tv Nightly Business Report PBS August 5, 2011 1:00am-1:30am PDT
>> tom: with stocks in a free fall, investors take it on the chin. but what triggered the worst sell-off in more than two years? >> i'd say it's just an accumulation of problems that finally broke the camel's back today. >> suzanne: we have complete coverage of the market wreckage and where buyers were looking for shelter. it's "nightly business report" for thursday, august 4. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> tom: good evening and thanks for joining us. susie gharib is off tonight. i'm joined by suzanne pratt. suzanne, a massive selloff clobbered the stock market today, making it the worst day for the dow industrial average since the 2008 financial crisis. >> suzanne: tom, it was ugly here at the big board. investors are stressed about the anemic u.s. recovery and the fragile global economy. the dow plunged 512 points while the nasdaq gave up a stunning 136, or close to 5%, and the s&p 500 lost 60. all of the major averages are now in negative territory for the year.
>> tom: no area of the market was immune. all ten of the s&p sectors moved sharply lower, down by 3% or more. nosedive into the closing bell to end with better than 500-point losses. putting that into context, recent selling over the last sessions have erased eight months of gains for the dow jones industrial average in just a few sessions. the dow is down more than 1.5% so far this year. the market breadth shows how wide the selling was. the new york stock exchange only 182 stocks closed higher, more than 2,400 lower in price and on the nasdaq the disparity wider. 152 nasdaq traded issues up, more than 2,900 lower. >> suzanne: all 10 of the s&p 500 sectors moved sharply lower. morningstar's paul larson says it was hard to pinpoint a reason. >> one thing about the selling is that you can't necessarily point to any one particular piece of news that necessarily caused the crash.
i think it's just a series of long-festering problems coming to the fore. >> tom: we've got full market coverage, including analysis from kathleen gaffney, who manages a $20 billion bond fund, and a look at the wreckage in stocks with equity strategist lincoln ellis in chicago. we begin with lincoln. any trigger for the selloff that you saw today in the stock market? >> i think paul's comment over at morningstar are right. really, the cumulative effect of a number of things, really weak consumption numbers early in the week followed by very lackluster labor numbers this morning and, of course, that's all with the backdrop of a very volatile and dangerous european equity market where they don't seem to be able to come up with some policy responses to stem the bleeding, so it's very much the aggregate effect weighing on the stock
market. >> tom: you lived through the stock bubble and the flash crash. was this orderly or did you sense a throw in the towel? >> no, it was orderly, reflected both in stocks and bonds, the orderliness of both buying and selling. the breadth and volume as you point out at the top of the show absolutely massive, almost three times the average volume for 2011 which leads us to believe that we didn't see a lot of volume on the way up but people who have been in were definitely exiting and we think they were exiting ahead of tomorrow's unemployment number. >> tom: with that in mind, with the uncertainty still there, concern has changed from the debt-ceiling issue over the last couple of weeks back to the u.s. economy and really the global economy. how should long-term stock investors view a day like today? >> today is the -- today would absolutely create opportunities to be invested but to be invested very selectively. we're telling our clients to be
very defensive, very much falling into the staples, utilities and industrial names, places that have yields attached to them, that will provide some comfort in environments like this. >> tom: what would be a throw-in-the-towel kind of indication for you? is that possibly a number we get tomorrow on the jobs figures? >> we actually think that you get a little bit of an upside surprise thanks to seasonal adjustments tomorrow that could cause -- we're in a very technically oversold moment -- a bit of a rally, and that would allow us to lightin up on some of our more discretionary names allowing us to build up cash positions because we do see probably a tested of the 1180 or the 1150 level. >> tom: looking for selling after today. >> yes. >> tom: what about areas to avoid completely that you wouldn't touch with anybody's money? >> consumer discretionary, absolutely. we are very much staying away from the peripheral european names.
if we like one equity market out there at the moment, it is probably japan. getting battered, probably, tonight. and we are looking for them to have a pretty robust second half of the year on the back side of building post-fukushima. >> tom: our thanks to you this evening. lincoln ellis with the strategic financial group. >> suzanne: what was bad for stocks was very good for bonds today. joining us now with a look at the action in the bond market is kathleen gaffney, co-manager of the loomis sayles bond fund. the yield on the two-year at a record low today and the yield on the 10-year at 2.4%. look at the chart. it's pretty unbelievable. talk a little about what was driving this flight to quality today to the bond market. >> sure. what was weighing on the market was front and center the problems in europe, and we saw
the markets sending a very clear message that they wa the european politicians to stop fighting the wrong battle. it's not about inflation. it's about where are we going to get the growth. the reaction in the markets is really a growth scare. there is a lot of fear that with fiscal austerity we're seeing a big slowdown and that has the potential to affect the u.s. as well. >> suzanne: was there a particular trigger that caused investors' fear or a reason to look at u.s. treasuries? >> we had weak economic data and then trechet made an announcement that they were going to be vigilant against inflation, and it's simply the wrong battle to be fighting now. it's more about growth than inflation. >> suzanne: three weeks ago, you were on our program, and you told us that you were staying away from treasuries with your $20 billion fund, you were completely avoiding treasury.
was that a mistake? >> no, not at all. we're very focused on the long-term and while treasuries had a tremendous day today -- we saw the long bond up four points, so rates really going to all-time lows and when you think about the long-term, that's not a very attractive rate of return. the market is clearly in a mode of flight to quality, looking for a safe haven but that's very short-sighted in the moment. i think that investors are reacting to what they remember about 2008, and so there is this crawl into the treasury market. a very fast pace to find that liquidity but you're giving up a lot of yield. that's not a mistake. i think the right way to be positioned is to look for where that yield is and lock in some longer term, better returns. >> suzanne: and you are probably going to say corporates. before we get to that, what's your feeling about longer term?
is there anything that could change your outlook for treasuries and cause you to go back into that market? >> i think for treasuries to be attractive here, you would have to have a real problem for the global economy. it's clear that growth is slowing in europe, and the market is unhappy with that. the market has also been focused here in the u.s. about the potential double dip and possibly the need for q.e. 3, so if the austerity measures continue to pressure the economy and it flows over to more the developed world, that eventually could affect the emerging countries as well. you could get a full-out global slowdown, and that would be negative for risk assets but very attractive for u.s. treasuries. i think that's a low
probability. >> suzanne: understood. thank you very much for joining us this evening. >> thank you. >> suzanne: our guest kathleen gaffney of loomis sayles. >> tom: still ahead, southwest airlines disappoints investors, coming up short in its latest quarter. we speak with c.e.o. gary kelly. >> suzanne: tomorrow's market action is likely to hinge on the june employment report, out first thing in the morning. the data is expected to be pretty miserable, with only about 100,000 new jobs created. and, as erika miller explains, the report's findings on temporary hiring will be watched particularly closely. >> reporter: it's pay day for sarah quick, who has been temping for over 10 months. >> it's really the best way to get hired with the top-level law firms and advertising agencies in the city. from what i understand, most of them do a trial three-month temp and then hire full time. >> reporter: but competition is fierce these days. >> 19,000 temporary jobs have been lost the past three months after a strong start to the year.
>> reporter: elizabeth wade is the director of operations at clarity, the staffing agency quick is using. wade says it's not just a seasonal slowdown. >> because we did see the surge of growth at the beginning of the year. people are just pulling back a little bit. we wanted to see where q2 reportings were. we wanted to make sure-- even what's happening in a global economy. >> reporter: in south florida, joan cifferi, president of david wood personnel, has also noticed the slowdown. she says many clients could hire but won't. >> even if they have open positions, they just seem to be waiting. one reason is they are getting more with less out of their own employees, and i think they are waiting to see what's happening in the economy-- in the government. >> reporter: temporary hiring is considered one of the best leading indicators of job growth. that's because at the early stages of an economic recovery, companies often hire temps before committing to permanent positions. many economists are hopeful there will be a pick-up in
temporary hiring-- including drew matus. >> if you are trending higher on job growth, you should be seeing moderate-- what i would call moderate-- temporary hiring, something in the 10,000 to 20,000 range. that would be normal. >> reporter: better yet, he's confident many of those temp hires will eventually be made permanent staffers. sarah quick is also optimistic. >> i'm temping at a law firm right now, and my three-month trial period will be up at the end of august. and i'm hoping they'll hire me full time. i've been getting a lot of really good feedback from the attorneys, so i think it's going to happen. >> reporter: here's hoping its happens not just for her, but also for the many other americans seeking a steady paycheck. erika miller, "nightly business report," new york. >> suzanne: two is better than one. that's the thinking today at kraft foods. the company announcing it's splitting its business in two. the company has been contemplating a split for months and made it official today. it will create a global snacks business with revenues of $32 billion, and a north american
grocery business with $16 billion in sales. from products like jell-o, kraft shares higher this morning on the news but they got caught up in the selloff, ending the day down 1.5%, tom, kraft has second quarter earnings 4 cents better than estimates and may not be the best day to be putting news out there. >> tom: it got swamped. kraft was a rare bright spot in the market and for the dow jones industrial average but by the end of the day couldn't keep up in positive territory, selling overwhelmed the market. no sugar-coating it. today was ugly for stock investors. all 30 stocks making up the dow industrial index were down. all of the nasdaq 100 components were in the red, and all but three stocks of the s&p 500 closed lower. as suzanne mentioned earlier, all the major stocks sectors sank today. energy was the worst, down
almost 7%. how about that? materials lost more than 6.5% and industrials fell more than 5%. this trio is very sensitive to the overall economy, and with economic worries building investors fled these stocks. in droves. we can see the pressure in alcoa, a 9% loser today. volume more than doubled on this big selloff. the stock is down almost 30% from this high in april. this was the leading loser of the dow. within energy, coal stocks were particularly hard hit. alpha natural resources dropped 17%. volume tripled. shares sit at a new 52-week low tonight. the company reported a quarterly loss thanks to its buyout of massey energy. its outlook for coal shipments was positive, but investors instead sold shares. i mentioned there were only three stocks higher in the s&p 500.
hey they are. motorola mobility popped more than 3.5%. the company released a new low- priced phone today and a new survey finds motorola remains the third largest mobile phone maker in the world. while material stocks were down, quarry company vulcan materials was up more than 1.5%. it had strong earnings earlier this week. and california electric utility pg&e was up a fraction. while mobile technology has been a hot trend, we saw selling of big and smaller players in the industry. here are some biggies. apple and google fell by more than 3%each and research in motion dropped almost 7%. that's a new multi-year low for rimm. at $23.59. some of the smaller players-- prepaid wireless providers leap and metro p.c.s.-- saw stiff selling. leap lost a third of its value today thanks to sour earnings. metro lost another 9% today after shedding more than 30% yesterday due to a disappointing outlook. sprint nextel dropped almost 10%.
discount retailer walmart wasn't immune to the selloff. shares dropped more than 2%. you can see the selloff. it's pennies above its 52-week low. other retailers turned in monthly sales data. target was off almost 4% despite a rise in july sales. kohl's lost 8%. its july sales were down. and aeropostale lost a quarter of its value after warning of a bigger drop in sales than expected. after the close, travel website priceline.com turned in very strong earnings. results were more than 50 cents per share ahead of estimates. the stock may be a standout tomorrow. while it dropped 7% during the regular session, after hours the stock jumped 10%. if that holds, it will take the stock back over $500 per share.
we saw lots of bond buying. the u.s. dollar rising today slightly against major currencies. looking at the dollar index, the u.s. dollar against six major currencies -- clearly the trend for a weak dollar with the soft economy. japan's central bank intervened to weaken the yen. the dollar rally did help bring gold and oil prices down but gold falling more than $7 per ounce. oil shedding more than $5 per barrel. that is tonight's market focus.
>> tom: higher air fares not enough to make up for higher fuel costs. earnings 15 cents per share. a nickel below wall street estimates. almost cut in half compared to a year ago. that excludes any special items. southwest c.e.o. gary kelly joins us tonight from dallas, texas. mr. kelly, welcome to "nightly business report." nice to see you. >> great to be with you. >> tom: what happened in the past quarter between the fight of raising air fares and seeing higher fuel prices? >> the story for 2011 is pretty much fuel. we've had a nice recovery in terms of travel, and particularly business travel demand dating back to last year,
but in the second quarter, in particular, we saw a real surge in energy costs. our jet fuel price per gallon was up 39% and we just weren't able to keep pace on the revenue front. that's despite the fact that we had across-the-board record revenue performance. i was very happy about that part of the performance but the fuel prices were just too much for us. >> tom: top-line revenue growth you did see in double digits, you just weren't able to control fuel prices. southwest has always been the envy of the industry with its hedging practices. have you gotten off track with those or you couldn't keep up with the pace the price increases? >> it's really an indication of where prices have gone. a decade ago, we were hedging in the $20-50 per barrel range, and those prices just aren't available anymore, so we're hedged pretty much at current market prices and we had some hedging gains here in the second quarter. >> tom: gary, i want to ask
about the stock price reaction. clearly the market sold off very hard and broadly today. not just southwest. you just happened to have the earnings call on the day the market moved considerably lower. the share price the lowest since the fall of 2009. what's going to stop the fall? >> earnings, and i think confidence by investors that our earnings will grow from here, and i'm disappointed as well that earnings are down 48% from a year ago. we're supposed to be in recovery mode not sliding back into recession, but it looks like the economy is in pretty tough shape right now. >> tom: how about the outlook for fall travel. you mentioned the tough economic times. some are worried about dipping back into recession. what is your forecast as you look at your travel bookings? >> so far this year, through the first half, we've had record load factors every single month and turned out record revenues as well, and we have strong
traffic trends under way so far in the third quarter. we have strong bookings for august and september. it's the rate of growth that we've seen in our unit revenues that have slowed down beginning in the second quarter and it is coming, of course, at a time when our costs are escalating because of the jet fuel costs. that's really the problem, not so much we're in a soft patch as it is the rate of growth is slowing and it's probably very consistent with what you hear from a lot of industries. >> tom: we appreciate the insights into the business of southwest for the rest of the year. our guest this evening gary kelly, c.e.o. of southwest airlines. the conversation with southwest c.e.o. gary kelly continues online. you'll find it on the web at n.b.r. on pbs.org. >> suzanne: here's what we're watching for tomorrow: as we mentioned, it's the report everyone's been waiting for. the labor department releases july's employment numbers. also tomorrow, our "market monitor" guest helps us put the market selloff into perspective. he's adam parker, chief u.s. equity strategist at morgan stanley.
with so many pension and money market funds staying in cash, bank of new york mellon plans to charge a fee on big cash deposits. the bank says it's passing along the costs from the sudden and significant shift to cash. the fee is 0.13% on accounts holding more than $50 million in cash. b.n.y. is a custodial bank, meaning it caters to large depositors. it does not deal directly with consumers. >> tom: president obama is urging timothy geithner to stay on the job as u.s. treasury secretary. geithner was said to be considering leaving once the debt debate ended, but the white house wants him to stay on as the economy continues to struggle and the president is facing reelection. geithner has headed the u.s. treasury since 2009 and is the last original member of obama's economic team.
>> have you ever wondered if the person sitting next to you at work, doing the same exact thing, makes more money than you do? a new report tries to get at the heart of that question by first showing that, yes, there are wide income disparities in what people make for doing the same job. tomorrow, georgetown university's center on education and the workforce will release research that shows these pay differences are due mostly to education. for example, an elementary or middle school teacher with a bachelors degree can expect to make $1.8 million dollars over a lifetime, compared with $2.2 million for a teacher with a masters degree. an accountant with a high school diploma will make about $1.5 million, compared with an accountant with a bachelors degree, who will make $2.4 million. the higher the level of education, the higher the payoff. what's more, the gap is widening, with an 84% lifetime income premium for a four-year degree over a high school diploma. there are some important caveats to the study. things like age, gender, and ethnicity are wild cards in the
equation. the bottom line is that education pays. that's something very important to remember as all of us try to find a way out of this recession. i'm jamie merisotis. >> suzanne: that's "nightly business report" for thursday, august 4. i'm suzanne pratt. good night everyone, and good night to you too, tom. >> tom: good night suzanne. i'm tom hudson. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you.
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