TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Zigzag day. Stocks
dropped and climbed. Now, some investors wan to know if the mix of earnings, the election, growth concerns, and the Fed will lead to more volatility.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Regaining trust. Will the CEO
change at Wells Fargo (NYSE:WFC) be enough to soothe the outrage in
Washington and on Main Street?
MATHISEN: Million dollar gamble. In today`s housing market, the potential
profit from a house flip is much bigger and much more risky.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
HERERA: Good evening, everyone. Welcome.
Look now, but volatility may be starting to make an appearance. Stocks
began the day with a steep drop of more than 180 points, as investors ran
from equities and towards the safety of government bonds and gold. A weak
reading on trade out of China reawakened concerns that slower global growth
may be at hand, just as the Federal Reserve considers an interest rate hike
later this year.
There is also the issue of earnings which as we reported, did not get off
to a great start yesterday. But then midday, oil moved higher, and
investors shook off growth, interest rate, and profit concerns. And just
like that, the losses repaired. The day finished with the Dow Jones
Industrial Average losing 45 points to 18,098. The NASDAQ was off 25. And
the S&P fell six.
MATHISEN: Let`s turn to David Lebovitz to talk more about the market and
whether or not we can expect more volatility in the days ahead. He`s
global market strategist at J.P. Morgan Asset Management.
David, welcome, good to have you with us.
What do you see? Is this a time between now and let`s say the election,
now and year end, when we should be ready for some big swings?
DAVID LEBOVITZ, J.P. MORGAN ASSET MGMT, GLOBAL MARKET STRATEGIST: So, I
think that investors should be prepared for a little more volatility.
Obviously, the next couple of weeks, if the political polls begin to show
that the race is a bit closer, that could drive some volatility in the
market. You know, our expectation is that the Fed will hike rates in
And so, we may begin to see some jitters as that meeting approach. One
thing I would say about the Fed, however, is I think they`ve been priming
the pump for a December hike for some time now. I think that the hawkish
rhetoric which started towards the end of the summer and into the early
fall was all in an effort to get investors comfortable with December hike.
So, I think that the bigger risk from a volatility standpoint is probably
the election or a deterioration in the economic data. I think the market
is fairly comfortable with the Fed hiking rates at this point.
HERERA: But what about earnings? As we reported yesterday, Alcoa
(NYSE:AA) did not have a good report. We still have the banks coming
tomorrow. What if we don`t see an improvement in earnings?
LEBOVITZ: So, you know, our view is that on a year over year basis,
earnings growth will still be in negative territory, you know, the risk,
the upside is that they w be flat on a year over year basis. But I think
that what matters much more are expectations. In 2016, earnings estimates
have come down fairly significantly over the past couple of months,
essentially making the hurdle which companies need to get over that much
So, my view is that companies will be able to beat earnings, and it`s
really that best thing of expectations that tends to matter for the market
rather the level of earnings growth.
MATHISEN: Do you see 2017 as a pretty good year for corporate profits? Or
sort of what we`ve been seeing?
LEBOVITZ: So I think 2017 will be a better year for corporate profits. If
look at consensus estimate right now, analysts are looking for about 14
percent earning growth next year. I do think that that`s a little bit too
optimistic. But I do think earnings growth between 3 to 5 percent is very
The two things that have held back earnings to this point, the stronger
dollar and lower energy prices, are continuing to abate. And my guess is
that 2017 rather is going to be a year where less dollar strength, less
weakness in energy prices allows revenues to pick up. And if companies can
keep margins where they were, that should translate into decent earnings
MATHISEN: All right. David, thank you very much. Appreciate your time
LEBOVITZ: Thanks for having me.
MATHISEN: Lebovitz at J.P. Morgan Asset Management.
HERERA: A Federal Reserve official today said he prefers to see a rate
hike sooner rather than later, but thanks the Central Bank might want to
wait until after the presidential election.
Philadelphia Fed President Patrick Harker, who was in favor of a hike in
September, said the Fed`s November meeting comes at an uncertain political
time. Harker is not currently a voting member. But he will be next year.
MATHISEN: A new era at Wells Fargo (NYSE:WFC). Today was Tim Sloan`s
first full day as CEO of one of the nation`s biggest banks, his appointment
follows the departure of John Stumpf who retired in the wake of that fake
account scandal as we reported last night.
But what`s next for the embattled bank?
Wilfred Frost reports.
WILFRED FROST, NIGHTLY BUSINESS REPORT CORRESPONDENT: The management
changes at Wells Fargo (NYSE:WFC) in the last 24 hours have been applauded
by the analyst community as a necessary thought not sufficient condition
for the bank to be able to move past its recent scandal.
What is welcomed is the fact that there is a new CEO who, yes, is an
insider, but not from the embattled retail part of the bank. Also a new
board setup that includes independent chairman and independent vice
chairman, though pressure remains from lawmaker most notably Senator
Elizabeth Warren who said, quote, “If Mr. Stumpf is leaving with all of his
ill-gotten millions, that`s still not real accountability.”
In an exclusive interview with me last night, the new CEO, Tim Sloan,
confirmed there had been additional request from Congress for information.
But he hopes any potential hearing of his own will go more smoothly.
TIM SLOAN, WELLS FARGO, CEO: We disappointed that the hearing turned into
a situation where there were more speeches given than question asked. We
felt like there was more answers that we could have provided. Those
hearings are over with and we`re moving on.
FROST: The company reports earnings tomorrow morning where we will if
there`s been any financial impact. The other outstanding question is what
is morale like amongst the troops? I asked Sloan whether this had been a
proud or sad moment for him as he took over.
SLOAN: It`s a sad moment, because John Stumpf is retiring in a situation
that I think he would have never imagined. And he has done such a great
job in managing this company, notwithstanding some things that I think he
wished he would have done differently. That`s what makes it sad.
Having said that, I feel a great responsibility, and I`m looking forward to
being the CEO of this company.
FROST: For NIGHTLY BUSINESS REPORT, I`m Wilfred Frost in New York.
HERERA: Wilfred just mentioned the reaction from Senator Elizabeth Warren,
who is one of the bank`s most vocal critics in Congress. But will Wells
Fargo`s change of leadership do anything to calm the outrage in Washington?
Eamon Javers has been following that part of the story.
Eamon, that`s question. How is Congress likely to take these changes?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sue, I love the quote
from the new CEO there in Wilfred`s piece who said they were disappointed
at Wells Fargo (NYSE:WFC), that the congressional hearings turned more into
a thing about members of Congress making speeches then asking question.
He`s obviously not been to a lot of congressional hearings. That`s what
they are. If you`re cynical about this from Wells Fargo`s perspective,
what you wan to do is hope that the CEO change is going to take the story
off of the headlines for the time being. Headlines are what attracts
congressional attention. Congress doesn`t have all that much attention to
give because as you may have noticed, there`s a major national election
going right now and some serious infighting up here on Capitol Hill.
So all of that has Congress distracted. There are not that many days left
on the calendar, either before or after the election, for Congress to hold
any Wells Fargo (NYSE:WFC) hearings. So, they may, just in terms of
running out the clock here, they may be lucky in a cynical and sort of
strategic approach to this.
MATHISEN: So, the likelihood of additional hearings, it sounds like it`s a
questionable proposition given the calendar. Do you think members of
Congress are pleased that the new guy is an old guy? He`s part of the old
guard at Wells Fargo (NYSE:WFC), he`s been there 26, 27 years.
JAVERS: Yes, that`s an interesting question we still don`t know in all of
this is just exactly what did the “C” suite at Wells Fargo (NYSE:WFC) know
about all this and when did they learn about it all and what if anything
did they do to stop it? One of the questions that Elizabeth Warren will
continue to have is, who are this new cast of characters coming in, and
what was their role in all of that.
Whether that extends more broadly outside of Elizabeth Warren who views it
very much as her mission to stay on top of this kind of thing, that`s the
big question for Wells Fargo (NYSE:WFC), whether it attracts more broad
congressional interest. The likelihood of that, between now and the
election is zero. After the election, it`s probably pretty minimal.
HERERA: Eamon, thank you. Eamon Javers in Washington.
MATHISEN: So, what about Wells Fargo`s customer? Will the change at the
top help regain their trust?
Aditi Roy went to find out.
ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wells Fargo (NYSE:WFC)
is trying to win back customer confidence. This after many customers say
they feel disenchanted with the bank amid its sales tactics scandal.
UNIDENTIFIED FEMALE: I`m the kind of person who doesn`t monitor my bank
accounts. But I was grieved to hear that highly powerful bankers were
ROY: Hours before CEO John Stumpf`s resignation was announce, Wells Fargo
(NYSE:WFC) sent out an e-mail to its customers outlining the steps the bank
is taking to regain the trust of its clients.
In the e-mail, Wells Fargo (NYSE:WFC) says it has refunded customers who
are given unauthorized fake accounts and are working to find other
customers the bank might have missed.
The bank has already doled out refunds each averaging $25 to 100,000
customers to reimburse them for unauthorized fees and has set aside $5
million for payouts. The bank also assured customers that from now on, it
will send them a confirmation any time an account is opened. But for some
customers, it may be too little, too late.
UNIDENTIFIED MALE: I`m not thrilled. I think it`s shameful. And, you
know, they talk about business where you should be compensated for what you
do. And not only giving back the money, but really, I think you should be
ROY: Earlier this week, “The Wall Street Journal” reported it reviewed a
recording of a conference call between Stumpf and 500 of the bank`s top
executives. The paper says during the call, executives projected growth in
new retail banking business would likely be down as a result of the
Newly appointed CEO Timothy Sloan added that the bank is still opening more
accounts than closing them, but seeing slower growth in new checking
accounts from a few months ago. From the people we spoke to, regaining
customer trust will be an uphill climb.
And for Wells Fargo (NYSE:WFC) to regain trust, the Committee for Better
Banks, a group of bank workers and consumer advocates says the company
needs to do more. That Stumpf`s resignation was just a first step.
And in another effort to get back that trust, Wells Fargo (NYSE:WFC) took
out a full page ad in newspaper across the country. Its title, “Moving
Forward to Make Things Right.”
For NIGHTLY BUSINESS REPORT, Aditi Roy, San Francisco.
HERERA: Wells Fargo (NYSE:WFC) is one of a handful of banks to report
earnings tomorrow, and the results come at an interesting time for the
Bob Pisani takes a look at what`s on tap.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Four big banks, J.P.
Morgan, Citigroup (NYSE:C), PNC, and Wells Fargo (NYSE:WFC) report earnings
tomorrow and there`s lot riding on these reports. Banks that had a notable
run-up in the second half of a year, some, like Bank of America (NYSE:BAC),
are up double digit since July.
What`s going on, higher interest rates are the main factor. Short term
rates in particular are higher, and that means banks could charge higher
interest rates for loans.
Now, another issue is loan growth. Consumer loan growth is still strong
and will likely grow about 2 percent compared to the second quarter. But
commercial loan growth seems to have stalled out. And it`s not clear why.
But it may be due to slower capita expenditures like corporations which
reduces the need for loans.
Now, another big issue is bank regulation. This is a huge wild card. The
Wells Fargo (NYSE:WFC) debacle has brought this back on the front burner.
And bank investors have been very jittery this week about the very small
chance that the House could go Democratic, which would greatly increase
regulatory scrutiny of banks.
All right. So, what`s the bottom line here? There`s a lot to like about
banks. They have more cash. They have better cost control. And the long
quality is better.
But it`s really hard to make money with rates so low. Given the price run-
up, prudence seems to be the order of the day.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
MATHISEN: Still ahead, the technology industry is a growing part of the
economy. So, why isn`t creating the number of jobs many people thought it
MATHISEN: The number of Americans filing for unemployment benefits held at
a 43-year low last week, according to the Labor Department. Initial
jobless claims, viewed by most as a proxy for layoffs nationwide, were
unchanged at 246,000. The report suggests that employers are holding on to
workers as the labor market tightens.
HERERA: The tech industry has brought us Google (NASDAQ:GOOG) search and
Facebook (NASDAQ:FB) friends over the past decade. But according to “The
Wall Street Journal,” the one thing technology has not given us is enough
jobs, even as it has become an integral part of the economy.
Nariman Behravesh is the chief economist at IHS (NYSE:IHS) Markit and he
joins us to talk a why tech is not creating the number of jobs that many
thought it would.
Good to see you, Nariman. Welcome back.
NARIMAN BEHRAVESH, IHS (NYSE:IHS) MARKIT CHIEF ECONOMIST: Thank you.
HERERA: Well, I guess that`s the question, you know, a lot of — tech is
such a large part of the economy and growing every day. Why is it not
generating job growth?
BEHRAVESH: Well, this is a classic example of an industry that`s very much
sort of knowledge-based and because it`s technology-based, the ratio of
jobs, if you will, to revenues or jobs to profits is not that high. I
mean, this is the kind of industry now that a handful of people can create,
you know, a new app, you know, a new company. It doesn`t take, you know,
hundreds or thousands of workers.
So, in that sense, this is not necessarily a new phenomenon. It is very
much a part and parcel, if you will, of the knowledge-based industries
which require fewer and fewer workers, in a sense. That`s technological
revolution that we`re in the middle of. Sort of good news, bad news story.
The good news is a lot of technology. Bad news is, not as many jobs.
MATHISEN: “The Wall Street Journal” said in its article today that when
Instagram was bought for $1 billion for a couple of years ago by Facebook
(NASDAQ:FB), they had 12 or 14 employees, that`s all they had.
But it`s true, isn`t it, that a lot of technology manufacturing jobs have
gone away? IBM used to make computers up in New York. Cisco (NASDAQ:CSCO)
used to make routers and switching equipment. Intel (NASDAQ:INTC) used to
make many more of its semiconductors here in the United States. Now, not
BEHRAVESH: It is true. And I think it`s a little hard to disentangle two
phenomena here. The first is what you`re saying, which is offshoring
manufacturing, something that`s happened not just in tech but in a lot of
other industries. The other is the technological sort of revolution that
we`ve been talking about, where new companies are being formed that just
don`t take as many employees.
The other thing that`s happening is, just looking at this particular
article focused on IPOs as a measure of activity, if you will, but there`s
a lot of stuff that`s happening that`s not being picked up there.
For example, a lot of app development around Apple (NASDAQ:AAPL) or
smartphones. These people don`t go out and ask for an IPO or float some
stock. They`re doing all the stuff, they`re getting the income.
So, there`s a lot of activity going in tech that`s just not being picked
up. If you look at the overall jobs by company, which is what this article
did, there`s a lot of stuff that` getting lost in the shuffle, as it were.
And we`re really picking that up when you look at the employment numbers,
for example, in the U.S. economy, that have been quite strong.
HERERA: Nariman, we have to leave it there. Thank you.
Nariman Behravesh with IHS (NYSE:IHS) Markit.
MATHISEN: Well, Yahoo`s data breach may give Verizon (NYSE:VZ) an out from
its potential deal to buy the company, and that is where we begin tonight`s
The wireless carrier said that Yahoo`s recent breach could have, quote, “a
material impact” on the nearly $5 billion acquisition, potentially allowing
Verizon (NYSE:VZ) to call it quits. It could also be a bargaining chip,
since just last week, Verizon (NYSE:VZ) reportedly asked for a billion
dollar discount due to the data breach. Shares of Yahoo (NASDAQ:YHOO) were
off nearly 2 percent at $41.62. Verizon (NYSE:VZ) off a penny at $50.29.
HERERA: Xerox`s largest individual shareholder, Darwin Deason, is suing
the company, alleging Xerox`s plan to split into two companies violates a
deal the company struck with him before it bought his company, Affiliated
Computer Services, for about $6 billion in 2010. The company has
responded, saying the lawsuit was without merit and it will move forward
with plans to divide in two. Xerox`s share fell 2 1/2 percent to $9.55.
DeVry (NYSE:DV) University has settled with the Department of Education
over allegations the for-profit college used deceptive job placement ads to
recruit prospective students. The settlements subject DeVry (NYSE:DV) to
more financial oversight and requires the organization to provide a $68
million letter of credit that would allow it to keep its access to federal
funding. DeVry (NYSE:DV) shares are up 1 percent at $23.34.
And Delta Airlines (NYSE:DAL) posted better than expected profit, despite
taking a $150 million hit from a computer outage back in August. The
company`s CEO said the airline has been operating in the weakest pricing
environment for some time, prompting it to cut back on a key metric.
(BEGIN VIDEO CLIP)
ED BASTIAN, DELTA CEO: It`s hard for us to call the bottom. We`ve been
looking for the bottom for some time. When you look at what the drivers
are in terms of the challenges, certainly the capacity environment and
growth in excess of demand is one of the challenges that we`re facing.
We`re announcing today that we`re going to reducing our growth rate to 1
percent in the fourth quarter and keeping that throughout 2017.
(END VIDEO CLIP)
MATHISEN: Shares of Delta up nearly 2 percent at $40.01.
HERERA: Winnebago posted a better than expected profit, thanks to an
influx of orders for its towable trailers.
The motor home company also saw a revenue rise and that, too, beat
expectations. Winnebago`s shares were off a fraction to $27.84.
Ulta Salon lifted its profit and same store sales forecast for the quarter
and the full year. The cosmetics retailer said it plans to open more
stores than previously announced. Shares of Ulta rose more than 11 percent
Bad weather hit results at golf and country club operator Club Corps. The
company saw a rise in revenue but it wasn`t enough to top street
expectations. And also, profit came in light. Investors were hoping for a
mulligan, as Club Corps shares fell 12 percent to $12.32.
MATHISEN: Sony (NYSE:SNE) joins the virtual reality race with a new
headset for its PlayStation 4 gaming console. But virtual reality and
augmented reality isn`t just for gaming. It`s part of a wave of new techno
that`s being used to transform the advertising industry.
Julia Boorstin has our story.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Forget about the
30-second spot. The future of advertising won`t be skippable. Futuristic
technologies from augmented and virtual reality to artificial intelligence
are already making marketing more compelling and useful than ever.
Take North Face, which is using artificial intelligence from IBM`s Watson
to recommend a jacket for travelers based on what trip they`ve just booked.
And this is just the beginning of how AI and even facial recognition can
figure out what message is right for you.
JENNIFER WISE, FORRESTER ANALYST: We`re going to see ads and brands and
even, you know, complete stadiums, if you will, identify me and
automatically tailor to me proactively.
BOORSTIN: And brands are tapping into the immersive power of virtual and
augmented reality. Take ad giant AOL (NYSE:AOL), inking a seven-figure
deal to create virtual reality branded content for American Family
Part of the wave of more than $12 billion projected spending on virtual and
augmented reality ads by 20, driven in large part by augmented reality,
which can work on any smartphone.
Augmented reality ads are already popping up in Pokemon Go, and advertisers
pay millions of dollars for Snapchat`s sponsored filters. L`Oreal`s app
allows consumers to experiment with makeup colors. This just the beginning
of augmented and virtual realities` disruptive potential for marketing.
WISE: For those brands that are really experience-driven and really want
to allow people to try out that experience and also elicit that emotional
response, that`s where VR is going to excel.
BOORSTIN: Absolut Vodka is already live streaming concerns to VR headsets,
to earn that high tech halo with consumer. Audi aimed to sell cars with
its new virtual experience. Consumers can test drive any Audi model,
bringing traditional TV commercials to life.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
HERERA: Coming up, high risk, high reward. But do you have the stomach to
do a high end house flip?
HERERA: Here`s a look at what to watch for tomorrow. As we reported,
Wells Fargo (NYSE:WFC), J.P. Morgan Chase, and Citigroup (NYSE:C) release
their quarterly results. Fed Chief Janet Yellen delivers remarks on the
economy. Investors will be looking for any clues on the timing of a
potential rate hike. Retail sales will shed more light on the strength of
the consumer. And that is what to watch for on Friday.
MATHISEN: Mortgage interest rates inching higher in anticipation of a
Federal Reserve interest rate later this year. According to the latest
data from Freddie Mac, the 30-year fixed rate average rose to 3.47 percent,
hardly high but a rise. The move higher followed an increase in the yield
in the ten-year treasury which mortgage rates track closely.
HERERA: House flipping is the hottest it`s been in nearly two decades and
as home prices heat up, high end flipping is also gaining steam. It is
not, however, for the faint of heart. The rewards can be high. But so are
Diana Olick has been following one investor for four months and gives you a
peek inside the anatomy of a million-dollar-flip.
DANA RICE, HOME FLIPPER: Thirty inches off the toilet. OK.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Last June, real estate
agent Dana Rice was deep in the throes of remodeling this 1938 home in
Bethesda, Maryland. She bought it for $600,000, intending to flip it for a
RICE: Absolutely not as easy as it looks.
OLICK: Four months and $400,000 in construction costs later, she just put
the house on the market for $1.469 million.
RICE: In this particular area, for this particular house, I`m very
confident, because I feel as though the product we delivered we really
sweated the details on it, and I`m already getting great response from
people who are looking fixtures, colors, textures and things like that.
And it`s not what they see in a general renovation flip.
OLICK: Flipping is coming back with a vengeance, despite the fact that
there are far fewer distressed properties for investor to buy on the cheap,
getting in costs more today. But the potential profit is bigger.
There we more than 51,000 flips in the second three months of this year. A
flip defined as buying and selling a home in the same 12-month period.
That is highest level in six years, according to Adam Data Solution.
Average return on investment rising to nearly 49 percent, thanks to tight
supply and fast rising home prices.
And rising prices are key. Today`s homebuyers are already cash-strapped
and don`t want any additional renovation costs when they move in. That
means they`re willing to pay a premium for a turnkey property.
The Chartier family was the first to arrive at Rice`s open house.
MARISA CHARTIER, PROSPECTIVE HOME BUYER: I think for us, having had
somebody do all the work, it`s great. A lot of houses around here that are
old and ready to turn over, need an update.
OLICK: So far, no offers on the house yet. But Rice says she`s not
concerned, and is betting on location, quality, and high end amenities to
turn her million dollar investment into a high end profit.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Bethesda , Maryland.
HERERA: And to read more about high end house flipping, head to our
website at NBR.com.
MATHISEN: We will find what she gets for that house. She staged it
beautifully, though, I have to say.
HERERA: Gorgeous. Yes, and expensive.
OK, that`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks
for joining us.
MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great
evening, everyone. And we`ll see you back here tomorrow night, Friday.
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