tv Nightly Business Report PBS August 21, 2015 6:30pm-7:01pm PDT
this is "nightly business report" with tyler mathisen and sue herera. stocks routed, the dow dives, tech stocks tank as the blue chip index sheds more than 500 points to cap the worst week on wall street in four years. oil breaks 40. crude prices continue to crater falling briefly below that level. and there's one big problem for that commodity that isn't going away any time soon. and needed repairs, bridges are crumbling but one state found a fast fix to one of its biggest problems. the final part of our week-long series the big fix, tonight on "nightly business report" for friday august 21st. the correction many have been calling for is here. the dow jones industrial average
plummeting more than 500 points today is now down more than 10% from its recent high. and it's not alone. the tech heavy nasdaq and the small cap russell 2000 index have also fallen that same amount. the reasons for the selling, which we've been seeing all week, boil down to three things, china, the federal reserve and oil. but today the losses intensified. by the close the blue chip dow index tumbled 530 points to 16,459 on very heavy volume. nasdaq shed 171 points or 3.5%. and the s&p 500 lost 64. for the week all three major indices were off more than 5% with the nasdaq losing the most. according to s&p issues within the s&p 500 index lost more than $1 trillion in market value this week. and as stocks fell, so did bond yields. the ten-year now hovering just above 2%. bob pisani takes a look at the mood on the street and what
investors may be in for next week. >> reporter: what a day and what a week. the s&p 500 fell more than 5%, this is the worst week since september 2011. there was no immediate catalyst for the decline. and that's why traders were taken by surprise by the heavy selling. it was a vague mix of concerns on slowing global growth, concerns that had been building for months frankly. china started dropping in june. brazil started dropping at the end of last year. so where's the market bottom? i have no idea, but the fear level is pretty high. higher than it's been all year. and that's a good sign. the vix or fear indicator has gone through the roof this week. practically doubling indicating that traders are willing to pay for protection that they didn't have before. and, traders were very busy buying and selling stocks and options. one trader told me it was the busiest day he's had in 18 months. okay. what about next week? housing is one of the few bright spots. we have new home sales on tuesday, we have durable goods
on wednesday, but the big event will be the jackson whole conference for the kansas city fed's annual gathering of central bank officials from around the world. that starts on thursday. still, the economic data and the meeting will take a backseat to market sentiment. what will happen there? look at it this way, the contribution of china to the s&p 500's revenues are only in the mid-single digits, that's not much. and we have already priced in a huge slowdown in china. cyclical global stocks, for example, like general electric, all down like 15% or more. commodity stocks are in a bear market. most down 20, 30, even 40%. with this level of fear, many feel we are setting up for a short-term bounce. for "nightly business report," i'm bob pisani at the new york stock exchange. >> so how concerned are you, the individual investors, about the selloff in the market? we sent our cameras to find out. >> makes me nervous for the future. i don't invest in individual stocks, but i do have some
funds. and they're going down. >> yes, it is concerning. but overall i would not necessarily say it's going to effect my life right now. it would be more concerning about my long-term. >> my retirement account is going down. i was watching it online. and i have investments i'm watching. so i'm real concerned about that. >> definitely hitting my 401(k) and my personal net worth. it is also a buying opportunity. >> i didn't know about it, but i'm going to go check my 401(k) now. >> on that note, let's talk to our next guest. he manages money for individual investors and has had a very busy week fielding questions from some nervous clients. he is richard, managing director at wealth health. nice to have you here. >> thank you. >> what have your clients been asking you and what have you been telling? >> how much will this continue, how much further do you think it's going to go? i think the one good thing i think i can say is people aren't unnerved as you would imagine.
because i think we've been talking to clients for years now about 10% correction, that's the buzz word. and it's been since 2011 since we've had a 10% correction. typically you have that once a year to twice a year. so we've been kind of having that conversation for a while. and so i think the time has come. and for people with cash i think this is a time as some of the people just said here this is an opportunity to buy. we always think about selling when the markets are going down and doing the opposite of what we really should be doing. >> i don't mean to be polly anna here, but these kinds of days, these kinds of weeks, are times where the phrase risk tolerance really becomes real. >> absolutely. >> what if i have now today bumped up against my risk tolerance, and i go i am not comfortable with my equity allocation. in what areas do i take money off the table? >> that's a common question. my job is to make sure from a stress test that the portfolio can support your needs, your cash flow needs. however, toif balance that with the emotional risk tolerance. in this case you're saying i
can't take it anymore. i've been looking, which i have been looking at, is the large cap value, large cap growth area. that's the area over the last five years that's done the best. i think taking some gains off there maybe up to 5% would satisfy the emotional risk tolerance of a client. secondly look at emerging markets because i think that's a troublesome area going forward. >> not because they've done terribly well over the past few years. >> no, not at all. >> right. if this continues though, i mean, is this correction a little bit different this time? because it's mainly being triggered by china. does that change the nature of this correction, or not? >> i think we always try to look for what is different this time when we're in it. and i think what we look at in reverse is that nothing's that different. we live through it. there's different reason, different causes for these events, but the market continues over time if you're a long-term investor. i think however to your point china is probably driving this correction because two or three weeks ago we knew greece was out of the mix at least, you know, temporarily. >> uh-huh.
>> we also knew that the fed was likely to raise rates, or the argument was september or maybe later this year. that hasn't changed. maybe they'll push even further because of the events here, but i think the uncertainty in china is driving that. and the problem is we don't really know what the growth is really going to look like going forward. we're a little speculating at this time because of the devaluation of their currency. >> thank you so much for joining us, richard. appreciate it very much. >> you're welcome. >> have a good weekend. stay solvent. all right. oil prices fell below $40 a barrel midday today, something that hasn't happened since 2009, the heart of the great recess n recession. by the settle crude prices were down 2% to $40.45 marking another week of losses. longest such losing streak since 1986. founding partner at again capital joins us now, or re-joins us as he often does on these wild days in the oil markets. john, what's going to happen? >> well, i think it's going to keep going, tyler. as much as the stock investors are worried about china, this is
a real gut check for the oil market. because if the oil market loses the demand and loses the economic engine of china for the future here, it's really bad news for crude oil. >> so, john, how much lower do you think prices could go? and now we're starting to hear that word deflation bandied about again. >> yeah, i think the deflation comes from, sue, the fact that the global commodities supply chain got built out across the board in a big way to satisfy china and her demand for these various base metals and oil. and it got overbuilt. so now we're seeing that the effect of that from china is declining economically. the price of crude oil, i believe, will ultimately bottom out later in the year now in the mid-$20 range, $25 a barrel before this is all said and done. there's just too much supply, too much worry about asia. it's a terrific one-two punch for crude oil prices. >> this is obviously a pain for
people who work in the oil business, for texas, for some of the producing areas in this country, canada. but on balance, john, is lower priced oil a good thing for the economy? >> it most certainly is. look, 80% of the crude oil barrel in this country goes to transportation. so literally planes, trains and automobiles. obviously that's going to improve the bottom lines of the transportation companies, of consumers. and it makes people feel good. it's a boost to consumer confidence when you see pump prices fall below $2 a gallon. and that's in the process of happening in many communities across the country. i think what's hurtful here is that the shale boom in this country that really got us to where we are right now was a leader in terms of job creation and other things. but, you know, it's a boom and bust cycle. the folks that have involved with that are used to it. and they'll have their day again in the sun. it's just not going to be right now or for a while. >> john, you know, this brings us kind of full circle to the federal reserve because they've been looking for some inflation
in the economy. and, again, today i was hearing a lot from analysts we may be entering a deflationary cycle. can they raise rates if we're in that deflationary cycle? >> well, it's interesting, sue, because obviously they also focus on employment. and that is terrifically strong here in the u.s. no doubt about it. in terms of the inflation out of the equation, you know, the answer has to be no although they do try to exclude food and energy in their analysis. but, no, this is going to feed through and keep a lid on things. but they can't ignore what's being effected mostly in this situation here, and that's the china syndrome that we're going through. i believe it's going to hold them back now. >> john, thank you very much for being with us. have a great weekend. >> you too. as we've been saying, we are well aware of the pain that low crude oil prices are causing, especially in those oil producing regions of the u.s. but for consumers of oil, it's a different story. so morgan brennan reports now on the important sectors of the economy that are actually benefitting. >> with u.s. oil futures dipping
below $40 a barrel, it's easy to spot the losers. from energy companies to jobs to the ripple effects on the broader stock market. but when oil falls this low, it also mince winners, the biggest being the consumer whose savings at the pump has been translating into spending elsewhere. >> typically the first thing you do you go out to eat. that started to show in restaurants, same store sales were continuing to see that in the second quarter and third quarter. >> consumers have been plowing those savings into real estate with home purchases on the rise and home improvement retailers like home depot and lowe's reporting stronger sales. automakers have benefitted in a few ways as well. last quarter general motors sold more trucks and suvs amid cheap gas prices. that helped the company post earnings that were four times better than a year ago. and more americans are taking road trips. federal data shows americans drove more miles in june than ever before. pushing gas use toward a new record. that helps tire manufacturers like goodyear tire and bridgestone. not only does driving drive up
demand for new cars and parts, but cheap oil makes the cost of producing synthetic rubber less expensiv expensive. >> when you step away from the consumer and consumer discretionary spending, the next place you want to look is enterprise. so anybody that's manufacturing anything that takes energy or needs to be delivered is a beneficia beneficiary. >> including transportation companies, which count fuel among their highest costs. airlines like united, continental and southwest have seen their jet fuel bills drop. bolstering earnings despite weakness in revenue. and cheaper de eer diesel has m trucking more cost competitive over railroads. a dynamic that's pulled some businesses from tracks to roads. hogan says between the increased spending power of consumers and lower cost to move goods around the country, all of these oil tail winds should have a, quote, huge benefit for 85% of the s&p 500. the key point to consider after a sea of red arrows on wall street this week.
for "nightly business report," i'm morgan brennan. the president of the st. louis fed is a big advocate of raising interest rates at the central bank's september meeting. and he reiterated that stance today. in an interview he said he was upbeat about the u.s. economic outlook even as oil prices drop and concerns over china grow. >> and u.s. treasury secretary jack lew told a top chinese official in a phone call today that the united states will closely monitor china's new currency policy. the call comes after china recently pushed the value of its yuan sharply lower against the dollar. a move that makes exports more competitive with the u.s. lew also urged china to continue with its economic reforms. still ahead, bargain stocks to buy in a market selloff. our market monitor has identified some names he says are worth owning right now.
some of the most recognizable stocks are now in a bear market. one-third of the dow now trading 20% or more below their 52-week highs. and they include chevron, which is down nearly 40% since its most recent 52-week high followed by dupont, caterpillar, intel, exxon, walmart, united technologies, ibm, p & g and apple. market monitor is using the selloff in some of those big name companies to buy more shares at a lower price. he's randall elie, president and chief investment officer at edgar lomax company. welcome. good to have you with us. last time you were on you joined us in january, you recommended
at&t which is flat since then, exxon mobil which is off more than 20% and johnson & johnson down 10%. i know that exxon is one of your picks today, but let me ask you about those other two, intel and j & j, are you still comfortable holding them? would you buy more? >> absolutely. >> why? >> in both cases in businesses we need they're understandable businesses, intel, you can't run your computers without them. johnson & johnson, we wouldn't have the life expectancy we have without their products. they're also strong businesses. financially they have little debt. they're going to be around a long time. >> what about exxon though, randall? i mean, if this oil cycle is going to be longer than we've seen previous cycles and we're not yet at the bottom in crude, how is that going to impact exxon's bottom line? would you buy more here? >> absolutely. we would buy more. in fact, we're going to do something that i hope you see as
courageous. we would double up. >> really? >> oh, yes. move money into chevron also. we've been owning in our larger portfolios, but in a smaller portfolio like we're looking at today we will go in. these companies are not going out of business. people are assuming that oil prices are going to fall, i'm hearing below $20, like it's gospel. but many investors are assuming that these oil prices are going to fall to one or two dollars a barrel. that's not going to happen. >> let's talk about chevron, which we just pointed out is now in bear market territory and how off 40% from its high. i assume you like among other things a very juicy dividend that just got a little juicier today. >> we absolutely do. you're talking about a dividend over 5.5%. so this is more than twice that of a ten-year treasury. >> would they ever cut it? cut the dividend? >> it's always possible. if the earnings fall for a sustained period below the dividend rate, then they would
cut it. but they can afford to cut it in half and still more than the ten-year treasury yield. and the company would be keeping more money and becoming richer. >> so, randall, what about the overall market? that was one of the big debates today is how much lower the s&p needs to go, will go, or is it bottoming out? what do you think? >> yes. well, i don't think it's bottoming out as far as looking at a bull or bear market cycle. but in the long-term, you know, we expect stock prices to go up as these companies are profitable and add to their net worths or their book value. but the fact is the price-to-book ratio, which is one we like to look at, is close to three right now, the price three times the book value. and i would be more comfortable seeing that under 2.5, getting closer to 2. but you see that's not expecting the markets to fall by half. >> let's go to your third choice very quickly, randall. and that is intel.
>> yes. that was on the list last time. >> uh-huh. >> again, you can't run your computers without them. this is a company, again, very little debt. they have constantly proven the naysayers wrong who think their business model is broken. they keep finding ways to remain relevant. there's no doubt in my mind they will continue to. they also have tons of money to keep up their research efforts. >> randall, stay cool in washington, my hometown. >> you too. >> randall elie with the edgar lomax company. deere's profits tumble and that's where we begin tonight's market focus. the world's largest seller of tractors and combines reported a slumping demand for tractors. trimmed the sales forecast for the year despite analyst expectations in the most recent quarter. shares of deere down over 8% to 83.29. shoe and apparel retailer foot locker beating analyst earnings and estimates for the eighth quarter in a row. same store sales grew nearly 10% for the retailer which operates more than 3,400 stores in 23
countries. shares rose early in the trading day but fell along with the broader market to finish at 69.02. and speaking of shoes, the board of shoemaker skechers approved a stock split, an education of confidence in his business model. if approved by a shareholder vote in september, both class a and class b shares would be split. this sent the stock up initially but ended the day down more than 4% at 140.63. the global transport giant fed ex said it will formally start its plan to acquire the dutch firm tnt express next week. the company expects its $4.8 billion offer to clear any regulatory hurdles and be approved. fed ex ending the day down nearly 3% today to 156.03. demand for ipos had been very hot with investors gobbling up shares of new publicly traded companies. but that seems to be changing. many of those offerings are now trading below their ipo prices, and with the continued market
selloff the pipeline of new shares may be cooling as well. dominic chu has the story. >> reporter: u.s. stocks are capping off one of the most volatile weeks in recent memory, and some traders are saying the losses may have been hinted at by performance of recent initial public offerings or ipos. just look at stocks like chinese e-commerce giant alibaba and social media company twitter. both were hot ipos at one point, but both are now trading right around their original debut price. renaissance capital is a firm that manages funds tied to the ipo market. and according to their data many of these stocks had been outperforming the broader market at least to start the year. >> the returns on the ipos that happened at the end of '13 and into '14 were very strong. so that encouraged investors to become more confident and participate. and to chase those returns. so it's really about the
returns. and that keeps the action going with ipos. >> reporter: but over the last month or so the performance of recent ipos has started to falter and are now underperforming. that could have a big effect on how the market views these types of new stock issues in the coming months. it may also discourage some companies from trying to go public if markets continue to be volatile. >> almost half of the ipos done so far this year are trading below their ipo price, so we expect to see a ratcheting down of the valuations of the ipos that are going to come out. and in fact maybe a slowdown in some that may not be able to get done if we continue to have this very weak overall market scenario. >> reporter: but not all companies may be as negatively impacted. investors are watching closely for a number of high profile companies in particular to see if they test the ipo waters any time soon. >> we can't forget that so many are waiting for uber and air bnb. it will be interesting how the market if they come out this
year i think it may be unlikely at this point, but how the market will treat these companies when the internet companies have been so poorly treated in this existing trading environment. >> reporter: volatility in the broader market will play a big role in whether private companies attempt to go public regardless of popularity or market valuation. for "nightly business report," i'm dominic chu. and coming up, rapid repairs. why the state with the highest percentage of bad bridges is looking to the private sector for help. it's the final part of our week-long series, the big fix. and it's straight ahead.
the economy will be in focus next week. here's a look at what to watch. a number of housing reports are due out including new and pending home sales. we'll find out more about economic growth with the second read on second quarter gdp. and we will have reports, you bet we will, from jacksonhole, wyoming where they'll meet at the annual symposium. that's what to watch next week. the used car market is hot, but not because it's cheap. the average price for a used car hit a record high of $18,800 in the second quarter. that's an increase of 7.5% year over year. the same factors behind this year's rapidly rising new car sales, better economic outlook, low unemployment and low interest rates are also driving used car sales. the nation's bridges are on shaky ground. the government says 10% of them are structurally deficient. doesn't mean they're about to collapse, but they do need to be repaired. the cost to fix them estimated
to be almost $21 billion a year for the next 13 years. the problem is particularly bad in pennsylvania, which has the most deficient bridges of any state. and as mary thompson tells us, in a final installment of our series the big fix, pennsylvania is looking to the private sector for a solution. >> reporter: pennsylvania's got a problem or 4,200 of them in the form of structurally deficient bridges. >> that number's the lowest it's ever been, it's still a lot of bridges. so we need to really work hard and aggressively to reduce that number even further. >> reporter: so the state secretary of transportation leslie richards says it's spending almost $1 billion on a public-private partnership to repair 558 bridges in three years. >> normally it would take about a dozen to get to this many bridges. >> reporter: daniel gal vin works for the firm running the project, the walsh group. critical meeting the deadline, repairing a single span bridge
like this one in ten weeks rather than the typical six months. >> come in, remove the old one, tear out, pile driving, put in new equipment, put the deck in place and repave it and back open for business. >> reporter: hoping to save time and money using uniform methods to repair and build the bridges and buying materials in bulk. products will be making almost 2,300 of beams like these. those beams slated for the targeted bridges which in an unusual twist will be maintained by the walsh group for a much longer than normal 25 years. >> so we've got an investment in this project to make sure that the quality is there and that it lasts with 100 years that each one of these bridges are supposed to stand up. >> reporter: for "nightly business report," i'm mary thompson in pennsylvania. >> to read more about what pennsylvania's doing to fix its bridges, head to our website nbr.com. and before we go, here's another look at today's selloff on wall street.
the blue chip dow index tumbled 530 points to 16,459 on very heavy volume. the nasdaq shed 171 points. the s&p 500 lost 64. and for the week all the major indices were off more than 5%. next week's going to be a tricky one, i think. >> oh, yeah. >> that will do it for "nightly business report" for tonight. i'm sue herera. thanks for joining us. >> and thanks from me as well, i'm tyler mathisen. have a great weekend, everybody. inject plenty of liquidity. we'll see you monday.
♪ ( sandra laughing ) how can strickland afford to keep a boat in a place like this? i couldn't afford to fish in it. gerry: when i was a kid, this whole place was a toilet. literally. a few yards down the road, the biggest sewage plant in bermondsey. thanks for that precise mental image. why does he have to drag us all the way out here? i think it's very nice of him to take us for a sail. it's his way of saying thank you for all our hard work. i'd prefer hard cash. sandra: oh! oh, dear. be careful. shut up. ha ha ha! which one is strickland's? g-7. must be the mooring number. g-9, g-8... must be this one.