Transcript: Nightly Business Report – November 22, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Rally caps. The blue chip Dow index hits 19,000 for the first time ever. Gaining 1,000 points in less than a month. But should your next investment be in small caps, not the big blue chips?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Alzheimer’s puzzle. Eli Lilly is working on a drug to solve it, but it hasn’t been easy. And there’s a lot at stake. The first of a two-part series.

MATHISEN: And long-lasting. Why Americans are keeping their cars longer than ever.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, November 22nd.

HERERA: Good evening, everybody. And welcome.

A record-setting day. The Dow levitating to 19,000, settling above that level for the first time in its 120-year history. And while the Dow may be the world’s most recognizable stock market gauge, it’s not the only one at all-time highs. The NASDAQ and the S&P 500 are also at levels never seen before.

So, let’s get right to the numbers. The Dow Jones Industrial Average advanced 67 points, to 19,023. The NASDAQ added 17, and the S&P 500 rose 4 to close above 2,200.

What will it take to get the blue chip index to the next big round number?

Mike Santoli takes a look.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: By crossing above the 19,000 mark for the first time ever, the Dow Jones Industrial Average has exceeded most Wall Street forecasts made even a few months ago. Yet as investors assess the meaning of this new round number landmark with the market’s oldest benchmark, it’s worth remembering that 1,000 Dow points are not what they used to be. The 1,000 points traveled since the Dow first hit the 18,000 level amounts to just about a 5.5 percent gain and it took the Dow two years to advance this modest distance after first reaching 18,000 in late December 2014.

For an extreme comparison, after first reaching 10,000 in March of 1999, the Dow added its next 1,000 points in only five weeks, at a time when 1,000 points equaled a 10 percent jump. During the 23 months since its first trip to 18,000, the Dow dropped below 15,500 in the last winter’s panicky selloff after the Federal Reserve raised interest rates, oil prices collapsed and the Chinese currency plunged.

The bounce back from the February market lows came as the Fed eased back on its rate hiking plans. Oil prices rebounded and the credit markets calmed down.

On a fundamental level, it’s no great surprise that the Dow has taken a relatively long time to make its latest 1,000-point run. Corporate earnings in total have been just about flat for three years running now. Only last quarter did profits start growing again, and economic expectations for 2017 are now clicking higher, in part on hopes for tax cuts and infrastructure spending under a Trump administration.

While the Dow is made up of only 30 stocks, it can still offer decent lessons on how investment returns are achieved even though the index climbed 5.5 percent in almost two years since hitting 18,000, when dividends are included, the total return has been a respectable 10 percent. And because rising another 1,000 points from here would only mean a gain of just over 5 percent, a run to the next round number target of 20,000 wouldn’t take all that much to achieve.

For NIGHTLY BUSINESS REPORT, I’m Mike Santoli at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: So, how did the market get here?

Dominic Chu takes a look at the sectors in stocks that propel the indexes to these new highs.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: This Thanksgiving, in addition to being thankful for our friends and family, some investors are giving thanks for a host of different stocks that have helped put a few extra bumps in their pockets this holiday season. The S&P 500 financial sector has been the best performer in the large cap index since the election, and a year-to-date returns of 14 percent. The industrial sectors gained 15 percent this year and thanks to a rebound in oil prices, energy stocks are up 18 percent, leading all sectors.

As for some of the biggest individual stock gainers, consumer electronics retailer Best Buy, construction materials company Martin Marietta, and chip-maker Nvidia. And those who are thankful for the little things, a number of stocks have posted big gains this year and managed to remain relatively less volatile than other parts of the market and paid an above-average dividend to shareholders. Consumer products giant Procter & Gamble gained just 4 percent this year, but it pays a current dividend yield of 3.2 percent. On the fast food front, you’ve got McDonald’s producing a 2 percent gain, less volatile but paid a 3.1 percent dividend, and soda and snacks maker PepsiCo has managed a 3 percent gain with relatively less volatility and paid a near 3 percent dividend yield as well.

So as we get ready to break bread and talk turkey with our loved ones, now may be a good time to talk about your investments and see which ones you’re thankful for and what you’ll do with your investments in the coming months.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu here at the New York Stock Exchange.

(END VIDEOTAPE)

HERERA: And that is a perfect segue because if you’re a small cap stock investor, you have a lot to be thankful for. Since November 8th, the small cap Russell 2000 index is up 11 percent and has seen it’s longest win streak since 1996.

What does that mean for you and your investments?

Eric Marshall is co-portfolio investor with the Hodges Small Cap Fund.

Welcome, Eric. Nice to have you here.

ERIC MARSHALL, HODGES SMALL CAP FUND CO-PORTFOLIO MGR: Good to be here.

HERERA: It is a very impressive rally. There are some who are wondering whether it’s really justified, given the trajectory that it’s been on. What do you think?

MARSHALL: Well, we think that the move of the market is justified, based on improving fundamentals in a lot of the financials and in some of those more cyclical areas of the economy. However, the market has moved quite a bit in a very short period of time. So, we actually see it as a healthy sign, if you did see the market cool off a little bit in the near-term.

But longer-term, we think what we see — we’re seeing right now is really a rotation out of the bond market and into equities, which has been an area that’s kind of been abandoned over the last couple years. Money has continued to move into the bond market over the last three or four years, and really kind of just left equities.

MATHISEN: Yes. I mean, some people would say, what were these small caps waiting for. It’s been a long time since they have had outperformance, vis-a-vis, the bigger indexes. Why do you think the powerful rally occurred now? Is it because the dollar has strengthened so much and people think that small caps won’t be hurt by that rising dollars? What do you think is driving it?

MARSHALL: Well, I think it’s a combination of things. One, I think we have been in an earnings route. And I think there’s an anticipation that the potential for less regulations, corporate tax reform, may be just what the market needs to see earnings break out of that earnings recession.

And also, as interest rates start moving up, that’s been good for the Russell 2000, because it’s heavily weighted in financials, especially smaller banks that can make more money off the interest margins.

HERERA: Let’s get to some of your stock picks, because we did ask you for some specifics, and you obliged.

Forterra is a recent IPO, but you like it.

MARSHALL: Yes, this is a company that makes large-diameter concrete water pipes. So, it’s used for storm drains and so forth. They also have some smaller type pipes that are used for drinking water and so forth. But they really benefit from secular growth and infrastructure spending. And it trades about 7.5 times its enterprise value to EBITDA, just about the price set it did its IPO here a month or so ago. But it’s one that we really like over the next two or three years.

MATHISEN: All right. Second pick couldn’t be farther away from infrastructure than this one. And it’s Party City. Though I guess you could say, its infrastructure — my wife was there buying the infrastructure for my son’s birthday party.

MARSHALL: Birthday parties and Halloween are big for party city. What’s really unique about them, they kind of are a interesting secular growth opportunity within a consumer retailer right now. You see people spend more money on birthday parties and costumes and so forth and they are really a category of one. They provide a lot of — the party supplies are vertically integrated. If you went on Amazon and bought that stock, you would probably be buying from Party City.

HERERA: OK.

MARSHALL: They also provide a lot of the large retailers like Walmart and Target with their products.

HERERA: Spent a lot of time there.

OK. Thanks very much, Eric. Eric Marshall with Hodges Small Cap Fund.

MARSHALL: Thanks.

MATHISEN: Existing home sales which account for the vast majority of home-buying activity soared to a near ten-year high in the most recent month. The National Association of Realtors reports a 2 percent increase for October to the highest level since February of 2007. Faster wage gains are helping propel the housing market, despite rising prices and shrinking inventory.

But as mortgage rates increase, some experts say the pace of sales may start to slow.

HERERA: And when it comes to housing policy, President-elect Donald Trump says he is seriously considering former Republican rival, Ben Carson, to lead the Department of Housing and Urban Development. The department, which overseas home mortgage lending and other housing programs.

Carson is a retired neurosurgeon.

MATHISEN: Well, since Donald Trump became president-elect, there is a sharp increase in interest rates. Everything from mortgage rates to U.S. treasuries are up and with Janet Yellen and company expected to raise rates next month, how will all of this impact you and your personal loans?

Greg McBride is chief financial analyst at Bankrate.com. He follows the interest market very closely.

Greg, good to have you with us.

Do you think that this spike, which has taken the ten-year treasury from about 1.8 percent to 2.3 percent in about two-and-a-half, three weeks, do you think we’re at the end of it? Do you think things are going to plateau, or do you think we’re at the beginning of a prolonged rate rise?

GREG MCBRIDE, BANKRATE.COM CHIEF FINANCIAL ANALYST: I’m not convinced that this is the beginning of a prolonged rate rise, Tyler. I mean, we’ve seen a sharp movement in a short period of time. It’s been a lot and it’s really been in the absence of concrete information. It’s been based entirely on speculation. So, that tells me we’re due for a breather, whether that means rates flat now or if those expectations don’t, you know — you know, exceed what reality ends up being, we could see rates pull back in 2017.

HERERA: So, who gets hurt, you know. We haven’t seen a huge increase in interest rates. But who stands to lose?

MCBRIDE: Well, here’s the one that really sneaks up on people, Sue. And that is adjustable rate mortgages. Most of these loans only adjust once per year. And in recent years, borrowers have been riding the elevator down. Those rates have been going down year after year, and then bumping along the bottom. They can’t go any lower. But now, they’re poised to go up.

And if your loan doesn’t adjust until next summer, and the Fed happens to raise rates, you know, one or two or three times between now and then, you could get, you know, kind of a nasty payment increase sneak up on you.

MATHISEN: So if I have an ARM, is now the time I might want to convert to a fixed rate mortgage, and where do those rates stand? They have come up too.

MCBRIDE: They have come up. And, you know, but yes. Now is the time to act. And look, you don’t necessarily have to go into a 30-year fixed. You know, maybe you feel like this is a house you’re only going to be in for another five or six years.

You know, look at something like a five-year adjustable or a seven-year adjustable that offers you a fixed rate for that period of time before it becomes adjustable. And those rates, comparable to what you would otherwise be paying on that adjustable rate but you have locked it in. You don’t have to worry about it going up in subsequent years.

HERERA: Who wins? I mean, savers have been complaining for a long time they have made nothing on their money. But how much of an increase, if any at all, will they see on their savings?

MCBRIDE: It’s going to be slow. You’re going to have to shop around for it, too. It’s not going to necessarily land in your lap. So, look at the online banks and community banks that are already paying pretty attractive yields.

But again, a lot of that is going to be tied to the Fed. And if the Fed moves gradually, as they have long said, then the improvement for savers, unfortunately, is going to be gradual.

MATHISEN: A lot of consumers felt smart having the home equity lines of credit that have been tied basically to the prime. What do you expect to happen there?

MCBRIDE: Well, this is the payback of that, Tyler. When rates starting to up, that home equity line of credit is going to start to ratchet higher, as well. So, you’ll see that higher rate within one to two statement cycles of when the Fed raises short-term interest rates.

The other thing to keep in mind, a lot of those are recasting, that ten-year drop period comes to an end and that in and of itself can deliver nasty payment increase.

MATHISEN: All right. Thanks very much, Greg. Appreciate it as always.

Greg McBride with Bankrate.com.

HERERA: When it comes to the economy, the president-elect outlined some of his policy goals. Donald Trump said he plans to cut taxes, ramp up infrastructure spending and end restrictions on energy production. He vowed to withdraw from the Trans Pacific Partnership and negotiate more favorable deals in its place. He also wants to impose bans on lobbying.

MATHISEN: Still ahead, a medical mystery, but one medicine may be getting close to helping people with Alzheimer’s. Tonight, the first of our two-part series.

(MUSIC)

HERERA: It is a problem medicine so far has not been able to solve. Alzheimer’s disease has eluded drug development for decades. But one medicine may be getting close.

Tonight in the first of a special two-part series, Meg Tirrell looks at the problem we face in Alzheimer’s.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: More than 5 million Americans are thought to live with Alzheimer’s today. And no drugs have yet been shown to slow its course.

MARIA CARRILLO, ALZHEIMER’S ASSOCIATION CHIEF SCIENCE OFFICER: The Alzheimer’s disease community, families, caregivers and people who have received a diagnosis, you know, are living with a diagnosis that is essentially a death sentence.

TIRRELL: The number affected by Alzheimer’s is expected to triple by 2050 without effective intervention. Work is under way at major pharmaceutical companies with trial results expected within weeks from Eli Lilly.

But Dr. Maria Carrillo of the Alzheimer’s Association says it’s just the beginning of what’s needed.

CARRILLO: There is a lot of great therapeutics on in the pipeline that we’re thinking might be effective. But in reality, what we need is a lot more. This was, for example, cancer, there would be hundreds that were in late stage. And for Alzheimer’s, we probably have about 15 right now.

TIRRELL: Many drug companies have shied away from Alzheimer’s in recent years because of the sheer number of failures. Between 2002 and 2012, 244 drugs were tested for Alzheimer’s. One was approved — Allergan’s Namenda which works on the symptoms disease.

A key question surrounding Alzheimer’s drug development is whether scientists have even been targeting the right thing. The most advanced efforts now subscribe to what’s known as the amyloid hypothesis, the idea that amyloid plaques in the brain are not just a hallmark of the disease but are causative of its degenerative effects.

That’s the strategy Eli Lilly is pursuing in its most advanced programs, with results expected imminently.

DAVID RICKS, INCOMING ELI LILLY CEO: And right now, there currently is no clear evidence that we reduce amyloid, we get a reduction or slowing in Alzheimer’s. This would be the first study to show that.

TIRRELL: Some say there have been so many failures targeting amyloid, that researchers should turn their focus elsewhere.

Dave Ricks, incoming CEO at Lilly, says the company’s trial will give the whole field important information about Alzheimer’s. Even if the drug fails to work.

RICKS: If we miss that shot and there’s no difference between placebo and — that would be very surprising. But I think really challenge the assumptions around the amyloid hypothesis and we would have to step back again.

TIRRELL: Lilly is no stranger to setbacks.

Tomorrow, we explore the company’s 27-year quest to make a dent in this disease and why it hopes this time may be different.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: Medtronic lowers its full-year guidance and that is where we begin tonight’s “Market Focus”.

The medical equipment maker said a slow down in sales for its diabetes and heart products contributed to the companies cutting its outlook along with lower than expected revenue. Shares fell more than 8 percent on the day to 73.60.

Lower merchandise costs helped Dollar Tree post a higher than expected profit. The biggest U.S. dollar store chain also saw same-store sales rise and those results topped estimates. The company says it benefited from a more efficient transport network, among other things. Dollar Tree up 8 percent at $88.68.

And profit and revenue both rose at Burlington Stores. The results of the apparel retailer were helped by a better than expected rise in same-store sales. This was the off price retailer’s sixth straight quarterly beat. Nice news there. Shares up 16 percent at $86.04.

And Hormel said profit rose, thanks to solid demand for protein and snack products. The maker of Spam. And I like the chili, by the way. Gave earnings guidance for 2017 that was significantly better than estimates. Hormel shares up more than 2.5 percent at $35.86.

HERERA: Keeping with the food theme. Campbell Soups said cost cuts helped it posts a better than expected profit. But the food giant did say sluggish demand in its fresh food unit caused sales to stall. Even so, those results topped estimates and that made investors say, you know, mmm-mmm good, sending Campbell shares 3.5 percent higher to $57.02.

Barnes and Noble said the bitter presidential election caused customers to make purchases and it hurt its sales. But the bookstore chain did manage to trim its loss thanks to in part to strength to its online business. Barnes and Noble was up more than 10 percent to $12.65.

And discount shoe retailer, DSW, saw its net income rise, topping expectations. The company cited tighter inventory management. Revenue in same-store sales missed estimates, but still, DSW raised its outlook for the year and shares rose up nearly 8 percent to $24.90.

MATHISEN: Volkswagen plans to make an aggressive push into the lucrative U.S. auto market as way to increase sales and profits following its rocky year. The automaker will invest heavily in electric vehicles and focus on large SUVs. VW has been facing falling sales and an increase in costs associated with its emissions cheating scandal.

HERERA: Auto sales may be near record levels, but that doesn’t mean every car on the road is relatively new — far from it. With more cars being driven, the average vehicle in America is now almost 12 years old. That’s a record, according to a new study.

And as Phil LeBeau explains, this could be good news for the auto industry.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Don’t call them beaters. This is how America rolls.

UNIDENTIFIED FEMALE: Because if it breaks down, then I need to go to the next. But I’m keeping my cars for a long time.

UNIDENTIFIED MALE: As long as it runs, the life of the vehicle, it’s okay with me.

UNIDENTIFIED MALE: Basically, if it stops working, I would get a new car. Until then, I’m happy driving this. It gets me where I need to go.

LEBEAU: The age of autos in America has been steadily growing, and now averages 11.6 years. Why? Well, with new vehicles selling at a higher price, people are stretching out their auto loans. So, it takes longer to pay off a car.

Meanwhile, cars and trucks have become more reliable, so people hang on to them longer. In fact, those buying new vehicles today own them on average for almost seven years. Almost three years longer than back in 2001.

MARK SENG, IHS MARKIT: The economics are driving the consumer to hang on to that vehicle longer and the fact that the vehicle is technologically better these days, that certainly allows them to hang on to it as long as they need to, because of the economic factors.

LEBEAU: All of this is good news for the auto industry. Auto parts stores cash in on people replacing brakes, spark plugs and other components in old cars. And if the owners aren’t doing it themselves, they’re taking their cars in for service. Which means new car dealers have more opportunities to convince customers it’s time to trade in that old model for a new one with the latest features.

REBECCA LINDLAND, KELLEY BLUE BOOK: There’s so many great technologies that are in new vehicles today that if you’re driving a ten or eleven-year-old car, it’s still like calling people on a rotary phone.

LEBEAU: The cars of the ’90s and early 2000s may lack the bells and whistles of today’s cars, but they’ll be on the road for years to come. In fact, it’s estimated by 2021, there will be 20 million vehicles in America at least 25 years old.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: And to read more about why drivers are holding on to their vehicles for a longer period of time, head to our website at NBR.com.

MATHISEN: Toyota will recall more than 740,000 Sienna minivans. The safety recall prompted by defective sliding doors that could open while the vehicle is in motion. The model years are 2011 through 2016. The automaker says it is currently developing a fix.

HERERA: Coming up, why the business of Hollywood has a lot riding on the upcoming weekend. But first, a look at some of the stocks that hit all-time highs today.

(MUSIC)

MATHISEN: Here’s what to watch tomorrow.

The Federal Reserve will release the minutes of its last. Nothing beats some good minutes, potentially offering investors hints of what it may do next if you really need to know.

Home sales due out. New home sales. And a handful of other economic data will be released, including jobless claims, durable goods, consumer sentiment.

And that’s what to watch tomorrow.

Meantime, a federal judge has blocked the Obama administration’s rule extending overtime pay to more than 4 million Americans. It was supposed to go into effect December 1.

HERERA: Amazon is reportedly in talks to start streaming professional sports. As first reported by the “Wall Street Journal”, Amazon has been discussing a premium sports package as part of its prime subscription service. Amazon has reportedly been in talks with the National Football League, the National Basketball Association, Major League Baseball, and others.

MATHISEN: A recent study of Google searches for political terms resulted in more liberal-leaning web page getting displays than conservative ones. This is according to a new study by an online search marketer. Alphabet’s Google denies allegations of any bias and says search results are determined by algorithms and reflect the content that is available on the internet.

HERERA: Thanksgiving isn’t just about turkey, family and football. It’s also an important weekend for Hollywood, and the studios behind those big-budget blockbusters.

Julia Boorstin takes us to the movies.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Over the five-day Thanksgiving weekend with films for every demographic, the studios are hoping to keep up strong momentum from Warner Bros. “Fantastic Beasts and Where to Find Them” and Disney’s “Dr. Strange” before that.

Targeting kids and families, Disney’s “Moana” is likely to dominate this weekend. The studio has a track record of commanding this holiday. “Frozen” three years ago was the biggest Thanksgiving opening of all time. And Disney is on track to continue its number one market share through the end of the year. With “Star Wars” spinoff “Rogue I” opening next month.

PAUL DERGARABEDIAN, COMSCORE: Disney has had a really incredible year. You had “Captain America: Civil War” which kicked off the summer, in the early part of May, “Finding Dory,” the biggest hit of the year so far. And certainly after that, they had a really good fall period, as well.

BOORSTIN: And then there is “Allied” from Paramount, looking to boast its parent company, Viacom’s value ahead of a potential remerger with CBS. The film hoping to draw Oscar nominations to boost the studio in sixth place in terms of market share so far this year.

UNIDENTIFIED MALE: You said you wanted a girl with the two men.

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED MALE: Marilyn Monroe.

BOORSTIN: Fox is hoping to draw an adult audience to Warren Betty’s “Rules Don’t Apply” and indie study Broad Green Pictures is luring teenagers with R-rated “Bad Santa 2”.

One big question this holiday season is whether the explosion of content available to stream on demand from Netflix and Amazon could deter audiences from making the trip to the box office and spending their money on tickets.

DERGARABEDIAN: When you have series like the man in the high castle from Amazon video, which will be starting its second season in mid-December and you have the “Gilmore Girls” on Netflix, I mean, there is a lot going on there. There is so much content, trying to keep people at home, that it really takes big content on the big screen to get them out of their homes and out to the movie theater.

BOORSTIN: So, there is a range of films debuting this weekend, ComScore’s Paul Dergarabedian says the lack of a breakout like last year’s “Creed” could make it very tough for studios to match last year’s Thanksgiving box office results.

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

(END VIDEOTAPE)

MATHISEN: And before we go, let’s take another look. Why not? At the record-setting day on Wall Street. The Dow advanced 67 points, to 19,023, first time above that marker. NASDAQ added 17, S&P 500 rose four, and the small cap Russell 2000 also closed at an all-time high.

HERERA: And on that optimistic note, that’s it for us on NIGHTLY BUSINESS REPORT. I’m Sue Herera. Thanks for joining us.

MATHISEN: I’m Tyler Mathisen. Thanks from me, as well. Have a great evening, everybody. We’ll see you tomorrow.

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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