Transcript: Nightly Business Report – November 15, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Lucky seven. The Dow extends its winning streak and sends the blue chip index to another all-time high.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Buffett boost. Airlines take off after the billionaire investor has a change of heart, and makes a big bet on that sector.

MATHISEN: Under the microscope. What might funding for medical research look like under a Trump administration?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, November 15th.

HERERA: Good evening, everyone. Glad you could be with us tonight.

This rally shows no signs of cooling off. The Dow Jones Industrial Average closed at yet another record, extending its winning streak to seven days. Energy stocks rallied today as oil prices soared and the technology sector rebounded from a post-election selloff. The blue chip Dow index added 54 points to 18,923, the NASDAQ rose 57, and the S&P 500 gained 16.

Since the election, the best performing sector has been the financials. But can this rally in this group continue?

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Financials have been on fire since the election, but the rally is losing steam and with good reason. The biggest bank stocks are up almost 15 percent since the election. Morgan Stanley, Goldman Sachs, all hit 52-week highs. It’s going to be tougher to get those gains from here. The S&P financial sector is trading almost 20 percent above its 200-day moving average. Now, that almost never happens. And it’s highly unlikely bank stocks will keep rising until we get more information on what the Trump administration plans to do.

So banks have been rising for three reasons. First, there’s regulatory reform. But it’s not clear how much of Dodd-Frank will be dismantled and this would only benefit the biggest money center banks for the most part. Second, banks have been going up on rising interest rates. But, we have no idea how much rates ultimately will go up.

And the Fed will be the key to watch here. Interest rates have also been moving on the perception that more infrastructure spending may be inflationary. But that’s a long way down the road.

Third is corporate income tax reform. It would make sense that banks would benefit from this. But it’s not clear how much would go to their bottom line. Again, we just need more specifics.

Finally, there’s two other near-term events. The Italian referendum and the Federal Reserve meeting both only a few weeks away, and both could trigger more bank squeamishness.

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

(END VIDEOTAPE)

MATHISEN: Another sector that took off today, the airlines. The group hit an 18-month high after Warren Buffett gave it a vote of confidence. The billionaire investor disclosed that his Berkshire Hathaway now own shares of the nation’s four largest carriers, United, American, Continental and Southwest and Delta. His total investment: more than $1 billion.

And this is a major reversal for Buffett, who has called the industry a bottomless pit for capital. In his annual letters to shareholders, he frequently writes about a volatile investment he made in US Airways, back in 1989, often calling it a big mistake.

The sector fell in the first half of the year, as you see there, before recovering from the lows of the summer.

HERERA: There’s another under the radar sector that nobody has been talking about since the election: casual dining.

Dominic Chu joins us here to tell us why more people are dining out.

Why is the sector performing so very low?

MATHISEN: They’re hungry.

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: They’re hungry. But so much of it is about sentiment in this country right now. Now, whether or not you believe that the election brought certainty or didn’t, people are feeling at least — or there is the perception people are feeling a little bit better about what’s going to happen. They’re a little bit more certain. And for that reason, a lot of traders have been piling into casual mid-scale restaurants.

So, we’re not having fast food. We’re not talking Capital Grille. We’re talking about some of these companies that do some of the mid-size.

Now, Darden Restaurants you’re showing right there, owns not only the Olive Garden and Longhorn Steakhouse on the midscale side of things. They’ve also got Capital Grille.

But check out the chart, it’s been a huge move — 11 percent higher just in one week. Similar charts happen for the parent company of Chili’s. You’re talking about Brinker International, also Cracker Barrel. Those shares as well, you can see —

MATHISEN: Love the Cracker Barrel.

CHU: Right, some country fried steak and a little country gravy on there.

But it comes down to whether or not consumers feel good about spending and eating out, sentiment plays in. And we have seen at least a near-term trend of lower fuel prices. And that helps the consumer, as well. More extra money to spend.

HERERA: He likes to sit in the rocking chairs.

MATHISEN: I like the rocking chairs. Good food. Oh, man. It’s good.

We were talking on another broadcast some time ago with Tilman Fertitta, big restaurant, owns a lot of stuff.

CHU: Of course.

MATHISEN: He was saying people were staying home because they were nesting, they were not confident. So this — the uncertainty has risen. How can — what needs to take place for this rally to continue?

CHU: You know, it’s going to come down to whether or not we do see the economy keep up. And that’s going to be a real big driver of what’s going to happen. If fuel prices still remain low, and they have been holding relatively steady, especially in the holiday season.

We are going to see people start to spend a little bit more of the money on holiday gift items, as well as perhaps other things. But if the overall scheme for consumers remains positive, if the economy starts to pick up a little bit of steam and people feel a little bit better, that’s when you can start seeing these stocks really take off. But the nesting thing is interesting. Because pizza companies like Domino’s and Papa John’s, they have done pretty well.

MATHISEN: They’re doing well. People are getting delivery. They were staying home.

CHU: Right.

MATHISEN: People were staying home.

CHU: It’s going to be interesting to see, guys.

MATHISEN: Dom, thank you very much. Biscuits and gravy.

(LAUGHTER)

MATHISEN: Well, Home Depot blew past earnings expectations, as consumers continue to pour money into their homes. Sales and profits were both higher, and the company raised its full year earnings forecast. But investors were not impressed. After the home improvement retailer reiterated but did not lift its full year sales forecast.

Courtney Reagan has more on the Dow component’s most recent quarter.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Any doubt about the strength of the U.S. consumer and housing market is relieved, looking at Home Depot’s latest quarter. The world’s largest home improvement retailer delivers for investors. Not only did more shoppers make purchases on Home Depot stores, but they spent more, too.

While appliance maker Whirlpool said its saw soft demand in the quarter, it didn’t play out in the category for Home Depot. In fact, appliances and big ticket items drove the quarter.

Oppenheimer analyst Brian Nagel says Home Depot’s strong quarter is half its ability as a skilled retailer and half from U.S. consumer and housing market strength. Even though mortgage rates have increased recently, Nagel isn’t worried about a slow down for home improvement retailers.

BRIAN NAGEL, OPPENHEIMER & CO. SR. ANALYST: If the homeowner consumer is saying, look, I have a job, I feel more confident in my job, that’s probably more than the modest uptick in mortgage rates. Mortgage rates could go a lot higher before they become a significant headwind to home improvement activity.

REAGAN: The U.S. Commerce Department says sales at building material stories increased by more than 1 percent for October from September, which could bode well for Lowe’s when it reports tomorrow.

But the home improvement retailers have benefited from positive macro economic conditions for quite a number of years, leading many analysts to question just how much more room there is to grow from here.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

HERERA: Americans spent a lot of money last month. Retail sales, a measure of spending on just about everything from clothes to online stores, rose 0.8 percent in October. That was more than forecast, and it marked the biggest back-to-back increase since early 2014. The report also reinforces the chance for an interest rate increase as soon as December.

MATHISEN: And today, Boston Fed president, Eric Rosengren said the rate hike at the central bank’s next meeting is plausible. Since the economy is nearing full employment and inflation is still low.

(BEGIN VIDEO CLIP)

ERIC ROSENGREN, FED RESERVE BANK OF BOSTON PRESIDENT: The conditions that we need for a tightening are basically there. And I’m looking forward, hopefully, that the economy continues to improve and that it is appropriate in December.

(END VIDEO CLIP)

MATHISEN: Federal Reserve policy makers scheduled to meet in mid-December.

HERERA: Well, oil prices notched their biggest one-day gain since April. There were renewed hopes in the market that OPEC members will agree to cut output when the cartel meets later this month. An outline deal was reached in September, but the details are still being worked out.

Nonetheless, domestic crude settled higher by more than 5 percent in today’s trading session.

The energy sector was riding the crude oil today. The sector had been under pressure when oil prices were down. But what can we expect from the oil and gas industry under the new Trump administration?

Scott Roberts joins us. He’s senior portfolio manager at Invesco where he covers the oil and energy market, and he’s here to discuss what might lie ahead.

Good to see you, Scott. Welcome.

SCOTT ROBERTS, INVESCO SR. PORTFOLIO MANAGER: Thank you.

HERERA: Let’s start, first of all, what are your expectations in terms of potential policy changes under a new administration?

ROBERTS: Well, it’s kind of interesting. You know, if you think back during the campaign and even during the debates, we saw really little details on policy. But we do think that the — the new administration is going to focus more on policies that will have, you know, less regulations and less red tape. And that has broad implications, one in particular for the midstream area or logistics and we think that will be the biggest beneficiary of changes in 2017.

MATHISEN: When we talk about midstream and logistics, those are terms of art that are very familiar to you, but maybe not to a lot of our viewers. For example, the Keystone Pipeline, such a controversial project. Other pipelines, controversial too.

Is that who we’re talking about here, the pipeline operators and builders?

ROBERTS: Indeed. In fact, we think there will be less regulatory hurdles going forward, where it will make sense for companies to look at adding long haul pipeline. The idea here is simple. We want to move crude from basins where it’s being produced to where the refineries are.

The idea is, hopefully, that leads to lower gasoline price for the U.S. consumer, which saves around $2.15 a gallon. The curveball, though, is OPEC, and that comes up in two weeks.

HERERA: So, you think OPEC might be a bigger driving force than the new administration, long-term?

ROBERTS: Absolutely. We think OPEC is terribly important to the global oil market. We think the changes that OPEC may embark on the incoming weeks will be more of a driver for crude prices in the short run, the intermediate run, than I think the new administration policies will be.

MATHISEN: So, I know you don’t want to get into specific names by way of recommendation in the pipeline area, but that’s an area you would say individuals might take a second look at. What about drillers? There’s a lot of discussion about opening or easier permitting for drilling on federal lands. What about the companies that might do that, what about the frackers?

ROBERTS: So, a couple points. First and foremost, if we do see more federal land being opened up for drilling, it does not mean we’re going to see the media boost in U.S. production. The reason behind that is, you know, companies —

(CROSSTALK)

MATHISEN: Prices aren’t high enough.

ROBERTS: Right, exactly. Companies need to have an attractive IRR to make it worth their while. And right now, we don’t have that, even with the strong move in crude today.

MATHISEN: All right. Scott, we have to leave it there. Scott Roberts with Invesco, changes a coming. Appreciate it.

ROBERTS: Thank you.

HERERA: And now, a follow-up to a story we told you about yesterday. The company building the Dakota Access Pipeline has asked the federal court for permission to lay pipe under the Missouri River in North Dakota. Energy Transfer Partners wants the court to confirm that it has that legal right.

Yesterday, we reported that the Army Corps of Engineers wants more time to study that project before it decides whether to allow the pipeline to cross land near a Native American tribe.

MATHISEN: And the world’s biggest oil producer, the aforementioned, Saudi Arabia, wants to diversify its economy, so that it will become less dependent on crude.

And today, Hadley Gamble was at the forum in Riyadh, where the focus was on the company’s economic future.

(BEGIN VIDEOTAPE)

HADLEY GAMBLE, NIGHTLY BUSINESS REPORT CORRESPONDENT: While governments everywhere seem to be focused on what a Donald Trump presidency will mean for their country in Saudi Arabia, today the leadership is focused on the future and that’s the fight to diversify away from oil. Over the last several months, we have seen public sectors salary slash and ministers have taken pay cuts and for the first time ever, taxes raised. While it may appear to be one of the most closed societies in the world, Saudi Arabia is the most connected in the region.

And with 70 percent of the population here under the age of 30, it’s the digital economy that seems to be gauging traction. Back by the son of the king, Saudi Arabia’s deputy crown prince, Mohammad Bin Salman, the MiSK Global Forum in Riyadh brought some of the biggest names in sports, oil, tech and media to focus on the next generation.

Even as the pressure of a prolonged period of lower oil prices and a delay in billions of dollars in payment to private sector companies here in the kingdom has taken a major toll on consumer confidence and led many here to question whether the government is on the right track.

For NIGHTLY BUSINESS REPORT, I’m Hadley Gamble in Riyadh, Saudi Arabia.

(END VIDEOTAPE)

HERERA: Still ahead, an old economy company that wants to be a leader in cutting-edge technology.

(MUSIC)

MATHISEN: President-elect Trump went after the automakers during his campaign and Ford in particular for opening plants in Mexico. Today, Ford’s CEO Mark Fields told Phil LeBeau that he’s a big supporter of free and fair trade and responded to the threat of higher tariffs.

(BEGIN VIDEO CLIP)

MARK FIELDS, FORD CEO: In terms of 35 percent tariff, that would affect the entire auto sector. And that would impact not only the auto sector here in the U.S., it will impact the economy in general. So, we have to take all those things into consideration.

(END VIDEO CLIP)

MATHISEN: Mr. Field said Ford has been in contact with the incoming administration.

HERERA: The scientific community is also trying to figure out what funding for medical research will be like under a Trump administration. That was a big topic of discussion at a gathering of researchers in New York.

And Meg Tirrell spoke to them.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: While stocks of pharmaceutical companies soared after the U.S. election, the future of government support for science is less certain. President-elect Donald Trump hasn’t yet laid out his plans, but the scientific community is nervous, suggesting Trump may be America’s first anti-science president from his positions on to topics from climate change to vaccines, and citing tweets like this one from the height of the 2014 Ebola outbreak, suggesting aid workers shouldn’t be allowed back to the U.S.

But at the Partnering for Cures Conference in New York today, researchers expressed hope the new administration will be supportive of science.

DR. FRANCIS COLLINS, NIH DIRECTOR: Biomedical science has never been a partisan issue.

TIRRELL: The annual conference run by businessman Mike Milken’s Milken Institute aims to bring industry, government, nonprofits and others together to accelerate research into cures.

MICHAEL MILKEN, MILKEN INSTITUTE CHAIRMAN: We’re in the golden age of science where we can provide personalized and precision medicine to everyone.

TIRRELL: Yet, the transition comes at a time funding for science already has been tight.

COLLINS: We lived through a very tough period from 2003 to 2015, NIH lost more than 20 percent of its purchasing power based on flat budgets, inflation eroding our purchasing power, and the horrible thing called the sequester, which took away more than $1.5 billion in one fell swoop.

TIRRELL: Dr. Francis Collins, director of the National Institutes of Health says the U.S. has turned a corner on funding, increasing the NIH budget by 7 percent this year. Conference attendees today stressed the importance of a continued focus, with many drawing clues about Trump’s position from a new policy section on his website.

ATUL BUTTE, INSTITUTE FOR COMPUTATIONAL HEALTH SCIENCES, UCSF: I was encouraged. I think bullet number three was advanced innovation in health care research and development. And so, we don’t know what that means at this point. We’ll battle over the next few weeks and months. But that’s still encouraging that that was a top tier type of effort there.

TIRRELL: Meanwhile, everyone is eager to hear more.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell in New York City.

(END VIDEOTAPE)

MATHISEN: The World Series helped Dick’s Sporting Goods hit a home run. And that is where we begin tonight’s “Market Focus”.

The nation’s largest sporting goods chain said it’s better than expected profit and revenue were helped by higher sales of apparel from Major League Baseball teams, the Cleveland Indians and Chicago Cubs. The company also raised guidance for the year, but gave a downbeat outlook for the current quarter. As a result, shares off almost 7 percent at $56.71.

Profit and sales at TJX Companies topped analysts’ expectations, with results helped by a steady stream of customer traffic. Same-story sales also topped estimates, but the owner of discount retailers Marshall’s and my wife’s favorite, Home Goods, issued guidance for the current holiday quarter below expectations, citing impacts from wage increases. Shares off almost 1 percent at $73.49.

The Chinese e-commerce company JD.com saw its loss widen but did manage to post higher revenue that edged past estimates. The company also announced plans to spinoff its finance division and sell its equity stake. Shares up 11 percent at $26.41.

HERERA: Teva Pharmaceuticals posted higher than expected profit as a result of benefits from the biotech’s takeover of Allergan’s drug business. The company did note, though, that lower sales of treatments contributed to its revenue miss and reduced its yearly outlook. Teva shares were off 8 percent to $37.60.

Beazer Homes swung to a loss in its latest quarter as the home builder delivered fewer homes. The company also reported a drop in revenue. Shares were down 13 cents to $11.67.

As we just told you, shares of United Continental continue to rally today after a regulatory filing yesterday revealed Warren Buffett took a new stake in the airline. Today, United announced plans to introduce a less expensive basic economy option that comes with restrictions like prohibiting customers from bringing on board a carry-on.

CEO Oscar Munoz expects this move to improve earnings.

(BEGIN VIDEO CLIP)

OSCAR MUNOZ, UNITED CEO: We had an investor today at our Investor Day who flew here from Los Angeles with a $110 round-trip fare. That is not a sustainable fare in a business world. And so, what we want to do is offer not only that fare but that particular customer would have actually paid a little bit more to get a seat assignment, to get a bag assigned, and those concepts. So, the way we’ll make money is that ability to upgrade and up-gauge.

(END VIDEO CLIP)

HERERA: Shares rose nearly 5 percent to $66.06.

And Boeing shares initially fell after the aircraft maker said it would trim 500 jobs over the next four years as it works to consolidate its California-based defense in space business. Despite those job cuts, the company, though, is expected to offer over 2,000 new positions in other locations. Shares eventually fell 1 percent to $148.11.

MATHISEN: IBM CEO Ginni Rometty sent a letter to President-elect Donald Trump. In it, she detailed steps that she thinks could help Americans benefit from technological advancements. Rometty advocated for the creation of new collar IT jobs. She wants infrastructure investment to include smart technology, the so-called Internet of Things and cyber security protections.

Rometty says the use of big data can cut down on government waste and inefficiency. And she wants the tax system to be more competitive and allow companies to bring home money that is stored overseas and be reinvested in U.S. operations.

HERERA: Well, from IBM to another old economy blue chip, General Electric. The GE wants to move away from that old economy image. That’s part of the reason why the company today said it was buying two startups to build out its software unit.

GE isn’t the only industrial undergoing a transformation into the digital age. Morgan Brennan has our story.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Called the new industrial revolution, a massive shift in the way big business operates. It’s the industrial Internet of Things, a catch-all to make machines, factories and power grids smarter, using sensors and softwares to boost efficiency. The biggest industrial conglomerates in the world are betting billions of dollars on this emerging trend, including General Electric.

JEFFREY IMMELT, GENERAL ELECTRIC CEO: It’s all about productivity. So, if you look at the world of productivity, particularly if you’re an industrial company, this notion of being able to get analytics off industrial products or manufacturing in new ways, it’s real. This is happening.

BRENNAN: CEO Jeff Immelt believes the broad internet is going to be a $200 billion market. It’s the reason the industrial giant is hosting its fifth annual mind and machines conference in San Francisco this week, bringing customers and software developers together under one roof. It’s also the reason Immelt says every new hire will learn to code and why the company announced three tech acquisitions since Monday alone.

Analysts say GE is on the forefront of the trend but is no means alone.

BARBARA NOVERINI, MORNINGSTAR EQUITY ANALYST: I would call out Honeywell as another company that’s really made some progress in figuring out how to enhance their equipment with software-based solutions. You know, they’re another one that employs a great base of software engineers within their company. You know, United Technologies is out there doing some interesting things with their new geared turbofan engine, for example.

BRENNAN: Rockwell Automation and Roper Industries have been investing in products and services, as well. And just yesterday, Germany’s Siemens announced a $4.5 billion deal to require U.S.-based mentor graphics which makes software for computer chips.

The growth prospects are alluring. Especially since sluggish global growth, a strong dollar and weak commodity prices have pressured other segments of business.

NOVEERINI: If you take GE, for example, you know, they have projected, you know, $6 billion of digital revenues by the end of the year, you know, growing anywhere to $15 billion by 2020. So, clearly, the growth rates are fast and you don’t typically see growth rates like that come out of large industrial conglomerates like this, you know, which typically grow GDP, GDP plus if they’re lucky.

BRENNAN: It’s still in, quote, “early innings”. GE pulls in $170 billion in revenue last year alone. But as the industrial Internet of Things takes root, it’s a race to connect.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: Coming up, Twitter’s new top priority. Will it help attract new users and maybe even potential buyers?

(MUSIC)

HERERA: Air maintenance workers at UPS voted to authorize a strike against the world’s largest package delivery company. The union says talks remain deadlocked over health care benefits and if no progress is made, they will begin the process that could lead to a strike within 60 days. A strike could potentially ground UPS airplanes, which could impact packages shipped by air.

MATHISEN: Snapchat’s parent company has filed for an initial public offering according to Dow Jones, the IPO could value the company at between $20 billion and $25 billion. The papers were filed before the election and the IPO could reportedly take places early as March.

HERERA: Twitter is taking some new steps to curb online abuse and harassment, which has been a persistent problem for that company. Not only has it been a turnoff for users, but also for potential buyers.

Julia Boorstin looks at what Twitter and other social media companies are doing.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Internet companies are taking a stand against abuse in the spread of fake news. Twitter is tackling cyber bullying, upgrading its new feature to allow people to mute certain users, or words, phrases and notifications they don’t want to see and providing tools to allow users to directly report conduct that violates its policies. Twitter is hoping these features will improve user experience to grow its stagnating ranks and to boost its appeal to potential acquirers.

NICK BILTON, VANITY FAIR: One of the reasons Twitter has been so unsuccessful with investors is because of the fact that a lot of people have not joined the service and the reason for that is because of all the hate on the service.

BOORSTIN: And in the wake of growing concern about how the spread of fake news influenced voters, Google and Facebook are also making moves, cracking down on which sites and apps can use their ad-selling software.

Google issuing a statement saying, quote, “We will restrict ad serving on pages that misrepresent, misstate or conceal information about the publisher, the publisher’s content or the primary purpose of the web property.”

Facebook quickly followed suit, clarifying its policy about the rules for its audience network, which serves ads to apps and sites, saying, quote, “We do not integrate or display ads containing content that is illegal, misleading or deceptive, which includes fake news. While implied, we have updated the policy to explicitly clarify that this applies to fake news.”

YOUSSEF SQUALI, CANTOR FITZGERALD ANALYST: The perpetrators of this are doing it for one thing and one thing only and that is to make money. So, to get rid of it, if you want to reduce or eliminate the incentive for them to do it, you need to cut off the money supply. So, I agree with what they’re doing. They’re trying to eliminate the opportunity or the ability for these fake news sites to get any kind of advertising.

BOORSTIN: Facebook’s move follows a “BuzzFeed” report that a group of employees formed a task force questioning the social network’s role, promoting fake news on the platform.

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

(END VIDEOTAPE)

HERERA: And to read more about Twitter’s steps to curb online hate, speech and head to our website, NBR.com.

On that note, that will do 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 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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