SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: More than meets the eye. New home construction suffers a surprise drop, but believe it or not, that may not be a bad thing.
Big beat. American Express blows past earning estimates, and raises its guidance. But are all of its recent challenges in the rearview mirror?
And tackling poverty. Would you be in favor of every child in country getting a monthly check? A controversial idea is getting some buzz.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, October 19th.
Good evening, everyone, and welcome. I’m Sue Herera. Tyler Mathisen is off tonight.
We begin this evening with what is likely your biggest asset — your home. A new report on the housing market today was on the surface a bit concerning. Housing starts, which refers to the number of residential homes that broke ground, tumbled 9 percent in September that’s the second straight month of declines. And a number like that is just what this housing market does not need right now, since it’s being challenged by low inventory.
But upon closer inspection, the report may not be as bad as it looks.
Diana Olick explains.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was construction of these multifamily apartments that sent headline housing starts into the basement in September. Total starts down 9 percent.
But the story was very different for these, single-family homes. Builders started 8 percent more of them than they did in August, the highest construction rate since February. And that’s important, because the supplies of single family homes for sale both brand new and existing continue to fall to some of the lowest levels in history, depending on the market. Single family home builders still being very conservative, still only operating at 75 percent of historically normal levels. Any move higher is a good thing for the market.
As for the apartments, the drastic drop in September may be an outlier, given that permits, an indicator of future construction, actually rose substantially, also multifamily numbers can be skewed by just a few big developments that spiked the data one month and drop it the next.
So, while the knee-jerk for the stocks of the big builder was to tank on the numbers, they bounce back quickly. The public builders have gained market share, grown balance sheet and acquired a lot of land. They are well-positioned to take on 2017 with demand running very high. The only red flag is that single family permits were flat, indicating a cooler winter for construction.
For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Washington.
HERERA: As for the broader economy, there are signs that wage press are rising. That according to the Federal Reserve’s Beige Book, which provides an anecdotal look at the economy across the country. The Central Bank also said that during the past month, most regions reported a modest pace of economic expansion, despite a mixed read on consumer spending.
The Fed’s Beige Book, along with the better than expected earnings and a rise in oil prices helped lift the broader market. The Dow Jones Industrial Average rose to 18,202, the NASDAQ was up two, and the S&P 500 added four.
Dow component American Express topped quarterly earnings expectations, though the card-issuer did report its lowest revenue in five years. For the quarter, the company earned $1.20 a share, easily surpassing the estimate, which was 97 cents. Revenue was also better than expected but down from a year ago. Investors liked it, sending the stock initially higher in late-day trading.
Kayla Tausche has more on what drove AmEx’s results.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: American Express soaring past investor expectations, not just for the third quarter but for the full year and 2017, as well. Raising guidance for what the company expects to reach in profit despite its lucrative Costco portfolio being officially out the door and competition increasing from Chase and Citigroup.
The stock rising on the news, but it’s been prone to turnarounds, depending on executives’ tone of voice on the conference call when investors want to know is that optimism extends beyond a press release.
For NIGHTLY BUSINESS REPORT, I’m Kayla Tausche in New York.
HERERA: And although it is still early, earnings overall are coming in better than expected. And that may be lifting one of the dark clouds that have been hanging over corporate America. The so-called earnings recession.
Bob Pisani has more.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s the earnings recess finally over? It’s early, only about 15 percent of the S&P 500 has reported. But we may be on the verge of reversing four consecutive quarters of negative earnings growth. The early feed is largely due to big banks, so companies like J.P. Morgan and Citi reported higher trading revenues, and regional banks like Comerica and Regions Financials generally reported higher profit on loans as interest rates were slightly higher.
All right. That’s good news. What about the rest of the market, the other sectors? Oil services giant, Halliburton, surprising everyone this morning by reporting a small gain of one cent. I know it doesn’t sound like much, but the expectations were for a loss of 6 cents.
And the CEO, Dave Lester, said he thought oil prices would be going higher. That’s good news for the other oil companies. How about technology?
Intel reported a beat, though the guidance was disappointing. Still, Intel’s beat driving up earning gains for tech stocks in general. And the biggest stock in the S&P 500, that would be Apple, has been rising recently on expectations that it would top earnings partly on the woes of its competitor Samsung.
Now on Friday, we will hear from General Electric. This is one of the largest industrials in the world. They’ll give us a better sense of the global economy.
So, here’s the bottom line. It’s early, but this is shaping up to be a well-above average earning season. Both the number of companies beating and the magnitude by which they are beating are both well above average.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.
HERERA: And our guest tonight says after a decade of no earnings growth and nine years of no gains in the stock market, things may be about to change. He is Jeff Kleintop. He is the chief global investment strategist at Charles Schwab.
Good to see you, Jeff. Welcome back.
JEFF KLEINTOP, CHARLES SCHWAB: Thank you. Thanks for having me.
HERERA: What makes you think things are about to change?
KLEINTOP: Well, for one thing, the earnings recession maybe over. The only way to do that is to get better sales growth across all sectors. And while global economic growth may be about the same next year as it is this year, inflation is turning the corner from just 0.8 percent this year to 1.7 percent next year as the IMF’s forecast. And that means overall nominal GDP growth tracks, maybe above 5 percent for the first n six years.
That means finally better sales growth across big multinational corporations, enough to drive finally some earnings growth and end this long-running recession.
HERERA: And is it going to be sector do you think? Or now, because now we have earnings more balanced across a variety of sectors? Is that a correct read?
KLEINTOP: Yes, that’s very important. If you look ten years ago, earn for global companies are almost exactly what they were ten years ago, no progress. But back ten years ago, nearly 50 percent of profits were in energy and material sectors.
Now, it’s much broader. Those sectors only make up 20 percent of profits, a far more stable and broad base for earnings to advance. So, yes, I do think we’ll see this across sectors.
HERERA: In terms of the decade ahead, if you’re a young investor just starting out, you know, one of the reasons that people haven’t been investing in market is the lost decade, so to speak. So if you’re a young investor starting out, you have to have the long-term view. Do you go with domestic markets, like here in the U.S., or do you think that this turn in earnings is going to be a global phenomenon, and you can deploy cash almost anywhere in the world?
KLEINTOP: Well, it’s a great point, Sue. I think it is global. If we take a look at where the earnings are coming from, increasingly, they’re coming from overseas. But more importantly, to be diversified, which is so important for young investors starting out.
To be diversified, you have to be global. Not just geographical, but by sector. The Japanese market trades like they’re financial sector. The Canadian market trades like one big energy ETF. And even the U.S. trades like a big tech sector.
So, if you want diversification, it’s so important for a long term view, you have to be global in how you implement and it does appear that the earnings recovery will be a global one.
HERERA: And are expectations in the mark already that we are going to see this turn in earnings, or do you think that investors are going to pleasantly surprised if indeed it does happen?
KLEINTOP: Well, it’s interesting. Analysts have raised their earnings forecast. In fact, they have done so since March and are now looking for more than 20 percent earnings growth next year. But investors haven’t really priced that in. They’ve been very skeptical.
I think investors may be surprised by what actually happens next year. May not be as good as the analysts think, but a lot better than individual investors are braced for.
HERERA: Jeff, always a pleasure. Thanks for joining us.
KLEINTOP: Thanks, Sue.
HERERA: Jeff Kleintop with Charles Schwab.
The world’s second largest economy is growing at a consistent rate. China’s gross domestic product expanded at a steady 6.7 percent pace for the third straight quarter, and as Eunice Yoon reports from Beijing, that hasn’t happened since China started reporting the figures back in 1992.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Economic stability has be the main priority of the government here, but to some economists, the numbers today looked a little too stable. Q3 GDP came in at 6.7 percent. That’s the same number as the first quarter, as well as the second quarter. And that’s been raising skepticism about the voracity about the numbers.
That said, many economists focused on the September figures to get a better sense of the growth moment. Industrial output came in a little bit lower than expected, but retail sales as well as fixed asset investment both improved.
Now, what was the driving the growth in the third quarter? Well, it government spending, as well as recovery in the property sector. The government was green lighting infrastructure project. At the same time, it was through the state bank, unleashing a record amount of credit. And that helped to lift the housing sector.
Now, as much of the government policies have helped support economic growth here, they have also been leading to some concerns about potential new danger such as asset bubbles. The property sector has seen a run up, especially in some of the big cities, such as Beijing and Shanghai, and this is even as authority are trying to rein in prices with various measures. So, the concern there is about asset bubbles in property and also economists continue to be worried about rising debt.
In fact, the IMF in a working paper said that the government here he needed to address the rise in corporate debt, otherwise they could risk a banking crisis, sharply slower growth or both.
For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.
HERERA: Starbucks says it plans to more than double its store count in China to 5,000 by the year 2021. The world’s biggest coffee chain also named its first chief executive in charge of operations in that country. Starbucks has been operating in China for 17 years.
Still ahead, a controversial idea to help reduce poverty in this country.
HERERA: Well, Hillary Clinton and Donald Trump meet again tonight in the third and final presidential debate. Both enter the debate with high unfavorable ratings as they try to win over undecided voters.
John Harwood is at the site of the debate in Las Vegas.
Good to see, John.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hey, Sue.
HERERA: Immigration, an important issue to business, certainly. It’s likely to be discussed tonight. What will we hear from Donald Trump about the border wall?
HARWOOD: Well, Donald Trump has had much opportunity to talk about that wall in the first two debates. I would expect he would go back to it. We have also got business interested issues like debt and entitlements on the agenda. But somehow I suspect, Sue, attention is going to end up getting focused on what’s also on Chris Wallace’s list of topic tonight and that is fitness to be president of the United States.
HERERA: Indeed. What a Mr. Trump — will he focus on the Clintons’ past, both Hillary Clinton’s and former President Bill Clinton’s?
HARWOOD: Well, he has certainly given every indication wants to. He raised that issue in the past debate. Of course, he brought the women who have allegations against president — former President Clinton to that second debate. Has signaled he’s going to do more of the same.
But Donald Trump, you know, he is a very unpredictable guy. And so, there is sometimes — in the first debate, we thought he might raise those issues. He didn’t do it. All of the signals are that he may it tonight. But we can’t be sure. He’s unpredictable and, of course, Hillary Clinton has been hammering his unfitness to be president —
HARWOOD: — and this is part of how he goes at her and tries to make the opposite point.
HERERA: So, that may be one of her goals. What are the other goals for Mrs. Clinton tonight?
HARWOOD: Well, principally, Hillary Clinton is working from a lead. In the average of polls, she’s ahead seven points over Donald Trump. That’s very big in presidential politics.
So, one, she doesn’t want to make mistakes. She wants to protect her lead. But second, she wants to try to raise public esteem of her, which has been difficult to do. It’s been stuck around 40 percent favorable rating all year long.
But if she is, in fact, on the verge of being elected, she wants some of those undecided voters to feel better when they go into the voting booth. And then after the election, she wants them to rally behind her as she tries to govern. That’s not going to be easy, given how divided the country is.
HERERA: Indeed. Well, we will all be watching tonight, John. Thank you very much. John Harwood in Las Vegas for us.
Tackling child poverty is just one issue facing the presidential candidates. In fact, Hillary Clinton says she wants to double the child tax credit to $2,000 for each child up to the age of 4. But the philanthropic foundation Russell Sage has a much bolder idea — give every child in the country a $250 check.
Luke Shaefer is an associate professor of social work and public policy at the University of Michigan and he joins us now to talk more about this.
Professor, welcome. Nice to have you here.
LUKE SHAEFER, UNIVERSITY OF MICHIGAN: Thank you. It’s a pleasure to be with you.
HERERA: You were quoted in this article in the “New York Times” to tackle this particular topic and you said, we might be coming into a moment where there could some common sense policy changes. There’ a policy window that wasn’t open a year or two ago.
Given all the craziness that we’re seeing on the political front, what window has opened? What has changed?
SHAEFER: I think there is an openness to new ideas about how to tackle poverty, but not just poverty in this country, but I think the struggle of a lot of middle class families to provide for their children. So, I think there’s some interest and new ideas across the aisle that are just going in different direction than I’ve seen in the past. So, even in the midst of the current campaign, I’m really optimistic about what we can do in the future.
HERERA: You know, there are a number of countries around the globe that do exactly this. They do give a lump sum benefit to children and families. The critics here at home, and I’d like your response to criticisms, would argue that a universal child benefit squanders money on parents who are perhaps are well to do, and they don’t need the credit.
SHAEFER: Yes, the basic idea behind our proposal is that programs like this should be universal. So, it’s to recognize that raising kids is expensive. And families need some help. Most families need some help and that society really benefits in investing in our kids. And it turns out we actually already do this to some extent through things like the child deduction and the child tax credit.
And what we want to say is, hey, let’s make it more simple. Let’s make it universal and just say, every child gets this — actually, we want to do it as a monthly check that you would receive and it’s money that you should — that you can spend on your kids to help them thrive.
HERERA: Do you think — you said that there’s a policy window opening. What about the political window? Do you think there’s the political appetite in Washington to take on a topic like this?
SHAEFER: You know, I can’t be sure what direction we’re going to go in. But I’m heartened by the fact there’s a lot more talk about policies like this. So, you know, what we’re proposing is a — is a — for a child allowance that would be this minimum income thinking, that you’ll always have this stable source of income you can invest in your kids, and there’s a number of different ways to pay for it, I think.
And — but I think what we’re suggesting is not all that far off from what some people across the political spectrum are considering in a guaranteed basic income. Ours is targeted at kids. But —
HERERA: Right. But it’s the same concept.
SHAEFER: Yes, those from the left and the right are really thinking about think in a way that I just don’t think they were a few years ago.
HERERA: All right. We’ll keep track of it and have you back to talk about it. Thank you, Professor. Appreciate it.
SHAEFER: Thank you. It’s my pleasure.
HERERA: Professor Luke Shaefer with the University of Michigan.
EBay issues a soft forecast for the holiday season. And that is where we begin tonight’s “Market Focus”.
The e-commerce giant topped expectations for profit and sale in its latest quarter. But the company’s forecast for the current quarter could miss analysts’ targets. And that news sent shares init lower in after-hours trading. Shares ended the regular session up nearly 3 percent to $32.52.
Morgan Stanley posted a better than expected profit help by higher bond trading and strength in the banks wealth manage division. The company also saw revenue rise and that also topped analysts’ estimates. Shares rose nearly 2 percent to $32.93.
Shares of the cyber security firm, Imperva, came under pressure on reports the company’s plans to sell itself are on hold. Imperva is reportedly in a holding pattern as it looks for a higher buyout offer. Last month, Bloomberg said the interest from Cisco Systems. Shares plunged, though, almost 16 percent to $39.20.
A number of Chinese comps may be interested in taking over GNC Holdings. The “Wall Street Journal” says the health and nutrition product company is in talks with interested buyers and a potential buyout could be worth about $4 billion. Shares of GNC surged more than 10 percent on the news to $21.49.
The Chinese company, LeEco is making a big push in the U.S. it’s t second Chinese company to do so in as many days. The other being Dalian Wanda, which we reported on last night.
But as Deirdre Bosa reports, LeEco has some of the biggest names in Silicon in its sights.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: LeEco is the biggest company you’ve never heard. But that’s about to change. Here in the heart of San Francisco, the Chinese tech giant just officially put a stake in the ground. It showed off an overwhelming number of its gadgets and services from TVs to VR headsets, even an electric bicycle plates.
We got our hands on one of its new smartphones that the company says will compete with apple’s iPhones and Samsung’s line of devices but at only about half the price. LeEco has been known as the Netflix of China. But looking at all of the products and services that it details today, it’s positioning itself to compete with the likes of Amazon, Google and Facebook to create a vast array of products or ecosystem as it calls it for our digital lives.
LeEco is even developing a self-driving electric car and has a strategic partnership with Faraday Future, previously dubbed the Tesla killer. Gartner research director, Werner Goertz, is skeptical that LeEco can succeed and compete with western tech giants already established in the U.S. market.
WERNER GOERTZ, GARTNER RESEARCH DIRECTOR: while I’m really impressed about the announcement made today and technologies, I’m just thinking that they’re listing more than they can actually handle by trying to be experts in all of these different aspects of personal technologies today.
BOSA: LeEco smartphones, known as le super phones, will hit American soil at an opportune moment. Samsung’s image tarnished by its exploding phone fiasco, LeEco’s president of North America, Richard Ren, says U.S. is looking for another consumer brand.
RICHARD REN, LEECO’S PRESIDENT OF SMART DEVICES: In our phone, we implement all the content into our open content phone. So, the user experience is totally different. So, when we put the user first, when we develop extremely unified user experience, the people, they will trust us and they will like us.
BOSA: But as Chinese investment into the U.S. soars, not everyone is welcoming the money with open arms. LeEco is headquartered in Beijing where the ruling government under Xi Jinping’s leadership has been playing an increasing role in the way Chinese companies are run. Media and some members of congress have pushed back on Chinese media investments in the U.S.
LeEco’s billionaire entrepreneur, founder and chairman, Jia Yueting, has even bigger ambitions. On stage at the event today, he told the more than 1,000 people in attendance that LeEco is a global company, not a Chinese company and will be a disrupter force in tech.
For NIGHTLY BUSINESS REPORT, I’m Deirdre Bosa, San Francisco.
HERERA: And to read more about LeEco’s big push into the U.S., you can head to our website, NBR.com.
Coming up, second chances. The electric car that’s getting a new life and moving in on Tesla’s turf.
HERERA: Here’s a look at what to watch for tomorrow. Dow component earnings, include Verizon, Travelers and Microsoft. The European Central Bank meets to discuss monetary policy and investors will be looking for clues about a possible extension of its stimulus program. Existing home sales and jobless claims are the key economic reports and that is what to watch for on Thursday.
There are reports tonight that Google has signed up CBS for a planned web TV service. As CNBC first reported, the service is expected to launch in the first quarter and will include all of CBS’ content including live NFL games. Google is reportedly in advance talks with 21st Century Fox and Disney, as well.
Karma is defined as the belief that whatever you do in life comes back to you. In the auto industry, Karma, though has a different meaning. It was the model built by a controversial company that went bankrupt, despite being granted federal loans.
But now that model is being reborn in a new company owned by a Chinese firm.
Phil LeBeau has more on the Karma Revero.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It may look like just another luxury car. But the Karma Revero is different. It’s an extended range electric sedan that is the rebirth of the Fisker Karma. A car that had a small but intense following a few years ago, before the company that built it went bankrupt.
JIM TAYLOR, KARMA CHIEF MARKETING OFFICER: There were a lot of passionate owners that bought these vehicles and for a reason. The reason is the car is gorgeous and the electrification of the vehicles makes it unique, and that space. And we thought that’s success in a very, very short period of time. We could replicate that success, and then some.
LEBEAU: The Revero comes with a hefty price tag, $130,000. Its instrument panel has been updated so it appeals to people who want the feeling of driving a high-tech electric car.
Perhaps the most unique feature in the Revero is the solar roof. The solar panels in this roof, depending on the day and how sunny it is, collect enough energy to power the Revero an extra three to five miles. But otherwise, the outside has been tweaked only slightly, compared to the old Fisker models.
That was by design. Executives at Karma believe the styling of those old Fiskers is what made them so attractive. But critics point out those old Fiskers also had plenty of problems. One even had to be towed when it was at “Consumer Reports”.
MIKE HARLEY, KELLEY BLUE BOOK: And people in the industry are remembering where the Fisker Karma was. It was unreliable, it wasn’t a hoot to drive, and, you know, had a lot of teething issues. And those were never, ever solved.
LEBEAU: With Tesla and CEO Elon Musk proving there’s a market for luxury electric cars built in California, Karma is following a similar blue print. The Revero is built at a small plant just outside Los Angeles.
TAYLOR: The manufacturing of the vehicle being here, in America, in California, I think is also very attractive to a lot of people. Sort of the made in California, all-in, authentic American luxury brand is something this country has never had.
LEBEAU: Now, America has yet another plug-in luxury sedan. The question is whether this Karma will have better karma than Fisker when it comes to winning over luxury car-buyers.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us. Have a great evening. We’ll see you here tomorrow.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2016 CNBC, Inc.