Santoli, Diana Olick, Julia Boorstin>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
Funded in part by HSS.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Retail rout. Investors run from the sector as the bad news piles up. Could this year see more store closings than in any time in modern history?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Excessive optimism. Money is pouring into stocks. Bears are turning into bulls. Is that a warning side for the market?
HERERA: Big dividends. Why investors are given one sector a second chance to pay them back.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, January 5th.
MATHISEN: Good evening, everyone, and welcome.
NASDAQ closed at an all time high today, but otherwise, it was a down day for stocks. One reason: retail wreckage. Holiday gloom has set in over that sector and shares of the some of the recognizable brands in retailing got slammed hard today in trading.
Macy`s (NYSE:M), the world`s largest operator, fell nearly 14 percent, Kohl`s (NYSE:KSS) tumbled 19 percent, making these two stocks the worst performers of all the 500 in the S&P 500 today.
The selling in the sector follows a number of dismal reports from those retailers which we told you about beginning yesterday. Sales slumped at the end of last year, physical stores struggled to keep pace with online retailers, resulting in a wave of closure. And it`s all emblematic of seismic shift happening in an industry that touches us all.
Courtney Reagan has our lead story from a Macy`s (NYSE:M) in Elmhurst, New York.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Early strength for closing sales gave holiday hope to retailers like Macy`s (NYSE:M) and Kohl`s (NYSE:KSS). But a strong black Friday weekend and days before Christmas weren`t enough. Holiday sales fell 2 percent at Macy`s and Kohl`s, and plunged double digits to a struggling Sears (NASDAQ:SHLD).
Macy`s (NYSE:M) is closing 68 stores this year, a total of 100 by the end of next year. Sears (NASDAQ:SHLD) says it`s closing 150 more stores and selling its craftsman tool brand as its business shrink. The seemingly endless stream of bad news for department stores has many wondering if this is the beginning of the end for the group.
MATTHEW BOSS, J.P. MORGAN EQUITY RESEARCH ANALYST: The bigger dynamic is the share shift happening at a more micro level. Those dollars are still being spent. People are still buying apparel. They`re just buying it online. They`re buying it on Amazon (NASDAQ:AMZN). And when these dollars are being shifted from brick and mortar to online, these legacy retailers are losing.
REAGAN: Though consumers are doing just fine, spending 4 percent more this holiday season, according to MasterCard (NYSE:MA), they`re just not spending as much at department stores.
More and more consumers are spending online. Though around 85 percent of all purchases are still made in stores. Online retail sales during the holiday season grew more than initially forecast. A scan of more than 4 million e-mail receipts shows Amazon (NASDAQ:AMZN) captured nearly 40 percent of all online purchases during the holidays.
The group says Apple (NASDAQ:AAPL).com sales grew 66 percent over last year. Consumers did buy on Macy`s (NYSE:M).com with online sales growing double digits. Still, not enough to tip the total sales balance into positive territory. MasterCard (NYSE:MA) spending continues to show sales growth for spending on experiences, things like vacations and entertainment, and that eats away at the spending available for things like hand bags.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Elmhurst, New York.
MATHISEN: But it wasn`t all bad news on the retail front. The Gap (NYSE:GPS) reported a rise in its holiday sales. The owner of Gap (NYSE:GPS), Old Navy and Banana Republic stores cited improved momentum and increased its full year per share earnings expectations. And that prompted the shares to take off in after-hours trading today.
HERERA: To put retail struggles into context, we`re joined tonight by Jan Kniffen. Jan is CEO of J. Rogers (NYSE:ROG) Kniffen Worldwide Enterprises.
Nice to have you back, Jan. Thanks for join us.
JAN KNIFFEN, J. ROGERS KNIFFEN WORLDWIDE ENTERPRISES CEO: Hey, it`s great to be here.
HERERA: We got a number of your predictions for this New Year 2017. Some of them are pretty dramatic. Let`s start with number one. There are going to be more store closures in 2017 than we`ve ever seen before.
KNIFFEN: Well, when I made that one, it seemed like I was stepping out there. Now that we`ve seen these releases, it may feel a lot more reasonable. We`re certainly going to see the closings from Macy`s (NYSE:M). We already knew that. We didn`t know how many Sears (NASDAQ:SHLD) was going to close. Now, we know there`s a big store closing program there.
But we`re also seeing inline stores close and we will continue to see closures I think for the next several years. You know, I`ve been saying for more than a year now, we`re going to see 400 malls that we don`t need of the 1,100 we have out there go away. And I`ve been saying for a long time that I thought Macy`s would be in the vicinity of 550 stores when they were done. That means they`ll have even more closures than they`ve announced so far.
But it`s not just Macy`s. It`s all across the industry. We`ve seen store closures from specialty stores and from department stores for a long time, and it`s just going to continue.
MATHISEN: You know, I don`t know whether you think we`re seeing beginning to see the death of the mall, but what we did see and you reported on is a fall off dramatic in foot traffic in malls which you think is going to continue and the number of stores people visit once they`re in the mall is half what it was just five or six years ago.
KNIFFEN: I predicted that we would see the largest drop in mall traffic in the history of the mall in the fourth quarter of this year. It looks like that I was right. I think it will be worse in the fourth quarter of next year. I think this is accelerating not slowing down.
That means that we don`t need 1,100 closed malls in America and I`ve been saying for more than two years that we were going to see at least 400 do something else. They might not go away but they`re not going to be the mall as we know them today.
KNIFFEN: Now, that doesn`t mean it`s the death of the mall. We have 250 fabulous malls in America that are going to get more business. They`re going to have higher rents. They`re going to do great. But that`s 250 out of 1,100.
HERERA: That`s right.
You also predicted Sears (NASDAQ:SHLD) will file for bankruptcy in August and, you know, basically we`ve seen them put out the fact that they are going to close a number of stores. I mean, maybe it`s the drip, drip, drip before the actual event.
KNIFFEN: Well, they got a new lease on life after I wrote that. They got a loan of what almost $500 million and they just sold craftsman for what they described as a $900 million transaction. So, once you do some asset sales you can go longer.
I have described that though as basically they`re selling the assets, they`re taking the cash, they`re putting it in the fireplace and they`re sending it up the chimney --
KNIFFEN: -- because they keep losing so much money every quarter.
MATHISEN: You`ve got some interesting thoughts about some of the tweener stores like Saks (NYSE:SKS) and Lord & Taylor, but maybe your most interesting prediction there could be a bitter for Macy`s (NYSE:M), which is by your accounts sort of going through some trouble. Who would it be?
KNIFFEN: Well, I think Macy`s (NYSE:M) will be the survivor in the space. It`s not going to be the other regional department stores. Macy`s (NYSE:M) will be there. They`ll be there with 500 stores or more.
But I still believe that we need the merger of the off-price space and the full price space. I said for ten years that Macy`s (NYSE:M) should buy an off-price player instead they started their own because they were too late in the game. Now, it looks like, given the size of the off-price players, they could buy Macy`s (NYSE:M). Why would they want to do that? Because in order to have a viable off-price space, you need a full price space to compare yourself to.
So, if the off-price guys own the full price guys own the full price guys, they would have the whole market sewed up for the best brands in the country. I think that`s a transaction that should happen.
HERERA: Fascinating stuff. Thank you, Jan. Good to see you as always.
KNIFFEN: You too.
HERERA: Jan Kniffen with J. Rogers (NYSE:ROG) Kniffen Worldwide Enterprises.
MATHISEN: The world`s largest retailer is pushing further into ecommerce. Walmart will buy Shoebuy for $70 million to better compete with Amazon`s giant Zappos. Walmart made online expansion its priority last year when it purchased Jet.com for more than $3 billion, and at that time, it also said it plans to invest billions more in its online operation while cutting back on new store openings.
HERERA: Meantime, online retailer Amazon (NASDAQ:AMZN) is reportedly in talks to buy bankrupt clothing maker American Apparel. That move would expand Amazon`s private label business. American Apparel is known for its "Made in the USA" slogan and says it`s the largest clothing manufacturer in North America.
So, with that acquisition, Amazon (NASDAQ:AMZN) could in theory save thousands of U.S. manufacturing jobs.
MATHISEN: As we mentioned earlier, retail stocks weighed on the broad market today, so did financials which have been among the markets best gainers since the election. Solid economic data today not enough to lift shares.
The Dow Jones Industrial Average fell 42 points to 19,899. That`s it first loss of the New Year. OK, so it`s just day three but either way. NASDAQ up 10 to a record close, as we mentioned earlier, and the S&P 500 very slightly lower.
HERERA: One day ahead of the monthly employment release, a new report shows a slowing in private sector job creation. Private payroll processor ADP says 153,000 jobs were created last month. That was below market expectations and down from November. All of the gains came from the service sector.
Separately, the number of Americans filing for unemployment benefits fell by 28,000 last week to one of the lowest levels in four decades.
MATHISEN: The services sector, the biggest part of the U.S. economy, expanded at a solid pace at the end of last year. According to the Institute for Supply Management, new orders rose sharply and even the troubled mining sector saw growth. The service industry accounts for more than two-thirds of economic output.
HERERA: Fiscal stimulus may not kick start growth as aggressively as many think. That`s according to the president of the San Francisco Fed who today said he`s expecting economic activity to be subdued.
(BEGIN VIDEO CLIP)
JOHN WILLIAMS, FEDERAL RESERVE BANK OF SAN FRANCISCO PRESIDENT: My view in terms of the demographic that we`ve been seeing for last decade or so is that growth is likely to be one in half to one and three quarters percent. Now, some policies could change that. If we can find ways to do a lot more investment in our people, in technology, more broadly in infrastructure, I think we can shift that upwards. But right now, my view is of the fiscal stimulus that people have been talking about would have a relatively modest effect.
(END VIDEO CLIP)
HERERA: President-elect Trump has proposed a big increase in infrastructure spending that he says will stimulate the economy.
MATHISEN: And Donald Trump set his sights on Toyota (NYSE:TM) today and its manufacturing operation south of the border. In a tweet, he said, "Toyota (NYSE:TM) Motor will build a new plant in Baja, Mexico, to build Corolla cars for U.S. No way! Build plant in U.S. or pay big border tax."
Toyota (NYSE:TM) responded by saying the Mexican plant will not cut U.S. jobs, but shares fell hard midday when that tweet went out.
HERERA: Time Warner (NYSE:TWX) shares also came under pressure midday when it was reported that the president-elect still opposes its merger with AT&T (NYSE:T). The report cited unnamed people close to Donald Trump. But the stock reacted as you can see by that sharp drop right before 2:00 p.m. Eastern Time. The move in AT&T (NYSE:T), not as dramatic.
MATHISEN: The nation`s top U.S. intelligence official said he is resolute in his belief that Russia staged a cyber attack during the presidential election. The comments which conflict with the president-elect`s views came during a Senate hearing and Eamon Javers was there.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some of the nation`s top spy chiefs went to Capitol Hill today for a showdown over Russian hacking in the 2016 election and it was a chance for the intelligence bests to very publicly disagree with the incoming commander-in-chief.
Earlier this week, Trump questioned the validity of the Russian hacking accusations. But Thursday, the Director of National Intelligence James Clapper and NSA chief, Admiral Mike Rogers (NYSE:ROG), disagreed with President-elect Trump.
SEN. JOE DONNELLY (D), INDIANA: Director Clapper, how would you describe your confidence in attributing these attacks to the Russian government as opposed to someone in their basement?
JAMES CLAPPER, DIRECTOR OF NATIONAL INTELLIGENCE: It`s very high.
JAVERS: They dismissed WikiLeaks founder Julian Assange who Trump quoted favorably this week.
CLAPPER: I don`t think those of us in the intelligence community have a whole lot of respect for him.
JAVERS: And they clearly didn`t appreciate the mocking tone of some of Trump`s recent tweets about the intelligence community.
CLAPPER: I think there`s a difference between skepticism and disparagement.
JAVERS: By Thursday morning, even before the hearing, Trump`s tone about the clandestine services seemed to pivot. He tweeted, "The media lies to make it look like I am against intelligence when, in fact, I am a big fan."
Trump is scheduled to get take classified briefing at Trump Tower tomorrow from Rogers (NYSE:ROG), Clapper and other U.S. intelligence officials who will explain their assessment and also how it is that they know what they know.
I asked Admiral Mike Rogers (NYSE:ROG) as he was leaving the hearing what his message for Donald Trump is and he said, "No comment. I`ll talk to him tomorrow."
For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Washington.
MATHISEN: Still ahead, after rocketing higher, are apartment rents finally starting to fall back to earth?
MATHISEN: Investment analysts as a group project a 12 percent rise in earnings for the S&P 500. And while that may seem like a big game, forecasts are down from October 1 when growth was expected to hit nearly 14 percent. Financials, materials and technology could see their earnings grow at a double digit pace. Utilities sector expected to lag.
HERERA: Expectations for strong earnings growth, looser regulations and lower taxes are some of the things that have driven the market higher since the election. In fact, the rush of optimism has been so strong that even some bears have turned into bulls.
As Mike Santoli reports, that group think may not necessarily be a good thing.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The so-called Trump rally has investors looking on the bright side again. A recent pick-up in economic growth and hope for business-friendly Trump policies have lifted the Dow Jones more than 8 percent since Election Day and boosted several measures of investor confidence to levels not even in years. That`s the good news.
In the short-term, though, signs of over-optimism are flashing a caution signal for stocks. A hint that immediate further upside could be limited with the bullish bandwagon looking pretty full. Surveys of both professional and individual investors have shown an extreme surplus of bulls expecting higher share prices over a shrinking group of skeptical bears. Cash is rushed into exchange-traded funds that track big U.S. stock indexes at a pace not seen for two years.
And a conference board measures of consumer confidence hit at 15-year high at last report, while positive for household spending such high confidence readings are associated more with rallies nearing a high than one that sets the speed even higher. By Wall Street`s often contrary logic, extreme optimism typically means stocks are set to stall or perhaps tip in the coming weeks. Right now, this setup is complicated by the sectors such as bank stocks and industrials have surged since the election on those hopes of quick tax cuts, deregulation and new infrastructure spending under a President Trump.
As the inauguration nears, investors are struggling to handicap the chances for quick progress along these fronts. None of this says that the good times are over for the market, the rally has been impressively broad, and corporate earnings are paused to recover from their 2016 tail spin in the coming quarters.
Still, the best thing for stock prices in the longer term might be for a brief market set back that dims investors` enthusiasm for stocks. A less crowded bandwagon has a better chance of moving ahead quickly.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock Exchange.
MATHISEN: As investors look for places to put their money, some are eyeing a sector that had fallen out of favor, telecoms.
But as Dominic Chu reports, there are reasons why there`s a new found interest in that group.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stock market rally since the Trump election victory has produced a huge amount of gains specifically for the S&P 500 financial sector, the best performing sector in the large cap S&P 500 since that time. But these days, the second best performing sector overall is a dividend paying sector and that is the telecom sector. You can see, they`re up by about 15 percent since the election, coming close to the 16 percent gain for the S&P 500 financials or the bank stocks.
Now, not all interest rates sensitive sectors like utilities or consumer staple stocks have participated in the upside. They`ve been lagging the overall market but telecom stocks are important for a lot of investors because they pay outsize dividends compared to other parts of the stock market.
Now, check out one of these ETFS. This is the Vanguard Telecom exchange- trade fund, ticker VOX. It hit a record high in trading this past week and a lot of people are wondering whether or not this can continue as investors look for more dividend-paying stocks.
Now, two of the biggest components of the index overall have contributed some of the biggest gains. Check this out, because over the last one month, AT&T (NYSE:T) is up 11 percent, yet still pays investors a 4.6 percent dividend yield and Verizon (NYSE:VZ) shares up by about 9 percent, and they still pay a dividend yield over 4 percent.
So, as people start to look in places to invest, this has a lot of positive momentum and dividend-paying stocks like telecoms could be someplace that investors will look going forward if they`re still looking for those dividend payments.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
HERERA: L Brands suffers the same ills as Macy`s (NYSE:M), and that`s where we begin tonight`s "Market Focus".
The owner of Bath and Body Works lowered its profit outlook for the holiday season after reporting a decline in same store sales during that period. The company cited weak demand for lingerie products at the company`s Victoria Secret brand. Shares were off almost 8 percent to $62.04.
Constellation Brands (NYSE:STZ) reported higher profit and revenue in the latest quarter and raised it`s full year earnings forecast. The owner of Corona and Modelo brands said results were driven by strong demand for beers. But shares fell as investors remain unsure about how the president- elect`s future proposals will impact that company, because it has three manufacturing plants in Mexico. Shares fell 7 percent to $146.75.
MATHISEN: The watch maker Fossil (NASDAQ:FOSL) said it plans to introduce new brands and launch more than 300 new products this year. The owner of Michele watches said the new products will include smart watches and fitness trackers. Shares of Fossil (NASDAQ:FOSL) fell more than 7 percent today to $25.01.
The research company Gartner (NYSE:IT) has agreed to take over the consulting firm CEB for more than $2.5 billion. The deal expected to offer consumers a greater array of services. Gartner (NYSE:IT) shares, though, down 11 percent on news of this deal to $90.56. Shares of CEB soared almost 21 percent to $74.85.
HERERA: Mortgage rates fell for the first time since the election according to Freddie Mac, the 30-year fixed rate average declined to 4.2 percent. It`s the first time since 2014 mortgage rates opened the year above 4 percent.
MATHISEN: Apartment rents are starting to fall. After rising swiftly over the past few years, there`s new evidence that the trend may be starting to reverse.
Diana Olick has the details.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you`re looking to upgrade to a nicer rental apartment, now is the time. Higher end rents are finally coming down, as new supply gets ready to hit the market this year. Rents had been rising far faster than incomes for the past few years, as high demand outpaced supply.
But there is a limit, even on the luxury end. Apartment vacancies are still very tight and getting tighter but rents are evening. Rent growth at the 2016 was actually the lowest in seven years and some major metropolitan markets are seeing rent fall -- Boston, New York City, D.C., Austin, Seattle and San Francisco all saw small rent drops, according to a new report from REIS, Inc.
Landlords are making bigger concessions now, trying to get tenants locked in before much more supply hits the market this year and pushes rents even lower.
The drops aren`t everywhere, though. They`re mostly in expensive markets in expensive buildings. Cities like Nashville, Salt Lake and Sacramento are still seeing rents push higher.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
HERERA: Coming up, doubling down. What some companies are doing to take entertainment into the next dimension.
MATHISEN: Here`s a look at what to watch tomorrow. The employment report for December is due out. Expectations are for the creation of about 185,000 new jobs.
Boeing (NYSE:BA) releases its final delivery and order numbers for 2016 and a number of Federal Reserve officials is scheduled to speak on the economy. And that`s what to watch Friday.
HERERA: Verizon (NYSE:VZ) says it`s unsure now whether it will proceed with its acquisition of Yahoo`s core assets. An executive said the Carrier is still studying the impact of Yahoo`s massive data breech that affected more than 1 billion accounts. The company`s executive vice president said she cannot say with confidence one way or the other whether the deal will proceed.
MATHISEN: Those Verizon (NYSE:VZ) comments were made at the consumer electronic show. That`s the world`s largest technology exhibit. That wasn`t the only thing that happened at the big conferences.
As Julia Boorstin reports from Las Vegas, the focus was on a few dominant high tech trends.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: While new super thin TVs are on display here at CES, some of the biggest news is about the content consumers can access on these giant screens or anywhere else as technology revolutionized the entertainment experience.
Today, Hulu announcing its new streaming TV bundle live an on demand content plus DVR capability for under $40.
MIKE HOPKINS, HULU CEO: When people opt to take the Hulu package, they`re actually in the paid TV ecosystems. So, we actually think that with services like ours, you`re going to see paid TV stabilize in this country and potentially even grow in the future.
BOORSTIN: Hulu joining DirecTV and Sling with alternatives to the traditional live TV bundle and media companies are increasingly on board.
ROGER LYNCH, SLINGTV CEO: When we first approached the media company for the idea of a skinny bundle, there was a lot of concern, and what we really I think were able to convince them of, look, cord cutting is happening. It`s happening without Sling being in the market.
So, you can either ignore it or you can try to embrace it and figure out packages that will appeal to people who cut the cord.
So, I think there`s now a growing acceptance really they need to segment the market.
BOORSTIN: But it`s not just video content, a range of companies here are focused on using technology to bring entertainment into a new dimension, with new virtual reality hardware and software.
Twenty-First Century Fox is here with a sneak peek of its "Planet of the Apes" experience due out this fall. The FOX doubling down on creating VR experiences to sell and it expects other studios to follow.
MIKE DUNN, 20TH CENTURY FOX: I think you have enough players out there that there`s a market developing. So, it`s not a risky investment to develop commercial AR or VR. So, you`re going to have more players develop, you know, long form commercial content.
BOORSTIN: HTC`s Vibe just announced a big push for content, debuting new app store with a Netflix (NASDAQ:NFLX)-like subscription service for VR, making it easier for consumers to find and engage with VR content and making it more appealing to invest in these headsets.
If the trend showcased here at CES play out, 2017 could be the year that content breaks out from the bundle and becomes more immersive and engaging than ever.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Las Vegas.
MATHISEN: That`s a good look on her, right? Don`t you think?
HERERA: With the goggles on and it messes up your hair.
MATHISEN: Oh, yes. It messes up the hair.
HERERA: That`s it for us tonight on NBR. I`m Sue Herera. Thanks for joining us.
MATHISEN: And I`m Tyler Mathisen. Have a great evening, everybody, and we will see you back here tomorrow with your virtual reality goggles on.
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