NIGHTLY BUSINESS REPORT for July 20, 2016, PBS - Part 1

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Harwood, Kate Rogers (NYSE:ROG), Courtney Reagan, Julia Boorstin>

Politics; Polls; Unilever (NYSE:UN); Business>

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Red hot blue chips. The Dow powers to another record close, making this the index`s largest win streak in years.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Up for grabs. Which presidential candidate does small business support? These poll results may surprise you.

HERERA: A sharpening rivalry. Unilever (NYSE:UN) will pay a reported $1 billion for startup Dollar Shave Club, to better compete with Procter & Gamble (NYSE:PG) in the male grooming market.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, July 20th.

MATHISEN: Good evening, everyone, and welcome.

OK. Now, let`s be clear here, Joe DiMaggio 66-hit streak is not -- I repeat not -- in jeopardy but the Dow`s ongoing record of record closes might even make DiMaggio take notice. Today made seven in a row and the blue chip index finished higher for the ninth straight time, the first time that`s happened is way back in 2013. One reason for these moves: better than expected earnings. Financials continue to report strong result, a sign that they`ve been able to manage all of the global uncertainty.

And Microsoft (NASDAQ:MSFT) helped lift the blue chip index today, rising more than 5 percent after it reported a solid quarter, which we told you about last night. Here are the closing numbers for this day in the summer. The Dow Jones Industrial Average rose 36 to 18,595, a record. NASDAQ also helped by Microsoft (NASDAQ:MSFT) added 53. And the S&P 500 was up 9.

HERERA: Late today, two more Dow components topped Wall Street earnings expectations, American Express (NYSE:EXPR) (NYSE:AXP) and Intel (NASDAQ:INTC).

Let`s start with American Express (NYSE:EXPR) (NYSE:AXP). Expenses declined sharply at the financial services firm but revenue fell slightly as well. The company earned $2.10 a share. That`s 15 cents better than estimates. Revenue growth, which has been a big focus for the company lately was slightly below what Wall Street was looking for and lower from a year ago.

As for the stock, shares rose initially in after-hours trading.

Kayla Tausche takes a closer look at American Express` results.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The big beat American Express (NYSE:EXPR) (NYSE:AXP) posted was largely due to a one- time gain coming from the sale of its Costco (NASDAQ:COST) portfolio that happened in the quarter. There`s roughly a $1 billion gain the company that brought consolidated expenses down 15 percent and operating expenses down by 31 percent. The company said its spending, though, will remain elevated for the second half of the year but investors will placated by the fact that the company still said not only would they affirm guidance for 2016 and 2017, but they are on track for 2016 to post earnings at the high end of the range. That was music to investors` ears for a company in the middle of the turnaround.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in New York.

(END VIDEOTAPE)

MATHISEN: And now to Intel (NASDAQ:INTC) which saw its profit drop but revenue rise as the company booked a big charge related to cost, cuts and restructuring. Earnings per share did come in at 59 cents for the quarter. Expectations were for 53 cents. Revenue was about in line with estimates and up more than 2 percent from a year ago and the chief financial officer Stacy Smith says the second half of the year looks strong.

(BEGIN VIDEO CLIP)

STACY SMITH, INTEL CFO: We have insight into what we think some of the big cloud customers are going to buy. We have new products coming in to the data center that we think will give them some capabilities that they will buy a richer mix of products for us, so that momentum and the data center and particularly in the cloud, as we go into the back half of the year, we can give us more than seasonal growth in Q3 and Q4.

(END VIDEO CLIP)

MATHISEN: The stock was volatile in afterhours trading, mostly to the down side early on.

HERERA: Underpinning the recent rally in stocks is a series of upside surprises ranging from the economy to earnings. So, what was Wall Street expecting would happen this summer? And what is actually happening?

Steve Liesman takes a look.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: On Wall Street, the old adage "sell in May and go away" has given way to "buy, buy, buy in July". The 600-point Dow rally since the end of June has caught many on the street or maybe at the beach by surprise, wondering if this is just a passing mark at fancy, or a durable bounce.

But there may be something real here. That is summer time surprises from the economy to earnings to the Federal Reserve.

Exhibit one, the U.S. Citi Economic Surprise Index, it swung from around minus 24 to the end of June to positive 25 now and indicates the economic data is surprising to the upside. The better than expected jobs report and improved housing data and consumer spending has powered the index to a 50-point swing.

That doesn`t tell you how much growth there is or whether the market will go higher. It does suggest that the stock has to catch up with better data.

STEVEN WIETING, CITI PRIVATE BANK GLOBAL CHIEF INVESTMENT STRATEGIST: We`ve had several false warnings in years past and in this year, too. Some have been because of external shocks, but when you had weak economic data in the United States at the beginning of the year, give way to these stronger reports, these positive surprises have reinforced confidence in markets. So, the economic surprises have helped a lot.

LIESMAN: Exhibit 2, early indications of earnings surprises. The market seems cheered by the 67 percent of companies beating estimates and 59 percent beating on revenue, according to Thomson Reuters (NYSE:TRI). Both are above the long-run average.

Now, it could yet go the other way. It`s only 14 percent of the S&P 500, as reported. But there had been some notable marquee beats, including IBM, Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS), along with some better guidance for earnings growth later in the year. To be sure, the blended earnings stroke is up 3.8 percent year over year earnings declined.

An important backdrop for the rally has been a surprised decline in interest rates. A ten-year yield is down 20 basis points in the wake of the Brexit vote. The market had generally been forecasting higher rates this year. And that comes along with a rethink of the Fed. Markets now judge no chance of a rate hike of the Fed`s meeting next week and little chance in September.

But continued improvement in the economy and market does represent a risk to the rally, as it might bring the fed back in to play. Something the market seems to have mostly priced out.

Now, one criticism of summer rallies doesn`t apply here. The market is not higher on thin summertime volumes. Volumes are about normal. So, if Wall Street is at the beach, they seem to be trading from there.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Let`s turn now to Michael Jones to talk more about what`s happening in the stock market and it may mean for you and your money. He`s chairman and chief investment officer at Riverfront Investment Group.

Michael, welcome.

Are stocks too expensive, which is not to say they can`t get even more so?

MICHAEL JONES, RIVERFRONT INVESTMENT CHMN & CIO: We don`t really think so. On our price matters model, we see stocks at about 5 to 10 percent above their long-term average valuation. That`s a little pricey but it`s by no means alarming.

I mean, to put it in context, before the 2008 crash, stocks were about 25 to 35 percent overvalued, and in 1999 and 2000, stocks got 100 percent over value.

So, they are a little pricey but nothing has historically caused problems for higher prices.

HERERA: But you are watching a couple things that may be external shocks, like a political shock. We saw volatility come in with Brexit. But you`re also pointing out the Italian bank situation?

JONES: That`s absolutely right. I think the fundamentals underneath the market both in the U.S. and, frankly, in Europe, very solid growth. Growth is a good 2, 2.5 percent.

The issues are mostly political and policy. And you mentioned probably the most risky one. Italy`s banks are going to need a bailout. That`s pretty unquestionable.

By the end of the month, there`s going to be a stress test that many are likely to fail and we need to know how the Italian government is going to bail these banks out. The Germans are calling for a very austere package that will impose losses on deposit -- not depositors but on bond holders, which are in many instances are mom and pop retail. That would be incredibly politically unpopular and be another shake-up in the E.U. that I think we`d rather not see.

In the wake of Brexit, we think calmer voices are coming to the fore and we think the package won`t be nearly as strict on Italy as would have been the case pre-Brexit.

MATHISEN: Do you like what you have seen so far in terms of corporate profits?

JONES: Very much so. The U.S. economy turned a corner in the first quarter. When we finished that transitioned from losing a lot of jobs in the oil patch and actually getting some of the benefits of lower oil prices. The second quarter we`ve seen a noted acceleration. You`re seeing that acceleration in earnings.

I think a lot of analysts got too cautious when the May nonfarm payroll disappointed. They took do earnings too much. We`re now reaping the benefits of better growth than people thought.

HERERA: So, you say investors should be basically slightly long risk assets. Can you elaborate on that a little bit for us?

JONES: Sure. If you`re a typical investor who fails fairly comfortable with a 40/60 bond mix, this is probably a good time to be right about at that average time. There`s a couple of big political things that are sitting out there as a risk. We mentioned the Italian bank bailout.

There`s a big policy meeting coming from the Bank of Japan and the Abe government. These have opportunities to send the market much higher or be big disappointments. We want to be kind of neutral going in to these difficult to predict political events and then react once we know what the politicians have decided to do.

MATHISEN: Very quickly, you didn`t mention the U.S. conventions, the U.S. election at all as one of the factors here?

JONES: You know, I don`t -- I do believe that this has been another bad week for the Trump campaign and I think the markets are starting to settle in to the notion that it will be a Hillary Clinton presidency. A Democratic in the White House, a Republican-controlled Congress, the market knows what to expect. That`s not much. And predictable politicians are happy markets.

MATHISEN: All right. Got to leave it there.

Michael Jones, Riverfront Investment Group.

HERERA: And still ahead, up in the air, which candidate will get the small business vote? The answer is anybody`s

(MUSIC)

MATHISEN: The Department of Justice is filing a lawsuit to seize more than $1 billion in assets, one of the largest seizures in U.S. history. Officials say those assets were stolen from an investment fund created by the Malaysian government known as 1MDB. The funds were used to purchase real estate, a jet, works of art, and even used to help finance the movie "The Wolf of Wall Street."

(BEGIN VIDEO CLIP)

LORETTA LYNCH, ATTORNEY GENERAL: From 2009 through 2015, these officials and their associates conspired to misappropriate and launder billions of dollars from 1MDB. The co-conspirators laundered their stolen funds through a complex web of opaque transactions and fraudulent shell companies with bank accounts in countries around the world.

(END VIDEO CLIP)

MATHISEN: The fund in question is overseen by Malaysia`s Prime Minister Najib Razak. He`s not named directly in the filings but a person referred to as Malaysian official one is alleged to have received hundreds of millions in those siphoned funds.

HERERA: And now to Cleveland, in day three of the Republican National Convention where the Donald Trump campaign made an entrance. Mr. Trump himself arriving back in that city via his helicopter and greeted by his vice presidential pick Mike Pence.

Mr. Pence addresses the convention tonight.

John Harwood is there covering it all for us.

Good to see you, John. What can we expect tonight from the Indiana governor?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, I think, Sue, we can expect Mike Pence -- first of all, it`s his debut on the national stage, a very important day for him. What he is going to try to knit together the conservative wing of the Republican Party, especially religious conservatives. That`s the part of the party he comes out of with Donald Trump. Party unity is a key function for him.

He`s not a high-watted speaker. He`s not going to be like Rudy Giuliani or Chris Christie last night in how he fires up the crowd, I don`t think. But this is a chance for him to show steadiness and calm. He`s very even tempered guy from all accounts we`ve heard from his colleagues. And this is somebody who may run for president himself in the future. So, big night for him.

MATHISEN: Trump`s number one rival, Ted Cruz, also speaks tonight. Do we expect him to endorse Mr. Trump?

HARWOOD: That`s the big question mark, Tyler. Not clear one way or the other. I talked to his Texas colleague Kevin Brady (NYSE:BRC), chairman of the House Ways and Means Committee and he said he doesn`t think it`s necessary that he endorses. Simply by Ted Cruz speaking here, that sends a signal to his supporters to rally around Trump, but it`s going to be interesting whether he says those words.

And, of course, for Ted Cruz, he does want to run for president in 2020, huge audience for him tonight.

HERERA: Absolutely. There was activity not only inside the convention center but outside as well. There were some protesters. What do you know about that, John?

HARWOOD: Well, it wasn`t a huge thing, sue. This convention has been very well run by local law enforcement. We haven`t had any problems getting in or out of the arena and the demonstrations have generally been under control.

But we did have some individuals trying to burn an American flag today. Police stepped in quickly. There was scuffling, minor injuries by officers, a couple of arrests, but nothing serious, nothing of the kind that we all feared might happen so far at least when we began this week.

HERERA: OK, John, we`ll let you go. You`re a busy guy. John Harwood in Cleveland.

MATHISEN: The small business vote this November may still be up for grabs. A new report shows a large percentage are still undecided business owners.

Kate Rogers (NYSE:ROG) is following the story for us tonight.

What did the poll find?

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, guys.

Well, the poll found that the small business vote is very much still up for grabs. Thirty-five percent of small business owners say they are undecided about who they are planning to vote for in November, just a little over three months away. Now, of those small business owners who have decided, 37 percent say they are backing Donald Trump, 28 percent say they are voting for Hillary Clinton.

This is from Manta. They`re a nonpartisan small business networking platform. They polled in the past and one of the things that the business owners who support Trump say is that he`s a successful businessman and that`s what draws their vote towards him. But, you know, one-third is a very big chunk of undecided.

HERERA: Yes. And of those who are undecided, do they say they are going to vote, because there are those who are unhappy with both candidates who say they are going to sit this election out?

ROGERS: That`s so true. Again, a huge chunk here, 86 percent said they plan to head to the polls. So, it seems like a big opportunity for one of these candidates to step up and really become the small business president.

MATHISEN: You know, small business is not a monolith in any sense. But what do they want to hear from the candidate?

ROGERS: Well, they want to hear details. So, both Hillary Clinton and Donald Trump, they haven`t laid out formal plans to help small businesses. Hillary has some information on her website. Donald hasn`t really touched on it more than just mentioning small businesses on the campaign trail. So, they want details.

Big, big issues for them: red tape and regulations in government and health care are huge. So, Hillary Clinton talks about cutting red tape at every level of government. What does that mean? You know, they want details on how that will help and what regulations she`s referring to. Donald Trump says he`s going to repeal health care day one, but what does that mean?

HERERA: What it was?

ROGERS: Yes, exactly.

HERERA: Yes. I think health care is an enormous issue for small businesses. You know, it`s been an issue not only in this campaign but in previous campaigns as well. So, I would assume that that may be a pivot point, if you will, in deciding where they decide to place that vote.

ROGERS: Yes, absolutely, because obviously, Hillary Clinton and Donald Trump have extremely different opinions on that. Hillary does support Obamacare and said she wants to see it strengthen, but you`d also like to put cost protections in place. So, that could help small businesses.

But Trump, once we see what his plan might be and if there`s an employer mandate, which I would assume --

MATHISEN: He says end Obamacare on day one, has been his process.

ROGERS: But with what?

MATHISEN: Congress has to go along with that.

ROGERS: Yes. Small detail there, right?

MATHISEN: Kate, thanks very much.

ROGERS: Thank you both.

MATHISEN: Kate Rogers (NYSE:ROG) from the small business beat for us tonight.

And to read more about how small business owners might fair in this election, who they might go for, head to our website, NBR.com.

HERERA: Morgan Stanley (NYSE:MS) ends earning season for the big banks on a high note. And that`s where we begin tonight`s "Market Focus".

The banks saw revenue and profit fall in its latest quarter but it was still better than expected thanks to an uptick in bond trading revenue. Cost-cutting efforts also contributed to the company`s earnings beat.

CEO James Gorman spoke about the growth in several divisions.

(BEGIN VIDEO CLIP)

JAMES GORMAN, MORGAN STANLEY CEO: If you look at the core businesses that are supposed to do well, they are doing great. Equities, number one franchise in the world. Investment banking, top couple of franchises in the world, with IPO market, with M&A, et cetera. So, they are really solid.

The acquisition we did with Smith Barney and creating a business that has 2 trillion assets and is $15 billion of revenue, that`s a phenomenal gem that is going to keep growing.

(END VIDEO CLIP)

HERERA: Shares were up 59 cents to $28.78. Halliburton (NYSE:HAL) says less activity in its pumping and drilling divisions impacted revenue for the quarter, but the CEO says the rebound in drilling may be close. The oil services provider also said it took a more than $3 billion charge related to its failed merger attempt which rivals Baker Hughes (NYSE:BHI). Shares of Halliburton (NYSE:HAL) were up more than 1 percent to $44.28.

Currency headwinds hit a results over at Tupperware (NYSE:TUP). The household products maker said profit and revenue fell but the results were still good enough to beat Wall Street targets. Despite the higher than expected results, the company cut its forecast for the year. The shares of Tupperware (NYSE:TUP) rose more than 7.5 percent to $62.55.

MATHISEN: Canadian Pacific Railway (NYSE:CP) said lower shipping volumes and impact from those wildfires out in Alberta, Canada, dragged down revenue in the latest quarter. The results missed analyst expectations. Profit at the railway operator also took a hit, shy of estimates as well.

Nevertheless, shares were up 5 percent to $150.61 as management forecasted stronger commodity shipments in the second half of the year.

Strong demand for Barbie Dolls helped Mattel (NASDAQ:MAT) beat sales expectations in its latest quarter. Earlier this year, the toymaker added a variety of body types and skin tones to the iconic brand, a move that has resonated with buyers. The company also reported a narrower than expected loss. Shares of Mattel (NASDAQ:MAT) initially rose following the results in extended hours while finishing the regular season up a percent at $32.83.

Ad eBay (NASDAQ:EBAY) is raising its outlook for the year. The e- commerce company also reported increases in both profit and revenue for the quarter that surpassed analyst estimates. The company also launching a $2.5 billion share buyback program and that sent shares higher in the extended session after ending the day up nearly 2 percent at $26.99.

HERERA: A startup that sold razors is now being acquired by a consumer products giant. Unilever (NYSE:UN) is buying Dollar Shave Club as a way to further slice into the male grooming market.

And as Courtney Reagan reports, the deal opens up a new front in Unilever`s battle with its arrivals.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: One dollar a month just paid out $1 billion. That`s the price consumer package good behemoth Unilever (NYSE:UN) reportedly pay for start-up Dollar Shave Club.

The four-year-old monthly subscription razor service ships men razor blades for between $1 and $9 a month and now also sales other grooming products like cleansers and sanitary wipes. The e-commerce only business introduced itself with an explanatory video starring founder and CEO Michael Dubin, taking direct hits at competitors and their razors and it became a viral hit.

MICHAEL DUBIN, DOLLAR SHAVE CLUB FOUNDER AND CEO: Do you like spending $20 a month on brand-name razors? $19 go to Roger Federer. I`m going to pass.

REAGAN: To combat falling U.S. sales growth or razors and blades, competitors like Gillette and Schick add bells and whistles to their razors, which also adds to the price.

The Dollar Shave Club goes the other way, winning consumer with price and convenience.

Unilever (NYSE:UN) rival P&G is the market leader with its Gillette razors, though according to data from Euro Monitor, its market share has fallen for more than 70 percent in 2010 to less than 60 percent last year. Schick is a distant number two.

Dollar Shave Club has just 5 percent of the market and it`s not yet profitable, but it does have lots of data on its 3.2 million members, and that`s very valuable to Unilever (NYSE:UN), which I asked founder and CEO Michael Dubin about it at the Shoptalk conference in May.

Have you been approached by Unilever (NYSE:UN), Procter & Gamble (NYSE:PG), anyone interested in buying your company?

DUBIN: Let`s just say that if I did, I certainly wouldn`t say if I had been on this stage.

REAGAN: Venture capitalist David Pakman first invested in Dollar Shave Club after seeing the video saying that investment paid off ten-fold today, further explaining Unilever (NYSE:UN) will let Dollar Shave Club continue to operate independently, but with more corporate muscle available.

DAVID PAKMAN, VENROCK PARTNER: In fact, one of the things Unilever (NYSE:UN) says is congratulations Dollar Shave Club, you`ve just acquired Unilever (NYSE:UN). You now have the resources of Unilever (NYSE:UN) to propel you, but we`re not going to tell you what to do.

REAGAN: Dubin will remain CEO of the company he founded and will presumably use Unilever`s global reach to more efficiently scale the business.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Coming up, why a country halfway around the world is starting to have an outsize impact on the most American of industries, Hollywood.

(MUSIC)

HERERA: And here`s a look at what to watch for tomorrow. On the earnings, Dow component Visa (NYSE:V) and Travelers report their quarterly results. On the economy, existing home sales for June and initial jobless claims will be released and the European central bank needs to decide on interest rates. Officials are expected to leave policy unchanged but signal fresh stimulus in the months ahead. And that`s what to watch for on Thursday.

MATHISEN: Hollywood studios are relying more on international revenue, including from China. And now, that country may become a much bigger source of ticket sales and it may be reshaping the movie industry as we know it.

Julia Boorstin has our story.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Warner Brothers "The Legend of Tarzan" has crossed $195 million in the 2 1/2 weeks in theaters. Now the film could have a second life in China where it opens this week. Thanks to a change in Chinese regulation.

Until now, China has blocked Hollywood films during part of the summer to boost its local movies but it is relaxing those rules for the first time after a slow second quarter at the box office, allowing in foreign films during what was known as a domestic movie protection period.

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