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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: What rate worries? Investors shrug off concerns over a potential interest rate rise, sending the Dow up triple digits.
Here we go again, with home prices rising steadily and near record peaks. Some are starting to get worried about the dreaded "B" word, bubble.
And space race. The big money backing to push the envelope and get to where no man has gone before.
All that and more for Monday, August 29th.
Good evening, everyone, and welcome. I`m Sue Herera. Tyler Mathisen is off this evening.
As Alfred E. Neuman of "MAD Magazine" fame used to say, "What, me worry?" Well, that`s what investors seem to be saying as there was no fear of the Fed, at least not today. Some of the pros on Wall Street said the market was reassessing whether the Federal Reserve will raise interest rates as early as next month.
As a result, stocks closed higher with financials leading the way. The Dow Jones Industrial Average rose 107 points to 18,502. The NASDAQ climbed 13, and the S&P 500 added 11.
This bull market is more than seven years old and with stocks flirting with record levels, there is always a camp concerned with the pullback and naturally there`s the bull camp who think that this thing is just getting going.
Mike Santoli checks into whether this market has anything left.
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MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: With stocks near record highs and bonds holding up well, does the market owe investors anything more in the coming years?
On the surface, it might seem stocks are due for a pause after a 50 percent gain since February that`s capped off a fine five-year run. Since the late summer of 2011, when the European debt crisis and U.S. credit downgrade sent stocks reeling, the Standard & Poor`s 500 Index has returned an average of 16 percent per year, including dividends. That`s well above the historical average and a rise has left stocks trading at a relatively high valuation compared to corporate earnings.
All else being equal, buying stocks which they`re richly valued tends to produce sub par gains in the future. Even more conservative investors have been nicely rewarded. A standard portfolio of 60 percent stocks and 40 percent bonds such as in the Vanguard balance index fund has gained more than 10 percent annually over the past five years. Both stock and bond markets have been supported by extraordinarily low interest rates around the world, anchored by central banks trying to promote growth.
With the Fed looking to lift rates again and stocks already sitting on impressive gains, it`s fair to ask whether investors should brace for a rougher ride from here. Some market watchers who take a broader view insist the bull market is not quite as old and vulnerable as feared. Stocks only begin making new highs for this cycle in 2013, they point out, which perhaps is when a new long-running market advance truly began.
And equity returns over the past decade at around 7 percent per year have been relatively modest. Of many long-running markets of the past built up far heftier gains and got even more richly valued by the time they expired. Perhaps investors should acknowledge a distance already traveled by keeping their expectations muted. That way any dramatic up side from here would come as a pleasant surprise. More like a gift than a debt repaid.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock Exchange.
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HERERA: Helping out stocks today, some positive economic data. Consumer spending, which is the biggest source of economic growth rose in July, matching expectations. And the Feds preferred inflation indicator, the PCE Price Index, ticked up last month and it`s up more than 1.5 percent over the past 12 months. The Fed uses this gauge as one of the tools to help it determine whether or not to raise interest rates.
But low interest rates have been a contributing factor in the housing recovery. But with the steady rise in prices and some markets passing their previous peaks, Diana Olick tells us some are wondering if we`re in a new bubble.
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DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Ten years ago last month, home prices nationally hit their peak of the housing boom, and we all know what happened after that, values dropped for six years by the most in history, but somehow, we are almost back where we were.
BEN GRABOSKE, BLACK KNIGHT FINANCIAL SERVICES: The pace of appreciation and the pace of achieving the new peak, that definitely was achieved more quickly than we would have expected. The reasons that we think that has happened now is the continued aggressive stance by the Fed to keep rates low.
OLICK: June marked four straight years of national home price appreciation with prices up 33 percent from that bottom in 2012. A new report from Black Knight Financial Services put the average home price in June at $265,000. That is within just 1.1 percent of a new record high.
NELA RICHARDSON, REDFIN: During the housing boom and is bust, there was this industry-wide mistake of loose credit over building. Euphoria, irrational exuberance in the housing market, and buying on a bet that prices would increase.
That`s not the market we`re in now. What we`re seeing is a more timid market, more restrained market and I would argue too restrained.
OLICK: Prices today are instead being driven by a severe lack of supply of homes for sale in addition to low rates. Of the nation`s 40 largest cities, 14 have already seen home prices cross to new highs. Some argue we`re not in a bubble, because housing is still historically affordable.
But it`s only affordable if you can qualify for the low interest rates out there today
GRABOSKE: Right now, it takes pristine credit to qualify for one of these great rates that are out there in the market today. It also requires a hefty down payment and while, yes, there are some lower down payment programs out there, coming up with cash in this environment for some people is tough.
OLICK: Precisely why first time home buyers are still such a small share of the market. Affordability it seems is in the eye of the mortgage holder.
Diana Olick, CNBC Business News, Washington.
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HERERA: So, with home prices on the rise and some housing markets reaching those levels not seen since contribution 2006, are we in a new housing bubble?
Well, Ralph McLaughlin joins us. He`s the chief economist at Trulia.
And, Ralph, as I understand it, you don`t think we`re in a bubble.
RALPH MCLAUGHLIN, TRULIA CHIEF ECONOMIST: I don`t think we`re in a bubble. And primarily for two reasons: one, we`re not over-lending, and two, we`re not over-building. The home ownership rate actually just hit a 50-year low.
So, I think it`s hard to make the argument we`re in a opener-occupied fueled bubble. And two, we`re not building a lot of housing. You know, the number of housing starts is still about 20 percent below average. And on top of that, existing inventory is low. And that`s likely what`s keeping our prices rather than speculative activity.
HERERA: Yes. Maybe also it`s because we hear some of those statistics just last week where the average price of a home in San Jose is $1 million, and that`s the median, the average price.
Does that skew the perception of people who are looking at the housing market?
MCLAUGHLIN: You know, it certainly does. You know, there are certainly -- these outliers like San Francisco and San Jose where, you know, it`s going to cost you a million bucks to get a home. But there are a lot of other very affordable places in the U.S. I mean, you look at places like at Toledo, Dayton, and Detroit being the prime example, you know, home buyers have to spend about 15 or 20 percent of their income to buy a home.
So, really, it`s a tale of two housing markets with, you know, the most expensive and the least expensive still relatively affordable.
HERERA: Yes. What about the interest rate scenario, Ralph? Because lending is still relatively tight, unless you, as we saw in Diana`s piece have really good credit. But if interest rates start to edge up, as many in the market thinks they will do, sooner rather than later now, what will the impact be on housing?
MCLAUGHLIN: You know, it`s going to take a series of consecutive interest rate increases in order to impact mortgage rates. Mortgage rates are only loosely tied to the fed rate. In fact, they`re more tied to the ten-year bond, which is after investors -- the reason why interest rates actually went down because of Brexit, because investors are flocking to the ten-year bond. You know, if the Fed does increase, three, four, five months in a row, yes, we might see some pickup of mortgage rates. But that`s unlikely.
And on top of that, consumers are really more concerned about finding home and saving up for a down payment, and third on that list is interest rates. So, we really don`t think there is going to be much of an impact on the housing market, you know, unless it`s a series of strong increases by the Fed.
HERERA: Unless the Fed gets really aggressive.
OK, we`ll leave it there, Ralph.
MCLAUGHLIN: Yes.
HERERA: Thank you. Always nice to see you. Ralph McLaughlin with Trulia.
MCLAUGHLIN: Nice to see you, too, Sue.
HERERA: In an effort to combat the spread of the Zika virus, the Food and Drug Administration has given emergency approval for Swiss drug maker Roche`s diagnostic test. The test can be used to screen patients with Zika symptoms. So far, there have been more than 2,500 cases reported in the U.S. and another 9,000 in U.S. territories.
Mylan (NASDAQ:MYL) says it will offer a generic version of its EpiPen allergy treatment for half the price. It is the latest move for the company following the outcry over the drug`s rising cost.
Meg Tirrell has more.
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MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: When the price of Mylan (NASDAQ:MYL)`s EpiPen skyrocketed more than five-fold in a decade, many called the lack of competition a main driver. Today, a generic competitor emerged, but it`s made by Mylan (NASDAQ:MYL) itself.
The company announced it`s introducing a so-called authorized generic version of the EpiPen. It`s an identical product at half the price. It`s not unusual for drug companies to introduce their own generics when they anticipate competition to a brand name drug. But what`s unique in this situation is that there is no generic competitor. Israeli drug maker Teva was the closest to market, but it was rejected by the FDA earlier this year.
Analysts say this move may have been driven more by political pressure on Mylan (NASDAQ:MYL) than financial decisions. The company`s initial response last week offering co-pay assistance to patients but not lowering the price didn`t satisfy critics. Investors of Mylan (NASDAQ:MYL) hope this step may take some of the pressure off the company by lowering costs for consumers.
SCOTT GOTTLIEB, M.D., AMERICAN ENTEPRISE INSTITUTE: I think this is a clever move in the part of Mylan (NASDAQ:MYL) but it is a move that`s going to provide a lot of assistance to some consumers, particularly those who are paying the full list price to those underinsured.
TIRRELL: But the impact of the move on Mylan (NASDAQ:MYL)`s bottom line isn`t yet clear. While some estimate it could cut EpiPen revenue by 25 percent, American Enterprise Institute`s Dr. Scott Gottlieb said it`s possible the generic EpiPen will actually benefit Mylan (NASDAQ:MYL). For one, it could draw more revenue for Mylan (NASDAQ:MYL) than the branded version. Mylan (NASDAQ:MYL) says after discounts and fees taken by pharmacy benefits managers and distributors, it brings in about $274 on every two-pack of branded EpiPen off a list price of more than $600.
What analysts want to know now is, how much of the $300 generic list price will Mylan (NASDAQ:MYL) keep? The company declined to comment but it may also be helped in other ways.
GOTTLIEB: The way this is going to benefit Mylan (NASDAQ:MYL) in the long run, it`s probably going to allow them to lock in more market share, and it could take some pressure off the FDA to approve another generic drug.
TIRRELL: Where Mylan (NASDAQ:MYL) may be hurt by the move, according to Gottlieb, is in its ability to continue further raise the price of EpiPens. But if the government scrutiny is any indication, that wasn`t likely to happen anyway.
Today saw yet another congressional inquiry, the House Oversight Committee sent a letter to Mylan (NASDAQ:MYL) CEO Heather Bresch, asking for more information on EpiPen price increases.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
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HERERA: Coming up, a golf legend`s drive to help underprivileged kids around the world.
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HERERA: A federal appeals court has thrown out a government lawsuit against AT&T (NYSE:T), accusing the telecom company of failing to inform customers that they`re unlimited data plans could have slower internet speeds if certain levels were reached. That practice is known as throttling.
The Federal Trade Commission sued AT&T (NYSE:T) in 2014, saying throttling was deceptive. The company could still face a fine from the Federal Communications Commission.
Meantime, AT&T (NYSE:T) announcing a big deal with HBO, and it`s another example of how traditional television is changing.
Julia Boorstin takes a look.
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JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: When AT&T (NYSE:T) launches its upcoming DirecTV Now streaming service, consumers will be able to get live HBO and ESPN and other channels on their phones, at a fraction of the price of a traditional TV bundle. DirecTV service scheduled to launch in the fourth quarter will have over 100 channels and will work as an app, with no set top box or long-term commitment required.
The company hasn`t announced the cost, but a source says it will be priced in the same range as Hulu`s upcoming streaming service, expected to start at around $35 a month. Time Warner (NYSE:TWX)`s HBO is DirecTV Now`s second big content deal, earlier this month, announcing the inclusion of all of Disney (NYSE:DIS)`s major networks.
AMY YONG, MACQUARIE CAPITAL: It`s always important to have anchor content and present something that`s very consumer-friendly that the consumer finds great value in. So, having high-profile content like HBO which obviously has home to all these hits and sports is a really big thing for DirecTV.
BOORSTIN: AT&T (NYSE:T) could bundle DirecTV Now with its mobile service to tap into demand, particularly from cord-cutters among it`s 130 million wireless customers. Pacific Crest projecting that the offering will accelerate the DirecTV`s subscriber growth.
Disney (NYSE:DIS) CEO Bob Iger saying his company will earn as much from DirecTV`s service as it did from traditional TV packages.
BOB IGER, DISNEY CEO: There is no difference if a customer decides to disconnect or to cancel their current MVPD service and migrate over into DirecTV`s case to the over the top service, which is primarily an Internet- provided service, then there is no disadvantage to us.
BOORSTIN: When DirecTV Now launches, it will prove new competition for the higher-cost traditional cable bundles, as well as for older-cost skinny packages.
YONG: I think it will compete with Dish`s Sling TV on the lower end. It will probably e able to compete with Comcast (NASDAQ:CMCSA) (NYSE:CCS) on the upper end and to some extent, Hulu, Netflix (NASDAQ:NFLX) and some of the other over the top services that you`re seeing. And perhaps even something like a Showtime, that`s a little more niche.
BOORSTIN: It certainly seems the media giants are eager to have their channels included in these new packages, to make sure they`re earning money from consumers on whatever platform they`re watching.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
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HERERA: Mondelez walks away from its proposed takeover of Hershey`s. That`s where we begin tonight`s "Maker Focus".
The maker of Oreo Cookies and Chips Ahoy! Cookies says it has ended talks with Hershey`s regarding a potential acquisition, adding that it was disappointed with the outcome. Hershey`s rejected Mondelez $23 billion bid back in June. Mondelez ended the regular session down just a tick to $43.04 and rose following news. But the really reaction action was over at Hershey`s, which saw its shares plunge in the extended session after finishing the regular day up marginally to $111.67.
Valeant Pharmaceuticals finds itself in yet another legal battle. The company was sued today by people who bought its medications, alleging they were overcharged because of the company`s ties to the troubled mail-order pharmacy, Philidor. The plaintiffs are seeking compensatory and triple damages. Shares fell nearly 2 percent to $30.25.
American Airlines said its president, J. Scott Kirby (NYSE:KEX), is stepping down to join United Continental in the same capacity. American`s chief operating officer, Robert Isom, will take over as president. United Continental shares were up 8 cents to $46.95. Shares of American fell marginally to $36.17.
Citing rising competition and concerns, Axiom Capital Management gave Netflix (NASDAQ:NFLX) a sell rating at a price target of $80. The firm also said diminishing pricing power and uptick in content costs will be a headwind for Netflix (NASDAQ:NFLX), potentially impacting subscriber growth. Shares were down just a fraction to $97.30.
Building materials company USG (NYSE:USG) Corporation will sell its product distribution business to ABC Supply for more than $6.5 million. That deal will allow USG (NYSE:USG) to trim debt and shift its focus to manufacturing. The company also said it will consider offering dividend payments once again. Shares rose more than 6.5 percent to $29.93.
And after a three-year long investigation, the European Commission is expected to rule tomorrow that Apple (NASDAQ:AAPL) received illegal state aid from Ireland. That`s according to multiple reports. If the tech giant`s tax arrangements with that country are found to be illegal, Apple (NASDAQ:AAPL) could face a hefty tax penalty. Shares were down 12 cents to $106.82.
Golf made its first appearance in the recently concluded Olympics for the first time in more than a century. And now, a golf legend hopes to use that renewed excitement to benefit children`s charities around the world.
Dom Chu has more from Bedford Hills, New York.
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DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The summer may be drawing to a close, but that doesn`t mean the game of golf is showing any signs of slowing do. With the Olympics just barely in the rear-view mirror, some of the best players in the world are gathering just north of New York City in this year`s Berenberg Gary Player Invitational. The exhibition event is hosted by nine-time Majors champion Gary Player, and benefits charities around the world geared toward the education of underprivileged youth. Through his foundation`s golf and charity events, he`s raised $62 million to date, and has a goal of reaching $100 million by the year 2025.
GARY PLAYER, HALL OF FAME GOLFER: If I was running the PGA, I would insist or ask my players, two players from every state to go along twice a year to a school of your choice, and talk to the kids and show these kids what great efforts these golfers are.
CHU: What many are hoping is that the positive momentum in the game of golf will help raise more funds for worthy causes, and with golf taking the world stage at this year`s Olympic Games in Rio, some of the greatest players in the history of the game are calling Olympic golf a huge success.
TOM WATSON, PROFESSIONAL GOLFER: At first, I wasn`t very much of in favor of the golf in the Olympics. What changed my mind is the number of people who came out and watched it there in Rio. They only have 20,000 golfers in Rio and they had 15,000 people come out and watch golf in Rio in the Olympics.
So, if that`s any indication of what golf in the Olympics has done for the inspiration of people to at least follow golf, you know, I think it`s a very big plus.
CHU: Now, the attention turns to whether golf can keep up the momentum. We`ve got the Ryder Cup coming up this fall. It happens every two years, and it pits the best American golfers versus the best European golfers and it`s all about bringing more people to the game, especially the female golfers.
PLAYER: I`m such a big fan of the ladies` golf. I cannot tell you. Watching them play in the Olympics, I was astounded at how well they played.
CHU: The bottom line is that the game needs more golfers hitting drives and sinking putts, regardless of skill level, and the hope is that as the world of golf grows, so will the funds raised for charities around the world.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu, Bedford Hills, New York.
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HERERA: Next month marks the 50th anniversary of "Star Trek", but some current day billionaires are pushing the boundaries of the Final Frontier. That`s coming up.
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HERERA: Traffic deaths in the U.S. rose more than 7 percent last year, the biggest one-year increase in half a century. The National Highway Traffic Safety Administration says more 35,000 people died on roadways nationwide in 2015, and that job growth and low gas prices have contributed to more drivers on the road.
New rules by the FAA for the use of commercial drones go into if he could today. The new rules make it easier for companies to use small drones, but there are plenty of restrictions. Without a waiver from the government, the vehicles have to weigh less than 55 pounds, fly no higher than 400 feet and no faster than 100 miles an hour and they can only be operated during the day. The FAA says the new rules could generate more than $82 billion for the economy and create more than 100,000 jobs over the next decade.
Six people are back from Mars. Well, sort. Their year-long simulation of life on Mars is over. The crew members are part of NASA`s fourth Hawaii Space Exploration Analog and Simulation, better known as HI-SEAS. They spent the past year living in a bio dome on the rugged slope of Hawaii`s Mauna Loa Volcano (NASDAQ:VOLC). This was the longest-ever NASA mission to understand how a year-long deep space mission could affect astronauts.
And finally tonight, space is garnering a lot of interest from billionaires trying to push the boundaries of exploration. Space upstarts are developing new technologies at warp speed and doing it cheaper than ever. So, all week, we`re looking at the people and companies driving "Mission Space."
Today, Jane Wells is in Spaceport America, New Mexico.
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JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the middle of nowhere, New Mexico, is a $220 million bet that the commercial space age will be profitable.
WILLIAM GUTMAN, SPACEPORT AMERICA, VP AEROSPACE OPERATIONS: This place is Spaceport America, New Mexico, Planet Earth. And our zip code is 876543210.
WELLS: Spaceport America is a vast 27-square-mile state taxpayer-funded facility which has been operating for three years and done over two dozen launches. But it is still waiting for its biggest customers to lift off.
This is where Richard Branson wants to launch tourists to the edge of space for Virgin Galactic, something he thought would happen by 2009, but it hasn`t, and a fatal test crash in California in 2014 has pushed everything back.
SpaceX has also moved in but its launch pad here is quiet.
GUTMAN: Virgin has not done a launch nor has SpaceX. We`re ready for both of them, but neither of them has gotten to the point yet.
WELLS: Way too soon?
GUTMAN: I don`t think we were too soon, because after all, we have done 28 vertical launches so far.
WELLS: Yet in the last year, there has been remarkable positive momentum. Elon Musk`s SpaceX has experienced a stunning record of successes, especially in recovering boosters which the company considers key to bringing down the cost of space.
The Spaceport is operating a deficit but it hopes to be cash flow positive in two years. But it illustrates how difficult it has been to deliver on the promise of private space travel. Over the last decade, it`s seemingly been a case of two launches forward, one crash back.
Jeff Bezos` Blue Origin has had similar success in a series of tests in Texas. Musk, Bezos, Branson and others with deep pockets are patient and well-funded.
And for the Spaceport sprouting up in training, hoping to provide the necessary infrastructure, patience will also be required.
For NIGHTLY BUSINESS REPORT, Jane Wells, Spaceport America, New Mexico.
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HERERA: That`s NIGHTLY BUSINESS REPORT for tonight.
We want to remind you, this is the time of year your public television stations seeks your support. Thank you. We`ll see you tomorrow.
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