ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Red October, at least for today. Stocks dropped on the first trading day of the fourth quarter, on concerns about the health of the American economy.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Broker battle. Charles Schwab cuts commissions to zero. Good for investors but it comes at a cost for asset managers.
HERERA: Housing mismatch. There`s a growing divide in the fall real estate market, and it`s creating haves and have-nots.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, October 1st.
GRIFFETH: And we do bid you good evening, everybody. And welcome.
Well, the first day of the fourth quarter turned out to be rough. In fact, day`s declines wiped out everything the Dow and S&P gained during the whole third quarter. Investors were surprised first thing this morning by a new report on manufacturing. That showed that sector`s biggest slump in a decade.
That added to concerns that the U.S. economy is slowing and feeling the effects of the trade disputes. The Dow at the close today was down 343 points, down to 26,573. The Nasdaq was down 90. The S&P slid by 36.
Bob Pisani was following this market slide today from the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was an ugly first day of the month and the quarter. The Dow tumbling more than 340 points, wiping out all of its gains from the third quarter. Stocks were jolted by a weaker read on manufacturing very early on.
The ISM manufacturing index fell to 47.8 in September. That`s the lowest read we`ve seen in a decade. Remember, any reading below 50 indicates a contraction in that sector, and that means manufacturing may be in a recession at this point.
Now, this big miss was a problem for the markets. The S&P moved in a 50- point range lower since that report came out around 10:00 a.m. Eastern Time. That is a very large reaction for the stock market for ISM data report. This outsized reaction was partly due to the sheer size of the mess and the jarring headline but also because despite all the turmoil around global trade and a weaker global economy, the S&P is still only 3 percent from historic highs. So, there`s a lot of risk to the downside.
The news immediately drop all those economically sensitive sector, so industrials and materials and energy were weak bank stocks also fellows bond yields drop. Now, we already know manufacturing is weak globally, but the key issue now is, will it bleed into capital spending? And more importantly, might it impact consumer spending in the U.S.? Remember, that`s been the bright spot holding up the global economy.
So, this all means that this September jobs report on Friday now becomes very important. All it takes is one lousy jobs report and people are going to go out trying to connect the dots that come out the consumer is weaker.
So, we`ll get the services sector data on Thursday as well, which if strong couldn`t help offset the manufacturing weakness we saw today. Keep an eye by the way on big consumer stocks that have risen dramatically this year. Your Home Depots, your Starbucks (NASDAQ:SBUX), McDonald`s (NYSE:MCD), Costco (NASDAQ:COST), all weaker today but they`ve had big run ups this year because the consumer has been strong.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: So, let`s turn now to Art Hogan to talk more about what to expect from the market in October and the fourth quarter as a whole. He is the chief market strategist at National Securities.
Welcome back, Art. Nice to see you.
ART HOGAN, NATIONAL SECURITIES: Nice to see you, Sue. Thanks so much for having me.
HERERA: As I understand it, you do not think that today portends a continuation through the rest of October. Is that a correct read?
HOGAN: Yes, I think that`s right. I mean, a very — you know, we oftentimes we like to look at the start of the year and say, as goes the first week, so goes the rest of the month, and I just think it`s at getting the — getting the cart before the horse.
I think what happened here was we know that the global manufacturing has been slowing. Almost every PMI has been in contraction except for the United States, and now we`ve had two months in a row where the ISM has come in below 50, which means it`s contracting. That`s the problem.
We know that manufacturing is not faring well because of the U.S. -China trade war. What we do know is that the consumer is faring well. So, we`ve had a sort of a bipolar economy where corporations and manufacturing and the like aren`t doing well, but the consumer, which is about 70 percent of GDP, is doing well. So, we`ve got a push and pull.
GRIFFETH: This should be a busy month typically. It usually is. We got the earnings. We got this impeachment inquiry now. We`ve got the Fed meeting coming up.
But for you, the most important will be those trade talks with China, right?
HOGAN: Yes. You know, I think this market has really shown us that it`s keying on one thing, and that`s the tone around the U.S.-China trade talks, the tension, the escalation and the backing and going back-and-forth. The tone has gotten significantly better. I think that was true for most of September. August was pretty bad and May was terrible.
But September was pretty good and we were seeing both sides have a little bit of flexibility. We removed some tariffs. We didn`t put new tariffs on until October 15th and the other side of the table, China has decided to say, listen, we`re going to buy more of your agricultural products.
So, we`re moving in the right direction. If that can continue I think the market can get constructive again. If that escalates and we walk away from the meeting in October, the way we walked away from the meetings in August, I think this thing gets a whole lot worse and the market will start to unravel.
So I think that`s the key point for October, but you mentioned everything else. We`ve got earnings season. We`ve got another Fed meeting.
HERERA: Right. On that note — on that on that note, Art, thank you so much. Art Hogan with National Securities.
HOGAN: Thank you.
GRIFFETH: Elsewhere, trading online just got a whole lot cheaper. Charles Schwab said today that it`s eliminating commissions to trade stocks, ETFs and options. That decision follows a similar move made last week by rival Interactive Brokers. And while it is good news for brokerage customers, investors don`t see it as good news for the industry. Shares of Schwab fell sharply today, so did rivals like TD Ameritrade (NASDAQ:AMTD), ETRADE and Interactive Brokers.
And joining us with his assessment of this move, we welcome Phil Blancato back. He`s the CEO and president of Ladenburg Thalmann Asset Management.
Good to see you. Welcome back.
PHIL BLANCATO, LADENBURG THALMANN ASSET MANAGEMENT CEO: Good to see you, too.
GRIFFETH: Commissions have been coming down for years anyway, but I think it`s safe to say they`re hitting bottom now, at zero.
GRIFFETH: What do you make of this?
BLANCATO: Well, it`s a monumental shift from how we grew up when we pay hundreds of dollars and now it`s zero, right?
For the client and in the asset managers, someone like me, it`s a benefit because now we`re able to eliminate any conflicts on what we might or might not buy, that all you have cost is a limited, it`s where does it put the focus on asset management. Now, what`s the best asset for me? Can I rotate bond portfolio? I don`t have to worry about that issue anymore.
And it`s — squarely, it changes all of what Schwab is and probably many other firms in that the focus will be on the greatest mutual fund or ETF for money market that they offer and can they compete for it?
GRIFFETH: Some of these stocks that got the hardest hit today though don`t have the diversity in terms of the different businesses under their umbrella as Schwab does.
BLANCATO: Very problematic for firms that don`t. This is an asset grab. This is a way to get sticky assets in the door, and to do that, you`re going to have to order a variety of services and products.
And if you don`t have those, you`re in a lot of trouble. That`s the only way they`re going to see buying (ph) in the other side is all for those services. If you don`t, very problematic.
GRIFFETH: And this is a symptom of electronic trading. I mean, it`s cheaper to execute these trades than it ever has been, so it makes sense for them to want to bring the commissions down anyway, right?
BLANCATO: There`s a variety of things that impact us. We`ve watched the collapse of fees everywhere, mutual funds, ETFs, so on, it`s all come down. We`ve watched how we work as an industry come down. We watch robo advisors come in and dominate the space.
What is this of? Now, cannot want for a product the client needs and eliminate the conflict of buying it. So, they work with me for a long period of time, like me as an asset manager or the end client doing it themselves. It`s eliminating an aspect of it that focus on — squarely on asset management rather than transactions.
HERERA: You mentioned, Phil, that it`s an asset grab by Schwab. Will that then force more consolidation in the industry where you see companies that don`t have the broad-based business that Schwab have seek out other partners? Might you see a lot of deals?
BLANCATO: For sure, but I think this is a slow process. There`s not going to be some knee-jerk reaction of a bunch of firms just cut fees. I think they`re going to see how it goes for Schwab.
But I do see an evolution. What do firms now offer that clients me besides a trade? Can they offer access to a good money manager? Can they offer give them packaged products that work more effect efficiently? That`s what the money grab is because once you have the asset — generally, they`re going to keep it.
BLANCATO: So it`s idea of how do firms evolve, how they offer a better retail offering. For the end client, now the options are better because you eliminated cost.
GRIFFETH: Amazing. Phil Blancato with Ladenburg Thalmann Asset Management — always good to see you.
BLANCATO: Nice to see you.
GRIFFETH: Again, thanks for joining us tonight.
HERERA: In other news, General Motors (NYSE:GM) is temporarily laying off 6,000 workers in Mexico due to the ongoing strike here in the U.S. The automaker says the work stoppage has created a parts shortage, halting production at its pickup and transmission plants in Mexico. But those pickups are some of GM`s highest margin vehicles and the UAW today said that GM`s latest offer came up short. The strike is now two weeks old. GM shares fell in today`s trading session.
GRIFFETH: Meanwhile, investors have been closely monitoring developments in Washington not only on trade but also on that impeachment inquiry in the House, and a new survey shows that some Americans are concerned about its impact on the economy.
Steve Liesman has more.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The latest CNBC All America Economic Survey finds Americans by a narrow margin opposing impeachment the numbers are shifting with fewer Americans now against it than they were two years ago.
In a nationwide poll of 800 Americans, CNBC asked if Congress should hold impeachment hearings to remove President Trump from office. Forty-four percent favored the impeachment hearings, 47 percent opposed them, and that`s within the poll`s three and a half percent margin of error. But that`s a much closer margin when the question was asked in December when 44 percent opposed impeachment and 41 percent favored them. A big chunk of the decline in those opposed to impeachment though showed up as a rise in the percentage of Americans who are unsure, it grew to 9 percent from 5 percent.
Micah Roberts is a partner in Public Opinion Strategies and CNBC`s Republican pollster said the American people are not jumping towards impeachment. They`re cautiously moving away from opposing impeachment.
Some Americans think impeachment could hurt the economy, 45 percent, in fact, say it`s negative for the stock market, 40 percent say it`s bad for the economy overall, but just 23 percent answer that it will hurt their personal financial situation.
The real bad news for President Trump came in a decline in both his overall and in his economic approval ratings. The president`s job approval ratings sunk to 37 percent, the lowest level of his presidency, and it`s just 42 percent for approval on the economy, also the lowest. For the first time, 50 percent of the public disapprove of his handling of the economy.
Of course, President Trump has bounced back from low poll numbers in the past and maintained a steady but low approval rating around 40 percent. This time, he`ll have to make a comeback from the lowest levels yet of his presidency while he faces impeachment proceedings in Congress.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
GRIFFETH: And later in the program, even though the 2020 presidential election is still more than a year away, there are already some big winners emerging in the political advertising race.
HERERA: Now two other stories that were following that are in the news. Demonstrations in Hong Kong turned violent. Protesters clashed with riot police building bonfires and barricades. And for the first time since the protests began, a live round was fired. A Hong Kong police officer shot a teenage demonstrator who was conscious and then taken to the hospital.
At the same time as the protests, Beijing was celebrating 70 years of communist control. The ceremony included a military parade designed to show off China`s economic and military strength. President Xi promised to keep Hong Kong under the, quote, one country, two systems framework.
GRIFFETH: Still ahead, commercial real estate risk.
(BEGIN VIDEO CLIP)
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Robert Frank in New York City, which could be the hardest hit market in the WeWork pullback. We`ll take you inside the numbers of a WeWork building partly owned by the company`s founder that could be the bellwether of the next downturn, coming up on NIGHTLY BUSINESS REPORT.
HERERA: Construction spending rose less than expected in August. Non- residential construction declined for a second straight month offsetting a rise in home building. According to the Commerce Department, construction spending edged up 0.1 percent, marking the fourth month of lackluster results.
GRIFFETH: The last few reports on housing have shown a pickup in activity, no question about that. But a growing mismatch is creating a divide between the haves and the have-nots. Young buyers are still being priced out and it looks like only the so-called move up market is moving.
Diana Olick has more.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This fully renovated Atlanta home was priced at $215,000, a bit below the nation`s median home value, and it sold quickly to an investor who will rent it out, a scenario playing out all over the country, as entry-level buyers compete with investors for precious few affordable homes.
Real estate agent Melissa Fuentes says it can be rough for her clients who are looking to live in the house.
MELISSA FUENTES, ROYALE PARK GROUP: I don`t give false hope I don`t let them you know there`s not room for a negotiation in these homes. So they have to offer top dollar, usually no closing cost, and so, it`s no longer an area where they can negotiate and get a great deal, especially going up against these cash investors. Go ahead, take a look.
OLICK: Bryant Mormon works in finance and he and his wife worry about the economy. But in this competitive market, they`re looking past it.
BRYANT MORMON, PROSPECTIVE HOMEBUYER: Look at what`s going on, what may go on, and then you just have to make — you have to make a decision, but you can`t be paralyzed by what may happen and what they might not happen.
UNIDENTIFED FEMALE: You can`t be paralyzed by fear, for sure.
OLICK: The low end of the market is where most of the demand is but not nearly enough supply. That`s why sales of homes priced below $250,000 are significantly lower today than they were a year ago. Sales are strongest in the $500,000 to $750,000 range, but they make up just 10 percent of the market. Sales of homes priced above a million are also weaker than a year ago, but that has more to do with taxes and volatility in financial markets.
Home builders are benefiting from that lack of existing homes for sale, but there`s an incredible mismatch between their prices and the prices buyers are looking for.
Nearly three-quarters of new homes being built today are priced between $250,000 and $1 million, but less than half of buyers are looking to pay that much, according to a National Association of Homebuilders survey. About a quarter of buyers want a home priced at $150,000 or below, but barely 3 percent of new construction is at that price point. With new homes out of reach and the competition for affordable existing homes high, it`s no wonder young families today are often priced out.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
HERERA: From residential real estate to commercial, and a company getting a lot of attention, WeWork. The firm is viewed by many as both a disrupter and a risk.
Robert Frank is in New York tonight.
FRANK: WeWork is the largest commercial tenant in New York, London, Chicago and D.C., and it has paid top dollar for some of the most prominent office locations in cities around the world. But now, the company`s pullback could ripple through the real estate markets in major cities.
And this building in downtown Manhattan highlights the risks. It is partly owned by Adam Neumann, the founder and now former CEO of WeWork. WeWork leases the building and IBM subleases from WeWork.
The building is now for sale with a listing price of $110 million, and it is seen as a big test for real estate values tied to WeWork. Neumann bought it in 2015 with a partner for $70 million, but there are now multiple levels of debt. He borrowed to buy his share of the building and there is a $78 million refinancing on the building, so the loans are now higher than the original purchase price.
WeWork has been critical to Manhattan`s commercial real estate market, leasing over 7 million square feet of space. But just as WeWork is struggling, Manhattan has an oversupply of new commercial offices, from new projects like World Trade Center to Hudson Yards, flexible office-based companies now least more than 70 million square feet of space worldwide. That`s according to a report from CBRE.
DANIEL ALPERT, WESTWOOD CAPITAL MANAGING PARTNER: If occupancies fall, if rental rates deteriorate because of the WeWork factor among other things, you`re going to see at some point a catalyst that`s going to kick off a major repricing. And when that happens, you know, it`s sort of Katy bar the door.
FRANK: Now, WeWork declined comment, but I`m told that one reason Adam Neumann is selling this building was to deflect criticism of self-dealing ahead of the IPO, that IPO now on hold indefinitely.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank in New York City.
GRIFFETH: UPS has a new way of delivering your packages, and that`s where we begin tonight`s “Market Focus”.
With the FAA now giving UPS its first board approval to deliver packages using a fleet of drones. The company initially plans to use those drones to deliver items to hospitals, with a possible expansion to other services in the near future. The CEO also believes this will have an impact on its growth.
(BEGIN VIDEO CLIP)
DAVID ABNEY, UPS CEO: We think it will be an enabler of jobs, especially at the beginning because when you can offer specialized services such as drone delivery, you also have a better chance of getting your customers the rest of their deliveries, so if we`re growing our business, then we will create opportunities for our drivers at the same time.
(END VIDEO CLIP)
GRIFFETH: And on this down day, shares of UPS were down more than 3 percent to $115.81.
U.S. Steel is taking a nearly 50 percent stake in low-cost rival Big River Steel. That`s a deal that could be worth more than $2 billion. U.S. Steel then has the option to take complete control of Big River over the next four years, and the company`s CEO sees this deal as a big step.
(BEGIN VIDEO CLIP)
DAVID BURRITT, U.S. STEEL CEO: By 2022, endless casting and rolling, best North American mill will be created which has again the best of both integrated and the mini mill technology. And that will happen. We`ll complete that in 2022.
So, with Big River and what we`re buying, we were buying talent, we`re buying expertise and we`re creating this relationship.
(END VIDEO CLIP)
GRIFFETH: U.S. Steel rose on a down day, more than 3 percent to $11.93.
Strong sales of its Frank`s Red Hot Sauce and French`s Mustard helped McCormick`s top Wall Street`s expectations. This is by the spices company also cited strong consumer demand in the Americas and in China. Shares jump about 7 percent today to $166.95.
HERERA: Shares of Ulta Beauty were higher after a company board member who was also an executive at Chanel bought 250,000 shares through an entity tied to Chanel. This makes the Chanel Group the sixth largest owner of Ulta, and Ulta shares rose about six percent to $265.99.
And after the bell, Stitch Fix posted better than expected earnings, thanks to expanding its online styling service to include categories for kids, maternity wear, petite and plus sizes. Shares were initially volatile in afterhours trading. They closed the regular session up more than 4 percent to $20.06.
GRIFFETH: The secretive world of Swiss banking has been rocked by his scandal. Credit Suisse finds itself at the center of this drama, one that literally includes spies.
Geoff Cutmore has the story from Zurich.
GEOFF CUTMORE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tonight, Credit Suisse has lost its chief operating officer, but at least the CEO`s job appears to be safe. This follows the revelations in an investigation conducted by the board of Credit Suisse into a surveillance operation, surveillance of the outgoing head of wealth management Iqbal Khan.
Now, Mr. Khan identified his pursuers in Zurich some weeks back, confronted them, filed a police complaint and then subsequently complained to Credit Suisse management that he was being followed. The investigation turned up that that action had been authorized by the chief operating officer, Pierre-Olivier Bouee.
Mr. Bouee is now gone, as is the head of security. Apparently though, the CEO wasn`t aware of the action that was being taken.
I asked Urs Rohner, the chairman of the board, whether if we should be concerned that the CEO didn`t seem to know what was going on in his own bank.
URS (NYSE:URS) ROHNER, CREDIT SUISSE CHAIRMAN: Obviously, we base our decisions on the evidence we have. We have obviously discussed this point with him the investigators asked him or interviewed him about this. We have absolutely zero evidence that he was informed about it.
CUTMORE: There have been many strange twists and turns in this story. The media here in Switzerland has been abuzz for months about the falling-out between Mr. Khan and Tidjane Thiam, the CEO, and whether this was the catalysts for Mr. Khan`s subsequent departure.
One of the more unpleasant twists involves the apparent suicide of one of the security staff at Credit Suisse, something the board has expressed its deep regrets over, and they have also apologized unreservedly to Iqbal Khan for the surveillance operation and have said there is no evidence that he tried to poach Credit Suisse staff when he left.
They will be hoping at board level at least that they`ve done enough now to draw a veil over this very murky story.
For NIGHTLY BUSINESS REPORT, I`m Geoff Cutmore in Zurich, Switzerland.
HERERA: Coming up, politicians are spending a lot of money on ads and some major companies are the big winners.
GRIFFETH: Well, the next presidential election may be more than a year away, but spending on political ads is already ramping up. Julia Boorstin takes a look at who`s winning this political ad race so far.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: The fake news, right? The fake news.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Thanks to a contentious political climate and a broad range of Democratic presidential candidates, ad spending is on track to grow dramatically, with political spending on video ads projected to increase 170 percent from 2016 to nearly $6 billion for the 2020 race.
MICHAEL BEACH, CROSS SCREEN MEDIA CEO: This is absolutely going to be a record year for video advertising in politics, more than double what was spent in 2016, which would have been a record. But it`s not just the presidential election, you`re seeing record spending at the House level, Senate, gubernatorial, and then even down ballots, you`re seeing more money spent than ever.
BOORSTIN: The fastest-growing piece of the political video ad pie is digital, with spending forecasts to double from the 2018 midterms this election cycle, and Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) are responsible for about two-thirds of all that digital ad spending. The latest factor expected to drive political ad spending even higher is the Democrats` impeachment inquiry.
It has prompted President Trump to dramatically increase his political ad spending. On Facebook (NASDAQ:FB), the president and Vice President Mike Pence spent $2.1 million on ads last week alone, running nearly 2,000 ads mentioning impeachment. That spending is more than double what the campaign spent on Facebook (NASDAQ:FB) in the first three weeks in September, according to research firm Acronym. It`s all part of a $10 million anti-impeachment ad campaign running on TV as well as digital.
While digital spending is growing, local broadcast TV still has the biggest piece of the video advertising pie, 55 percent.
BEACH: The reason that political still profitable for local stations is because as the election season heats up, you know, rates rise at a faster rate than you seen any other vertical. And so, campaigns once they identify what states or districts really going to decide the election, you know, the money just pours into these areas.
BOORSTIN: The TV giant best positioned to profit from local TV`s political ad blitz is Nexstar, thanks to its purchase of Tribune, which makes it the nation`s largest local TV company, with 197 stations reaching over 60 percent of U.S. households.
But even media companies with fewer stations from E.W. Scripps (NYSE:SSP) to CBS (NYSE:CBS) should benefit from higher political spending as well.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
HERERA: Here`s another look at the day on Wall Street. The Dow fell 343 points, the Nasdaq was down 90, and the S&P 500 slid 36.
And that is NIGHTLY BUSINESS REPORT tonight, I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.
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