REPO-01
Morgan Brennan, Dominic Chu, Eamon Javers, Kate Rogers (NYSE:ROG)>
Environment; Retail Industry; Federal Reserve; Crime; Internet; Safety>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Santa Claus rally? The Dow rising more than 2.5 percent over the past three sessions, leading many to wonder if this is the warm-up act to a strong year-end surge.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR: Holiday heat wave. Will the above-average temperatures play games with the economy, just as a deep freeze did last year?
MATHISEN: And new threat. Just how vulnerable is the Federal Reserve to a cyber attack? A new report sheds some light.
All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, December 23rd.
EPPERSON: Good evening, everyone. I`m Sharon Epperson, in tonight for Sue Herera.
MATHISEN: And I`m Tyler Mathisen. Welcome, everybody.
Well, call it an oil-fueled rally. Investors rushed in to equities on this last full trading day of the week. It`s the third straight day of gains led by the energy sector and a recovery in oil prices. In fact, stocks tied to commodities rallied across the globe, and today`s rally puts the S&P 500 back in the green by a smidge for the year.
One market-watcher said he thinks this is the long-awaited, somewhat traditional Santa Claus rally and that stocks were due for a bounce.
By the close, the Dow Jones Industrial Average rose 185 points to 17,602, the NASDAQ added 44, and the S&P gained 25.
Oil prices recovered, ending sharply higher after an unexpected decline in crude inventories in the U.S. OPEC also issued an outlook for prices, saying they were set to rise, though slowly. Domestic crude settled nearly 4 percent higher at $37.50.
EPPERSON: The gains weren`t limited to the energy sector. Mining stocks also rallied, this on a report that China will cut its steel surplus, something that`s kept prices at a decade low.
If the country cuts back on production, analysts say China`s steel glut may begin to moderate in the New Year. That supported a number of well-known mining stocks, including Freeport-McMoRan, ArcelorMittal (NYSE:MT), Rio Tinto, BHP Billiton (NYSE:BHP) and Alcoa (NYSE:AA).
MATHISEN: Meantime, China`s central government also said it will cut the amount of electricity generated by coal-fired plants. Now, coal supplies roughly 75 percent of China`s power generation, and the government`s decision could add more stress to the struggling coal industry there.
Eunice Yoon has more from Changzhi, China.
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EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China`s black gold, coal has been the lifeblood of the country`s growth. Now, its industry faces an uncertain future.
And trucker Li Anping is feeling the pain. Here in Changzhi province, Li and his fellow truckers used to earn $630 a month transporting coal. Today, only half that. Trucks are idled, partly because of China`s economic slowdown and for another reason.
"A lot of coal mines have shut down because of the environmental protection regulations," he says. Some other coal-related businesses have also closed because they failed to meet the government`s emission standards.
At the climate change meeting in Paris, President Xi Jinping reiterated his vow to rein in China`s carbon emissions to peak by 2030. As part of that pledge, Beijing is trying to wean itself off of coal, the fuel blamed most for emissions and pollutants.
Currently, China is the biggest consumer and producer of the fossil fuel. It`s also the biggest emitter of greenhouse gases.
China still relies very heavily on coal to power its economy, so the government here has pledged to upgrade its coal-fired plants nationwide to reduce pollution by 60 percent by 2020. It also is embracing clean energy.
It`s investing big in wind, solar and nuclear technologies. Still, critics point to Beijing`s days of hazardous smog this week as evidence that China`s addiction to coal will be hard to quit. It`s a cheap and plentiful source of energy difficult to resist, they say, for a government attempting to keep the economy from falling further.
Even so, trucker Li is concerned about his own prospects in the industry.
"Living expenses are rising and I have a whole family to take care of," he says. "I`m thinking of going abroad to find a job as a day laborer," away from China`s coal country and its clouded future.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Changzhi.
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EPPERSON: To the U.S. economy and the housing market, sales of newly built homes rose in November. The Commerce Department reports a 4.3 percent gain in new home sales from the prior month, but that was less than expected. October was also revised sharply lower. Purchases of new homes have been especially uneven in recent months in the Northeast and the Midwest.
MATHISEN: Meantime, mortgage applications rose more than 7 percent last week, according to the mortgage bankers association. Refinanced applications increased 11 percent. The Federal Reserve`s interest rate hike probably prompted borrowers to get off the fence and act.
EPPERSON: Consumers are more optimistic about the economy. The University of Michigan`s Consumer Sentiment Index rose to its highest level since July. The gain is being attributed to lower inflation and energy prices, which bolstered real income.
MATHISEN: Orders for durable or long-lasting goods flat-lined in November, but that flat reading was better than the decline Wall Street was looking for. A key measure of business investment also fell in the latest sign of weak demand in the U.S. manufacturing sector. Durable goods includes things like refrigerators, toaster ovens, washing machines, aircraft and other -- I`ll take the aircraft -- and other goods designed to last at least three years.
EPPERSON: Not only was the stock market hot today, but so was the temperature outside, especially on the East Coast.
And as Steve Liesman reports, it`s not just people that are adjusting to the holiday heat wave, but the economy is as well.
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STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s hard to believe the brutal blizzards and bitter cold of last winter which ground the U.S. economy to a frozen halt have given way this Christmas to record- high temperatures.
But the bizarre balminess, with 19 states about to shatter 100-year- old records, is also playing havoc with the economy, creating weather winners and weather losers. Among the hardest hit, the department stores and retailers who stocked all that winter clothing that no one wants.
JAN KNIFFEN, WORLDWIDE ENTERPRISES FOUNDER & CEO: Is that a problem? Absolutely, that is hurting sales. It`s causing inventories to be too high. There`s lots of issues selling outerwear and scarves and mittens and gloves and sweaters, and all the things we normally get rid of this time of year. Big deal.
LIESMAN: The irony is that the good weather inclines people to go out and shop, so they could end up at the car dealer, where kicking tires is just easier when the weather`s warmer.
Another winner: outdoor recreation. The wacky warmth has found people biking, running and even going to the beach in December. Of course, it`s sent more people wielding 9 irons rather than snow shovels.
JEFF FOSTER, GOLF CHANNEL, SVP OF NEW MEDIA: We`re seeing the business boom in terms of the last really six weeks of the year and what`s been just absolutely crazy is what`s happening in the Northeast and all the way, really, over into Chicago right now.
LIESMAN: Long Island fishing guide John McMurray has booked ten extra client days to pursue fish migrating off New York shores, including this Atlantic blue fin he caught last week.
Those gains mean deep losses for the ski resorts in the Northeast, where lifts sit idle atop mountains green with grass rather than white with snow.
A map showing temperatures in the nation relative to normal finds the deepest red over the northeastern ski resorts. In fact, during the middle of December, the entire nation east of the Mississippi, where 60 percent of the population lives, had temperatures from 2 to 20 degrees above normal.
Good snow out west and lousy snow in the east has helped power bookings at Vail Resorts (NYSE:MTN), where season pass sales are up 13 percent.
Another industry that could benefit: home-building. It shuts down in some parts of the country during the coldest winter months. Warmer weather lets homebuilders pour concrete a little longer, if they can find the workers.
Winter is just beginning, and it could exact a cruel and cold price for December`s warmth. Temperatures for many parts of the nation are forecast to be below average in January and February. So, retailers may yet get a chance to sell those hats and gloves, though they wish they had bikes, bikes and t-shirts on the shelves until then.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
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MATHISEN: The weather is also a big unknown for some of the shipping companies that are trying to deliver your gifts in time for the holidays.
Morgan Brennan now with a look at the last-minute push to get all those boxes where they need to be.
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MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Despite some service issues earlier in the month due to larger-than-expected volume spikes around Cyber Monday, shipping experts say UPS and FedEx (NYSE:FDX) are on track for their best peak season performance in several years.
ShipMatrix estimates over 60 million packages will be delivered on Christmas Eve with just a few thousand missing that window, a big difference from the nearly 2.5 million delayed in 2013. On-time service performances has steadily increased coming into Christmas.
SATISH JINDEL, SJ CONSULTING: Last week, FedEx (NYSE:FDX) was at 97.2 percent for all its services, UPS was at 96.9 percent, and based upon what we see for the first two, three days of this week, with the weather being very cooperative, they are both at 98 percent, 99 percent for their services.
BRENNAN: Perhaps this season`s biggest winner, the U.S. Postal Service, which according to ShipMatrix, has had the best performances with package volumes up 15 percent so far this holiday season, better than the USPS`s 10.5 percent forecast last month.
But all of this is not without hiccups. Start-up jet.com, which competes with Amazon (NASDAQ:AMZN) and Costco (NASDAQ:COST), has been warning that it can, quote, "no longer confidently guarantee delivery" of certain items by Christmas. And Eddie Bauer`s customer service line is playing a message that says the retailer has, quote, "been informed by FedEx (NYSE:FDX)" that there are some issues.
EDDIE BAUER, CUSTOMER SERVICE MESSAGE: They are behind in processing packages into their system throughout the country. Please allow a few more days for your order tracking information to be updated. Your order will be delivered as quickly as possible.
BRENNAN: Eddie Bauer isn`t commenting, but FedEx (NYSE:FDX) says its network is performing, quote, "as designed for forecasted volumes for major customers" and that operations are running around the clock to handle any additional unforeseen demand.
Chris Wetherbee, a transportation analyst at Citi Research, says overall, FedEx (NYSE:FDX) and UPS do seem to be more assertively dictating the terms of service this time around.
But as the hours count down to Christmas, there are still two factors that could derail outstanding package deliveries. The first, if retailers take extra time to hand it off to the carriers, and the second, a sudden weather change in certain parts of the country, something that could become an issue as severe storms now sweep across the South.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
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EPPERSON: Still ahead, will the worst-performing Dow stock this year see its fortunes reversed in the next?
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EPPERSON: The dogs of the Dow -- it`s a classic investment strategy that involves buying high-yielding stocks in the blue chip index. Sometimes it works, other times it doesn`t.
Dominic Chu tells us how the dogs of the Dow in 2015 performed and identifies the new ones to watch out for in the New Year.
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DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s getting close to the end of the year, and that means it`s the time when many income-focused investors start to look at big dividend-paying stocks in the Dow Jones Industrial Average.
Now, the strategy is known as the dogs of the Dow, and it`s fairly simple. At the end of each year, you select the ten Dow stocks that have the highest dividend yield, invest an equal dollar amount in each of the stocks, hold them for a year, and then do the same thing again next year.
The idea is to invest in some of the more value-oriented, large-cap, blue chip stocks in the market and to try to capitalize on not just potential stock price gains but also a dividend payment as well.
Now, according to analysts at Bespoke Investment Group, the use of this strategy has tended to do better than the average performance of the Dow itself. Between 2001 and 2014, the average total return of the dog strategy has been a gain of nearly 9 percent per year. Compare that to an 8 percent gain for the Dow.
Now, that same trend is playing out this year as well. The current dogs of the Dow include Verizon (NYSE:VZ), Chevron (NYSE:CVX), G.E., McDonald`s (NYSE:MCD), Pfizer (NYSE:PFE), Merck (NYSE:MRK), Caterpillar (NYSE:CAT), ExxonMobil (NYSE:XOM), Coca-Cola (NYSE:KO) and Proctor and Gamble. McDonald`s (NYSE:MCD) and General Electric (NYSE:GE) have been two of the Dow`s best performers this year.
Meanwhile, IBM and Walmart have lagged behind. So, as of now, next year`s dogs would kick out the G.E., McDonald`s (NYSE:MCD) and Coke shares and add Cisco (NASDAQ:CSCO), IBM and Walmart.
Investors who use the strategy will be looking to see if some of the dogs can reverse this year`s losses.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
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MATHISEN: Well, as Dominic just reported, Walmart will be one of the dogs of the Dow for 2016. It is also, by the way, the worst-performing stock in the blue chip index so far this year, down about 29 percent, as you see there.
So, what`s ahead for the big-box chain?
Tom Lee is founder and head of his own research fund, Fundstrat Global Advisers.
Tom, always good to see you.
Would you buy Walmart at today`s values, and how long do you expect you might need to wait to get paid if you would buy it?
THOMAS LEE, FUNDSTRAT GLOBAL ADVISORS HEAD OF RESEARCH: Yes, I would definitely buy Walmart today, because one, you know, it`s an iconic company. I think in two years, the stock could easily rise 50 percent, and that`s just having its P/E go from 13 times to the retailer`s average of 18 times.
You might ask -- well, if you`re talking two years, why would you buy the stock today? I think a couple reasons.
One is, you know, it`s paying a great dividend yield. That`s why it`s a dogs of the Dow. Its dividend yield is 3.2 percent. That`s well above how much its bonds are paying. So, if you`re looking for income, you`re way off better buying the stock than the bond.
And the other is, the P/E could actually go up next year because the P/E`s really based on earnings revision. And the cycle of negative earnings revisions is slowing, so there`s a chance for the P/E to go up next year before you start to get the earnings recovery in 2017-2018.
EPPERSON: I want to talk to you, Tom, about some of the stock dividend yields that you`re pointing out are so strong right now, even perhaps stocks becoming the new bonds, better than long-term bond yields. You say there are about 130 companies in the S&P 500 where this is the case? What are some of your favorites right now going into 2016?
LEE: Yes, well, it`s so funny, because I just listened to Dominic talk about some of the dogs of the Dow, and these are exactly the same companies.
It turns out, stocks have gotten so cheap that their dividends are worth a lot more than the bond yields that they`re paying, and it`s the same company. It just doesn`t make sense. You have to go back to like 1959 to see this. So, we`re at something that hasn`t been seen for 40 years.
Cisco`s another example, Caterpillar (NYSE:CAT), G.E., and you know, Walmart. And you know, what`s amazing is these are AAA -- like, Cisco`s a AAA-rated company. You know, Walmart`s AA-rated.
These are rock-solid companies that are borrowing money ten years out at 2.5 percent or 2.6 percent, and yet, their dividend yield is over 3 percent. It doesn`t really make sense.
MATHISEN: It`s a little hard for a lot of investors to invest in a company where you don`t expect earnings growth until 2018. Tell them -- I mean, you get paid to do it with the dividend yield.
EPPERSON: Right.
MATHISEN: That`s one nice part of it.
LEE: Yes.
MATHISEN: But tell them why they need to be patient.
LEE: Well, it`s a good question. I mean, the reason earnings aren`t growing is, you know, Walmart`s investing in that omni channel, like going online, so they have a lot of businesses growing. Like, you know, if you listen to Walmart`s earnings, they have quite a number of categories that are growing, and Walmart, remember, is a $300 billion business.
So, it`s tough to get the whole thing growing, but at a 13 P/E, you have to ask yourself, you know, is it -- can you be patient? And I think you`re going to be really patient at this multiple.
MATHISEN: All right. Merry Christmas, Tom.
LEE: Yes, thanks.
MATHISEN: All right. Tom Lee`s with Fundstrat Global Advisers.
EPPERSON: Well, Tyler, we`ve been keeping an eye on Celgene (NASDAQ:CELG) after it settled a long-running patent dispute. That`s where we begin tonight`s "Market Focus."
The biotech company reached an agreement over its flagship cancer drug with generic drug-maker Natco Pharma. Shares of Celgene (NASDAQ:CELG) rose nearly 10 percent today to $122.07.
Norfolk Southern (NYSE:SO) spurns another takeover bid from rival Canadian Pacific. The railroad said regulators will likely reject the merger. Canadian Pacific says it`s disappointed with Norfolk`s decision and will review strategic alternatives. Shares of Norfolk Southern (NYSE:SO) up just shy of 1 percent to $86.89. Meanwhile, shares of Canadian Pacific closed up to $128.50.
And activist investor Carl Icahn says he is willing to pay around $1 billion for pep boys. According to a filing, Icahn is willing to pay 10 cents more per share than Japan`s Bridgestone. Bridgestone has until tomorrow evening to respond. Shares of Pep Boys jumping 3 percent today to $17.40.
MATHISEN: The regional cable operator Cablevision facing scrutiny from state and city regulators over its deal to sell to French conglomerate Altice. Both New York state and New York city say they are concerned the deal would negatively impact customers, read that consumers. Shares of Cablevision closing down 0.75 percent to $31.54.
Investors getting their first chance today to react to a late warning yesterday from Bed Bath & Beyond (NASDAQ:BBBY). The retailer revising its third-quarter guidance and said its fourth-quarter sales will be lighter than expected. The company has seen a decrease in in-store transactions as online sales rise. Shares of the retailer fell 4.5 percent to $48.97.
And Hyatt Hotels (NYSE:H) was the target of a malware attack. The company says that as soon as it discovered the suspicious activity on its payment processing system, it launched an investigation, which is still ongoing. Hyatt says it has strengthened the security of its system and has notified customers. Shares of Hyatt up nearly 3 percent on the day to $49.36.
EPPERSON: A warning from the inspector general for the Federal Reserve. According to a summary of the report, a key database at the Central Bank needs better cyber security protections and is vulnerable to being hacked. The Central Bank holds sensitive information on the nation`s financial system.
Eamon Javers has been following the story from Washington.
And, Eamon, the Federal Reserve has been hacked before, but how much danger do you think there is that the Fed could be hacked again?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, this is clearly a warning shot here from the inspector general, saying that they have done some things over at the Federal Reserve to tighten up cyber security, but they haven`t done enough when it comes to this one particular computer system called the Star System. They said that`s the system that processes a lot of incoming data and helps the Fed actually write reports and release some of the monthly data that it puts out to the broader public to make investing decisions and all of the things that we do with that Fed data.
So, the question is, could a hacker get into that data, manipulate it somehow and cause some adverse outcome here for markets, for investors, or somehow profit from that? That`s something that cyber security experts I talked to said is actually a possibility and they`re seeing more and more sophisticated cyber security attacks where you have an attacker actually go in, manipulate the data, change the outcome of the data, rather than stealing it at wholesale and going out and trying to sell it like we saw in some of the early-on cyber attacks.
Now, it`s getting a little more sophisticated and that`s the cause for concern.
MATHISEN: The inspector general only released a summary of the report, not the whole thing. Why?
JAVERS: Well, they don`t want to give a road map to the bad guys, basically. They don`t want to put out the details of the areas that they found weaknesses in the system. They said they found six specific things they wanted tightened up and they gave those recommendations to the Fed. I asked the Fed and they said they`ve accepted the recommendations and will move on them as quickly as they can.
So, clearly, there is a concern here. The Fed is patching it up. But in the meantime, they don`t want the bad guys to know where the weak spots are.
EPPERSON: Makes sense. Eamon Javers, thank you, in Washington.
JAVERS: You bet.
MATHISEN: Coming up, what some start-ups are doing to tackle the big problem of sports-related concussions.
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EPPERSON: Here`s a look at what to watch tomorrow. The stock market will close early for the Christmas Eve holiday. Trading ends at 1:00 p.m. Eastern. Initial jobless claims will be released before the opening bell. And tomorrow is crunch time for last-minute shoppers. That`s what`s on watch for Thursday.
MATHISEN: Last-minute? I`m just getting started, man!
The holdings of the largest 100 U.S. public pension systems dropped about 5 percent in the year`s third quarter to $3.2 trillion, that`s according to the Census Bureau. Portfolios suffered as the market swooned in August and September.
EPPERSON: Safety regulators said they`ve identified an eighth person who was killed because of a Takata airbag. The National Highway Traffic Safety Administration also said it was expanding the recall of U.S. vehicles with those defective airbags, and the agency`s appointing an independent monitor to oversee compliance with the government recall.
MATHISEN: Later this week, Sony (NYSE:SNE) will release the movie "Concussion," raising awareness about the brain injury most often associated with football. And as Kate Rogers (NYSE:ROG) tells us, a number of companies are working to reduce and even perhaps prevent concussions altogether.
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KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: With the $1 billion settlement earlier this year, with more than 20,000 former NFL players over concussions and more than 150 in the league so far this year alone, it`s safe to say head trauma is a major issue for the $12 billion football business.
But the NFL is turning to crowd-sourcing in an attempt to find the next big thing in safety and prevention of traumatic brain injury. As part of a partnership with GE and Under Armour (NYSE:UA), the NFL has invested more than $65 million over four years, awarding entrepreneurs cash to bring their ideas to market. They`ve received 500 entries from 19 countries and have narrowed it down to three winners for the head health challenge.
Innovators like Army Research Lab in Adelphi, Maryland, are using tethers to resist violent head motions in players before they hit the ground.
THOMAS PLAISTED, ARMY RESEARCH LAB: We`ve shown a reduction in the accelerations or the forces experienced inside the head during this back- fall event. We`ve reduced those forces and accelerations by half. And so, that results in a far lower likelihood of head injury, brain injury.
ROGERS: For others like Viconic, based in Dearborn, Michigan, the focus is instead on the turf. They`re aiming to create safer playing fields, adding a thermal plastic urethane layer to cushion impact.
JOEL CORMIER, VICONIC SPORTING: This goes underneath the turf. It`s a technology we`ve been developing. It started in automotive. The product is used on about 65 percent of the vehicles for head impact protection, and we`re taking that technology and we`re applying it to, certainly, synthetic turf and sports underlayment, as well as the military for impact protection and blast protection for our soldiers and war fighters.
So, we`re taking the same technology that was successful in automotive and then applying that to sports and the military.
ROGERS: And Quanterix, based in Boston, is working to take the guess work out of concussions. The NFL-backed company has created the first ever blood test that can provide early detection moments after a hit. Quanterix has raised $44 million in funding and has an IPO on the horizon for 2016. They`re working on portable detection kits that will be on the sidelines by 2017.
The hope from the NFL and its partners is that through collaboration with these companies, they can help bring products and solutions to market more quickly and make the game safer sooner.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).
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MATHISEN: And earlier this week, the National Institutes of Health issued a seven-year grant totaling about $16 million to researchers at several universities to study brain disease in former football players.
EPPERSON: And finally tonight, it`s going to be a very merry Christmas for Beatles fans. Starting Christmas Eve, 224 songs from the Fab Four will be added to nine streaming services, including Spotify, Apple (NASDAQ:AAPL) Music and Amazon (NASDAQ:AMZN) Prime. The Beatles catalog will not be exclusive to paying subscribers, it will be available to users who listen for free.