tv Nightly Business Report PBS January 5, 2015 7:00pm-7:31pm PST
this is "nightly business report" with tyler mathisen and sue herera. sell-off on the street. the dow jones industrial average plummets more than 300 points. its worse day in three months. what's behind the selling and when might it end? breaking $50. crude prices fall 5% dipping briefly below that key level as fears of a weaker global economy and a supply glut deepen. it's the economy. will weakness overseas weigh on the u.s.? what some of the brightest economic minds are saying about the path ahead. all that and more tonight on "nightly business report" for monday, january 5th. good evening, everyone. i'm sue herera. >> i'm tyler mathisen. if you're back just from a few days off from the holiday, you might be wondering
what heck happened to that jolly stock market that you saw last time around, around christmas eve. since then the grinch has mostly been in charge. today on the second trading day of the year, the creature with the heart two sizes too small came in the form of tumbling oil prices, renewed worries about the eurozone and a strengthening u.s. dollar. here's a look at the damage on this the worst day since october for blue chip shares the dow dropped 331 with chevron and exxonmobil among the biggest decliners. nasdaq was down 74 and the s&p 500 lost 37 points. oil prices hit 5 1/2-year lows briefly dipping below $50 a barrel. west texas crude ended the day down $2.65. it closed just a droplet above 50 bucks. benchmark brent crude finished at $53.11, as you see there. compounding oil's woes, the suddenly muscular u.s. dollar. it soared to a nearly nine-year
high today mostly at the expense of the euro. bob pisani has more now on how the stronger dollar, falling bond yields and tanking oil prices led to today's big sell-off on the street. >> reporter: there are three macro themes that are playing out in 2015. number one, the week euro, a strong dollar. number two, five-year lows in oil and number three, low bond yields. traders know how to jump on a bandwagon and follow a trend and that's what they're doing. following a trend. they're shorting europe with italy, spain, france and germany all down 3 to 5%. and they're continuing to short energy, shale stock, with even the biggest names like chesapeake concho and pioneer natural resources down 5.6%. this knock-on effect, so caterpillar was down 5% on a downgrade from jpmorgan due to its exposure to the energy business. and lower prospects for construction in states with strong energy economies dropped
names like united rentals, that's an equipment rental company, and fluor, a construction company. and they shorted global growth with many big global industrial names like illinois tool works, textron, 3m and honeywell all down. when will this end? crude stability and stability in the dollar would help a lot but u.s. corporate earnings could also help. they'll be out in a couple weeks. many companies will be talking about a strong u.s. economy and the benefits of lower oil. for "nightly business report," i'm bob pisani at the new york stock exchange. so what's the longer term impact on the markets here and overseas as the euro stumbles and the dollar gains strength? it's not just cheaper oil prices. falling oil prices have been getting the headlines lately but with the u.s. economy picking up steam since last spring and europe seemingly on the verge of economic stimulus the dollar looks pretty good right now. but a stronger dollar has
consequences for stocks. >> if you look at the dow, it's not just the two energy stocks that are dragging it down. among the other leaders are people like caterpillar. people exposed to the world economy. so this is a sign that things may be slowing down not only in europe but generally. >> caterpillar and other companies that do a lot of their business outside the united states are finding their products more expensive to sell. if earnings suffer well you know what happens to stock prices. likewise for big retailers selling not only overseas but to tourists who are suddenly finding it more expensive to buy here. think macy's abercrombie & fitch, and tiffany, which noted back in november that foreign tourist spending in the third quarter of 2014 was flat compared to the year before. so what happens next? if as most people think, the fed begins to raise interest rates later this year the dollar may get more expensive, but there may be a bright side.
cheaper imports here in the united s falling oil is holding down prices at the gas pump and other cheap imports could mean low inflation numbers. if that in turn becomes a stimulus for exporters like china, japan and especially europe it could be a good thing for the global economy. >> where does the global economy need demand? it needs demand in europe it needs demand in japan, it needs command in china and from the u.s. perspective i'd almost have europe grow a little faster than the u.s. because we really need europe to recover. >> longer term then a rising dollar isn't painting a dire picture, but short-term it looks like a choppy stock market. of course if the road keeps looking this bumpy, we might begin to use the high dollar and low oil as an excuse the way we used a tough winter last year to explain why stocks were down. >> jim paulson joins us to talk more about the issues that are weighing on the markets and what they may mean for you and your investments.
he's chief investment strategist with wells capital management. jim, welcome and happy new year to you. >> happy new year. >> we've been talking all day long about the strengthening dollar falling oil prices the greek concern about whether greece will stay in the eurozone and the euro currency but is something more fundamental going on with equities namely that there is a revaluation because prices had simply on a valuation basis gotten a little too high? >> i think there's some of that tyler. one of the reasons we're having such a violent market reaction here is just the vulnerability of the stock market as we came into this year. i mean look we had three years of straight up moves in the stock market and there was building complacency, calm and confidence about the future. in some sense the market was gearing for a gut check, if you will. on top of that valuations at about 18 times trailing earnings here in the united states are certainly no longer cheap. and they're now above average
and they're up the key mobile is up 50% in the last year so the market is extended. so i think if the market was in a vulnerable state, and then you bring in this whole idea of a deflationary spiral happening and you feed on it by having oil drop below $50 a barrel and you have europe threatening to push greece out of the eurozone and traders just moved out of the way to the sidelines, and so there's a bit of a panic today. >> so jim, it sounds from what you're saying that you were not as worried about a complete crisis in the eurozone is that a correct read? i mean is europe going to be ok? >> you know sue, what makes me feel about about europe and indeed global growth i think we come into this year worried about deflationary spiral. i think by summer we're going to see much better evidence of improved growth across the globe. and here's why, i think. i cannot think 2014 of a more
aggressive policy stimulus year than we had last year. if you think about giving the world a massive drop in energy prices at the same time that government bond yields are collapsed everywhere about the globe, and then in europe you also weaken their currency and you do the same thing with the yen, that's a tremendous amount of stimulus a fiscal tax cut on energy like a quantitative easing policy among their bond yields and then weaker currency. we're redirecting a lot of stimulus to the eurozone and japan and even the emerging world. and i think we're going to see the globe bounce in terms of growth. might not be till the spring or summer but if we do i think that will bring a bid back to equity markets as well as maybe back to the euro back to the yen, might even bring the dollar back down here in the united states. >> so what should i do with my u.s. money, my stock prices and values that may have gone up by 10% or so over the past year?
is this the time to invest more? is it a time to take a little money off the table? >> i think in terms of the stock market i think we're headed tyler, for volatile year and maybe roughly flat year in the u.s. stock market. but i don't want to bet on it tremendously because i think the bull market is still several years away from peaking. we're just taking a pause this year maybe. i would maintain an overweight in equities but put a bigger portion of it invest it off shore away from the united states. i'd go to europe japan and emerging world. i'd look at the beat-up commodity economies of canada and australia whose stock markets have way underperformed. i'd bet against this deflation story. and look at adding you know commodity-based stocks commodity-based economies. i'd go to where there's easing aggressively to repair it, and away from the united states which is moving away from supporting the stock market. >> contrarian views there, we
appreciate you stopping by. jim paulson, wells capital management. despite the recent volatility on wall street the u.s. economy is on sound footing. while some other economies are struggling. so what's the role of the u.s. from a global perspective? steve liesman looked for some answers at the american economic association's annual conference today in boston. >> reporter: policymakers and leading economists at the american economic association's annual meeting in boston the profession's biggest gathering, generally gave the u.s. economy a good diagnosis, believing it can avoid the ailments afflicting weak economies overseas is like europe and japan. >> we have had an uneven global recovery to be sure. despite the sometimes sour attitudes in this country, the u.s. continues to dominate industrial economy success. even with the downside risks faced by the american economy over the last year it's still likely to be the relative winner of the party.
>> reporter: san francisco fed president john williams said he's factoring that into his decision on whether to raise interest rates, but he says the u.s. is still on track for a midyear consideration of those rate hikes. >> the u.s. domestically has a lot of momentum a lot of tailwinds to the domestic side. the tailwinds that we have in terms of energy prices in terms of jobs can outweigh those weakness from abroad. >> reporter: but he chimed in when the fed starts raising rates, it can take its time. >> we may be a little more patient than we've been in the past. as long as we're experiencing very low inflation there's no reason for it to be particularly abrupt. >> reporter: the biggest concern is europe. outright quantitative easing from the european central bank but there's a lot of concern with interest rates already low, it won't do much good especially without deeper economic reforms to liberalize european economies. and those changes could help out
the u.s. economy, although it might be able to withstand european weakness it would still benefit from european strength. for "nightly business report," i'm steve liesman, in boston. still ahead, why investors are pouring money into passive index funds and turning their backs on stock pickers? are they making the right moves for the long term? congress comes back from its holiday break tomorrow and some senators are wasting no time in pushing a bipartisan bill aimed at approving the completion of the controversial keystone xl pipeline which will bring crude from the oil sands of canada all
the way down to refineries along the gulf coast. democratic senator joe manchin of west virginia and republican senator john holden of north dakota are co-sponsoring legislation that will be filed tuesday with a debate on the senate floor expected by next monday. some good news for the commercial real estate market. a new report shows the u.s. office vacancy rate took a sharp drop in the final quarter of 2014 falling to the lowest level since 2009. reese inc. the research firm behind that vacancy data expects even greater declines in the coming year thanks to steady gains in the u.s. labor market. as more americans go back the work that office space is filling up. but just like buying or renting a house, it's all about location, location, location. diana olick reports. >> reporter: america's office market is working its way back literally, to better health. >> what we've seen here in the last year or so is that conditions are really turning a
corner. fundamentals are starting to accelerate in office and we expect that to continue. >> reporter: while not exactly robust continued job growth is finally showing up upstairs. the national office vacancy rate fell in the fourth quarter of 2014 to 16.7% according to reese. absorption of new office space was at the highest level since 2007 and is now exceeding construction at a fast clip. >> the national recovery really began in the major markets like energy in houston, technology in san francisco and the west coast and financial in new york. >> reporter: but harold who works the washington, d.c. market says the recovery there is lagging. vacancies are low by national standards, but still high for the city historically. >> as long as we have the brakes on government spending and not a lot of bills going through congress, there's nog for the lawyers, the lobbyists to fight over. that's a lot of what drives the
washington market. >> reporter: what is now in high demand even in d. clchlt is new construction that caters to the new way we work wide open spaces lots of light and floor plans that allow for more workers in less space. >> you are catering to high growth tenants, ideally, and those tend to be -- and this cycle certainly has been technology companies, its media companies, creative type of companies. >> reporter: names like boston properties, vornado are seen by some bets in the reit space. they're in all the right coastal places. one wild card -- houston. it had been a leader in the office recovery but falling gas prices could cap the gains or even worse lead to losses. for "nightly business report," i'm diana olick in washington. gilead sciences scores a deal with cvs sending shares higher. cvs will make gilead's drug
sovaldi and harvoni, the exclusive treatment option for beneficiaries on some of its plans. a competing drug made by abbvie will only be available if patients receive a medical exception. last month gilead shares tumbled after express scripts said it would exclusively offer abslee's help-c treatment on its largest plan. shares of cvs were off, gilead rose 2%. abbvie saw its stock fall 2%. kite pharma and amagain developed a deal to market cancer immunity treatments. they'll fund research costs through the filing of a new drug application. shares of kite pharma popped 15%, up more than $9. amgen fell 1%. and some good news for isis pharmaceuticals. johnson & johnson said it will pay the company up to $835 million for the option to license three drug testing targetsing autoimmune diseases
in the bowel. j & j fell a fraction to 103.79. morgan stanley fired an employee for stealing data from up to 10% of its wealth management clients, about 350,000 people. so far the bank says there's no evidence of economic loss but account names and numbers were briefly posted online. at least information didn't include social security numbers or passwords. shares of morgan stanley off about 3% today to 37.50. investors got a chance to react to news that holly frontier will take a huge inventory charge. the oil refiner said it would book a pretax charge up to $400 million for the fiscal 2014 year because of the fourth quarter drop in crude oil prices. the stock down more than 4%. it finished at 36.78. 2014 was a record breaking year for money heading into vanyard group. the biggest provider of index
tracking mutual funds. according to "the wall street journal," $216 billion poured into vanguard's so-called passive investments, those are the ones that mimic indexes and other stock benchmarks but they just charge a fraction of what a typical mutual fund does. the author of the article joins us to discuss whether this trend will continue in the new year. kristin, welcome, nice to have you here. >> thanks so much for having me. >> why was vanguard really so tough for other companies to beat lt year? some of it must be fees. >> it's really all about fees. if you look at vanguard they're charging 18 cents for every $100 to invest versus a fund run by a stock picker. that's a huge incentive for people. >> do the individual investors just get smart all of a sudden or is much of this money coming from institutions 401(k) plan administrators and the like? >> no you know it's been a
slowly growing trend. vanguard's actually had a record year in the past but it's been growing up until this point. i would say the tipping point really came this year or in 2014 when you just saw regular stock funds just take such a performance hit. i mean more than 70% of them were underperforming in 2014. >> you know kristin, a lot of people though say this new year is going to bring with it volatility and that volatility really benefits the active investors less than the indices. what do you hear on that front? and might that tilt investors back to active fund managers? >> absolutely. i mean if you look at what happened in the market today, if you were an investor in one of vanguard's largest s&p 500 funds, you would have lost some today, right? so if the market continues to be volatile this year or if there's a widespread market loss that won't be good for investors in index funds because they're just
mimicking indexes. that's where managers might have a chance to have a comeback. >> i know you're not a financial adviser and don't really give financial adviseed aadvice but i often thought as a core holding in most portfolios why would you not have an index fund? they're inexpensive to own, they at least march the market so that takes the risk of underperforming the market out of the equation? >> well you know and i can speak from personal experience here a lot of people just don't really pay attention to what's in their 401(k) or even what they're investing in personally until they're either very close to retirement age or something else in their life happens, at least that's what a lot of investors have told me they didn't start reassessing until they thought, shoot, i'm about to retire in a few years and why am i paying all these fees. >> what is vanguard looking to do in this new year in 2015? that's a pretty high benchmark to beat with all that money
going into the fund. >> absolutely. i mean $200 billion they saw in 2014. just to put that in context, the fund company with the second highest number only saw $26 billion. so i can't imagine vanguard is going to have quite the year it did in 2014. on the other hand they have expansion plans. they're looking at virtual financial advisory services. they're expanding overseas. you could see more of the same success, but $2162 26 billion is a hard number to beat. >> thank you very much. >> what's it like to be driving hands-free on the highway? we're taking you on a test drive, and one that you likely have never seen before.
december was another blockbuster month for auto sales thanks to lower gas prices a stronger economy and an incredible affection for big pickup trucks and sufbs. sales at chrysler last month shot up 20% thanks to strong sales of jeeps and regular trucks and even though sales at ford rose just 1% it was the automaker's best december in nine years. for 2014 the auto industry sold just under 17 million cars and light trucks. that was the best year in nearly a decade. here's a look at how shares of detroit's big three fared today, fiat chrysler and ford down on
this soggy market day. gm lost 1.5%. aaa says the nationwide average price of gasoline has fallen for a record 102 days in a row to $2.20 a gallon and that has some lawmakers considering hiking the federal gas tax. south dakota senator jim soon the incoming republican leader of the senate transportation committee, says he's open to a possible increase in the gasoline tax as a way to replenish the highway spending bill fund that expires in may. the last federal gas tax hike was back in 1993. the future of higher gas taxes may be a real challenge for drivers on the nation's highways. driverless cars is another potential one, but that future is fast approaching. phil lebeau took a test drive across california and shows us now how the hands-free and foot-free technology really works. >> reporter: it may not be long until you can drive hands-free and foot-free on the highway. this is audi's a-7 piloted
driving test car. we took it for a spin to see how the technology works. we're on the highway just outside of palo alto california. the vehicle's let me know that it's okay for it to take control. i press these two buttons right here and l.e.d. strip on the front dashboard as well as the instrument panel lets me know that the piloted driving technology is in control of the car, and that's it. now we're hands-free foot-free. you can't see my feet but i'm not controlling the acceleration or the braking of this vehicle. as we're driving down the highway here towards san francisco. if there's a car that slows down in front of us and we need to lane change there are 20 sensors in this vehicle that are measuring the other vehicles on the road if it's safe to make a lane change it will do so. now, this technology only works on the highway. when you need to exit the lea or slow down and go into street traffic, the vehicle will tell us.
we're turning right now. i'm not controlling the vehicle at all. but in a half mile or so it's going to tell me that our next exit is coming up here and it's time for me to take control of the vehicle. which is basically pressing two buttons -- >> deactivate in 15 seconds. >> reporter: 15 seconds until it deactivates. i press these two buttons here. lets me know that i'm now in manual driving and i'm taking control. in fact i'm going to lane change here. do it the old-fashioned way, looking out the back window to make sure it's time to get off at our exit here. for now, this a-7 pile ted test car is just that a test car, but audi believes much of the technology will be incorporated into other models within the next couple of years. in prim nevada phil lebeau, "nightly business report." >> that is so cool. finally tonight we leave you with positive market thoughts on this really ugly day on wall street. not only is this the first full week of trading in 2015 it is
also the start of the third year of a presidential term and according to barron's that's bullish for stocks. in all third years since 1940 the market has been higher 100% of the time. and what about years that end in the number five? those have all been positive for stocks since 1970. >> well we'll have to bank on that. >> we'll take it on a day like today, right? that does it for us on "nightly business report." i'm sue herera. >> i'm tyler mathisen. have a great evening. we'll be attacking attendance. be here .
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