  Currently, there are no approved medications that specifically target that disorder.  Sage shares spiked 37 percent to $46.21.

EPPERSON:  Fastenal (NASDAQ:FAST), which makes construction and industrial equipment, saw its profits fall in the latest quarter, missing analyst expectations.  The company did report a rise in revenue, but that also missed estimates, as lower demand for products weighed on results.  Fastenal (NASDAQ:FAST) off 3.5 percent to $43.79.

An advisory committee for the Food and Drug Administration is recommending an arthritis drug made by Amgen (NASDAQ:AMGN) be approved.  The panel unanimously voted that the drug is very similar to one made my Amgen’s rival, AbbVie, but it’s also cheaper.  Both stocks up a little more than a percent.  Amgen (NASDAQ:AMGN) closing at $161.66, AbbVie, $65.50.

MATHISEN:  There is now yet another online threat to your security.  It is growing rapidly, targeting people in places you might not expect.  It is called ransom ware.  Maybe you’ve been hit by it.  It’s what hackers used to steal valuable information on your computer and then literally hold it for ransom.  Demanding you pay them to give you your information back.  You naturally expect banks, hospitals, even the rich and famous to be the obvious, and they are.

But Andrea Day found that a recent target is an usual one, a NASCAR team.

(BEGIN VIDEOTAPE)

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  An up-and-coming NASCAR team just days away from the big race when the crew chief’s laptop starting going haywire.

DAVE WINSTON:  I’ve got a message pop up that said my file has all been encrypted.

DAY:  All of his critical files locked up.  The team had been hit with a ransom ware attack, a virus that kidnaps the data on your computer while criminals hold it for ransom.

JEREMY LANGE, CIRCLE SPORT LEAVINE FAMILY RACING VP:  And the panic set in for me not knowing exactly how bad it was.

DAY:  And the panic is real.  According to the FBI, attacks like this are skyrocketing, hitting towns, businesses, schools and hospitals.  With law enforcement virtually powerless to stop it.

WILL BALES, FBI SUPERVISORY SPECIAL AGENT:  This is a big threat, millions and millions of dollars have already been lost.  And more will be lost.

DAY:  Special agent Will Bales manages just ransom ware investigations nationwide for the FBI.  He says while it’s tough to detect where the virus comes from, it can get into your computer through an e-mail attachment.

BALES:  Once you’ve opened the attachment, your computer is infected.

DAY:  Locked down unless the criminals release a code or key.

BALES:  There’s no way just because of technology today, of decrypting those files without that key.

DAY:  The hackers demanding payment, sometimes millions in bit coin, Internet currency that can’t be traced.  The ransom note popped up on Dave Winston’s screen.

WINSTON:  Your files are encrypted.  The only way to get it back is to pay a ransom.

LANGE:  They want a payment within 24 hours.

DAY:  The team hunker down in a room to figure out what to do.  At risk, thousands of hours of data worth millions.

WINSTON:  Set up information, wind tunnel data.  Past track data, all of that just priceless.  I would have done almost anything to get that information back.

DAY:  They finally decided to pay the ransom using special bit coin ATM.

And after hours of waiting —

WINSTON:  It was a huge relief when we got the key, pretty much everything came back.

DAY:  But Bales says even if you pay, there’s no guarantee.

BALES:  They now know you are susceptible and want to pay them.

DAY:  Which is why the FBI advices against paying any ransom.

BALES:  This could encourage them to continue and target more people down the line.

DAY:  Already this year, he says thousands of victims have been reported to the FBI, and worldwide, the numbers top hundreds of thousands.

BALES:  It’s extremely difficult to investigate ransom ware, mainly because of the methods in which the bad guys are using.  They are anywhere in the world.  Because they’re infecting anybody in the world.

DAY:  So, what can you do?  Well, according to the feds, having a secure back up is critical.  That way, you can just restore all the files on your own and never open an e-mail attachment unless you know exactly what it is.

I’m Andrea Day for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN:  Coming up, the coveted title of best state for business goes to — the answer in just a couple of minutes.

(MUSIC)

MATHISEN:  Small business owners are feeling more optimistic, according to the latest survey by the National Federation of Independent Business.  It’s the third straight month of gains, and while more business owners have a brighter outlook on the economy, they are still facing one major problem — finding qualified applicants to fill open positions.

HERERA:  Amazon’s big shopping day had a bumpy start.  Some customers were unable to add discounted items to their shopping carts and a report from channel adviser midday said sales were flat from last year.  Some analysts refuted that report, but it was enough to pressure the stock, which had been at an all time high earlier in the day.

And the big winners from prime day may not be Amazon (NASDAQ:AMZN), but all of the small businesses that sell their products on the site.

Kate Rogers (NYSE:ROG) has more.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Amazon’s second annual Prime Day maybe known for blowout deals on everything from household items, to electronics and toys.  But the retail joint small business sellers, like Los Angeles-based Debbie Bean, are hoping to get in on the action.

DEBBIE BEAN, AMAZON HANDMADE SELLER:  I hope to sell out.  I wouldn’t mind that.

ROGERS:  Bean sells handmade glass trays, jewelry and more and decided this year to try her hand selling on the retail holiday bean touted as Black Friday in July.

Last year, 34 million items were sold on prime day alone according to Amazon (NASDAQ:AMZN), 14 million of those items came from small business sellers.  This year, thousands of small businesses will be participating and Amazon (NASDAQ:AMZN) says it will be small retailers’ biggest day of the year on the e-commerce site.

Bean is hoping to turn flash sale buyers into loyal customers by discounting her items by 20 percent.

BEAN:  I know how I shop on Amazon (NASDAQ:AMZN) and I don’t know if I would necessarily think to buy handmade items.  So, seeing that there’s a 20 percent off discount I think might give people a little bit of an incentive to try it where as otherwise, they might not and it will give them an opportunity to find out more about me and my work.

ROGERS:  Prime Day exposure doesn’t come cheap.  In order to participate, retailers had to discount their products by at least 20 percent and Amazon (NASDAQ:AMZN) takes an average of 15 percent on each sale and a business makes, which can be pricey, of course, for small retailers.

But if sellers can stand out in a crowded field of competitors, the cut maybe be worth it.

LIZ DUNN, TALMAGE ADVISORS FOUNDER:  It’s this moment where the consumer knows that they’re getting a special deal and the small seller can kind of gain some relevance, gain some attention, and yes, they’re paying a price to do that.  But selling online, basically anyway you go about it, is going to cost you some money.

ROGERS:  If nothing else, it’s a way you increase sales during what’s typically a slow summer season ahead of the holiday rush.

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

(END VIDEOTAPE)

EPPERSON:  To read more about how small business sellers are taking advantage of prime day, head to our website, NBR.com.

MATHISEN:  Well, it is an election year.  The presidential candidates each in their own way are promising to create jobs, but just as all politics is local, so is most job creation.  And today, CNBC is out with a tenth annual list of America’s top states for business.  States with the most power to attract companies and create jobs.

Scott Cohn reports from the state that tops the list and it climbed the ranks by living up to its nickname.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  They call Utah the Beehive State because people here work so hard, so when the nation was plunging to the depths of the Great Recession in 2008, Utah’s tech community in and around Salt Lake City branded its Silicon slopes and set out to attract investment.  It worked well it enough that Governor Gary Herbert starting his first full term in 2012 was able to make an audacious pledge.

GOV. GARY HERBERT (R), UTAH:  My goal is to accelerate private sector job creation of 100,000 jobs in 1,000 days.

COHN:  It had taken seven years to create the last hundred thousand jobs, but by the time Herbert’s thousand days had passed in October 2014, the state had not only added those 100,000 jobs, it tacked on nearly 10,000 beyond that.

Job growth is still among the strongest in the country, helping Utah rank third in the economy category.  Governor Herbert’s challenger this year, healthcare CEO Mike Weinholtz, says too many of the jobs pay minimum.

MIKE WEINHOLTZ (D), GUBERNATORIAL CHALLENGER:  Governor Herbert likes to tout the number of jobs we have, but we don’t have enough high-paying jobs that pay a living wage.

COHN:  For businesses though, even Utah’s weaknesses aren’t very weak.  The state finishes in the top half or better in all ten top states for business categories.  That’s a first in ten years ranking the states.

Average wages are low compared to the rest of the country, but that’s attractive to cost conscious companies helping Utah finish a respectable 19th for doing cost of business.  It finishes 24th for access to capital.  Venture capital is flowing to the tech companies, but small business blending is on the low side.  Utah even managed to improve to 23rd place for education, normally, a big weak spot, thanks to a big increase in funding.

But Governor Herbert admits there’s some work to do.  Certainly, education is one we need to continue to keep the pedal to the metal.  And the fact of the matter is, we have a large growing student population.  We have a higher birth rate than the national average.  We have larger family sizes.

So, we have some uniqueness there, but we are trying to become the best education system in America.

COHN:  Utah’s motto is about as succinct as it can be.  One word: industry.  New industries are powering this state to higher heights, thanks to industrious people who came up with plan when times were bleak, stuck to it and won.

Scott Cohn, NIGHTLY BUSINESS REPORT, Syracuse, Utah.

(END VIDEOTAPE)

MATHISEN:  And you can read more about the top state for business and the methodology behind the ranking on our website, NBR.com.

EPPERSON:  And finally tonight, here’s another look at the day on Wall Street.  That saw the Dow hit a new record.  The blue chip index gained 120 points to 18,347.  The NASDAQ added 34 and S&P 500 rose nearly 15.

That’s 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.  And we’ll see you back here tomorrow night.

END

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) 2016 CNBC, Inc.

 

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