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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Record level. The S&P 500 finishes the week with an all-time high. But can the rally drivers continue to carry the market higher?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Economic bellwether. What GE`s profit forecast tells us about the state of the American economy.
HERERA: Real risk. As vehicles more connected, automakers working to keep hackers away from your car.
All that and more tonight on NIGHTLY BUSINESS REPORT Friday, July 22nd.
MATHISEN: Good evening, everyone, and welcome.
Blue chip stocks closed at another record today. The S&P 500 index, the broadest measure of large company performance, gained 0.5 percent to cap off a week when multiple records were set. Surprisingly good earnings gave stocks a lift, so did some positive economic reports this week. Volume was light.
Stocks overcame news around midday eastern time of a mass shooting in and around a major shopping mall in Munich, Germany. By early evening in the U.S., police there said at least eight were dead. The whereabouts of the gunman or gunmen was unknown. German officials suspect a terror attack.
In a world where this sort of news has become disturbingly routine, U.S. investors held firm to their buying bias. The blue chip Dow index gained 53 to 18,570, the NASDAQ added 26, and the S&P 500 closed up 9 to a record of 2,175. For the week, all of the major indexes finished higher.
HERERA: So, what`s been driving the market higher? And is there more room to run?
It`s a question investors are asking and Mike Santoli looks for answers.
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MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: At least four major arguments have been playing out in the market`s favor. The question now, can they all continue to carry stocks higher?
The first rationale for the rally, that the economy and corporate earnings are getting better, the U.S. economy has been improving notably across several fronts, including retail sales and industrial production. Three- quarters of all companies are exceeding expectations for second quarter results, and analysts project a return to profit growth in the back-half of this year, after five quarters of declines. But had this improvement already been priced in by the market?
Number two technical market indicators are flashing a green light. A breakout to a new high a more than a year in the red has been quite a positive setup in the past. An unusually broad selection of stocks has been contributes to this rally. Also a plus. Still, some market watchers say this is a place for a pause or a pullback because of rapid gains in a short span of time.
A third point, stocks offer income in a low dividend world. The dividend yield in the S&P 500 has exceeded that of 10-year treasuries for months now. This has led to mad chase for income by out-based for months now. Especially those stocks perceived to be stable and not exposed to global economic forces. The treasury yields had begun to rise a bit from recent lows and more of the same could make these popular dividend plays appear overpriced.
Fourth, the Fed is acting friendly. Market expectations for another interest rate boost have waned in the last several weeks. A sidelined Fed combined with a U.S. economic upturn is a rare combination that support stocks.
Will the Fed soon seize on better data to try for another rate boost by September? If so, markets would likely face an uncomfortable adjustment. Hints could come next week when Fed policymakers meet.
Taken together, these factors seem to justify stocks` recent run, but each of these arguments will likely face at least a test in coming weeks just as the seasonal pattern for markets turn a bit less favorable come August.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock Exchange.
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MATHISEN: Well, today, we got even more quarterly results. General Electric (NYSE:GE) issued better than expected earnings in revenue and affirmed its operating forecast for the year. But shares of the widely held stock fell on a drop in orders for the second quarter.
Dominic Chu has more now on GE, a company considered a bellwether for the broader economy.
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DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The General Electric (NYSE:GE) of today looks a lot different than the GE consumers and investors knew just about a decade ago, and for good reason. The company has gone to great lengths to reinvent and reposition itself as more of an industrial company and less of a financial one. And that transformation is still in the process of playing out.
Over the past few years, GE has focused more on developing the parts of the business that focus on power generation and utilities, oil and gas, aviation and transportation among those industries. Making things like turbines that create electricity also natural gas pipeline components, jet engines and trains that haul all kinds of goods. And that`s just to name a few.
According to chairman and CEO Jeff Immelt, it`s the company`s diversity and size of businesses that helps it perform in tougher and more volatile economic conditions. And that is the kind of economy in effect today. While GE has managed to show a lot of strength in many of its U.S. industrial sectors, results have still been weighed down by a lot of weakness in two key areas and that`s oil and gas as well as transportation.
Oil price declines are still keeping companies from spending more on exploration of production gear and weakness in those markets is carrying through into parts of the transportation industry. Both businesses showed sales declines over the same period last year. And the company expects that many of the headwinds will stick around into next year as well.
But there are reasons to be optimistic, including growth in aviation, thanks to a record amount of orders that haven`t yet been filled and growth in a digital business that helps develop software to help industrial machines run smarter and more efficiently. GE shares recently did hit multiyear highs but did pull back after this earnings report.
Now, a lot of the story for investors going forward is just how well GE can keep up the industrial momentum.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
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HERERA: Cheap oil also weighed on GE rival Honeywell`s quarterly results. It reported lower revenue and cut its 2016 sales outlook. Honeywell also said that Britain`s decision to leave the European Union could weigh on economic growth. Shares fell 2 1/2 percent.
MATHISEN: Oil prices came under pressure today on concerns that the global remain oversupplied for some time to come. Domestic oil settled down more than 1 percent at $44.19 a barrel. Despite today`s decline in prices, the world`s two largest providers of oil field drilling services believe the worst is over. Schlumberger`s CEO said, "in spite of continuing headwinds, we now appear to have reached the bottom of the cycle." Earlier this week, Halliburton (NYSE:HAL) said the North American market reached its lowest point in the second quarter and that it expects modest growth the rest of the year.
HERERA: So, have we really reached a bottom in oil?
John Kilduff is here to weigh in and where he sees oil heading. He`s founder partner of Again Capital.
Good to see you, John.
JOHN KILDUFF, AGAIN CAPITAL FOUNDER: Good evening.
HERERA: Do you agree with Schlumberger`s CEO that we`re at the bottom of the cycle?
KILDUFF: Well, I think we`re in a phase where there`s renewed selling. Will we hit the $26 low from February? Maybe not. But there`s incredible downward pressure again on prices because of record inventories of crude oil and refined products here in the U.S., record gasoline storage in Europe and really a sloppy diesel fuel market in the Asian market.
MATHISEN: Why has there been so much sort of fuel in storage when production, I gather, is actually off a bit? Certainly it is in the U.S. Nigeria, some of the other places around the world.
KILDUFF: I think over the course of this past year when I`ve been on with you folks I`ve been trying to explain that the crude oil glut was in the process of becoming a refined product glut. That`s precisely what`s happened. There`s been a big ramp up in Chinese production of refined products, they`re called T-pot refineries. What they`re trying to cash in on a lucrative market or a market that has been lucrative.
Just as they did with the steel industry, this is now sort of a jobs program and a real tack by the government there to get into this global market. They`re flooding the market now. They produce --
MATHISEN: Refined product.
KILDUFF: Refined product. They produce 150 percent already of their fuel requirements, and they`ve been making record exports into the global market, flooding it.
HERERA: And at the same time, we`re seeing a switch in the rig count. It used to be that the rig count was going down. I looked at the stats today and they going up. They`ve turned.
KILDUFF: In fact, since the low point in May, they`ve rallied 20 percent. We`re 20 percent higher on rig count now in just that short amount of time.
The problem that we`re dealing with h that there just hasn`t been an acceptance of this oversupply or the fact that the market could stay out of balance or oversupplied for a longer period of time. It`s almost like when you get a bad flu or something and you have to worry about a relapse, I think we`re about to experience a relapse here at least for a time.
MATHISEN: So we`re in the mid-40s now. We nipped up to 50. Where do you think between September and March, we`re going to spend our lives in terms of the oil price?
KILDUFF: We`re definitely in a downward phase for now. I see it`s going back into the mid to low 30s at least, but my feeling is that the damage done to the industry on this next sell-off will be more lasting. I think there`s going to be more believers that you just can`t hang on here and wait for prices to recover back quickly to, say, $50. And that could be the fix for things next year.
So, in a way --
MATHISEN: You get those producers out.
KILDUFF: That`s right. This will be the knockout blow. This downturn that will then make companies like Exxon, Schlumberger (NYSE:SLB) and the like attractive when they get hit again in the fall.
HERERA: All right. John, thank you. Good to see you. Have a great weekend.
KILDUFF: You too.
MATHISEN: In Cleveland today, Republican presidential nominee Donald Trump thanked his supporters, took a swipe at Ted Cruz and left.
Let`s turn now to John Harwood who has moved on. He`s in Philadelphia where next week the Democrats gather.
John, welcome. Good to have you with us.
Mr. Trump last night made the case that he is the candidate of safety, of national security, of law and order. Today`s events in Munich certainly play into Mr. Trump`s narrative that the world is unsafe and that America most especially has to do a better job at protecting itself and its citizens.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: There`s no question that that`s the case, Tyler. Donald Trump painted a picture of a world on fire. And tragedies like we saw today, which have happened all too often recently, simply underscore the concern that so many Americans have. So many people around the world have about the fight against terrorism and it allows him to say, I have not seen whether he has tweeted on this or spoken publicly since the event, but he is going to be able to say, this is exactly what I was talking about in my convention speech last night.
HERERA: If I can turn you, you are in Philadelphia, if I can turn you to the Democratic convention, which is coming up this week, we widely expect Hillary Clinton to announce her running mate either tonight or certainly some time over the weekend.
HARWOOD: We do. And we also expect that it`s going to be Virginia Senator Tim Kaine. But we don`t have confirmation of that. We don`t have confirmation that the word is going to come out tonight.
We`ve been given to understand that there may be a text message that`s sent out to Clinton supporters to be followed by a public appearance in Miami tomorrow with her new running mate. Miami would not be an accidental choice if it`s Tim Kaine because he speaks fluent Spanish and would be able to foster the appeal of the Democratic ticket to Latino voters which is already very robust with that ability, that background.
And Tim Kaine is somebody who has served as a governor, has executive experience. He has international relations experience from his committee work in the Congress and he`s also a past chair of the Democratic National Committee.
MATHISEN: All right. John Harwood in sweltering Philadelphia where the political temperature will get even hotter next week. John, have a good weekend.
HARWOOD: You bet.
HERERA: Well, one of the big issues on the campaign trail is stagnant wages. And this weekend marks the seventh anniversary since the minimum wage was last hiked.
Kate Rogers (NYSE:ROG) takes a look at the ongoing debate over pay.
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KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The U.S. federal minimum wage was hiked from $6.55 and hour to $7.25 nearly seven years ago, and that`s where it remained ever since. And while that debate has flatlined, the debate over wages has intensified.
Twenty-nine states are paying wages above the federal minimum. California and New York states are set to have the highest minimum wages in the country in the next few years at $15 an hour, a wage large cities including Los Angeles and Seattle have also independently set. Large companies from Walmart to target and even Facebook (NASDAQ:FB) have also waded into the wage fight in recent years all while the federal minimum has remained stagnant.
Despite periodic increases, the buying of the federal minimum wage hasn`t kept up with inflation, according to the Bureau Labor Statistics. Data show that in 1968, the federal minimum was equivalent to $10.90 in 2015 dollars, nearly $4 higher than today`s rate.
For small business owners paying their employees more is well-worth the expense. Michael Lastoria owns &Pizza, a chain with 15 locations in Washington, D.C, Maryland and Virginia pays his 450 employees more than he`s required to and even had Washington, D.C. Mayor Muriel Bowser at his store to sign the wage law into effect last month.
MICHAEL LASTORIA, &PIZZA CEO: To us, it`s a simple but critical concept. Allow your staff to thrive and your company will thrive. You know, our people, our tribe are having interactions with our guests on a daily basis. They`re the face of the brand and they`re responsible for the growth of the company.
ROGERS: But not everyone on Main Street is ready to pay more. Juanita Duggan, president and CEO of the conservative lobbying group the National Federation of Independent Business, says a higher federal minimum will be a job killer for the group`s membership.
JUANITA DUGGAN, NFIB PRESIDENT & CEO: They tell us they can`t absorb the cost and they tell us that they can`t raise prices. So, this basically means they have to take the increase in production somewhere, and what they wind up doing is having to fire people instead of hire them.
ROGERS: Expect the wage rhetoric to heat up on the campaign trail. Democratic nominee Hillary Clinton has voiced her support for a $12 federal minimum and Republican nominee Donald Trump has been noncommittal on a plan, telling NBC in May that wages should be set by states for competitive reasons.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).
(END VIDEOTAPE)
MATHISEN: Still ahead, cars are getting smarter. They`re smarter than I am, I`ll tell you. But are they smart enough to keep hackers away.
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MATHISEN: As automakers race to build smarter cars and trucks that have more connectivity, cyber security has become a priority. And today, industry leaders discuss how to keep vehicles from being hacked.
Phil LeBeau has our story.
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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The more we`re connected behind the wheel and our cars are connected to the outside world, the bigger the threat of our vehicles being hacked especially as automakers develop self-driving cars.
So far, the only known examples of hackers taking control of vehicles involve researchers doing it to show how easily it can be done. That includes last year when two researchers showed a reporter how they could hack his Jeep Grand Cherokee (NASDAQ:CHKE) and take control of it even though they weren`t in the SUV. That demonstration led to a software recall of 1.4 million Jeeps. It sparked automakers like General Motors (NYSE:GM) to hire cybersecurity firms to find the flaws in their vehicles.
MARK REUSS, GENERAL MOTORS: What we don`t want is, you know, sitting around internally looking at our systems, testing our systems, great testing, but there`s always sort of only the paranoid survive here. So, we have to get input from what the latest systems are that people have access to, to potentially hack one of cars.
LEBEAU: At an auto industry cybersecurity summit in Detroit, it`s clear automakers realize keeping hackers out of cars is a top priority. They`re focused on safeguards and security systems to not only protect cars when they`re on the road but also when they`re parked.
This security cam video shows auto thieves using a computer to hack into an SUV they later stole.
Experts admit it`s hard to tell how vulnerable our cars and trucks are to being hacked when we`re behind the wheel, but they all agree it`s increasingly likely to happen as we move towards a world where self-driving cars are not only talking to each other but also to the outside world as we`re driving down the road.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
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HERERA: Verizon (NYSE:VZ) nears a deal to buy Yahoo (NASDAQ:YHOO)!`s Internet business, and that`s where we begin tonight`s "Market Focus".
After several months of speculation, reports peg Verizon (NYSE:VZ) as the front-runner to buy the asset. The reported price tag: about $5 billion. Shares of both companies up more than 1 percent on the day. Verizon (NYSE:VZ) closing at $56.10 and Yahoo (NASDAQ:YHOO) at $39.38.
Despite posting a 44 percent drop in its latest quarter, American Airlines still managed to top earnings expectations. The airliner also saw revenue fall as currency headwinds impacted its results. Shares of the airline up 4 percent to $36.36.
Profit rose at Whirlpool (NYSE:WHR) as the household appliance maker benefited from cost cuts and a acquisition. The results were ahead of the street targets. The company did see a decline in revenue. But that also beat estimates. In addition, Whirlpool (NYSE:WHR) raised its earnings guidance for the year. Shares were up more than 2 1/2 percent to $187.61.
MATHISEN: Stanley Black & Decker (NYSE:SWK) -- no, it`s not a personal injury law firm -- it`s a toolmaker, raised its yearly earnings outlook. The company beat profit and revenue expectations, hiked its quarterly dividend by 3 cents to 58 cents a share. The company also said its president will take the top job at Stanley at the end of the month when the current CEO is slated to retire. Shares up almost 5 percent to $120.49.
Textron (NYSE:TXT) which makes Bell helicopters and Cessna planes saw its profit and revenue rise, thanks to an uptick in its sales for its corporate jets. The results beat analysts expectations. Shares of Textron (NYSE:TXT) up more than 1 1/2 percent to $39.82.
HERERA: Our market monitor says if you`re searching for yield, you may want to consider real estate stocks, REITs. He says the sector is poised to lead the markets through the end of the year. Last time he was on in December, he recommended British Petroleum, which is up 13 percent, ExxonMobil (NYSE:XOM), which gained 24 percent, and Amazon (NASDAQ:AMZN), which is 12 percent higher.
Pretty good report card there. He`s Steve Dudash, president of IHT Wealth Management.
Welcome back, Steve. Nice to have you here.
STEVE DUDASH, IHT WEALTH MANAGEMENT: Thanks for having me.
HERERA: Let`s get to your picks this time around. You are focusing on REITs and Simon Properties is at the top of the list. Why?
DUDASH: Well, big picture first, we want to get into the REIT sector because it`s going to be a new sector in the S&P 500 at the end of August, which viewers may not know. So, when that takes place you`ll see a lot of purchases from passive managers across the country that need to buy into that sector, which is going to inflate some of the stock prices including Simon, which is the largest out there in the country. So we really like this opportunity moving to the end of the year and Simon leading the charge there.
MATHISEN: The ETF phenomenon is really interesting. Somebody else about that very thing that was driving the price of an individual stock up because the ETFs had to own it. Number two is Equity Residential (NYSE:EQR) Property, this is a bet that older Americans are moving into more urban mixed-use development kinds of properties, right?
DUDASH: Absolutely. We`re seeing statistically a lot of the baby boomer who are now empty nesters and retiring returning to the urban setting. So, this is one of the biggest companies out there that handle the high density population -- residential population stocks. So we like it for that purpose, not just right now but for the next couple of years moving forward.
HERERA: You say that none of these stocks will see 20 percent returns year over year, but they will perform well in the market because of the background that you just gave us and Boston Properties (NYSE:BXP) is another one that you favor.
DUDASH: Yes. I mean, let`s be honest here, these aren`t Amazon (NASDAQ:AMZN), like the 24 percent return we saw with the others we picked six months ago. These are slower growth, more stable, defensive stocks for the portfolio.
The markets have been very volatile. So, we`re looking for things to put our money into and be comfortable with for the long haul. Boston being a prime example of that. A nice long-term hold stock that is not going to be flashy, not something you`re bragging about, but a real stable piece with the volatile market we`re in.
MATHISEN: That`s OK. Get rich slow is fine with me.
DUDASH: Get rich slow, right.
MATHISEN: What would rising interest rates mean to any of these?
DUDASH: Rising interest rates would obviously hurt any real estate trusts that are out there, but to be honest with you, I don`t think interest rates are rising any time soon. Certainly with what just happened in Brexit, you`re not going to see the Fed starting to pump up rates in any quick fashion. Maybe one or two rates this year, but nothing dramatic, nothing that would hit the bottom line to an extreme level with the stock that we`ve been discussing.
HERERA: All right. Steve, have a great weekend. Thanks for joining us.
Steve Dudash, with IHT Wealth Management.
And coming up, you probably read comic books when you were young. Well, they`re really big business today.
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HERERA: It may be Friday but we`re looking ahead to next week. Here`s what to watch. The earnings keep coming, 12 Dow components report Apple (NASDAQ:AAPL), Caterpillar (NYSE:CAT), McDonald`s (NYSE:MCD) and ExxonMobil (NYSE:XOM). Federal Reserve policymakers will release their statement on interest rates though a rate hike is unlikely. Investors will look for hints that one might be coming. We`ll also get new reads on economy from new home sales to GDP to durable goods. And that`s what to watch for next week.
MATHISEN: There`s another type of convention taking place far from Cleveland`s RNC and next week`s DNC in Philadelphia. This one is in SD, San Diego. Comic-Con is a gathering of pop culture enthusiasts and media companies are using the opportunity to help drum up business and buzz.
Julia Boorstin is there.
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JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Over 130,000 people are flocking to the San Diego convention center. Many in costume to watch panels and get exclusive previews for upcoming movies and shows and rub shoulders with their favorite stars.
UNIDENTIFIED FEMALE: You got to choose between Disneyland and Comic-con. Guess what he chose?
UNIDENTIFIED MALE: If you`re going to do it, you got to go big.
BOORSTIN: In the spotlight, the super hero giants, Disney`s Marvel and Warner Brothers DC Comics. Marvel expected to unveil new footage from upcoming films, Dr. Strange, and a sequel to Guardians of the Galaxy. But Warner Brothers focuses on Suicide Squad debuting next month. The Lego Batman movie and Wonder Woman as well as a number of DC comics TV shows.
LISA GREGORIAN, WARNER BROS TV: There are tastemakers here. There`s quite a lot of press here. And these are really the core fans. So we want to please them.
BOORSTIN: And Paramount`s trying to generate major loyalty for "Star Trek Beyond", which opens this weekend. The studio hosting the first ever outdoor IMAX movie premiere just steps from this convention center, also hosting a number of Star Trek panels for all these die hard fans.
"Star Trek`s" performance this weekend is crucial for Paramount, now in its fifth place for studio box office market share. Well, the upcoming "Star Trek" series is being touted as a crown jewel, the CBS (NYSE:CBS) all- access app and the source of conversations on panels over the weekend.
And as fans wait in line for these panels, they`re entertaining themselves with Pokemon Go, the augmented reality mobile game from Nintendo that`s captivated the attention of millions. Nintendo is a big presence here at the convention, trying to lure Pokemon Go fans to invest in more Nintendo consoles and games.
KIT ELLIS, NINTENDO AMERICA: This year, in addition to Pokemon Go, which has, of course, been a massive phenomenon, we do have a new game coming out for Nintendo 3DS Pokemon Sun and Pokemon Moon coming out later this year.
BOORSTIN: And Pokemon is just one of a number of augmented reality attractions here. Warner Brothers teaming up with Flipkart to enable fans to view exclusive content tied to Warner Brothers shows and movies. DC Comics is premiering virtual reality clip, allowing fans to feel what it is like to be their favorite superhero. While Amazon (NASDAQ:AMZN) hosts a virtual reality experience of the show "The Man in High Castle". All these trying to break through the clutter by virtually bringing fans here to the world of their content.