NIGHTLY BUSINESS REPORT for February 12, 2016, PBS - Part 1

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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Snapback. Stocks break a five-day losing streak because of a gusher of oil. The question now, can it hold?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Recession or not? The stock market seems to be ringing the alarm bells but the economy doesn`t want to play ball. So which is right?

MATHISEN: Tread lightly. This week`s market monitor thinks the next few months hold more risk than reward but he has some names he says you may want to think about nonetheless.

All that and more for Friday, February 12th.

HERERA: Good evening. Welcome.

It was a strong finish to an otherwise dismal week on Wall Street. The catalyst to the upside is the same catalyst that has been triggering sell- offs and that, of course, is oil. Oil posted its best day in seven years gaining 12 percent on hopes of a possible production cut that we told you about last night.

The banking sector also pitched in, having its best day since 2011, helped out by a big buy-back that we`ll tell you about in just a few moments. Some strong economic data helped out as well. Add it all up and you have a recipe for a rally.

The Dow was up 2 percent to close at 15,973. NASDAQ rose 70. The benchmark S&P 500 added 35. That`s also about 2 percent.

For the week, it was a different story. The Dow was the big loser, down nearly 1.5 percent. The NASDAQ and S&P both off more than half of a percent.

Bob Pisani has more on today`s rally.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The market cannot decide how it feels. All week, we were in the usual quasi-panic mode that characterized the entire year. Oil is down, bond yields were down, gold was up, the yen was strengthening, global stock markets down.

Then, everything changed at 2:30 p.m. Eastern Time yesterday. And that`s when oil which was trading at $26, a 12-ear low, suddenly turned around on remarks of the UAE oil minister that OPEC may agree on some kind of production costs, and no one really believed that. But the world changed, everything reversed. Oil rallied, bond yields rose, gold went down, the yen weakened, stocks rallied.

And that trend continued into Friday. In fact, the S&P rallied about 50 points since 2:30 p.m. yesterday.

Now, this is all the more remarkable because we`re going into a three-day weekend. And you know the drill. With all the volatility, traders are wary holding positions when China will reopen on Monday and our markets were closed but that apparently was not a worry today.

So, what does this all mean? Well, if oil puts in a convincing bottom that would be important. But nothing has changed to indicate that it has. It`s amazing.

Next week, we`ll hear from ECB head Mario Draghi who speaks in Brussels on Monday. We`ll also get Japan`s fourth quarter GDP and we`ll hear from big retailers including Walmart later in the week.

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

(END VIDEOTAPE)

MATHISEN: Well, the market plunged to start the year, has some investors wondering whether stocks are signaling recession. Others say the economy is saying, no way. Today, people in the economy camp got a lift. We got data showing the consumer was alive and well last month as retail sales in January were stronger than expected.

So, if stocks are warning recession, Steve Liesman tells us why the economy isn`t playing ball.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you could cover one eye and block out the dismal stock market numbers, if you could look only at the economic data, you`d have no idea we`re in the middle of some apocalyptic panic, which is to say the U.S. economic data has not been great but it`s been good -- good enough to contradict the view from the stock market that a recession is imminent. Retail sales for January were a bit better than expected, helping confirm the early read that first quarter growth would show a modest bounce back from that weak fourth quarter.

Jobs are up as are wages and unemployment is down. Add to that a sterling household credit report from the New York Fed showing bankruptcies and foreclosure in the U.S. hit their lowest levels in 2015 in the 13 years the bank has tracked it.

WILLIAM DUDLEY, NEW YORK FED PRESIDENT: I think the U.S. economy is in quite good shape. You know, we`ve talked today about the household sector. You also look at the outlook for housing. You look at the fact that fiscal policy in the U.S. is actually turning stimulative as brought by support this year. So, there`s quite a bit of I think momentum in the U.S. economy.

LIESMAN: To be sure, there are weaknesses and warning signs. The stock market can be a leading indicator of growth in recessions. Corporate earnings are contracting and the manufacturing sector of the economy seems already to be in recession.

In addition, the economy itself doesn`t always give warning signs when the economy will slow down. That said, the early read from the January economic data does not confirm the dismal market outlook. And low oil prices, low unemployment, and higher wages set up the consumer to keep spending this year.

The biggest danger then may be the damage in the decline in stocks, undermining confidence and prompting some companies not to hire or to cut back on their capital spending. So, the only thing the economy has to fear Franklin Roosevelt might have said is fear of the stock market itself.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: OK, but what about on the corporate side? Earnings season is wrapping up and the numbers haven`t exactly been something to write home about.

Dom Chu takes a look at how the earnings have been and why they could be a possible red flag.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: There`s a reason why some investors are worried about both the economy and the stock market ahead. It`s earnings season. And while reports from America`s largest companies have generally come in better than expected, the expectations were already low to begin with.

So here`s how things are shaping up: around three-quarters of S&P 500 companies have already reported numbers. Among those, more than two-thirds of them have beaten the average analyst estimate. The problem is, it still means if all remaining companies in the index report earnings as expected, earnings growth will post a decline of 4 percent over the same period last year.

If that does happen, it will mean two straight quarters of earnings declines which some experts categorize as an earnings recession. All of this according to Thomson Reuters (NYSE:TRI) IBIS.

But the concerns don`t end with bottom-line earnings results. There are worries about top-line revenues or sales. S&P 500 companies are on track to deliver sales declines of nearly 3.5 percent this past quarter.

If that does come to pass, it would be the fourth consecutive quarter of year over year sales declines. The last time that happened was during the financial crisis. It also means a sales recession is already under way. Both will argue if you strip out the outsized negative effect of declining oil sales and profits there would actually be modest growth. The bears argue that you have to look at the entire earnings picture no matter how gloomy things have gotten for the energy sector.

Regardless, the decline in sales and profits at America`s biggest companies is helping to add to the overall market caution.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: One person who is firmly on the side of the economy in this little debate between the markets and the economy is the billionaire hedge fund investor John Paulson. His views on the market are closely watched by other investors and he said last night the stock market is getting carried away.

(BEGIN VIDEO CLIP)

JOHN PAULSON, PAULSON & CO. PRESIDENT: There`s a disconnect between the performance in the stock market and the performance of many companies, particularly, you know, that we`ve invested in our portfolio, that the companies are actually doing very well, yet the stock prices are declining. So that`s kind of an imbalance and eventually that will sort itself out.

So, I would say that the market is somewhat overreacting to the current state of the economy.

(END VIDEO CLIP)

HERERA: So which side is right? We`ve set it up for you.

Joining us to discuss is Craig Dismuke, chief economic strategist at Vining Sparks. And David Kelly, chief global strategist at JPMorgan (NYSE:JPM) Funds.

Welcome, gentlemen. Nice to see you here.

Craig, let me start with you. I think you heard the arguments on both sides. Tell me, who do you think has it right, the stock market or the economy?

CRAIG DISMUKE, VINING SPARKS CHIEF ECONOMIC STRATEGIST: Well, I think both of them are telling different stories right now. The economy continues to run at a stable rate of growth. It`s not great. It`s below the 3 percent we`re used to.

But we do see the economy continuing to be fairly stable, growing between 1.5 percent and 2 percent, and that`s primarily because we have a better consumer. I think Steve hit on that earlier. Consumers are in a better position, the labor market`s better. They`re seeing a little wage gains.

And so, from that perspective, the consumer`s driving economic growth and that`s healthy. I think the stock market is really reflecting the fact that there`s a lot of volatility out there. Central banks have been driving asset prices. And to that degree, when they start to unwind it like the Fed did in December, there will be a lot of volatility and that`s what we`re seeing play out.

MATHISEN: David, how do you handicap the possibility of a recession in the United States in 2016?

DAVID KELLY, JPMORGAN FUNDS CHIEF GLOBAL STRATEGIST: Yes, I think in any given year, in any year, there would be a 15 percent to 20 percent chance of recession because of something happening. I don`t think the chances of recession are much more than that, about a 20 percent chance.

As we went into this year the key thing, I agree with Steve Liesman`s report, if you look at government spending, it`s going to be rising this year. Consumer spending is going to do very well this year. All the consumer fundamentals are in place. Housing is still in midst of a bounce back.

If you give me C plus H plus G, you give me that part of the economy, that`s 90 percent of the economy -- 90 percent of the economy looks fine and that will be enough to allow us to avoid recession, unless some big shock that has not already occurred, occurs.

HERERA: Craig, weigh in on that if you will, because from my notes, you say it`s unlikely to have a recession short term, but that the risks are elevated, and if growth contracts, you have a more fragile economy.

DISMUKE: Yes, and that`s one of the challenge wet have today. When you have a 2 percent economy, like we`ve had post the great recession, you know, going -- sliding into a recession is much easier than when you have a 3 percent economy. So I think we have a more fragile economy today.

With all of the turmoil that we see globally and overseas, I think that you could see, if confidence were to be shaken and we were to see the consumer pull back, then you could see it slip into a recession. I think it would be a mild one, but you certainly could see that happen.

So, we`re just starting at a lower base, and because of that, it makes it easier for us to slip into recession.

MATHISEN: David, we didn`t get a chance to talk after the Fed chair`s testimony Wednesday or Thursday. What do you make of it? And more pointedly, what do you think, if anything, she signaled with respect to the pace of interest rate hikes this year?

KELLY: Well, I think Janet Yellen was trying her hardest not to make news. I must say I don`t envy her position sitting in front of the congressmen and the senators. I think she`s -- I think the Fed is cautious. They`re sort of -- that`s in their nature. I think that the volatility we`ve seen this year probably takes March off the table, although she didn`t say that.

I still think the economic numbers will look good enough, that by June they will have to raise rates, and I expect to get a June hike, a September hike. And, by the way, I think the pace of which unemployment`s coming down means they did start too late. And they`re eventually in 2017 going to have to deal with an issue of wage inflation and a very low unemployment rate.

So, to some extent there is a risk in 2017, a greater risk of recession in 2017, but I don`t think so in 2016.

HERERA: Craig, what about the pace of interest rate hikes? A lot of people think march is off the table and a lot of people think the Fed might be only one more interest rate hike in their cards at this point.

DISMUKE: Yes, ironically, if you look at Fed funds futures contracts, which is just a way to determine what the market thinks, they`re actually pricing in a greater chance of a rate cut this year than a rate hike. They were as of Thursday.

So, you know, I think it`s going to be hard for them to raise rates. I think the primary reason -- I agree with David that Janet Yellen didn`t want to make news. I think March is off the table for sure.

But at the end of the day, they have to see inflation come back. And there really are no signs of any inflation anywhere in the production pipeline, earnings growth has been very weak. And so, if there`s not inflation, they`re missing that side of their mandate. So, at the end of the day, I think it`s going to be hard for them to raise rates. Maybe one time this year at best.

MATHISEN: David, what do you make of her comments about negative interest rates in the United States? What would it mean in the U.S. if we did go negative? I know that`s not what you`re suggesting or forecasting at all. What is it going to mean in Europe and what could it mean if it happened her?

KELLY: Well, it`s very disruptive. It reminds me of one of these ads for a fairly harmless disease, they tell you about this pill they spend a minute giving you all the negative side effects. I don`t really see any good. So, I certainly hope we don`t have to resort to that medicine because this isn`t medicine, it doesn`t fix things anywhere.

I hope that the Federal Reserve is really looking at what`s going on, where negative interest rates have been applied, indeed where zero interest rates have been applied for many years, and recognize this is not good at stimulating the economy, it`s best to try to have the fortitude to raise rates gradually to get back to normal.

HERERA: Gentlemen, thank you have a much. Craig and David, appreciate it. Have a good weekend.

KELLY: Thanks.

DISMUKE: Thank you.

MATHISEN: And with all the bank bashing from both side of the political campaign, Wall Street is searching for a presidential candidate to get behind. So, where and who might Wall Street look to? That`s coming up next.

(MUSIC)

HERERA: There has been a common ground from both sides of the aisle this election campaign, blame Wall Street. So, with attacks coming from the left and the right, the street is trying to figure out who to back and it`s not the favorites. Today, Ken Langone, a GOP donor and Home Depot (NYSE:HD) cofounder has decided to back Ohio Governor John Kasich. And activist investor Bill Ackman wrote an op-ed urging former New York City Mayor Michael Bloomberg to run.

John Harwood digs into who Wall Street wants.

(BEGIN VIDEOTAPE)

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s been a rough presidential campaign so far for Wall Street and American business. On the campaign trail, Bernie Sanders says Wall Street`s business model is fraud. Donald Trump denounces corporate blood suckers. Ted Cruz rips crony capitalism. The returns on campaign money, which ought to be Wall Street`s edge, have been as weak as the stock market.

Its three favorite in the race for donations -- Hillary Clinton with $2.9 million, Jeb Bush with $2.4 million, and Marco Rubio $1.3 million -- have been struggling. That sent donors looking around.

Activist investor Bill Ackman wants to persuade former New York City Mayor Michael Bloomberg to run. And Ken Langone has signed on with Ohio Governor John Kasich. But Kasich`s past work for Wall Street is itself a target.

GOV. JOHN KASICH (R-OH), PRESIDENTIAL CANDIDATE: I was a banker and I was proud of it.

DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: This was a man that was a managing general partner at Lehman Brothers when it went down the tubes.

AD NARRATOR: In Congress, John Kasich voted to give Wall Street banks a blank check to write billions in bad loans, leading to the financial crisis. Then as a banker with Lehman Brothers, a Wall Street bank that failed, Kasich made millions while taxpayers were forced to bail out Wall Street.

HARWOOD: And guess where that ad came from? The super PAC supporting Ken Langone`s previous candidate, New Jersey Governor Chris Christie.

For NIGHTLY BUSINESS REPORT, I`m John Harwood in Washington.

(END VIDEOTAPE)

MATHISEN: JPMorgan (NYSE:JPM) CEO Jamie Dimon buys more than $26 million worth of company shares and that is where we begin tonight`s "Market Focus."

The purchase, which was disclosed in a company filing was for 500,000 shares and this means Mr. Dimon now owns more than 6 million shares, according to "The Wall Street Journal." The banks soared today more than 8 percent to $57.49.

Another company that saw its stock surge today was Square. In an SEC filing, the credit card giant Visa (NYSE:V) disclosed it`s purchased a nearly 10 percent stake in the Class A shares of the mobile payment company, in addition to an undisclosed investment Visa (NYSE:V) made in the company in 2011. Shares of square up for the day nearly 8 percent to $9.30.

The Chinese internet search company Baidu (NASDAQ:BIDU) said it received an offer from two executives to buy its majority holding in a Chinese video streaming website. The offer was for the 85.5 percent stake Baidu (NASDAQ:BIDU) owns in that online video site. Shares of Baidu (NASDAQ:BIDU) as a consequence rose over 8 percent to $152.73.

HERERA: Fashion retailer L Brands says the CEO of its Victoria`s Secret brand has resigned. Victoria`s Secret is L Brands` largest division. L Brand CEO Leslie Wexner will add running Victoria`s Secret to her duties. L Brands shares fell 2.5 percent to $81.87 and are off more than 13 percent over the last 12 months.

Intercept Pharmaceuticals spiking on a Reuters report saying that companies is exploring a sale and has received interest from other companies. Intercept is a biotech company focusing on treatments for liver disease. Reuters says Intercept has been working with investment bank others a potential sale but there`s no certainty a sale would took place. Shares were up more than 27 percent to $120.22.

Ford said its January sales in Europe rose 10 percent, making it the best- performing January in four years. A leading driver in the sales came from high SUV demand. The company also said it would launch four new sport utility vehicles over the next four years in response to their growing popularity. Ford shares rose over 3 percent on the news to $11.55.

And insurance company Allstate (NYSE:ALL) is increasing its quarterly dividend 10 percent, which will be paid out on April 1st. The company is the nation`s largest publicly held insurer. Shares gained more than 2.5 percent to $63.91.

This week`s market monitor says when it comes to the market right now, he`s cautious. Not bearish, cautious. Mark Tepper is president of Strategic Wealth Partners.

Mark, welcome. Good to have you with us.

MARK TEPPER, STRATEGIC WEALTH PARTNERS: Thanks for having me.

MATHISEN: Overall, do you think the market six to 12 months from now will be higher than it is today? How bumpy will it be if you think we`re going to get there?

TEPPER: Yes, I do think six to 12 months from today we will be higher but I am expecting quite a bit of volatility over course of the next few months.

There are certainly some big issues. Number one, there`s a huge disparity between what the markets believe and what the Fed believes is appropriate monetary policy at this point in time. Markets are expecting about 15 basis points of rate hikes. The Fed on the other hand is projecting around 100 basis points of rate hikes. So, that`s going to lead to continued volatility.

And beyond that, when you look at earnings season, near-term earnings outlook is very bleak. Revenues are declining. Downside risks remain as far as profit margins go. Pricing power is essentially absent right now.

So, I`d expect more volatility. But at the end the year, we`ll be higher than we are right now.

HERERA: But you say there are potential value plays out there and you`ve given us some names.

So, let`s start, first of all, you say overweight utilities and Duke, DUK, is your pick there.

TEPPER: Duke Energy (NYSE:DUK) is yielding over 4 percent. And it has paid its quarterly dividend for 90 consecutive years. So, it`s not the fastest growing dividend in the world, but it is one of the safest dividends that are out there. For our clients, a lot of pre-retirees, post-retirees, they`re mostly concerned about making sure that they have that income in retirement.

MATHISEN: And the dividends payers typically outperform all other stock, as you know, by a good little margin. Retail drugstores you like. And your choice here is CVS (NYSE:CVS).

TEPPER: Right. So, retail drugstores, as it stands right now, drug demand is just completely booming. And when that happens, you see increased foot traffic into the stores. And what these CVS (NYSE:CVS), Walgreens, what these companies really want to do is they want to sell those high-margin impulse products that are sitting on their shelves. So, we`d expect that to continue to happen over the course of the year.

HERERA: And then insurance. You say overweight insurance, your pick is CINF. You say if we do get higher interest rates, that works in their favor?

TEPPER: Absolutely. Insurance companies are net creditors. So, they -- as interest rates do rise, that is a tailwind for their performance. And if you look at all the sectors out there, as I just mentioned, pricing power a minute ago, two of three sectors are unable to increase -- two out of three industries are unable to increase their prices at or above the rate of inflation right now.

Insurance companies, however, have quite a bit of pricing power and that`s going to help them to have some outside performance over the course of this year.

MATHISEN: And that stock has a very nice return over the past year. I mean, there are not a lot of stocks up 18 percent or so from 12 months.

TEPPER: No, no, it`s done very well. And as you just mentioned, Allstate (NYSE:ALL) increased their dividend as well. So, insurance companies definitely will be benefiting over the course of the next year.

MATHISEN: All right, Mark, thank you very much.

TEPPER: Thank you.

MATHISEN: Mark Tepper of Strategic Wealth Partners in Cleveland.

HERERA: Coming up, the bloom may be off the rose for the multi-billion dollar flower industry, but we`ll tell you about a few startups that are hoping to change that.

(MUSIC)

MATHISEN: Here`s what to watch next week, as you probably know. U.S. markets are closed Monday for Presidents Day. But don`t worry, NBR is still on the air. That`s what to watch, folks.

HERERA: Exactly.

MATHISEN: On Wednesday, we`ll get minutes from last month`s Federal Reserve meeting. The investors that we`ll be focused on what the committee had to say about the economy and obviously the future of interest rates.

And with oil a big focus, Thursday`s inventory numbers will be closely watched by investors and that is some of what to watch next week.

HERERA: Valentine`s Day is Sunday, Ty. As you might expect, flowers are a big business. And although Americans spent about $2 billion on them for Valentine`s Day alone last year, sales have still been falling.

But as Kate Rogers (NYSE:ROG) tells us, there`s a fresh crop of startups that are hoping to shake up the way consumers look at Valentine`s Day.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: In a panic over flowers for Valentine`s Day? It`s not too late. A new crop of on-demand flower startups are promising to make your lover happy in a few hours or less.

New York City`s bates florist Rachel Cho busy fulfilling same-day orders for Bouqs Company. The California-based startup is sourcing flowers from eco-friendly farms in South America and the states for nationwide five-day and next day deliveries. And they`ve recently added same-day services to 130 markets from artisans like Rachel.

The Bouqs Company says their leaner supply chain, cutting out the middleman, leads to lower costs.

JOHN TABIS, THE BOUQS COMPANY, CEO & CO-FOUNDER: One of the things you`ll see that`s different versus competitors is that pricing, especially around Valentine`s Day. Go to our site today, you can order a dozen red roses delivered for Valentine`s Day for $40 flat. Because we don`t have those multiple layers of supply chain between us and you as the consumer, we don`t have to sort of bear the markups at every step along the way. We can offer that price year round.

ROGERS: Armed with sleek apps, V.C. dollars and a focus on sustainability, competitors in the on demand eco-friendly space include Bloom That which wraps flowers in compostable burlap and Urban Stems using in-house bike couriers for delivery.

While spending on flowers for Valentine`s Day has remained stable in the past few years at about $2 billion, the more traditional florist industry taking a hit over the past decade, going from more than $9 billion in 2006, to less than $6 billion last year as grocery stores and online players have increased their market share.

Which is why savvy florists like Rachel are turning to the Bouqs.

RACHEL CHO, RACHEL CHO FLORAL DESIGN: The Bouqs customer, they keep growing because they retain their customers, as well as they`re reaching out to many different people and the demographic has been I think very young. But it`s also very broad range.

ROGERS: All of this ahead of what Rachel expects to be a very busy weekend for some very happy valentines.

For NIGHTLY BUSINESS REPORT, in New York City, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

MATHISEN: And finally tonight, an iconic toy finds a new home. After more than half a century, the Etch A Sketch, a toy where you draw a picture using two dials and shake it to erase it, it is being sold to a Canadian company for an undisclosed amount. The Ohio Art Company bought the rights to license and make the toy.

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