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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The selling intensifies. The Dow and NASDAQ are now in correction territory, off 10 percent from their recent highs. And the Dow has never fallen so far so fast at the start of a year ever.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: China chaos. That country suspends its new stock market rules, leaving investors on edge ahead of Shanghai`s open.
MATHISEN: Costly pitfalls. The common mistakes investors make in a volatile market and how you can avoid them.
All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, January 7th.
Good evening, everyone, and welcome.
A body blow to the stock market as another wave of selling hit Wall Street and knocked stocks hard. The Dow Jones industrial average and the NASDAQ closed in correction territory, meaning the indexes are now more than 10 percent off their most recent highs.
The reason once again was China. That country suspended trading after just 30 minutes. Its benchmark index falling 7 percent. More on that in just a moment.
But, first, the closing numbers. The blue chip Dow index plummeting 392 points to 16,514. In the last four days, the Dow has shed 910 points. The NASDAQ falling 3 percent, off 146 points. And the S&P 500 lost 47.
And as for oil, which continues its slide, it hit a 12-year low during today`s trading session to close around $33 a barrel.
Bob Pisani has more on the sell-off from the New York Stock Exchange.
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BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: After another down open, we pared some losses almost immediately after that as the Chinese authorities suspended the circuit breakers they had implemented just four days before.
Then, oil rallied and we actually had a modest rally going in the middle of the day. Well, that all faded when a "Reuters" report came out suggesting that Chinese officials were being pressured to do a quick devaluation of the Chinese currency, perhaps as much as 10 percent to 15 percent, to help out the economy.
And the markets moved south again to end near the lows for the day even though there was no confirmation of that story.
Except for defensive names like health care and utilities, most of the market was down 2 percent. But there was particular weakness in financials with big names like Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) hitting 52-week lows.
Now, this suggests the market believes that two or three Fed rate hikes are more likely than the four or so that Fed officials seemed to be predicting.
Now, that`s very important because tomorrow, our attention will turn to the U.S. economy. It`s about time we did that. We`re going to get the December jobs report.
Now, right now, the market seems to be pricing in a roughly 40 percent chance of a rate hike in March. Now, a number well above the consensus of 210,000 jobs created might very well be met with a negative reaction. In other words, we made it back to the idea that good news is bad news again.
As for what will happen in China, Chinese ETFs that trade here suggest that Chinese markets could open down roughly 6 percent tonight.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
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MATHISEN: Well, you might think low fuel prices would help transportation stocks. They haven`t really. The Dow Transports are now in bear market territory, down 3 percent today and 24 percent from their highs last February.
As Morgan Brennan explains, it`s a group that many Wall Street watchers are paying very close attention to.
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MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a new year but not a new trajectory for transportation stocks. The Dow Jones Transportation average has tanked more than 6 percent so far this week. Firmly stuck in bear market territory and trading at its lowest level since November of 2013.
Commodity prices that seem to be remaining lower for longer and a dollar that remains strong against other major currencies continue to take a toll on the sector. Analysts who track transportation companies say that`s hitting those that service the manufacturing and mining industries particularly hard.
JASON SEIDL, COWEN GROUP: When I talk to my companies, when I talk to the customers in my companies, especially in the industrial side, the word is we`re in an industrial recession right now. I mean, you can see it by all the railroad car loading statistics as well.
BRENNAN: Just earlier this week, a key measure showed manufacturing contracting for the second straight month, confirming that an industrial recession is indeed under way. It`s been especially tough on railroads, which saw total volumes decline 2 1/2 percent in 2015, the biggest drop since 2009.
That continues to drag down share prices of Union Pacific (NYSE:UNP), CSX (NYSE:CSX), and Kansas City Southern (NYSE:SO) (NYSE:KSU), all of which are trading at multiyear lows.
But other pockets of weakness have emerged as well. One estimate says container traffic at global ports last year grew at the slowest pace in six years. And the Baltic Dry Index which measures rates to transport commodities via large ships has plunged to a new record low amid slowing economic growth in China.
The one relative bright spot: transportation companies hauling goods destined for consumers. But even that could be starting to wane.
SEIDL: The only area of strength that we really saw last year on the transportation side was really in automotive and anything to do with sort of online retail. So, I have one of my trucking companies, Covenant Transportation, they picked up a big new e-tailing customer in the fourth quarter, and I think they`re going to have a strong quarter but I think they`re going to be the outlier in the transportation group.
BRENNAN: Trucking has softened in recent months. The American Trucking Association`s reported that truck tonnage averaged year over year gains of 1 percent for the three months ending in November. That modest increase marks a slowdown in growth for the group, and during the key peak shipping season.
Economists and analysts are keeping a close eye on this sector since truck tonnage served as a leading key indicator of U.S. economic growth.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
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HERERA: Let`s turn now to our two guests who have opposing views about this market.
Chris Wolfe is maintaining his bullish position in the market. He`s head of Merrill Lynch Wealth Management`s chief investment offices. And Jack Ablin is our bear tonight. He`s chief investment strategist at BMO Private Bank.
Good to see you guys. Welcome.
UNIDENTIFIED MALE: Thank you.
HERERA: Chris, we`ve had the worst start to the year really ever. We had a lot of chaos in China. We had very heavy selling in the U.S. market, several days running.
So, make the bullish case here.
CHRIS WOLFE, MERRILL LYNCH WALHT MANAGEMENT HEAD OF OFFICE: Well, I think we`re in an information vacuum. We don`t have a lot of news out. And when countries and policy makers surprise like China did four times in the last few days, you get markets reacting in a negative way.
I think the bull case if you`re trying to be more constructive, which we are, although I would say with modest returns in 2016, rests on two big pillars. The first is margin durability. Companies have become very good at using technology to replace people. It`s been preserving their profit margins.
And the second is where we are hiring, we`ve actually been seeing some wage growth and ultimately wage inflation, little bits of it. But that`s helped the consumer hang in there, add the low oil prices, and I think you`re in a place where the U.S. consumer still drives the bus through 2016.
MATHISEN: You know, Jack, margins may be holding up but profits have been on a bit of a slide, and that is ultimately where a stock market derives its strength from, right?
JACK ABLIN, BMO PRIVATE BANK CHIEF INVESTMENT STRATEGIST: That`s it, Tyler. I mean, I look at China and I tend to agree, it`s more -- it`s more closely aligned with Las Vegas and Macau than it is to Wall Street, quite frankly.
But I do think it`s probably a catalyst. The fact is the market`s expensive. If you look at equities relative to revenues, relative to earnings, I see even after the down draft here, we`ve got an S&P 500 trading roughly 15 percent above its median.
So I think that we do need to see some profit growth. We do need to see some revenue growth, so that fundamentals can ultimately catch up to where investor expectations are currently situated.
HERERA: So, Chris, if indeed you`re a longer-term investor, a retail longer-term investor, do you use this volatility and the down draft that we`ve seen these first few trading days of the year to add to positions? Or is it too soon given what we`re seeing in China?
WOLFE: You know, frankly it`s a little too soon. Not necessarily because of China although I think the China brush paints a lot of bad things.
But I think Jack made an interesting point. Valuations are fair. They`re not really supported. Maybe they`re stretched in some ways.
I think without a lot of guidance from corporates here, we`re likely to have a pretty choppy first part of the year. And I think advisers, we`ve been guiding them to being more selective, more opportunistic around areas of the market that have the durability, the bigger cap companies, the cash flows, the dividends.
It`s really health care, technology and the consumer space where we want to be more selective. So, blind rebalancing just by the stock market and go home, you want to be more thoughtful and more selective when we talk about rebalancing in this market.
MATHISEN: You know, Jack, you mentioned a moment ago that we need rising profits to justify or make investors comfortable with the prices they`re paying for equities. I should point out that I think something like the average stock in the S&P 500 right now is in a bear market, off 20 percent from the highs.
But do you see the U.S. economy strong enough to generate the growth that will flow back to companies` bottom lines, or is that just not likely in your view early this year?
ABLIN: No, I`m actually pretty optimistic on the U.S. economy. But I would kind of equate it more to a hiking boot than a running shoe. I think the fact is that a lot of investors, policymakers, even Fed governors are looking back at the early 2000s and saying that that`s our benchmark, that`s where we need to go.
And the problem is that was a time when it was fueled by debt accumulation. We`re not there anymore. Households aren`t taking on debt. In fact, companies aren`t really spending much in their infrastructure. So, I think we have to adjust to a lower trajectory. But I do think that we are making slow and steady progress.
HERERA: Gentlemen, good conversation. Thank you so much.
WOLFE: Thank you.
ABLIN: Thank you.
HERERA: Chris Wolfe with Merrill Lynch`s Wealth Management chief investment office, Jack Ablin with BMO Private Bank.
MATHISEN: Call it the China syndrome, the country at the epicenter of the global sell-off.
Eunice Yoon reports from Hong Kong tonight on the plunge in that country`s stock market and the decision to suspend its new stock market rules.
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EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China`s stock market had its shortest trading day in its 25-year history, trading lasted less than 30 minutes before circuit breakers were triggered for a second time this week, cutting the day short.
All day today, Chinese investors have been calling for an end to the circuit breakers, and late in the evening, they got their answer. The government announced it would suspend the circuit breakers Friday.
The breakers, which were only installed this year, added to the panic despite being designed to calm investors down. An online poll showed that more than 86 percent of voters thought that the mechanism was not reasonable. The authorities also tried to limit the damage earlier in the day by unveiling new rules, governing large shareholders who are hoping to be able to unwind stocks after a six-month ban, which expires on Friday. Regulators said that they would restrict the size of the shares sold by big shareholders and require that the stocks be sold over time.
The securities regulator holds a weekly briefing after the market closes on Friday so authorities could provide more clarity on their decisions.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Hong Kong.
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MATHISEN: David Riedel joins us now with his perspective on why it seems the entire world is suddenly watching Chinese stocks and their every move. He`s president and founder of Riedel Research Group.
David, welcome. Good as always to see you.
I understand why we in the media are paying as much attention to Chinese stocks as we feel we must. But I wonder whether we`re all paying too much attention to it given the nature of the market and the fact that it seems curiously untied to the fundamentals of the Chinese economy and driven by domestic speculators.
DAVID RIEDEL, REIDEL RESEARCH GROUP PRESIDENT & FOUNDER: You`re exactly right. You hit the nail on the head. Less than 10 percent of Chinese households actually own stocks. The ones that do are extremely speculative and very trading-oriented.
The best year that we`ve seen in the Chinese stock market was 2014, when the market was up 60 percent. And if you and your viewers will remember, that was a time when people were concerned about the slowdown in the Chinese economy. It is entirely divorced from fundamentals.
We shouldn`t be as worried about the Chinese stock market. If people want to talk about concerns over the Chinese economy, I`m all ears. But the Chinese stock market really shouldn`t be dominating our conversation.
HERERA: Yes, we do have to deal with the fallout from the Chinese stock market, even though as you say it`s devoid of fundamentals or separated from fundamentals.
But how do U.S. investors ride that kind of bucking horse given what we saw in today`s trading session?
RIEDEL: Given the 24-hour news cycle, the fact that people trade around the clock, you`re going to wake up in the morning to news about China. It`s inevitable. But I think people need to have the conviction that there are stocks in their portfolio that have good fundamentals, good corporate governance, and are good at getting earnings to the bottom line.
It`s basic investing. You have to tune out the noise of Shanghai being up or down so much in just one day.
MATHISEN: You know, when you mix capitalism with communists who are at the center of the party in Beijing, and you put in things like circuit breakers that shut the market, it rarely, as Sue was saying off air a moment ago, rarely turns out well.
Do you think the fact that they have done away with those circuit breakers and the market will now be allowed to hit its natural price is actually a good thing? It may not be a comfortable thing, but is it ultimately a good thing?
RIEDEL: I think it is a good thing. I think that 5 percent circuit breaker and then the 7 percent shutdown breaker were really like waving a red flag in front of a bull. People were jockeying to be the first one to be selling, to be first in line to sell, and then after the 15-minute break, after the 5 percent drop, they wanted to be first in the next line as well.
So I think this will allow retail investors to sell what they want to sell. It will allow state-connected organizations to buy shares that they want to buy. I think tomorrow may well be the day that the market finds its feet - - finds its footing and provides either a floor, a bottom, or an indication of where we`re headed.
MATHISEN: We will know by the time we wake up tomorrow. David Riedel, thank you very much. David is with Riedel Research Group.
RIEDEL: Thank you.
HERERA: And a bit more now on China. Richmond Federal Reserve President Jeffrey Lacker says the Fed is watching what`s happening in that country very closely. He added, however, that it remains unclear what impact the drop in the stock market and in the yuan will have on the U.S. economy. And in a separate speech Chicago Fed President Charles Evans echoed those comments, saying the central bank is monitoring global events.
MATHISEN: Still ahead, the beaten down sector that was a bright spot in today`s otherwise bleak market, but first, a look at the 30 stocks in the Dow. Walmart was the only one that closed higher on the session.
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MATHISEN: The number of Americans filing first-time unemployment benefits fell last week. Initial jobless claims dropped by 10,000 to a seasonally adjusted 277,000. That remains near historic lows.
In a separate report, global outplacement firm Challenger, Gray & Christmas said planned job cuts last month fell to a 15-year low. Positive news ahead of tomorrow`s monthly employment report.
HERERA: Bed Bath & Beyond (NASDAQ:BBBY) lowering its earnings guidance. And that is where we begin tonight`s "Market Focus".
The home goods retailer missed analysts` revenue expectations and also saw its comparable sales fall by 0.4 percent. Shares of the company were volatile in after-hours trading. During the regular session, the stock fell about 1 percent to $46.51.
Another retailer, the container store, posted an unexpected loss last quarter. It also saw its comparable store sales growth miss expectations and cut its earnings projections for the current fiscal year. Shares of the container store tumbled initially in after-hours trading. In the regular session, the stock fell roughly 5 percent to $7.18.
Walgreen (NYSE:WAG) Boots Alliance raising its 2016 guidance. It beat earnings expectations. The drugstore giant is also in the middle of a takeover of Rite Aid (NYSE:RAD) which if approved by regulators would combine two of the three largest drugstore chains in the country. Shares of the company gained nearly 2 percent to $81.17.
K.B. Home reported worse than expected fiscal fourth quarter profit and revenue numbers on softer than expected deliveries. The home builder blaming bad weather across parts of the country and labor shortages for that weak report. K.B. Home shares dropped nearly 15 percent in today`s session to $10.05.
MATHISEN: Cheers, everybody.
Constellation Brands (NYSE:STZ) saw its profits jumped 22 percent last quarter as beer shipments grew. Beverage brand giant said it will invest $1.5 billion in a second Mexican brewery. Shares of the company up 4.5 percent today. $149.61 on a day like this.
What are you going to do? That`s what you`re going to do. You`re going to reach for a little Modelo.
HERERA: Modelo.
MATHISEN: Ford making some changes to how its pension plans are accounted for. The company says that will boost reported profits and make its results more apparent. Shares of the automaker dropped 3 percent to $12.70.
Time Warner (NYSE:TWX) Cable warning customers that 320,000 e-mail addresses and passwords may have been stolen. The company was notified of the possible issue by the FBI, although it believes the data was gathered through third-party vendors and not by a direct data breach. Shares of the cable provider fell fractionally today to $181.32.
And Boeing (NYSE:BA) had a record year for aircraft shipments in 2015. The plane maker delivered 762 aircraft to its customers, exceeding its target. Even though deliveries were strong, shares fell along with the broader market today. They were down more than 4 percent at $133.01.
HERERA: Amid the market rout there was a bright spot, and it came from a sector that`s been bruised and beaten -- retail.
Courtney Reagan explains why some companies in that sector bucked today`s broader trend.
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COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a mixed bag for investors as Wall Street gets the first indications from retailers about how the holiday season went. Many retail watchers were prepared for rough results from Macy`s (NYSE:M). So, the comparable sales drop of nearly 5 percent wasn`t too surprising.
CEO Terry Lundgren set low expectations going into the holiday quarter after releasing third quarter results. Still, Macy`s (NYSE:M) is lowering its earnings guidance for the fourth quarter and full year for the second time. But Macy`s (NYSE:M) is making moves to improve operations and save money, including cutting more than 2,000 jobs.
But many analysts are still bullish on Macy`s (NYSE:M), focusing instead on the 4 percent dividend yield, strong free cash flow, already steep share declines since August, joint venture real estate exploration, and strong online performance.
It was a tough holiday for Finish Line. Disappointing sales leading the retailer to lower its earnings guidance. The athletic wear retailer will close a quarter of its stores over the next four years. And President Sam Sato will take over as CEO at the end of February.
The unseasonably warm weather of much of the country pushed expectations lower for many retailers as the holiday season wore on. But for some, it wasn`t as bad as feared. JCPenney`s holiday sales improved nearly 4 percent over last year, and the department store also expects free cash flow to be positive for its 2015 fiscal year.
Children`s Place says quarter to date comparable sales are up more than 7 percent. As a result, it too is increasing fourth quarter earnings guidance.
Signet Jewelers was called out as a holiday winner by many analysts early in the season. The owner of Jared, Kay, and Zale (NYSE:ZLC) reports its holiday sales improved nearly 5 percent over last year and it increased the lower end of its previous fourth quarter guidance range.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.
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HERERA: Coming up, common mistakes individual investors make in a volatile market like this, and how you can avoid them.
But, first, a look at the ten sectors that make up the S&P 500 -- all of them in the red today.
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HERERA: And here`s a look at what to watch tomorrow. The December employment report is due out before the bell. Consensus is for a gain of 210,000 jobs created last month. Global investors will want to see how China`s stock market performs overnight now that those circuit breakers have been suspended. And the energy markets will be paying close attention to the weekly oil rig count. And that`s what to watch for on Friday.
MATHISEN: With the Dow falling nearly 400 points today and more than 900 points this week alone, some may be wondering whether it`s time to make changes to their portfolio.
So, we decided to find out what you`re doing with your money.
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UNIDENTIFIED MALE: I believe in the U.S. economy, and I think over time it`s going to come back, and I`m not selling. So I`m OK.
UNIDENTIFIED MALE: I`m pretty young, right? So you just hold on to it and you wait for it to come back up.
UNIDENTIFIED MALE: Pay attention to what money you have and don`t panic.
UNIDENTIFIED MALE: I`ve learned from like eight, nine years ago not to be so risky with some of the funds I had. So, now, it`s a little bit more conservative. So, I`ll be OK.
UNIDENTIFIED MALE: Just hang in there and ride it down and ride it back up again.
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HERERA: Our next guest says he`s been seeing and hearing from two types of investors in this volatile market today. He is Jeff Goldberg, branch manager at TD Ameritrade`s retail office in New York City.
Welcome. Nice to have you here, Jeff.
JEFF GOLDBERG, TD AMERITRADE BRANCH MANAGER: Thank you.
HERERA: So, you said you heard from two types of investors. What types of investors have you been hearing from?
GOLDBERG: Well, there are investors who have overly concentrated positions. And of course we talk to these people and reminds them they should go back to their original strategy, they should go back to their original goals and why they took those positions, and maybe it`s a good opportunity to reevaluate and see if they`re still take the same risk, same level of risk that they set out to take in the beginning.
MATHISEN: You know, my wife will attest to this. I`m always a look on the bright side kind of guy. She`s laughing right now. She`s watching this at home.
But the way I look at market sell-offs like this, Jeff, is that the one thing they do that is a positive is they force you to come face to face and they put a real sharp point on what your risk tolerance is. And if you`re looking at your portfolio and they`re seeing it go down and this is too much pain for you, isn`t that a learning opportunity?
GOLDBERG: Well, absolutely. And in fact, we believe that your portfolio should be a reflection of the amount of risk you want to take, not necessarily the amount of money you want to make.
MATHISEN: On that note you say there are three mistakes that investors commonly make and you say one, don`t get emotional, don`t abandon your basically long-term investment strategy and goals, and then don`t overreach. Correct?
GOLDBERG: Absolutely. The one big advantage that institutional -- you know, professional investors have over the average self-directed investor is they`re not emotionally attached to their investment. And they can look at it in a dispassionate way and evaluate what`s working, what`s not, where they should be positioned.
In terms of your overall goals, most people start out investing for a reason. It`s either retirement. Maybe it`s college planning. There are a lot of different reasons people invest.
And those reasons dictate, you know, how long an investment horizon they`re looking at and what kind of risks they`re willing to take to get there.
The other mistake is people overreach. So, you see a market down like it`s been in the last few days and what a lot of people will do is take more risk in the hopes of making that back. And that`s usually not a good thing.
So, usually, you want to make sure that your risk tolerance is in line with what you`re comfortable. You need to sleep at night. If you`re putting your head down on the pillow and staring at the ceiling and thinking about, you know, what a market decline over a few days is going to do to your life, then you`ve probably overextended your risk tolerance.
MATHISEN: Let me ask you one quick question. You said one of the advantages institutions have over individuals is they aren`t emotionally attached. On the other hand, I`ve often thought, a quick answer, please, that individuals have the advantage that they do not have a board of directors or anybody to report to -- unless it`s your spouse.
