Transcript: Nightly Business Report – November 2, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Fear factor. Investors are edgy, and it’s easy to see why. The election looms, and today brought more hints of a Fed move to raise interest rates soon. What to do with your money now.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Home sweet home. But what might a Clinton or Trump White House mean for the housing market?

MATHISEN: Uncertain prognosis. Coloradoans will have the chance to vote on a historic initiative, the creation of a universal health care system for the state.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, November 2nd.

HERERA: Good evening, everybody. And welcome.

A mood change on Wall Street. Sentiment seems to have shifted in part because of two things. The election just six days away, and the Federal Reserve. Though the central bank did not move on interest rates today, it may be setting up to do something in the near future.

So, let’s start with the first issue, the race for the White House. Investors are clearly nervous. The S&P 500 fell for the seventh straight day, its longest losing streak in nearly five years. As the narrowing race brings more uncertainty something markets don’t like.

But given all of the nervousness, a number of Wall Street firms are out with notes telling clients, essentially, to stay calm.

Eamon Javers is following that part of the story for us tonight from Washington.

Hi, Eamon.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, hi, Sue.

Look, we’ve heard a lot, and I mean a lot, from the political pundits so far this year.

But maybe there’s another group that we should be paying attention to.

(BEGIN VIDEOTAPE)

JAVERS: Forget the political pundits. What are the Wall Street analysts saying about next week’s election?

Goldman Sachs issued a report this morning, saying, they still expect Hillary Clinton to win on Tuesday. Bulls have tightened Goldman’s analysts throat but Clinton still appears to be likely to win more than the 270 electoral votes needed to clinch the White House.

Cowen and Company’s experts make the same prediction. FBI case dominates national coverage, but Clinton electoral firewall holding with six days to go.

Those are the expectations baked into Wall Street ahead of Election Day. But think of this as being like the biggest earnings report of all-time. The election results will either hit or miss Wall Street’s expectations. And we all know what happens when companies miss on Wall Street.

BOB DOLL, NUVEEN ASSET MANAGEMENT: I think the market is saying, with Hillary Clinton, we kind of know what we’re getting. And we like certainty. And with Donald Trump, I think the market is saying, we’re not sure what we’re going to get. That’s uncertainty, and we don’t particularly do well with uncertainty.

(END VIDEOTAPE)

JAVERS: And, Sue, one Wall Street analyst from JPMorgan said this week that no matter what happens next week, she doesn’t expect that we’re going to see a whole lot of legislative progress in Washington, because the parties are simply too divided. That means that no one presidential candidate, whoever wins, will be able to push through much of an extreme legislative agenda.

MATHISEN: The founders were pretty smart when they gave us three branches of government. What do the Wall Street pros say about the direction of the House and Senate, if anything?

JAVERS: You know, Tyler, their expectation seems to be about the same as the political pundits’ expectation, which is the Democrats have a chance of capturing the Senate, but are likely not to capture the House. And interestingly, they say that if the Democrats sweep, and that is they control the Senate, the House and the presidency, that might be bad for the stock market too, because in that case, you could see a scenario where Democrats get to pass all of their own agenda items, and that could be bad, they say, for certain companies and certain sectors.

MATHISEN: All right. Eamon, thank you. Eamon Javers in Washington.

HERERA: So, while Wall Street is telling its clients to remain calm ahead of the election, investors are not sitting still. They’re hedging their bets with increased demand for save haven bonds, sending Treasury yields to a one-week low and investors are plowing money into another safe haven, gold, which saw prices surpass $1,300 an ounce today.

MATHISEN: And economists who were widely thought to be an unusually cautious lot are now taking a stand, hundreds of them have urged Americans not to vote for Donald Trump. In a letter, 370 economists, some of whom have won the Nobel Prize like Harvard’s Oliver Hart and Princeton’s Angus Deaton did not outright endorse Hillary Clinton. Instead they recommended would-be Trump voters to, quote, “choose a different candidate.” They argue that Trump has misled Americans on issues like trade, manufacturing and immigration.

HERERA: And now to the second issue, the Federal Reserve. The Central Bank did what many expected it to do. It held interest rates steady. But there were subtle hints that a rate hike may be coming next month.

Steve Liesman reports for us tonight from Washington.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Reserve snapped the rate hike ball this November meeting and proceeded to punt all the way down the field to the December meeting. That’s to say it declined to hike race, choosing to do it and run and steer clear of having any influence on the election.

But as expected, it did drop a subtle hint that the rate hike is coming. In a statement today, it said, “The committee judges the case for an increase in the federal funds rate has continued to strengthen, but decided for the time being to wait for some further evidence of continued progress towards its objectives.”

It used almost the same language in September, but it inserted this word “some”, giving a sense that perhaps the bar is not very high for that December hike. The change of the Fed rate hike now stands at 69 percent, up a few points for the December contract and higher from the November contract, which traded at a very small chance of a rate hike.

The Fed also noted a bit more inflation, saying in a statement, inflation increased somewhat, and removing a line that said inflation is expected to remain low. Otherwise had a similar take on the economy as in September, saying the job market was solid and the economy had picked up from a modest pace of growth. The vote, 8-2 with dissents from Loretta Meister from Cleveland and Esther George from Kansas City. Eric Rosengren from Boston who had dissented in the last meeting got behind the majority this time, to keep rates unchanged.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman in Washington.

(END VIDEOTAPE)

MATHISEN: So what money moves should you make, if any, if the presidential election has you on edge?

Here with us to discuss is John Petrides. He’s a portfolio manage with Point View Wealth Management.

Let’s say I am a little on edge. Is now the time to do something, do nothing?

JOHN PETRIDES, POINT VIEW WEALTH MGMT. PORTFOLIO MANAGER: Yes, well, what I would urge listeners to do is to look at your overall asset allocation on all of your accounts. How are you positioned in your 401(k), your IRA, your taxes (ph) and your checking account, and understand, see how much equity you have, how fixed income you have and how much cash you have, and make a decision from there.

If you feel you have way too much equity, 100 percent of your portfolio and your time horizon is shorter for retirement, maybe you feel concerned there, you want to take some off the table. But to make a decision based on the election here, I probably would not make any decisions at all. Focus on the long-term. Focus on your overall investment objectives.

HERERA: And, actually, if indeed we do see some market turmoil, if you are a long-term investor, might that not provide opportunity?

PETRIDES: Yes. I think that investors should look in the long-term. I think you should be on your — the balls of your feet, not on the heels. Use Brexit as the latest example, right? We had a 5 percent selloff on a two-day period, because expectations were for Brexit to be voted, not to vote for Brexit and happen and then have the huge rally following. So, it was a great buying opportunity. You can take advantage of it.

MATHISEN: A lot of money has been going into gold. Good move?

PETRIDES: Well, I think that’s probably a good move to have for more reasons than just the presidential election. I mean, outside of the United States, every central bank globally is trashing their currency to try to stimulate growth. So, gold is a store value.

So I think having gold as a portion of your overall portfolio makes a lot of sense.

HERERA: And health care is something that you think might act as a little bit of a hedge.

PETRIDES: Yes. I mean, last August 2015, Hillary Clinton tweeted out about drug price regulation, health care stocks have sold off aggressively since then. And I think valuations are really, really attractive there for the long-term. Remember that the long term objective, we have 10,000 people turning 65 every day and that will happen for the next 20 years.

So, the strain on the health care system is going to continue. That’s not going away. So, health care stocks in the long-term.

HERERA: We always call bond a safe haven. Are they safe now?

PETRIDES: Well, just listen to Steve’s report before, is that the Fed could raise rates very soon. Possibly to December election. I mean, we have a jobs number coming out on Friday. If another jobs number comes out strong in December, the Fed is running out of excuses here, because the data is showing strong growth.

So, you could — you may pile into bonds now as a protection against the volatility of the stock market for the election. But you could be walking into massive interest rate risk.

MATHISEN: All right. John, thank you very much.

PETRIDES: Thanks for having me.

MATHISEN: John Petrides with Point View Wealth Management.

HERERA: On Wall Street, stocks came under some pressure for the reasons that we stated a bit earlier, the Fed and the election. The broader market was also dragged down by a big decline in oil prices. The Dow Jones Industrial Average fell 77 points to 17,959. The NASDAQ was off 48, the S&P 500 was down 13. Oil prices settled down about 3 percent. A five-week low on the largest crude stockpile increase on record.

MATHISEN: And to the economy now, where private U.S. employers did not add as many new workers as expected last month. According to the payroll processor ADP, the companies added 147,000 net new jobs in October. That’s the lowest growth level since May. So far this year, private employers have added 175,000 jobs a month on average, a number many economists describe as solid. The government will release its monthly employment report on Friday.

HERERA: And oh, by the way, there was a big merger today, as well. Chip maker, Broadcom, has agreed to acquire network gear maker Brocade Communications for $5.5 billion. It’s a deal we told you was close to happening, and it’s the latest in a rapidly consolidating semiconductor industry. Just last week, Qualcomm agreed to buy NXP Semi for more than $38 billion. Shares of Brocade climbed more than 9 percent, while Broadcom rose 2 percent.

MATHISEN: Still ahead, what a Clinton or a Trump White House might mean for your most valuable asset, your home.

(MUSIC)

MATHISEN: Facebook reported a better than expected quarter, thanks to strong mobile advertising sales, and more of the network users are accessing the site through mobile devices. The company earned a buck nine a share. That was 12 cents better than estimates. Revenue for the quarter rose 55 percent to $7 billion. But investors had a lukewarm reaction in initial after hours trading.

Julia Boorstin has more on Facebook’s results.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The one key take-away from Facebook’s earnings, the company is continuing to fire on all cylinders. With its advertising business showing consistent growth, which Mark Zuckerberg, Facebook’s CEO, says it’s tied to the progress, putting video first across its apps.

The company beating expectations on the top and bottom line as it maintains user engagement and delivers average revenue of $4.01 per user, reporting more users than expected — 1.79 billion monthly active users and nearly 1.2 billion using the service daily, a record addition of daily active users. The rise of services such as Snapchat doesn’t seem to be having much of an impact on Facebook.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: And the major insurance companies also reported earnings late today, AIG, MetLife and Prudential. The results appear mixed as shareholder shareholders try to figure out where the reports where that sector is headed.

So, Morgan Brennan is here with us this evening. She can do it for us.

Good to see you, Morgan, as always.

MATHISEN: The bar is high.

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The bar is high and you’ve put a lot of faith in me. Just to put this in perspective, AIG reports three different earnings per share numbers. So, it’s quite a situation.

HERERA: Low interest rates have been really a factor depressing the stock prices. Have they moved past that yet or not?

BRENNAN: It’s a great question and certainly, this low interest rate environment is one we have seen plaguing the insurance sector for years, not so differently than what we’ve seen with the banks. That being said, the good news in this quarter, with these big names, Prudential, MetLife, AIG, three biggest in the sector. What we saw in the earnings is that profit actually grow — it grew for the first time in more than a year for each of the names, despite that low interest rate environment and despite the fact we’re seeing issues with some of those products related to interest rates at all of those companies.

I’d also just note that MetLife said it actually saw a 6 percent increase in investment income for the quarter. And that was actually tied to private equity investments that it’s made, as well as real estate stuff.

MATHISEN: My sense is that the insurance companies over time usually do pretty well. One way or another, are able to price their product pretty well. Was there anything in the quarter, natural disasters, hurricanes, and things that affected them in an adverse and material way?

BRENNAN: Yes. So, we’ve seen — we have seen a number of hurricanes. Hurricane Matthew doesn’t really come until the fourth quarter, so we’re probably getting comments in conference calls tomorrow. But we did see Hurricane Hermine. We saw that historic flooding in Louisiana. We saw some storms in the Midwest.

And so, Allstate which also reported after the bell said it had seen a big increase in catastrophe losses and AIG — this is part of the reason AIG stock is trading lower after the earnings. They actually saw their catastrophe-related losses and commercial segment more than double for the quarter. So, they’re a big provider of commercial insurance for property and casualty. So —

HERERA: That’s one reason.

BRENNAN: Yes.

HERERA: Thanks, Morgan. Appreciate it. Morgan Brennan.

MATHISEN: Robust box office sales lift results at Time Warner, and that is where we begin tonight’s “Market Focus”.

The media company posted higher than expected profit and revenue because of strength in the film — from the film “Suicide Squad” and higher subscription fees for HBO. The solid results prompted the company to lift guidance for the year. Shares were off 1 percent at $87.28.

Alibaba posted profit in sales that easily topped analysts’ estimates. The Chinese e-commerce giant said an increase in mobile users and strong performance in the company’s media and digital entertainment segment helped results there. Still, shares were down more than 2.5 percent on the day at $98.51.

And as for Ford, well, it saw sales fall sharply in October, because of weaker demand for models in the company’s namesake brand. The automaker was slated to report sales yesterday, but a fire at the company’s headquarters in Dearborn delayed results. Shares down 21 cents to $11.40.

Slow down in print advertising sales dented results at the “New York Times.” The company also said it expects the downward trend in ad sales to continue into the current quarter. Overall, the newspaper publishers saw declines in both revenue and net income. Shares, nevertheless, up a nickel at $10.95.

HERERA: Yelp posted an unexpected profit and higher sales as the online review company benefited from an increase in mobile web users. But the company did say that the service platform hasn’t picked up steam in foreign markets. So, as a result, Yelp expects to trim 175 jobs from its global workforce. But Yelp was up a big 10 percent to $35.71.

Valeant may be pursuing yet another sale. The “Wall Street Journal” says the drug maker wants to sell its $2.5 billion eye surgery equipment business. This follows a similar report we told you about last night. But the company was in talks to sell its stomach drug division. Shares fell more than 11 percent to $21.12.

Whole Foods posted an increase in profit that beat the street targets. While its high revenue matched estimates. But the organic grocer did see same store sales fall more than analysts were expecting. Shares initially rose in after hours trading following that report, but ended the regular session down half a percent to $28.51.

And Fitbit, which makes fitness tracking devices, said it expects earnings for the fourth quarter to come in sharply below estimates. The company also said substantial spending on promotions caused profit to fall in the most recent quarter. Those results were in line with expectations, but the revenue number missed. Shares initially fell as much as 30 percent in after hours, and that’s on top of the almost 2 percent drop in regular trading. Shares closing at $12.81.

MATHISEN: There’s a shift under way, a major one, in the mortgage market. According to inside mortgage finance, which I don’t miss, during the third quarter, major financial institutions, banks and SNLs accounted for less than half of the mortgage dollars extended to borrowers. That is the first time in more than 30 years. Nonbank lenders like Quicken Loans and others, now dominate the market. The change reflects the banking sector’s aversion to take on mortgage risk.

HERERA: It’s a huge part of the economy, but has been conspicuously absent from the political rhetoric. We’re talking about housing.

Diana Olick takes a look at how the market would fair under each potential administration.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The housing crash may be over, but the recovery is not. That’s why the lack of focus on housing from either candidate is so glaring.

RICK SHARGA, TEN-X: What we have really gotten is more directional conversation — one party talking about affordable housing, the other party talking about deregulating a financial market that seems to have largely seized up.

OLICK: Neither have mentioned mortgage reform, Fannie Mae, Freddie Mac, the FHA. Ninety-five percent of the mortgage market is still backed from the government, a relic of the mortgage meltdown.

How do we bring private capital back to the marketplace, and how do we manage the growth of nonbank lenders?

JARET SEIBERG, COWEN WASHINGTON RESEARCH: Trump is obviously the big unknown in this state. But, clearly, his whole campaign is about growing the economy and smashing through regulations. So, I think that you could see real up side with Trump, as well, provided the economy and the other parts of his agenda don’t derail.

OLICK: Hillary Clinton also wants to grow the economy, but not at the expense of regulation. She has talked some about affordable housing and underserved communities. There have been proposals from the Clinton camp for down payment assistance and incentives for investors to build affordable rental units.

SHARGA: We have seen a lot of support for the CFPB and it’s likely that Senator Warren will have a big voice in a Clinton administration, and she’s been no fan of the banks and certainly a proponent of more and more rigorous reform.

OLICK: In the end, it all comes down to the economy. Whichever candidate is better at growing jobs and incomes will be better for housing, because those are the main drivers of home ownership.

For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: And to read more about housing under either a Clinton or Trump administration, head to our website, NBR.com.

Coming up, will Colorado be the first state to adopt a single-payer health care system? The measure is on the ballot, but it faces fierce opposition.

(MUSIC)

HERERA: Health insurer, Anthem, says it may retreat from its participation in the Affordable Care Act, if its financial results don’t improve. The company’s CEO said this is a critical year to assess whether the insurer continues to participate in the program long-term. Anthem’s third quarter results fell short of estimates as medical spending increased and other costs rose.

MATHISEN: As part of the Affordable Care Act, states can come up with their own health care options, and Colorado is putting to a vote a controversial choice, a single-payer system, like those in many foreign countries.

Bertha Coombs has details on Amendment 69.

(BEGIN VIDEOTAPE)

DR. BEN VERNON, COLORADOCARE ADVOCATE: Big deep breath here?

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Dr. Ben Vernon thinks the Affordable Care Act is like a band-aid on health care’s gaping wound.

VERNON: I don’t see how the present system has economics that can support prevention. We haven’t figured out, if we save a half million dollars from a patient having a heart attack, who has that half a million dollars.

COOMBS: The Denver surgeon is an advocate of Colorado’s Amendment 69, which would create the first in the nation single-payer health system, ColoradoCare.

VERNON: When there is one payment authority looking at all of what’s happening across the board, we’re going to have a much better handle on our provider’s qualities.

COOMBS: Amendment 69 would fund ColoradoCare with a 10 percent state income tax, with employers paying two-thirds of that tax. Business groups say it would hurt competition here.

KELLY BROUGH, COLORADO CHAMBER OF COMMERCE: Being the only state in the union who would have a system likes this makes it hard for Colorado to compete economically. We have had the largest income tax and payroll tax in the country. And it hits our smallest businesses the hardest.

COOMBS: The measure made it on to the ballot after advocates raised the money for a significant drive. But Colorado politicians of both parties are also opposed, worried about long-term funding. Colorado Health Institute Study found ColoradoCare would break even its first year but soon rack up deficits without tax increases.

Supporters like Irene Aguilar argue the study underestimates the impact of savings.

STATE SEN. IRENE AGUILAR, COLORADOCARE ADVOCATE: I think what’s important for consumers and everyday voters, how does this compare to what we’re doing right now. And overall, that’s win-win, even in their assumption.

COOMBS: Even if Amendment 69 fails, ColoradoCare advocates say they think they’re on the right track. As with the impasse over the Affordable Care Act in Washington, the answer to fixing the problems with health care costs have to come from the states and the local level.

Bertha Coombs, NIGHTLY BUSINESS REPORT, Denver, Colorado.

(END VIDEOTAPE)

HERERA: The Justice Department sued DirecTV, alleging that it colluded with rivals to block the television channel owned by the L.A. Dodgers. The department said DirecTV led the effort to make sure that it and others, including Cox, Charter and AT&T, which now owns DirecTV, would refuse to carry Sportsnet L.A. The lawsuit alleges the companies shared nonpublic information among themselves to gain bargaining leverage and to reduce the risk that they would lose customers if they decided not to carry the station.

MATHISEN: And finally tonight, Silicon Valley is known for many things, but one thing it is not particularly known for is fashion. But at a recent event, some Bay Area designers hit the runway in a very high-tech way.

Aditi Roy has our story.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Hello and welcome to Silicon Valley fashion week!

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Welcome to the cat walk in Silicon Valley —

UNIDENTIFEID MALE: Go —

ROY: — where man and machine meet.

UNIDENTIFIED MALE: All right. Got a thumbs up. Bring them up.

ROY: In a production dubbed “Step Into the Future”, that’s part performance art, part acrobatics and oh, yeah, they’re also cool clothes.

When Silicon Valley holds a fashion show — even the t-shirts are downright electrifying. LED clothes, headpieces, even purses, lit up the runway, and human unicorns paid homage to their billion-dollar counterparts, as 500 onlookers gawked and snapped with their smartphones, no doubt tweeting, posting and Instagramming at the second annual sold out event.

The Bay Area is no stranger to wealth and luxury items. Last year, Silicon Valley had the third highest GDP globally. But the expansion of fashion retailers has logged compared to the explosion of tech startups.

Designers like Alison Lewis played to the crowd by appealing to their hearts.

ALISON LEWIS, SWITCH EMBASSY FOUNDER: The heartbeat dress, the wearer wears the heart rate sensors that you can’t see, and then the light is underneath, and it gently lit (ph) like cascading lights that is equal and is the same rhythm as your heartbeat.

ROY: Designers here use these novelty pieces mostly for marketing rather than selling to customers, weaving tech into their fashions and their mindset.

LEWIS: We’re very up to date. We use the best processors. We have access to some of the best materials across technology is concerned right at our fingertips.

ROY: San Francisco-based Beta Band relies on crowd funding to decide whether clothing will make its way into production. Each item must reach a financing goal before the designers roll it out. As this high-tech crowd marveled at fashion tech wonders like body marbling.

It was clear, this night inspired artists and engineers alike.

Even though the majority of the designs were just for show, designers here in Silicon Valley have sold their clothes to fashion-forward celebrities like Lady Gaga, Missy Elliot and Madonna.

For NIGHTLY BUSINESS REPORT, I’m Aditi Roy, San Francisco.

(END VIDEOTAPE)

HERERA: I have dibs on the light-up headdress.

MATHISEN: And the heart monitor, if it stops working, you would start to worry, wouldn’t you?

HERERA: All right. That does it for 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, everybody. We’ll see you back here tomorrow night after game seven.

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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