REPO-01
Frank, Julia Boorstin>
Acquisitions; Donald Trump; Government; Policies>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Market quadfecta. Four major stock index hit records today. Is the long-awaited rotation from bonds into equities finally happening, and what you should do if it is?
Legal drama. Anthem and Cigna are fighting the government`s move to block their multibillion-dollar merger. Today, the battle moves to the courtroom.
Building a nest egg. What a Trump administration may mean for your retirement savings.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, November 21st.
Good evening, everyone. And welcome. I`m Tyler Mathisen. Sue Herera has the evening off.
Well, nearly every corner of the market is feeling the rally. From blue chips to small caps to NASDAQ with its tech stocks, four major stock market indexes hit all-time highs today.
Here are the record numbers. The Dow added 88 points to 18,956, 40-odd points away from 19,000. The NASDAQ rose 47. S&P 500 climbed 16 and the small cap Russell Index of 2,000 many companies up 6.
The broad rally that begun after the election and has been driven by the hope that the president-elect will cut taxes, reduce regulations and invest heavily in infrastructure, a triple play that could spur growth. Today`s run was also helped by a rise in oil prices. And that rise lifted energy stocks.
Mike Santoli takes a look at the rush of money into stocks.
(BEGIN VIDEOTAPE)
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Is the great rotation from bonds into stocks finally happening? The sudden surge in bond yields and expectations of business-friendly policies under President Trump have triggered a dramatic rush of investor cash from bond funds into stock funds since Election Day. The latest week track, $18 billion flexed income fund while $27 billion found its way into equity portfolios. That`s the largest one week shift from bonds to stocks on record, according to Bank of America, Merrill Lynch.
Particularly popular are funds that invest in financial and industrial stocks, which would benefit from higher interest rates, faster economic growth and expected government infrastructure spending. Wall Street has been predicting and hoping for such a shift by investors for a few years now to little avail. Retail investors have consistently preferred bonds for their safety as interest rates dropped to record lows over the summer.
The public has been broadly skeptical of stocks, even as the broad market has tripled in value since the March 2009 lows. Concerned about slow economic growth and the prominent role of Federal Reserve policy since the financial crisis.
The big question now, is this pivot towards stocks sustainable? Despite steady withdrawals from equities in recent years, the typical investing households still have a fairly significant exposure to stocks, according to Federal Reserve data, thanks to the rise in stock values. So, it`s possible that many investors will feel little need to add much to stock holdings.
We have also seen a sudden temporary spurt in flows from bonds to stocks before. In early 2013, treasury yields shot up recently to 3 percent, and sparked such a response, but those trends soon reversed.
If rates continue higher, of course, most investors will likely flee bond funds that many bought for their perceived safety. In that case, equities would be a logical destination. In the latter stages of a bull market, the public often becomes excited and helps push them higher.
Stocks are far from cheap as the indexes click to record highs and corporate profits. There`s trouble to grow again, though. And of course, current hopes for growth-friendly Trump policies might fizzle on contact with political and economic realities.
So, it`s hard to predict whether a great rotation would also represent a last hurrah.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
(END VIDEOTAPE)
MATHISEN: So, can stocks extend their gains?
Joe Duran is the CEO of United Capital.
And, that`s the question on the table, Joe. Can they?
JOE DURAN, UNITED CAPITAL CEO: Absolutely can. You have two big things that are affecting us today. One, what do we think is going to happen with the Trump administration. If you end up -- if he passes only one thing, which is reducing corporate taxes, that has a huge impact on earnings. And they have companies` ability to reinvest. So, if this one thing happens, it has a huge impact on future earnings growth and obviously that is very good for stocks.
MATHISEN: And --
DURAN: The second thing that`s not to be ignored is the timing. We`ve got a time this week in particular, but also from here to year-end, typically a very good time to be invested, especially when the market has done better than 5 percent but not as well as 20 percent.
So, I think you`ve got a nice tailwind here. Again, you`re going to see some volatility. We`ve got maybe too much of a Trump lift since he got elected. So, we`ll see some volatility, but a lot of reasons to be quite optimistic.
MATHISEN: I don`t want to be the wet blanket, but we have come a long way. The Russell 2,000 up something like 11 days in a row, hasn`t done that in 13 or 14 years. The gains in the other indexes have been substantial.
Are we getting a little ahead of ourselves in setting it up for something that might be not be so happy?
DURAN: Yes, I think, of course. We`re long overdue for at least a 5 percent pullback here. Again, I`m not sure it will be persistent, but enough to rattle some people. I`m uncomfortable. We get these strings of unending gains for all of the same reasons you are.
We`ve been around long enough to know usually there is a payback somewhere along the way. Nonetheless, you don`t want to make big long-term shifts to your portfolio, even if there is a decline that it`s probably going to whip back very quickly and you don`t have the timing to get in and out and get those first choices at the aim same right.
So, we encourage everyone, have a good strategy, be allocated right. Make sure, again, if we get reduced regulation, that`s great for small companies. That was probably not true prior to Trump`s election. So, we are seeing some difference. A stronger dollar also really good for smaller companies, so may be a good reason to reassess your portfolio.
Most people have been underweight small cap stocks, they have done quite poorly in the last five years or so. So, what you might want to do is you go into next year, look at your allocation, make sure you`re invested across a broad universe of investment, and watch out for long-term bonds.
MATHISEN: Right, as interest rates go up.
DURAN: That would be my biggest cautionary tale.
MATHISEN: Joe Duran, thank you very much. I appreciate your time tonight. Joe Duran with United Capital.
DURAN: You bet.
MATHISEN: The Federal Reserve second in command said the U.S. economy is performing well. But the productivity needs to grow. Stanley Fisher said policies that increase productivity, like investment and infrastructure, can help confront some of the longer-term economic challenges.
(BEGIN VIDEO CLIP)
STANLEY FISCHER, FEDERAL RESERVE VICE CHAIR: Some combination of improved infrastructure, better education, that`s a longer-term impact, more encouragement for private investment and more effective regulation all likely have a role to play in promoting foster growth of productivity and foster growth of living standards.
(END VIDEO CLIP)
MATHISEN: Mr. Fischer said the Central Bank has long been the only game in town when it comes to economic policy, and he would like to see fiscal policy help ease that burden.
Well, most market-watchers think the Fed will boost interest rates at its next meeting in December. But investors have already seen a sharp rise in treasury yields since the election. That move in turn has led to a spike in mortgage rates and rumblings throughout the housing market. This may not be the busiest season for home sales.
But as Diana Olick reports, the hit still hurts.
(BEGIN VIDEOTAPE)
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Mortgage rates are sitting at the highest levels in over a year with no sign of turning around. That is starting to have consequences. The average rate on the popular 30-year fixed loan moved more than half a percentage point higher following the election, from 3.5 percent to 4.125 percent now.
And that happened in barely a week. It`s the biggest move since the taper tantrum back in June of 2013. Higher rates make housing more expensive, and make it harder for some borrowers to qualify for a loan under the strict debt and income limits lenders require today. Rising rates are hardest on first time buyers who are more on the margins of home ownership. One lender in New York told me one of his clients, a first time buyer, lost a deal last week due to the higher rate.
Another lender in Massachusetts said he spent all of last week educating worried clients. Mortgage rates, he said, are 80 percent psychologically and 20 percent math. The psychological hit may be the hardest. A real estate agent in Dallas told me buyers are panicky and watching rates very closely. Home prices continue to rise faster than income, but that`s largely due to a lack of homes store sale amid high demand. The jump in interest rates is unlikely to cut into those prices in the near-term.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
(END VIDEOTAPE)
MATHISEN: To read more about the impact of higher interest rates on housing, head to our website, NBR.com.
Well, only about one in seven Americans believe he or she is saving enough for retirement. Americans median savings in retirement accounts right now is a scant $63,000, though people in their 60s have three times as much, still not enough to live comfortably into old age.
So, how might the Trump administration address what some call a looming administration crisis.
Tim Maurer is director of personal finance at BAM Alliance and he joins us now to discuss.
Tim, always great to see you. And I know you`re going to teach me how to tie a bowtie when next we are together.
Let`s talk about one thing that you focused on, and that is the Trump -- a Trump administration`s opposition to what is called the fiduciary rule. Explain to us what that is, and what it would mean if the Trump administration undoes the plan to apply that fiduciary rule.
TIM MAURER, DIRECTOR OF PERSONAL FINANCE AT BAM ALLIANCE: So, Tyler, for starters, most people would think, for sure, especially when you watch the commercials with somebody, your financial adviser on the beach or at your kids` wedding that certainly these financial advisers are all acting in the best interests of their clients, the same way that doctors and lawyers and accountants do.
But unfortunately, it is not the case. And quite fortunately, the Department of Labor has stepped in and said it`s about time. So, last April, a rule was put in place that will go into effect this coming April in 2017 requiring that financial advisers who watch over retirement accounts for their clients will have to act as a fiduciary.
And ironically, even with the populist tone that Trump has sounded, there is rumor that he`s talking about doing away with this relatively new evolution in the financial advisory states.
MATHISEN: Why would he impose this when, in part, he has staked out a position where he is against the big banks and brokerages on Wall Street who I assume would rather this not take effect?
MAURER: Your guess is as good as mine. But we all know those folks you just mentioned do have a very loud and powerful voice and don`t struggle to articulate it. And so, I believe there is pressure from Wall Street in particular, the big banks, brokerage firms and insurance companies who anticipate a pretty dramatic reduction in profit as a result of this higher standard. That`s the only guess I could make.
But there is one other. That it is seen by some as a governmental overreach, Tyler, that maybe it`s an anti-regulatory stance that Trump is taking. But from my perspective, again, the medical, legal and accounting professions did it themselves many, many years ago. The financial services industry is just late to the party.
MATHISEN: Right.
Let`s pivot on to something else that is on the Trump agenda. And that is lowering tax rates and including lowering the rate on capital gains. I assume this would be good for retirement savers who are saving both inside and outside of tax sheltered accounts.
MAURER: I would think so. We certainly do seem to be sensing that the market likes the idea of lower taxes and possible reduction in capital gains taxes. In general, I think we do find that would benefit investors.
But I will say this, especially when it comes to retirement investors, Tyler. I wouldn`t recommend making any changes to your retirement savings or your allocation as a result of an anticipation in a change of taxes. You should be making those decisions based on how much you need to save for retirement, and you should be making allocation decisions based on your ability, willingness and need to take risk, not what you expect taxes may do in the future.
MATHISEN: Quickly, higher interest rates going to be better for retirement savers?
MAURER: Well, I think there are an awful lot of people who are relying more on the fixed income portions that are more secure who certainly wouldn`t mind seeing higher interest rates. But if they have long durations in their fixed income portfolios right now, high-yield bonds, corporate bonds, then they may see volatility in that space as interest rates rise.
MATHISEN: All right. Tim, thanks very much. Tim Bauer with BAM Alliance.
All right. Still ahead, tech-driven job crisis? Why some say the rise of robotics and artificial intelligence will destroy millions of jobs in less than five years.
(MUSIC)
MATHISEN: The Department of Justice`s antitrust case against Anthem and Cigna`s $53 billion merger got under way today. The government wants to block the takeover that would create the nation`s largest health insurance company and potentially reshape the industry. Insurers are fighting back in court.
Bertha Coombs is covering the story from Washington.
(BEGIN VIDEOTAPE)
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The majority of Americans get their health insurance from their employer. At stake in this case, for the nation`s largest employers is having just three large insurance carriers, enough to insure competition.
In its opening argument, the government says no. They say employers now can choose between UnitedHealth, Aetna, Cigna and Anthem, the nation`s largest Blue Cross insurer. But if Anthem`s $3 billion deal is approved, they would be left with just three in most of the country.
But Assistant U.S. Attorney John Jacobs says in some 35 local markets, there would be no choice, because Anthem and Cigna compete head-to-head so fiercely, Anthem paid sales people a bounty for winning clients away from its rival. Anthem, he says, decided it was easier to buy Cigna than compete.
Anthem`s attorney, Christopher Curran, argues that Anthem is not a national insurer in the same sense as its rivals, because it only has its own provider network in the 14 states where it operates. It effectively rents networks from other blue cross insurers in other states. By joining together with Cigna, he says, the combined company will have a true national footprint and be able to offer large employers more efficiency, better service and bigger savings.
For NIGHTLY BUSINESS REPORT, Bertha Coombs, Washington.
(END VIDEOTAPE)
MATHISEN: Sales fall for the fourth straight quarter at Tyson Foods, and that`s where we begin tonight`s "Market Focus".
The meat producer and processor said a rise in investment spending, coupled with significantly lower beef prices caused earnings and revenue to come in below estimates. And as far as next year goes, the company expects earnings to come in a little light, as well. Tyson also said its CEO, Donny Smith, is going to resign by the end of 2016 to be replaced by the company`s current president, Tom Hayes. Shares pummeled today, down 14 percent to $57.60.
The cyber security software maker, Symantec, is buying the identity theft protection service company LifeLock for more than $2 billion. The acquisition finalized early next year. Symantec shares up 3 percent to $24.52. LifeLock surged 14 percent to $23.81.
The oil company, Sunoco Logistics, will buy rival Energy Transfer Partners for about $21 billion. Energy Transfer is the company in charge of building the controversial and much talked about Dakota Access Pipeline. Energy Transfer saw its shares fall 7 percent on the session to $36.52. Sunoco shares were also off. They were down 7 percent to $24.47.
Palo Alto Networks posted a narrower than expected loss, but the business security software maker missed estimates on revenue. The company also sees earnings for the current quarter coming in below expectations. Shares initially fell more than 10 percent after hours, but finished the regular session down just a fraction at $161.06.
More questions began to emerge over the weekend about how President-elect Trump will manage the potential conflicts of interest between the presidency and his private businesses.
Robert Frank has the details.
(BEGIN VIDEOTAPE)
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: News emerging over the weekend that Mr. Trump on Tuesday met with three executives who are his business partners in India. Now, the Trump organization said the meeting was not a formal one, but one of the executives telling the Indian press that they discussed expanding their business relationship with Mr. Trump now that he has become the next president.
That meeting, of course, followed an earlier meeting in the week with Japanese Prime Minister Shinzo Abe. Now, that meeting attended also by Trump`s daughter, Ivanka Trump. Remember, Mr. Trump and the family said that Ivanka and her two brothers would not attend any government meetings or be involved in politics once they took over the company.
There was also a report in the "Washington Post" over the weekend detailing how the new Trump Hotel in Washington, D.C., invited over 100 representatives of foreign embassies to use the hotel when overseas dignitaries are in town. One Asian diplomat telling "The Post" it would be, quote, "rude to tell the president you`re staying at a competing hotel."
Now, political advocacy and not for profit group Common Cause and more than a dozen other groups signed a letter Friday demanding that the Trump family put the company into a blind trust run by a truly independent trustee. Or, they said, they should sell the company outright.
Representative Katherine Clark, a Democrat from Massachusetts, introduced a bill this week that would require all presidents, including Mr. Trump, take similar measures. Now, in a statement, the Trump organization said, quote, "This is a top priority for the organization and that structure that will also be selected will comply with all applicable rules and regulations."
Of course, the problem here is that there are no rules and regulations restricting the president of the United States from owning and operating a company while in the White House.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
(END VIDEOTAPE)
MATHISEN: Well, the world is approaching a tech-driven employment crisis. A fourth industrial revolution that, according to the World Economic Forum, could destroy an estimated 5 million jobs by 2020.
J.P. Eggers is professor of management at NYU`s Stern School of Business and joins us to explore this troubling prospect.
Professor Eggers, good to have you with us. Welcome back.
Do you buy the idea that 5 million jobs could be kind of outplaced by automation, artificial intelligence over the next decade or so?
J.P. EGGERS, NYU`S STERN SCHOOL, PROF. OF MANAGEMENT: So, the number certainly seems big. But I will say that there`s been a growing sentiment in terms of economic research at jobs and job growth, that we have reached a point where technology is no longer creating as many jobs as it destroys. We have had this long history of kind of technology destroying jobs, certain jobs, but at the same time, creating different jobs that use different skills.
But we may have reached this point where the balance is tipping the other direction. Does that mean we`re going to be 5 million jobs short, roughly 1 in 1,000 jobs globally in the next five years? And that seems somewhat extreme. But if we really have already hit that point, that would seem like a reasonable assumption for -- between five to ten years down the road.
MATHISEN: When you think about your life these days, J.P., you think about going to a bank and using the automatic teller machine. Not a teller at the window. When you think about going to the CVS Store and using an automatic checkout, not a checkout person.
You can see where this is going, right?
EGGERS: Absolutely. I mean, this is -- again, this has been going on for a very long time, where machines and automation has been coming into take over a number of the very basic manual repetitive tasks that have been going on. But as I was saying before, the trend has been that technology has been destroying those types of jobs, but creating a whole bunch of new ones in those fields around those things, and around other fields in general.
But, yes, we could reach the point where, especially if firms become more concerned about costs and things like retail or at your Starbucks or things like that, that we might expect to see automation start playing a more significant role.
(CROSSTALK)
MATHISEN: Conversely, is there a point at which labor becomes so much cheaper that it competes better with automation?
EGGERS: Well, certainly. I mean, from a firm`s perspective, they would rather put in the automation than pay the employee. But from a country`s perspective, if the country is going to be on the hook for paying for welfare and health care and anything like if we have been discussing things like universal basic income at some point in the future, then whether that`s financially good for the country to keep bringing in robots to replace labor, becomes a real question that needs further study.
MATHISEN: So, what do we do about this? Is there anything to be done?
EGGERS: Well, I mean, so this is -- it`s good to be raising this as a big issue at this point in time. And recognize that while there may be some questions in the near-term, this is not a next week question. This is a long-term question.
But I think we have to figure out, you know, what -- where are the best societal uses of robotics and automation technology. Where does it create the most value for society versus where is it simply saving a few pennies here and there. And if we really want to try and improve the lives of people in the country and the world, we should be focusing our efforts on places where it reduces risk to human safety, where it produces significantly better outcomes than human labor. And stop worrying as much about kind of the nickel and dime pieces here and there.
MATHISEN: All right. J.P., thank you very much. Good to see you again.
EGGERS: Thank you.
MATHISEN: J.P. Eggers with NYU`s Stern School of Business.
Coming up, what Facebook is going to fix its fake news problem.
(MUSIC)
MATHISEN: Wells Fargo has been hit with new sanctions following its fake accounts scandal. The Office of the Comptroller of the Currency now requires the bank to get approval before making some business decisions or giving departing executives severance payments. New restrictions reverse some of what was granted in its initial $185 million deal to settle that fake accounts scandal.
Well, nonunion airport workers at Chicago`s O`Hare Airport will strike on November 29th. According to the Service Employees International Union, the strike is part of an effort to win the right to organize and raise wages. The striking workers include janitors, baggage handlers, cabin cleaners and wheelchair attendants.
Well, fake news, Facebook says it takes that issue very seriously and is coming under increased scrutiny for its role in enabling the spread of misinformation, especially during the presidential campaign.
Now, CEO Mark Zuckerberg says he wants to tackle the problem head-on.
Julia Boorstin has our story.
(BEGIN VIDEOTAPE)
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A "BuzzFeed News" analysis showed that fake election news stories outperformed real news stories on Facebook, with the fake articles earning more likes and shares than the 20-best performing election stories from major news sites.
Mark Zuckerberg speaking out late Friday about how he and Facebook are working to tackle fake news, an about-face for his earlier dismissal of the impact fake news on Facebook might have had on the election. Posting on Facebook, quote, "We know people want accurate information. We have been working on this problem for a long time and we take this responsibility seriously. The problems here are complex, both technically and philosophically."
Zuckerberg says the company believes in letting people share what they want whenever possible. And they want to rely on the community and trust its third parties rather than be arbiters of truth themselves.
And Zuckerberg outlined projects the company already has under way to eliminate fake news, including better systems to detect misinformation, working with third parties on fact-checking, showing users warnings and working to disrupt the business of fake news sites.
But Facebook will continue to face scrutiny on this issue. Venture investor, Roger McNamee, warning people like Facebook the way it is, because they don`t want to be faced with ideas they disagree with. He says showing people ideas they`ll agree with is core to Facebook`s business.
ROGER MCNAMEE, ELEVATION PARTNERS: Facebook`s economic model is built around reinforcing people`s biases. And, you know, that is a political challenge for the country.
And it`s not just Facebook. Let`s be clear. Step back for a moment. Technology broadly defined has made this problem worse. It didn`t create the problem. But it`s hard to imagine Trump getting elected if Facebook, Twitter and Google hadn`t operated the way they did.
BOORSTIN: And the controversy surrounding fake news will surely continue. The "New York Times" writing an editorial saying it`s Facebook`s and Google`s responsibility to stop fake news, saying the dissemination of fake news on Facebook has been a long-standing problem.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in San Francisco.
(END VIDEOTAPE)
MATHISEN: No fake news here.
That`s NIGHTLY BUSINESS REPORT. We`ll see you tomorrow.
END
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2016 CNBC, Inc.
(Copy: Content and programming copyright 2016 CNBC, Inc. Copyright 2016 CQ- Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.)