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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Reality bites. Stocks get slammed. The Dow plunges 2 percent as investors start to wonder how a gradual increase in interest rates may impact companies and consumers.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Protecting your portfolio. Our market monitor has a list of stocks he says will do well no matter how the broader market behaves.
MATHISEN: Send in the drones? No. Send in the jets. Amazon (NASDAQ:AMZN) considers leasing its own aircraft fleet to ensure what you buy gets there when you want it.
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, December 18th.
HERERA: Good evening, everyone. And welcome.
A momentous weekends with a momentous thud. Stocks cratered, falling for the second straight day as investors across the globe continued to digest the Federal Reserve`s rate hike and tried to figure out what this new rising rate environment may mean for businesses and consumers. The Dow Jones Industrial Average sank 367 points to 17,128, its lowest close since October. The NASDAQ fell 79. The S&P 500 dropped 36.
A decline in crude prices didn`t help the broader market either. Oil futures fell 22 cents to settle at $34.73 a barrel, after data revealed a climb in the number of active oil rigs for the first time in five weeks. And investors flocked to safety, sending bond prices higher and yields lower. For the week, all of the indexes were lower.
Bob Pisani has more on the dramatic end to a momentous week in the markets.
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BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks declined again today. What`s going on? Wall Street`s in a funk. The basic theme is lower for longer, meaning commodity prices and global demand will stay low into 2016. Lower for longer not just in oil but natural gas and lower for longer in steel and in copper and aluminum and other base metals. Lower for longer in global industrial sales and lower in interest rates and lower for longer in many emerging markets.
So, how long is this lower for longer? Well, it depends. But the general theme is that lower everything continues into at least the first half of 2016.
And the Fed, oh, traders are in a funk on this one too. How`s this? Janet Yellen is in trouble no matter what she does. The argument is this. If the economic data is good, she`s going to raise rates quicker and the markets are going to have a tough time digesting the higher rates. If the data is poor she`ll be less aggressive raising rates but stocks will respond negatively to the poor data.
You see what I mean? You`re in a jam either way but that`s what the traders think. Wall Street needs to stop drinking the Kool-Aid and start drinking the eggnog.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
(END VIDEOTAPE)
MATHISEN: And on that note of eggnog, we bring in Russ Koesterich. He joins us to talk more about today`s market sell-off. Russ is chief investment strategist at Blackrock.
Always great to see you, Russ. Is this sell-off over the past two days about rising rates? Is it about falling oil? Or is it about the effect that falling oil is having on high yield? Or all three?
RUSS KOESTERICH, BLACKROCK GLOBAL CHIEF INVESTMENT STRATEGIST: Well, I think it`s mostly the last. And I`d put one more category in there. The market can withstand a gentle tightening by the Fed, particularly if the starting point is zero. So I don`t think a couple of hikes or even four hikes next year is the end of the world.
What is a challenge is what`s happened this year. That if the Fed is hiking at a time when most of the other central banks are easing and we see another rapid appreciation in the dollar that`s becoming a very big headwind for U.S. companies. It`s one of the reasons earnings went nowhere. And that to me is a bigger challenge for stocks than whether the Fed does two or three hikes in 2016.
HERERA: So, is this going to continue, this type of sell-off into next week? It`s going to be a week with thin volume because a lot of people take that week off, the next two weeks actually. So, what are you expecting, in terms of the momentum to the downside possibly in this market?
KOESTERICH: Well, certainly, you`ve got a week with not many people here. So, it`s going to exacerbate the moves. I`m not as worried about the next two weeks. You get a little bit of a positive bias towards the end of the year.
But I do think unfortunately we come back from our holidays in January, we`re going to be facing the same set of issues. And we mentioned oil a moment ago. You know, oil going down is actually a positive. It`s pro-cyclical. It`s a force of consumption.
But if oil is 35 or even 30, raises more fears about the high-yield market, that`s going to leak very quickly into stocks and that will lead to more volatility.
MATHISEN: We`re looking right now, Russ, at a kind of zero year for year for equities if it ended today.
Modest gains if you had some kind of stocks, modest losses if you had others. What do you look for in 2016 and since you think so much of this may be related to the value of the dollar, where do you see the dollar going? It didn`t move all that much this week as I`m remembering.
KOESTERICH: It didn`t. It was up about 1 percent this week. But you know, the dollar`s been moving steadily higher over the year, granted in a very erratic fashion. The odds are that`s going to continue and I think that holds one of the keys for 2016, which is thinking about the currency. The currency has been a headwind for U.S. companies, it`s been a tailwind for companies in Europe and Japan.
Now, neither market had a brilliant year but they`re both in positive territory and if you would hedge back on the currency, Japan, for example, is up about 9 percent. So part of the strategy for 2016 is thinking about if the dollar continues to go up who are the net beneficiaries? They`re companies overseas, not as much in the United States.
MATHISEN: All right. Russ Koesterich with Blackrock -- go have some eggnog. Have a great weekend, sir.
KOESTERICH: All right. Right now.
MATHISEN: All right.
HERERA: In Washington, Congress today approved the $1.1 trillion spending package. The bill avoids a year-end showdown over the budget and the shutdown of the government. It also includes a number of tax breaks.
Eamon Javers has been following the developments from Washington.
Good to see you, Eamon, as always. You know, the Republicans and the Democrats haven`t been able to get along for a long, long time. Suddenly, on this issue it`s a huge bipartisan vote for the package. What happened?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a huge bipartisan vote. We expected this one to be a lot tighter than it was in the end. Ultimately, they ran away with it on the yay side. The nay side not so much.
And part of reason for that is it was a $1.1 trillion spending package. Also, about a $500 billion package of tax deals in there as well. All bundled together in this massive deal that included everything from repealing the 40-year-old oil export ban to a cyber security bill that was entirely unrelated that was tucked in there at 2:00 a.m. on Wednesday, to a whole lot of things that a lot of lawmakers liked.
So, there were some conservatives who said this is too rich for our blood, we don`t like all this deficit spending and there were some Democrats who said it doesn`t spend enough, there`s no bailout in there for Puerto Rico and some other things they wanted. But ultimately that was enough to get the broad middle Democrats and Republicans overwhelmingly voting for this package today.
MATHISEN: So what was the critical thing the GOP wanted and I assume they got it, and is this the end of that word we knew, sequestration?
JAVERS: That`s a good question, Tyler. So, the number one thing Republicans wanted was that 40-year ban on oil exports. And the politics on that have changed so dramatically now that we`ve got this very low price of oil, low price for gas at the pump. That means voters are not squealing as much about gas prices and politicians feel free to do something on that front that they haven`t been freed to do over the past several decades.
That`s what Republicans wanted. In fact, Nancy Pelosi, the Democratic leader on Capitol Hill, said Republicans wanted it so much she said they gave up a whole bunch of other stuff in order to get it in negotiations. That`s part of what made Democrats happy about it.
So, yes, this means they passed through the sequestration budget caps. You remember the deal they passed a couple years ago that capped federal spending overall, this burst through that, and that was one of the goals of President Obama. He said today that he`s happy ultimately with what this deal does partly because it does breakthrough that sequester spending cap.
HERERA: All right. Eamon, thank you. Have a great weekend. Good to see you. Eamon Javers in Washington.
JAVERS: Thanks, Sue.
MATHISEN: And sticking in Washington, President Obama praised Congress for reaching that budget deal during his year-end address from the White House. He also highlighted the improving scene in the economy.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Our early actions to rescue the economy set the stage for the longest streak of private sector job growth on record, with 13.7 million new jobs in that time. The unemployment rate has been cut in half, down to 5 percent. And most importantly, wages grew faster than at any time since the recovery began.
(END VIDEO CLIP)
MATHISEN: The news conference the president held was wide-ranging, covering a number of topics including national security, and John Harwood was following it all.
John, as you predicted, much of the news conference was about national security. One subject, using social media to help identify potential terrorists, the president stepped very carefully. And I`m just not sure where he landed. Are you?
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, I think so. Look, the president was making the point in the wake of a controversy that had occurred after a story this weekend that said in the vetting process for the woman who married Syed Farook and came to this country, that vetters had overlooked social media messages she had posted. That was in "The New York Times (NYSE:NYT)" over the weekend.
As it turned out, she had not posted them publicly. They were messages that were contained in private e-mails or Facebook (NASDAQ:FB) messages. And what the president said today was we need to work closer with tech companies and get them linked with law enforcement to try to monitor what we can. But he acknowledged that there are -- it is not possible to get private messages in many cases from these social media applications.
So, he was trying to make that distinction as part of a broader argument that preventing lone wolf attacks from solitary individuals who are intent on wreaking havoc is simply going to be very difficult to do in all cases like the San Bernardino case.
HERERA: He also talked about what he considered the successes of this year for him and for his administration, normalizing relations with Cuba to a greater extent, the Asia Pacific trade agreement. But then he said he intends to get a lot more done in 2016. What are some of the big priorities for him?
HARWOOD: Well, he wants to get that Trans Pacific Partnership through the Congress. And there have been mixed signals. Paul Ryan said he was open to an early vote. Paul Ryan favors that deal. Mitch McConnell, the Senate leader, has indicated he might not want to have a vote before the November election. The administration doesn`t want that.
So, pushing that forward is one thing. The other opportunity he highlighted today was on criminal justice reform. There is a growing bipartisan consensus that we`re putting too many people in prison for non- violent crimes rather than rehabilitating them at a cost to our economy, to our government budgets, and to the toll on the lives of those individuals.
And to that end, by the way, he pardoned 95 people today who fit that category, and this was a greater number of pardons than he`s issued at any time before in his presidency.
MATHISEN: John Harwood in Washington tonight -- thank you very much. Have a great weekend, John.
HARWOOD: You too.
HERERA: A Federal Reserve official says that four rate hikes next year would be considered appropriate. Speaking on a business panel in Charlotte, Richmond Fed President Jeffrey Lacker said that`s what the central bank means when it anticipates raising rates at a gradual pace.
(BEGIN VIDEO CLIP)
JEFFREY LACKER, FEDERAL RESERVE BANK OF RICHMOND PRESIDENT: I think it`s a sign of the strength of the U.S. economy. I think it`s a fundamentally positive reflection of how far we`ve come since the recession. We continue to add jobs. Consumer spending continues to expand. We continue to innovate and invest. I think we enter the next year on a good foot.
(END VIDEO CLIP)
HERERA: Lacker is the first Fed official to speak publicly since the Central Bank hiked rates on Wednesday.
MATHISEN: The Central Bank, of course, watches the job market very closely, and today, we learned that the unemployment rate fell in more than half of U.S. states back in November. The Labor Department reports that 27 states saw their jobless rates fall, 11 saw an uptick. The rest unchanged. New Mexico now has the nation`s highest unemployment rate, 6.8 percent. North Dakota the lowest, 2.7.
HERERA: Still ahead, why the hospital auto sales market is sending one car dealer into reverse.
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HERERA: An update now on a story we told you about last night. Martin Shkreli, the CEO known for significantly raising the price of a life-saving drug, has resigned as chief of Turing Pharmaceuticals. The news comes one day after he was arrested and charged in a securities fraud scheme unrelated to Turing. The privately held firm has promoted its chairman to the position of interim CEO.
In a statement, Turing said the leadership changes won`t impact its business and that no patient in need of Daraprim, the drug that saw that price increase 5,000 percent, would be denied access.
MATHISEN: Shares of Disney (NYSE:DIS) drooped like soggy mouse ears today after a Wall Street firm cut its rating on the stock to sell. The firm believes the likely success of "Star Wars" would not be enough to offset the impact of ESPN subscriber losses.
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RICH GREENFIELD, BTIG MEDIA AND TECHNOLOGY ANALYST: And it`s squarely because of ESPN and the cable network division, everyone`s excited about "Star Wars." And look, we believe "Star Wars" is going to do $2.6 billion in global box office. So, we`re not taking a negative view of "Star Wars." This is all about cable networks, which is 45 percent of Disney`s operating income.
(END VIDEO CLIP)
MATHISEN: And shares of the Dow component fell nearly 4 percent on this down day, making it one of the worst performers on the blue chip index today.
HERERA: And that downgrade comes on the same day that Disney`s "Star Wars: The Force Awakens" pulled in a record $57 million in Thursday evening previews. That figure tops the previous record. And so far, fans like what they`re seeing.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: I got here at 1:00 a.m., and the theater was packed. I don`t think there were any seats left. And when the logo came up and just said "Star Wars Episode 7", the theater just lost it and everyone was cheering. It was a great experience.
UNIDENTIFIED MALE: I was kind of surprised, but I think they did a really fantastic job on this. Being Disney (NYSE:DIS), very good job.
UNIDENTIFIED MALE: I`m going to see it again tonight. We have tickets for another showing. So just to make sure it`s a good movie, I`m going to go to watch it twice.
(END VIDEO CLIP)
HERERA: Well, Disney (NYSE:DIS) says it expects today`s domestic sales to top $100 million and more than $200 million in U.S. and Canadian sales through Sunday.
BlackBerry shares rally as the broader market sinks, and that`s where we begin tonight`s "Market Focus".
The company reported revenue above expectations and its quarterly loss was smaller than anticipated. CEO John Chen says he`s particularly pleased with the company`s bigger push into software.
(BEGIN VIDEO CLIP)
JOHN CHEN, BLACKBERRY CEO: I think the direction of our software business are pretty good. I`m quite comfortable with the fact that especially on the recurring side, we`re running I think about 70-some percent today on recurring. Our goal for next year will be over 80 percent.
(END VIDEO CLIP)
HERERA: Shares of BlackBerry rose more than 10 percent to $8.60.
Darden also had a positive day. The owner of casual dining restaurants like olive garden and Longhorn steakhouse swung to a profit and increased its earnings outlook for the year. The company also raised its same-store sales forecast and outlined a new buyback program. Shares of Darden rose 7 percent to $62.51.
Carnival`s fuel costs were cut nearly in half and that helped the cruise ship operator swing to a profit in the latest quarter. The company was also able to increase prices and said its bookings were strong. The stock rose about 4 percent to $52.44.
MATHISEN: Lennar (NYSE:LEN) reported earnings and revenue that easily topped expectations. Second largest home builder in the U.S. reported gains in new orders and deliveries. The company said land costs did increase in the future but that was partially offset by higher home prices. Shares, though, fell 2 1/2 percent to $47.49.
Target (NYSE:TGT) reportedly developing its own mobile wallet. The project would let customers pay for goods using an app on their phones. But according to reports, target has not committed to launching the product. Shares of the nation`s fourth largest retailer fell more than 1 percent to $71.40.
And from the why didn`t they do this sooner file, Isis pharmaceuticals is changing its name. The drug company`s new name will be Ionis pharmaceuticals, effective next week. The ticker symbol will also change. No longer ISIS. It will be INOS. The company has been considering a name change for most of the year to avoid being confused with the Islamic terrorist group. Shares fell slightly to $57.84.
HERERA: CarMax`s shares tumbled as well. The auto retailer reported disappointing third quarter results, missing both profit and revenue expectations despite strong sales for cars overall. The stock fell about 6 1/2 percent to $53.49.
Phil LeBeau explains why the hot car market is creating a tough environment for some car dealers.
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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: With the economy improving and used car sales in the U.S. close to a record high, you would think CarMax (NYSE:KMX) sales would be in overdrive. Think again. Sales comparisons for stores open at least a year dropped slightly in the third quarter.
Why? Well, heavy demand for certain models like trucks and SUV created a situation where CarMax (NYSE:KMX) had a tight supply. At the same time, financing for new vehicles is so cheap it`s making many people who ordinarily buy used decide instead to buy or lease new.
JAMIE ALBERTINE, STIFEL: There really isn`t a large supply of zero, one, two, and three-year-old vehicles in the same category. So when faced with similar payments, we believe some consumers are opting to go to new vehicles relative to used and that`s weighing on CarMax (NYSE:KMX) sales results at the moment.
LEBEAU: In the third quarter, the average monthly payment for those buying a new vehicle was just under $500 and those leasing paid just under $400 a month. Just $37 per month more than the average used car payment.
In addition, cheap gas may be convincing consumers they can afford to pay a little more to get the model they want. And increasingly, what they want are pickups, SUVs, and crossover utility vehicles. In fact, sales of those bigger models have soared to their highest level since 2004. While car sales have slowed down.
Analysts believe what happened with CarMax (NYSE:KMX) comp sales in the third quarter is unlikely to be the start of a long-term trend, mainly because the surge in vehicles leased in recent years will soon be going off lease. And when they do, they`ll be sold as used vehicles at dealerships like CarMax (NYSE:KMX).
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
(END VIDEOTAPE)
HERERA: And now to our market monitor who likes stocks he says investors can own whether the stock market is up or down.
Mark Lehmann joins us. He`s president of JMP Securities, an investment bank based in San Francisco.
Welcome. Nice to have you here.
MARK LEHMANN, JMP SECURITIES PRESIDENT: Thank you. Appreciate it.
HERERA: So, basically, the last time you were on back in February of 2014, you recommended Tableau Software, which is down 1.4 percent, Aratana Therapeutics, which is down 74 percent. Ouch. And Workday is down 15 percent.
So, Mark, do you still held those stocks?
LEHMANN: Well, two, of the three -- the tech stocks have done -- made numbers in Tableau and specifically has beaten numbers.
Workday has done quite well. It`s just one of those stock that hasn`t been appreciated by the market. I think they will go into 2016.
Aratana did well right out of the chute and had some problems with some drugs. They`re in the pet health market. And that is unfortunate. That`s a wins business. They`ve had a couple back about a year ago, some misses.
But I think they`re going to perform going forward. That has been a tough stock, though, as you noted.
MATHISEN: Let`s move on to your stock picks now. You still have on your list that Workday company. We`ll get to that. But you like two of the so-called FANG stocks here. I`ll take the A. Sue can have the F.
I`ll take the Amazon (NASDAQ:AMZN). Why do you like it?
LEHMANN: Well, it`s a well-known stock. We`ve been liking it at JMP for a long too many. Our analyst Ron Josey has been highlighting the Amazon (NASDAQ:AMZN) web services story. That part of the business which I think is the least well known business is growing at 60 percent.
Their EBITDA margins are in the mid-20s and they really are defining a new space. It`s a multibillion-dollar business for them growing again at 60 percent. It`s a catalyst for the stock in 2016. It`s been a great story in 2015.
Their core business at retail, we all know it, they`re innovating better than anybody. That is a slow grower but their operating margins is up 20 percent year over year in that business. It`s just a terrific story. It`s just -- you`ve just got to decide what to pay for it and on days like today when the markets hit, that`s when you want to pay attention to stock like Amazon (NASDAQ:AMZN).
HERERA: All right. Facebook (NASDAQ:FB), and you point specifically to Instagram.
LEHMANN: So, Instagram`s a great business for them. The number of users on Instagram has gone from 300 billion users at the end of 2014 to about 400 million this year, and you`ll start to notice much more on the advertising spend on that business.
If they get anywhere close to the kind of rates they`re getting on the core Facebook (NASDAQ:FB) business, that Instagram is going to be such a large contributor to earnings going forward. I don`t think people are well aware of how good a catalyst that will be.
And as I said -- as I say all the time, Facebook (NASDAQ:FB) users check their Facebook (NASDAQ:FB) page a billion times a day. We get a World Cup Finals every sickle day with users of Facebook (NASDAQ:FB). That is a juggernaut for advertisers they want to monetize.
HERERA: Right.
MATHISEN: Thirty quick seconds on Workday. You reduced the price target but you love the earnings growth.
LEHMANN: Exactly. They`ve owned the HR market. They`re going deeper into the financial services market. I think they`ve got the street ready for a 30 percent year on the top line. Growing EBITDA faster than that. It`s a terrific company. The stock`s traded sideways for two years as they doubled revenues. I think it`s time in `16 for that stock to take off.
MATHISEN: Mark, have a great weekend. Thanks for joining us.
Mark Lehmann with JMP Securities.
LEHMANN: Thank you both.
MATHISEN: And coming up, speaking of Amazon (NASDAQ:AMZN), Amazon`s big ambitions as it reportedly takes another step to get your packages delivered fast.
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HERERA: It is a shortened trading week, and next week, here`s what to watch. Lots of economic data including the third read on third quarter GDP, existing home sales, and durable goods.
Dow component Nike (NYSE:NKE) reports its earnings, and OPEC releases its world oil outlook, and that`s what to watch next week.
MATHISEN: And President Obama announcing today that nearly 6 million Americans have enrolled in insurance for 2016 through the federal healthcare.gov site. About 2.5 million of the current total are new customers. Compare that with this time last year when only about 3.5 million people had signed up.
HERERA: And now to Amazon (NASDAQ:AMZN), which is reportedly taking another stop to ramp up its delivery operations. As first reported by the "Seattle Times," the online retailer is looking to lease its own fleet of jet planes to potentially lower the risk of shipment delays. Shares of Amazon (NASDAQ:AMZN) were off just a fraction.
Morgan Brennan takes a look at Amazon`s strategy.
(BEGIN VIDEOTAPE)
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call it an airy ambition, the latest in Amazon`s quest to build out and control its own transportation network. The "Seattle Times" reporting the e-commerce giant is in talks to lease 20 Boeing (NYSE:BA) 767 jets to create its own air delivery service.
Amazon (NASDAQ:AMZN) has not responded to request for comment and Boeing (NYSE:BA) is not commenting, quote, "on any potential negotiations that may or may not be taking place with potential customers." But if Amazon (NASDAQ:AMZN) is looking to hit the skies, it is likely doing so by talking to aircraft leasing companies, not Boeing (NYSE:BA) directly.
Leasing companies could operate the fleet since Amazon (NASDAQ:AMZN) doesn`t have an air operator certificate. This model may be something Amazon`s already testing out. Air transport services group is running an air cargo trial out of Ohio. That as of last month involved five Boeing (NYSE:BA) 767s.