NIGHTLY BUSINESS REPORT for June 27, 2016, PBS - Part 1

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LeBeau, Jane Wells, Eamon Javers, Sharon Epperson>

Stock Markets; Trade; Lifestyle>

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Brexit aftershocks. Losses deepen here and abroad as investors try to determine how the U.K.`s vote to leave the European Union will impact everything from the auto sector to defense stocks to Silicon Valley.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Portfolio protection. The stocks you may want to own when times get tough.

HERERA: Retirement in ruins? Not quite. Whether you`re a millennial, mid-career or a boomer, we have some tips to protect your savings even as the market slides.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, June 27th.

MATHISEN: Good evening, everyone, and welcome.

Sit back and enjoy a half hour. It`s calm now. There`s no market trading. It`s all good.

But during the day, the route intensified, not just here but around the globe, as investors try to assess what the United Kingdom`s decision to leave the European Union may mean for their money now and in the long-term.

Today, the losses were deep, though, not as heavy as Friday. But the reason for the selling wasn`t the same. Investors dumped assets they consider risky like stocks, and rushed into government bonds for safety. And that sent bond yields to record lows.

By the close, Dow Jones Industrial Average lost 260 points to finish at 17,140. NASDAQ fell 113. S&P 500 was off 36.

Bob Pisani has more on today`s sell off.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was another tough day for the market. Now, we did not end at lows, but that was not much consolation. Volume was very heavy, about 70 percent above normal as institutional sellers came in and reduced exposure right across the board.

Now, there`s two big problems weighing on U.S. stocks right now. First is lower for longer interest rate. It`s killing financials. It was another ugly day for money center banks like Bank of America (NYSE:BAC) and JPMorgan (NYSE:JPM). But even regional banks like Fifth Third were down again, and life insurers like MetLife (NYSE:MET) got clobbered as well.

The second problem is the dollar. It`s rallied about 3 percent in two trading sessions. That put big pressure on commodity and commodity stocks. So, energy names like Marathon and Devon were down again as were copper stocks like Freeport-McMoRan, steel stocks like Allegheny and iron ore names like Vale.

Is there any good news? Well, the REITs like Simon Property, and utilities like ConEd, and telecoms like Verizon (NYSE:VZ) were at or close to new highs because they do well in low rate environments and consumer names like Clorox (NYSE:CLX) and Dr. Pepper also are doing well.

And volatility was down today. That`s strange. It`s a sign I think that some traders do not believe this wild volatility will continue.

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

(END VIDEOTAPE)

HERERA: Secretary of State John Kerry is meeting with E.U. leaders and he called on them to remain calm, especially during the political and economic transition. But in London, it appears as though things are anything but.

Sara Eisen reports.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Investors picked up where they left off on Friday, selling British stocks and the British pound after political turmoil intensified over the weekend.

Prime Minister David Cameron speaking out today for the first time since announcing his resignation after losing the referendum vote. Speaking out also for the first time before parliament, offering some words of calm in the face of what has been political and market upheaval, but also acknowledging the challenges ahead.

DAVID CAMERON, BRITISH PRIME MINISTER: Turning to our economy, it`s clear that markets are volatile. There are some companies considering their investments and we know this is going to be far from plain sailing. However, we should take confidence from the fact that Britain is ready to confront what the future holds for us from a position of strength.

EISEN: Now, Cameron travels to Brussels to meet with fellow leaders of the 27 other E.U. nations, some of whom are calling for a speedy divorce and are angry at the way the vote turned out.

There`s anger in the United Kingdom as well, particularly from Scotland, which voted overwhelmingly to stay in the E.U.

NICOLA STURGEON, SCOTTISH FIRST MINISTER: The Scottish parliament was just judging this on the basis of what`s right for Scotland, then the option of saying that we`re not going to vote for something that is against Scotland`s interest. Of course, that`s going to be on the table. U.K., I care about England, that`s why I`m so upset at the U.K.-wide decision that`s been taken. But my job as first minister, the Scottish parliament`s job is to judge these things on the basis of what`s in the interest of people in Scotland.

BBC ANCHOR: But can you imagine this fury?

EISEN: And there`s anger and uncertainty on the streets of London where British businesses are trying to navigate a weaker currency, and also potentially different trade terms with Europe.

TIM MAPARA, HOLA PAELLA MANAGER: We get all our ingredients for the paella from Spain. So, our supplier is like a Spanish company. We get the duck meat from the southwest of France. So, everything that we import I`m sure it`s going to be affected.

EISEN: It`s not just business owners. Nearly 4 million people have signed a new petition calling for a rerun of the referendum. Something the Cameron government has shut down in the United Kingdom.

But there will be a new prime minister in this country on September 2nd. Until then, uncertainty reigns in the United Kingdom.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen in London.

(END VIDEOTAPE)

MATHISEN: Treasury Secretary Jack Lew here in the U.S. tried to restore calm to the global markets today. Despite the selloff, Lew said the U.S. economy is doing pretty well, and there is no sense that a financial crisis is developing.

(BEGIN VIDEO CLIP)

JACK LEW, TREASURY SECRETARY: I believe there will be economic head winds, but I think as we`ve seen Friday and through the early market hours today, there is a kind of orderliness in the markets. There was a surprise and a reaction, but the systems are all working.

(END VIDEO CLIP)

MATHISEN: Lew`s counterpart in the U.K., George Osborne, also tried to reassure financial markets and the British people that his country`s economy is resilient.

(BEGIN VIDEO CLIP)

GEORGE OSBORNE, BRITISH CHANCELLOR OF THE EXCHEQUER: It will not be plain sailing in the days ahead. But let me be clear, you should not underestimate our resolve. We were prepared for the unexpected and we are equipped for whatever happens and we are determined that unlike eight years ago, Britain`s financial system will help our country deal with any shocks and dampen them not contribute to those shocks or make them worse.

(END VIDEO CLIP)

HERERA: As for Britain`s financial system, Barclays saw its shares fall so sharply today they were halted at one point in London trading. Other European bank stocks tumbled for a second straight session. The sector is having its worse two-day loss ever. Britain`s decision to leave the E.U. is seen as pressuring bank earnings at a time when returns are already poor and regulatory costs are high.

And the blows seem to keep on coming. Standard & Poor`s stripped the U.K. of its coveted AAA credit rating. The agency says its decision to leave the European Union changes the outlet for its economy and it puts that country`s financial services sector at a disadvantage. The U.K.`s credit rating was cut by two notches and S&P warned more downgrades could follow.

MATHISEN: The outcome of the U.K. referendum has also slammed the brakes on almost any stock related to the auto industry. The fear is that Britain`s economy could slow, so could Europe`s. And that could stall auto sales.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: After coming out of one of the worst slums for auto sales in years, Europe is giving automakers a fresh round of headaches. The big fear, Brexit will slam the brakes on auto sales. Britain is the second largest auto market in Europe, with 2.6 million vehicles sold there last year.

But already, some are predicting a double digit drop in U.K. auto sales over the next two years. The fear being British consumer confidence drops at Brexit and the Brits will buy fewer vehicles. It`s a major concern for the big three because Europe has long been a market where they`ve lost billions of dollars. Just last year, Ford finally turned a profit in Europe. And this year, GM, which has a huge presence in Europe with its Opel brand expects to break-even in Europe for the first time in 17 years.

Of course, that`s assuming other economies like Germany and France do not slow down as the E.U. wrestles with life after Brexit. The good news for the big three is that their largest and most lucrative market, the U.S., remains strong, largely due to heavy demand and price increases for trucks and SUVs, their most profitable vehicles.

So far, auto makers have not made major cuts to production schedules for the second half of this year. And remember, many auto makers close plants in Europe during the recession, so they are leaner and better prepared to handle the slowdown in sales if the post-Brexit fears become reality.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: The auto sector isn`t the only one paying close attention to developments overseas. Major defense and aerospace companies are now left with a lot of unanswered questions.

Jane Wells explains.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: There`s both good news and bad news for defense companies after the Brexit. First, the good news. If the Brexit makes Europe less stable, the U.S. may get more defensive. A note from RBC suggests a weaker Europe could embolden Russia, quote, "And reinforce the case for robust national security spending."

Now, the bad news. A strong dollar may make products like the Lockheed Martin (NYSE:LMT) F-35 even less affordable, as the nation`s most expensive weapons program prepares to make its debut at the annual air show in Farnborough, England. The Brits want to buy 138 of the next generation fighter jets, but have so far only ordered 14.

There were also hopes the U.K. might put in orders for Boeing (NYSE:BA) P-8 Poseidon and Apache (NYSE:APA) helicopters of Farnborough, but orders may be subdued.

Then, there`s the impact on U.K. defense companies. Shares of BEA Systems in particular have taken a beating as joint ventures with European companies may get a second look, especially a fighter jet called the Typhoon.

And then there`s the expected pause in British defense spending. Some comparing the Brexit to the sequester. The U.K. government had planned to boost its defense budget through 2020, but IHS (NYSE:IHS) Jane`s predicts spending will stagnate or fall. Foreign investment may slow and British exports could take a hit.

Still --

DAVID CAMERON, BRITISH PRIME MINISTER: Britain is ready to confront what the future holds for us from a position of strength. As a result of our long-term plan, we have today one of the strongest major advanced companies in the world.

WELLS: British Prime Minister David Cameron said none of that happens immediately. For now, trade will continue as if the U.K. was still in the E.U.

Stay tuned.

For NIGHTLY BUSINESS REPORT, I`m Jane Wells.

(END VIDEOTAPE)

MATHISEN: Silicon Valley is taking note, especially some of the companies that are most widely held by investors, Facebook (NASDAQ:FB), Google (NASDAQ:GOOG), Netflix (NASDAQ:NFLX).

Julia Boorstin now with a look at the potential impact of the U.K. vote on some of the fastest growing Internet names.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the wake of the Brexit vote, investors are weighing new uncertainty, but everything from privacy to growth potential and advertising revenue in the Internet sector. But despite the Brexit head winds, money managers are also seeing opportunity in unlikely places.

First to privacy concerns, with potential changes to regulation of tech companies. The U.K. has pushed the E.U. to take a lighter touch regulating Google (NASDAQ:GOOG) and others, raising concerns that the E.U. might crack down in the U.K.`s absence.

ROGER MCNAMEE, ELEVATION PARTNERS: If you look at Europe, there`s clearly a very different perspective on privacy rules on the continent that we have in the United States than they have in the U.K. And if those perspectives become ascendant in the world, that`s going to limit some of the opportunities that people like Google (NASDAQ:GOOG) will have.

And with Brexit prompting new projections of a recession in Europe, investors are asking whether that could hit advertising spending as Facebook (NASDAQ:FB), Google (NASDAQ:GOOG) and others, and consumer spending on products such as Netflix (NASDAQ:NFLX).

Plus, there are concerns about currency exchange hitting the bottom lines of the Internet giants. Needham`s Laura Martin raising concerns about Netflix (NASDAQ:NFLX) and Facebook`s growth and valuation. Facebook (NASDAQ:FB) generated about 24 percent of its revenue in Europe last year. Martin warning of the impact of slowing European advertising demand and currency translations.

For Netflix (NASDAQ:NFLX), Martin cautions that all of its growth story and capital investment is offshore, opening the door for Brexit to impact demand or currency. Jefferies estimates that 60 percent of international revenues come from Europe, about a third of that from the U.K.

But some see a buying opportunity on the deep.

BILL NYGREN, THE OAKMARK FUNDS: Alphabet is our largest holding. And it`s a little bit of an unusual name for a value manager. I think some people look at it and say, you know, $660 some, it`s selling at a mid to upper 20s multiple of trailing earnings, but we think that misses a lot of the assets that Alphabet has.

BOORSTIN: But Alphabet`s Google (NASDAQ:GOOG) is not entirely without risk. As "The Wall Street Journal" reporting today that the E.U. has signaled it`s preparing to issue new antitrust charges against Google (NASDAQ:GOOG) for its advertising dominance.

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

(END VIDEOTAPE)

HERERA: With the U.S. market still digesting the surprising Brexit results and many U.S. industries feeling the effects, which stocks should you own in this rather uncertain environment?

Neil Hennessey joins us. He is the chief investment officer at Hennessey funds and he has some ideas for us.

Good to see you again, Neil. Welcome back.

NEIL HENNESSY, HENNESSY FUNDS CIO: Well, thank you.

HERERA: You make the point that this may take some time, to really unwind -- several years. And that may provide opportunities for investors.

HENNESSY: Yes, I think so, Sue. I think if you just step back and look at what`s happened, this is not the end of the world. That only comes once in our lifetime. So, this isn`t it.

And when you start to look at the U.S. market and what`s really happening is money`s pouring in to our market. It`s just going into the fixed income like the ten-year U.S. government treasury yielding 1.4 percent now. The reality of the situation is I think this is giving the opportunity to retail investor that has a majority of their money in fixed income products, to get out and switch over to equities and if you need dividend pay in equities or growth, that`s where you should be.

In fact, the Dow Jones is almost yielding 3 percent, which is twice 2.8 percent twice what a ten-year treasury, so why would you want to be there, Sue? There`s a lot of opportunities.

MATHISEN: I take your point on the idea that the yield is higher, but the investors so far this year, haven`t they been rewarded more if they were in bonds as interest rates have come down. They`ve collected that income. The value of the bonds has gone up and you can`t say that about stocks.

HENNESSY: Well, you know, if you at the stocks, they`re down 1 percent. The Dow is down 1 percent this year. I know it`s been volatile and everybody thinks we`re down a lot more than 1 percent, but overall, the market asset is down 1 percent. And when I look at it and I look long- term, I think you`re better off in equities.

Yes, people have made money in fixed income, but, Tyler, if you on the back of an envelope, how much money did you really from $1.90 to $1.40? Really? You`re not making that much money, the bottom line.

(CROSSTALK)

MATHISEN: I agree. Just addressing the idea that it`s hard to persuade people to move their money out of what they regard as a securer asset, i.e. bonds. And into stocks at a time when well, I made a little, haven`t made much, but I made some and the guys on the other side have not made any. They`ve actually lost a little bit. So, that really my only point.

The other thing is small caps. You say that small and mid caps look good right now. Small caps were down 3 percent today. How do you explain that?

HENNESSY: Well, if you start to look at the multinationals and you have a strong dollar, Tyler, that they could get hurt in here. With the E.U. to a certain extent not sure what` going on, the multinationals have some headwinds. Mid caps and small caps do not have, because most of those companies are domestically-oriented.

(CROSSTALK)

HENNESSY: And so, when you start to --

HERERA: I`m going to put on your stock picks for us, Neil, because we need to wrap this up. But you`re looking at basically Manpower (NYSE:MAN), Goodyear Tire, and Casey`s General Store. Those are three ideas that you have for our viewers tonight.

Thank you, Neil. We appreciate it.

HENNESSY: Correct.

HERERA: We have to run.

HENNESSY: You`re welcome. Thank you.

HERERA: Neil Hennessy.

Ty?

MATHISEN: And still ahead, new twists, new turns, new attacks on the campaign trail. The ladies in blue in a moment.

(MUSIC)

HERERA: To the campaign trail now where Hillary Clinton and Senator Elizabeth Warren made a joint appearance in Cincinnati, Ohio, a battleground state.

And the senator didn`t hold back on her attacks against Donald Trump. Eamon Javers is on the story for us from Washington.

So, Eamon, what was the message that the two wanted to convey today?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it was right out of the Hillary Clinton playbook. It was stronger together, both the left wing and the centrist wing of the Democratic Party that is stronger together going into November.

Elizabeth Warren has not always been such a warm endorser of Hillary Clinton. This was the moment the Clinton campaign have been waiting for really because of the Bernie Sanders voters out there looking at Elizabeth Warren as a potential for whether or not they should get on board with the Clinton camp. They got that in spades today. Warren gave a full-throated endorsement. You can see that from those pictures and some of the folks who were there in the room today, said there was energy there like they`ve never seen before at a Clinton event.

MATHISEN: Elizabeth Warren is on the potential list of vice presidential candidates.

How is Ms. Clinton`s search for that going?

JAVERS: Well, it`s fascinating. You know, so many things to consider, and all the old playbook seems to be out the window here. You know, if you had Elizabeth Warren, you`d have two women on the ticket. Is that a positive? Is that a negative in 2016?

It`s really hard to calculate. The old traditional calculus was, you go with somebody from the other wing of the party. So, maybe that does work here, or maybe they need a white male in that spot. Maybe they need geographic distribution, all those things to consider here. But, you know, clearly, Warren and Clinton will have to be out on the campaign trail together a lot this year, whether she`s the running mate or not.

HERERA: What about the short list for Donald Trump?

JAVERS: Well, over there, it`s curiouser and curiouser. You know, you saw Newt Gingrich over the weekend, the former Republican speaker of the House saying that he hasn`t been vetted yet. No inbound phone calls so to speak from the Trump campaign to him. But he said Donald Trump might not even start thinking about who his vice president will be until about two days before the convention. So, anything`s possible over there, too. It is really such a wild year this year.

HERERA: It sure is. Eamon, thanks so much.

JAVERS: You bet.

HERERA: Eamon Javers in Washington.

MATHISEN: Medtronic (NYSE:MDT) inks a billion dollar hard deal and that`s where we begin tonight`s "Market Focus".

The medical device maker will buy HeartWare, which makes less invasive surgical products for treating heart disease. Shares of Medtronic (NYSE:MDT) down a percent to $82.38. HeartWare nearly doubled to $57.79 on this down day.

Dick`s Sporting Goods (NYSE:DKS) reportedly betting on Sports Authority locations. Dick`s has submitted a bid for 17 of its formal rival stores, making it the only bidder to make offers on more than one store. A bankruptcy judge is expected to review the bids next week. Sports Authority filed for bankruptcy in March. Shares of Dick`s off 3 percent at $40.07.

HERERA: Amazon (NASDAQ:AMZN) is reportedly adding brands to its one click ordering service called Dash. "The Wall Street Journal" says dozens of household products such as detergent will join Dash, which was launched last month. Amazon (NASDAQ:AMZN) down 1 percent to $691.36.

GW Pharmaceuticals, which makes drugs that are derived from the cannabis plant reported positive result from a late stage trial of its treatment indented to treat epilepsy in children. The company CEO says this is just the first step.

(BEGIN VIDEO CLIP)

JUSTIN GOVER, GW PHARMACEUTICALS CEO: Today`s news as a trial syndrome, another a highly treatment resistant form of childhood onset epilepsy. We`ve had some fantastic news today that really catapults us forward to the next phase, which is to think about a filing with the FDA early next year, and to plan towards a launch of this important new medication.

(END VIDEO CLIP)

HERERA: Shares up more than 6 percent to $88.88.

And coming up: whether you`re a millennial, a mid-career or a boomer, what if anything should you do with your retirement money?

(MUSIC)

HERERA: And here`s a look at what to watch for tomorrow. Dow component Nike (NYSE:NKE) is out with its earnings after the bell. The report follows two straight quarters of disappointing revenue. The European parliament meets to discuss the Brexit vote. And we`ll get another look at the housing market when the S&P Case Shiller home price index for April is released. And that`s what to watch for on Tuesday.

MATHISEN: The famed Waldorf Astoria Hotel maybe partially or largely converted into apartments. According to the "The Wall Street Journal", Anbang Insurance Group, the Chinese company that bought the hotel for nearly $2 billion last year, is close to finalizing plans to close down the 1,400 room place for up to three years. All but 300, maybe 500 rooms going to be converted into luxury condos at a cost -- total cost that is of about a billion.

HERERA: The Panama Canal has officially reopened. As we reported earlier this month, the multibillion dollar expansion will double the canal`s capacity. Yesterday, a Chinese ship carrying more than 9,000 containers entered the newly expanded locks. U.S. ports have been investing billions of dollars to expand their facilities in order to accommodate the mega ships.

MATHISEN: Now from millennials to baby boomers like me, what should your 401(k) investment mix look like in a volatile market like this one?

Sharon Epperson has been talking to some of the biggest names in retirement planning and joins us now with the details.

Hi, Sharon.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, Ty.

You know, watching your 401(k), your IRA account balance drop is very scary. But the financial advisers that we talked to all say the same thing. Don`t invest based on market moves. Invest based on you.

The best way to protect your money is to find the right mix of stocks and bonds based on three key factors: your goals, and that includes when you want to retire, how long you plan to be in retirement and what you plan to do when you`re retired. Your risk tolerance, that`s how much of a drop you can really stomach or really afford and your age, because the more time you have, the more aggressive you should be. After all, time is going to be on your side.

Now, using these three factors, there is an asset allocation or mix that many experts suggest. For those in their 20s or their early 30s, it`s important to stay aggressive. Keep most of your money in stocks, or stock funds, and means 60 percent in U.S. and 25 percent -- yes, in foreign equities. The remaining 15 percent should be in bonds. Now, for those in the middle of their career, in their 40s or their early 50s, use a growth portfolio, that consists of 70 percent stock, 25 percent bonds and 5 percent short-term investments.

Now, if your near retirement or newly retired, advisers say your best bet is a balanced portfolio, with 50 percent in stock, 40 percent in bonds, and 10 percent in short-term investments.

So, now, remember, there is no-one-size-fits-all approach here. These portfolio mixes are a great starting point for any investor, but you`ve got to tweak it based on your risk tolerance, based on your age and goals and your goals.

MATHISEN: You know, after watching the markets the last few days, or may be folks out there who aren`t comfortable in putting that much money into stock, what do you say to them?

EPPERSON: Well, you have to consider that equities are that part that five year plus part of your portfolio. That`s what John Sweeney at Fidelity says, I think it`s a great point, because you want to be in equities if you have five years or longer. And if you are already retired, you may still have a decade or more in retirement, so some of that will be to be it in stocks. But you can make sure the majority is in short term and fixed income if you`re really uncomfortable with the stock market.

HERERA: What are you hearing from your sources about investing in European stocks at this point or stocks that may be based in the U.K.? We saw how Barclays got hit today.

EPPERSON: Well, we still need to have an international mix and maybe it`s a broad international mix with some European exposure. But one of the things that fewer price points out that regardless of what percentage of your portfolio overall is in equity, 70 percent should be in U.S. equities, but 30 percent should be in foreign equities.

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