tv Nightly Business Report PBS January 15, 2016 1:00am-1:31am PST
. this is "nightly business report" with tyler math i sen and sue herera. >> take it off. stocks stage a comeback, but don't get too comfortable. the biggest issue facing the market hand gone away. the great rate debate. why are bond yields moving lower when the fed is pushing interest rates higher. disconnect, auto stocks stall even as sales soar. why? what's next for the car companies. all that and more tonight on the "nightly business report" for thursday, january 14th. good evening, welcome. we assume you didn't win the lottery. stocks rallied today. thatasn't happened much year. oil prices stabilized. that hasn't happened much.
jpmorgan issued upbeat results. by the close, the dow jones industrial average rose 227 points to 16,379. it had been up more than 300 at one point. the nasdaq gained 88, the s&p 500 reclaimed the 19 hubz level rising 31. bob pisani now with more on today's comeback and why investors shouldn't breathe easy yet. >> the joke has been wall street is selling stocks to play the lottery. now that the lottery is over, the markets rallied. first jpmorgan had a strong earnings report preopen. futures did rise. second, oil staged a sharp rally right after stocks opened. finally and perhaps most importantly st. louis fed president james bullard said this morning the continuing drop in oil had caused a worrisome drop in inflation that may make further rate hikes hard to justify. hey, that is a very big
statement. bullard is a centrist and voter on the fomc this year. is this the bottom? i don't think so you. first we're still dealing with the biggest issue of all -- just how much is the global economy decelerating. second, oil has not clearly bottomed. also it's not clear the fed is going to back off the aggressive rate hike policy. remember, we haven't dropped that much. right now we're in the middle a garden-variety correction. but remember, the s&p went from 700 in 2009 to 2100 in 2015. now it's only about 1900, so we're going to rally for seven years and then a garden-variety 10% correction? it just doesn't seem like that's enough. that's why the rally seemed tentative. no one is going all in, because there's still too much downside risk. for "nightly business report" i'm bob pisani at the new york
stock exchange. as bob just reported, the global slowdown is perhaps the biggest issue facing the market, but how does an economic project spread, and then across the globe? dominic chu breaks it down. >> geffen all of the market turmoil, there's a lot of conversation, a lot of talk about a possible financial contagion. let's take you through exactly what a financial contagion would be. it depends on who you ask, but the general concepts are there. first of all, in a financial cajun, you're talking about the start of it being very localized, meaning it's one geographic area or one particular asset class, one economy, that sof thing. from there that ripple effect has spread. all the down sides spreads to other parties, neighboring geography, other different cease classes. you get this spread, like a disease. also, it leads to widespread financial distress. what we mean there is possibly huge amounts of selling, perhaps forced selling at some point
with people trying to raise money, trying to take their risk off the table, trying to lock in some of those cash profits they have, or avoid losses. those three general concepts. we have seen a couple examples in recent memory of it happen. first in thailand 1997, the asian financial crisis, it started off as a currency issue, a devaluation in thailand. it spread will you asia, hits parts of europe, led to possibly what happened in russia. also what happened in the subprime mortgage crisis, 2007-2008, that spread as well. the big concern and why people are talking about it these days is china, will that economic slowdown lead to another possible contagion? that's the big question. >> meanwhile, here at home, the number of americans files for first-time unemployment benefits climbed, but remain consistent with a healthy labor market.
initial claims rose 7,000, making this the 45th consecutive week below 300,000. that's the lodgest such stretch since the earlier 1970s. and the strengthening job market is one of the reasons why the federal reserve raised interest rates, but instead of going higher, key interest rates have fallen, that's creating a disconnect between the fed and the market. steve leaseman takes a look at which side may blink first. >> markets have been telling the fed they were wrong about inflation, the economy and hiking rates. with 1,000-point drop in the dow they were practically screaming it. the fed may be finally here it. the st. louis fed official became the third to hint maybe they'll quote -- i'm starting to wonder if my story is the right one, bullard said about his forecast that the oil would stop dropping. now saying that the oil is substantial and a slower rebound in inflation than forecasted.
that could mean fewer rate hikes. other fell officials have said risks to the u.s. are rising due to weakness in key economying like china, making the market believe that the forecast for rate hikes is looking at best as a long shot. >> one, reaction to the oil, drop in import prices, putting downward pressure, the drop in inflation that are now back down to the lows we saw in september, and finally they're reacting to the volatility we're seeing overseas, uncertainty about china, all of that adding up to my mind of a lower chants of a march hike, and a fewer number of rate rises. >> since the rate hike, markets in the fed have been out of sync, for example the ten-year note, a key interest rate for the economy on which mortgages are basised, has fallen enough to remove a big part of the federal quarter-point hike, and stabilizing world economies could put rate hikes back on the
table, but for now in the debate between markets and the fed, score one for the markets, even though you it would have to scream to make its point. for "nightly business report" i'm steve esman. we're going to talk with chief investment officer with guggenheim. scott, always good to see you. so far in 2016, stocks have been sliding, but there has not been a washout. does the fact that there hasn't been that left of panic or washout concern you and suggest that we may have farther to fall before a bottom is put in? >> tyler, you're hitting the nail on the head in my mind. you know, we have not seen a spike in volatility, in the volt tiff index of the s&p, volatility typically, that index gets into the 30s before we see a bottom. we haven't crashed 30 at all in this process.
the other thing is bottoms are marked by huge increases in volume. this has been a light-volume move in terms of just relative to average volume days, most days are just average. so until i sigh some left of fear and panic in the market, i can't believe we're ner near a bottom. >> longer term i know ear optimistic. by your measurements and your analysis, how much further do you they this mars han to do. >> obviously 1850 is a key level to 408d, about you if that level breaks, i suspect we probably have another at least another 10 to 15 percentage points down before we find some stability in u.s. stocks. would that mean the end of the bull market? or just a correction in it? >> well, technically, tyler, from where we sit today or where we were at the peak, another 10% to 15s% will officially be a bear market. >> right. >> but i like to remind people
we had periods like this in the past. 1987, 1994, 1997, which, you know, was the asian crisis, and all of those markets were the selloffs were completely disconnected from the economy. the economy remains strong throughout, and ultimately people who bought stocks in those selloffs did very very well. and i think this is a time where contagion and events in decline are spilling over into the financial markets, but they're not affecting the real economy. at the end of the day the real economy will wind. >> how much is dependent in a stabilization and perhaps move higher in the oil markets, scott? >> sue, i think the energy story is getting pretty much played out at this point. i think we still have some downside room. i wouldn't be surprised to see $25 oil, but the bottom line is that markets are largely pricing for this now. i think that the real story is
china, what's happening with the r & b, you know the for the last two nights in hong kong. overnight rates have had to increase to levels of 30 to 50% to stabilize the currency. obviously markets win in the end, and the government's attempt to maintain the exchange value will have to give way, and i think the turbulence that comes out of that once we get a crack in those markets will give us a sign that maybe that's the bottom and time to get in. >> we have to leave it there, scott, but these are lessons that beijing is learning the hard way. >> you are, and the markets always win, tile her. >> scott mine, thanks again. things are triggers bankruptcy concerns across the commodity sector. most recently arch coal, the second largest coal producer filed for chapter 11 reorganization. so if you're a shareholder, what are the warning signs that a
company might so go into bankruptcy? michellebaaruso-cabrera takes a look. >> the history of wall street is littered with the charts of commodity companies like this one that have tremendous rallies, when commodities are smoking hot, and then plummet along with the underlying commodity when things go bad. arch coal went from 744 just a few years ago to being virtually worthless. if you were to do an autopsy, you would find that there were clues for stock investors that maybe they should have gotten out. the key thing with any commodity company route know, how is there debt trading? if you look at arch coal, a note was due in 2021. the yield was 7.25%, already high, already suggesting risk, but it traded at par for a cup 8 years, then in january of 2014,
the price falls to 78 cents on the dollar. yield rising to 11.77%. nine months later, the price of the debt falls to 53 cents on the dollar. 20% yield. now in bankruptcy, it is worth virtually nothing. if you talk to bankruptcy attorneys, they say, listen, there's a big warning sign for commodity companies. if the vast majority isaj tradi somewhere between 50 and 70 cents on the dollar, that is a problem. here's why. that suggests the company is distressed. if it goes into bankruptcy, gets restructured, the debtholders get satisfied before the stockholders. what on which happens is there's nothing left. they say, stockholders, listen, we can't pay, we'll give you equity in the new company and guys in the old company zero. debt becomes equity and the current equity often becomes
zero. if you're invested in smaller exploration production companies or other kinds of commodity companies, you want to take a look at how the debt is trading, for "nightly business report," mo michelle caruso-cabrera. why are auto stocks going in the opposite direction? intel reporting better than expected earnings, but investorses focused on declines. dow jones component beat the estimate. and up marginally from a year ago, but gross margins decline, pressuring shares initially in after-hours trading.
in the regular session, shares rose, but its pc business is also a big concern, and as josh lipton reports, intel has a strategy to overcome it. >> research firm idc reports that pc shipments fell 11% in the fourth quarter, the largest year-over-year drop in the industry's history. the market is under pressure from the popularity of mobile devices such as smartphones and tablets. and that is bad news for intel. >> they derive two third of their revenue from the pc market, which contributes about half of the company's profit. manage is tasked with growing bock-line profits, which is a challenge when your pc market is not in growth mode, which it hasn't been for several years. >> intel's ceo brian kryzanich is well aware of this trend, which is why he's looking to diversify intel's business. in addition to pcs, he's focused
on selling chips for data centers, which handle the workloads of mobile apps. for example, when users open a facebook appear on their as a matter of fact 2k7 phones, it's probably intel providing the processing power that displace all those videos, financial analysts like friedman are betting on continued grouse in the datacenter business. >> we expect next ye it could contribute more than half of the profits, and we're calling for a 15 to 16% growthee. >> but there are risks for this business, namely whether cloud giants like amazon and microsoft could use their leverage to demand cheaper prices for intel's datacenter chips, but kryzanich dismisses that concern. >> always take care of the customers and please them as much as you need to. sectly keep driving technology such that people have to go --
they want to go buy your parts. there's a need for the performance that you're going to provide. >> and he's putting his money where his mouth is. intel recently completed a $17 billion acquisition of altera. that could provide the company can more specialized chips for the data centers of the future and help to offset some of the pressure in the pc market. for "nightly business report" i'm josh lipton in san francisco. fellow dow component jpmorgan topped earnings and revenue expectations, the biggest u.s. bank was held by cost cuts, sending share higher today. kayla tausche with more on what went right. >> expectations for bank earnings may not have been high, but jpmorgan blew them out of the water. the bank posted record full-year profits and bead fourth quarter estimates handily. the bank saw mixed performance across the four business units.
loan growth, and lower growth in investment banks and outflows in asset management. >> the offense wasn't great, but we'll take flat revenues in environments like this. lower expenses, lower assets. >> it did spend more than $1 billion to cover loans that could go bad. that was a lower amount than analysts expected, but only about a tenth of that total went to cover companies in the oil, gas, metals and mining sector as the price of aisle and other commodities keep sinks, it makes the company and their debts harder to tame. asked jamie dimon whether a year from now he would look back and realized they had underestimated that problem. >> we try to be very conservative always, so we're not trying to put up as littl as possible. you know me, i would put up more if i can't, but accounting ruls dictate what you can do.
the real risk is produces flows, surprisingly the cost to get the oil out of the ground has also dropped dramatically. >> that optimism aside, investors have been selling financial shares. jpmorgan stocks down 11% this year die spite rising 2%, but r&b's gerard cassly said there's still growth around the corner. the banks could earn higher yields on their loans while keeping payouts on deposits low. bad news for consumers who want to earn more on the savings, but music to the ears of shareholders. no "nightly business report" i'm kayla tausche in new york. best buy lowers its sales outlook. the nation's largest consumer electronics chain says it expects sales to fall about 1.5% in the current quarter. this follows weak demand for mobile phones during the holiday season. it sent shares 9% lower to 2643. goldman sachs reportedly plans
to cut up to 10% of the sales and if i coulded-income trading jobs. every year the firm shedding about 5% of the total workforce to make room for new hires. separately the bank reached a $5 billion settlement. shares of goldman rose 1.5%. rio tinto is freezing the salaries of all of its employees, including the ceo as a prolonged slump in commodity prices takes a toll. the world's second largest miner says it sees no end in sight for the rout. nevertheless shares rallied nearly 6% today to 25.20. shears of phi fiat chrysler, ar dealers, which are part of the same auto group filed a civil lawsuits sea that fiat cries le paid dealers to falsify figures to create the appearance that the performance is better than
in really it actually is, end quote. for its part fiat chrysler says the allegations are baseless. shares of the company, though, off today 4% to $7.53. auto sales set a record last years with $17.5 million sold. but those strong numbers did not help the sging prices. shares of gm are down 12%, ford off 19%, and chrysler down 37%. colin langen joins us to discuss the disconnect between auto sales and auto stocks. he as an auto analyst at ubc. nice to have you here. >> thanks for having me on. >> why is there that dissect? >> as sales have increased people are starting to worry, and that's concern for the cycle. my opinion, i think we still have room to grow. i thy valuations are very compelling for both gm and ford. >> but gm stock has been pretty
much stuck in neutral since it came back on to the market four, five years ago, right? i take your point that people are maybe concerned that sales in the u.s. are peaking, but the stock really didn't run up at all even as stocks were rising. >> yeah. >> well, i think you have to realize these are global companies, so coming out of ipo, things looked pretty good, but you have europe collapse, and so they really had a lot of hurdles. it's a high fixed-cost business. they have massively restructured the business, taken some pretty aggressive actions, so one of the tailwinds going forward is actually the profits -- losses in those regions are going to turn towards profit. so that's actual by one of the lifts over the nest few years, in addition to continued improvements in the u.s. >> you also think there's a tailwind from the downfallen commodity prices, because they
are net consumers of commodities. >> absolutely. i think that's one of the biggest things investorers are missing. this will be a huge margin lift. we estimate it's almost $500 per car in the decline in raw material costs, so this is a huge support for these things, and really should drive some up side to earnings going forward that people aren't expecting. >> so you like ford and gm, you don't cover fiat chrysler, but you really like a couple auto suppliers, borg-warner and johnson? >> yeah, we have buy ratings on both those names. i think there's definitely good opportunities among the supply safe, particularly after the correction we have seen. >> colin, we'll leave it there. thanks for joining us. colin langen with ubs. coming up from juice bars to spin classes, a look at the big money behind the business of getting fit.
we are two weeks into the new year. have you kept your resolution? le of us focus on our health, vowing to eat right and work out, as morgan brennan tells us, there's a lot of money behind the pursuit of healthy ling. >> something music, mood lighting, celebrity trainers. and an average price tag of $30 per class. >> here we go. >> boutique fitness, a new way to work out, cities across the u.s., business is booming, the international health and sports club soaks says growth in memberships has been outpacing growth in the u.s. population. driven larmgly but boutique
studios. 42% of all members use these facilities in 2014, up dramatically from just 22% the year before. best know perhaps is sole keuchel, with a following that plans to go public this year. but flywheel has nearly three dozen studios, where there's choreographed spin workouts and compete on performance. >> there's a premium on great experience on a short amount of time, and highly trained, circuit training claims 21 outposts. armed with wall street funding, it also has aggressive expansion plans. >> we have a pretty exciting trajectory. the studio model, 100% higher than the industry average. it's even inspired a fashion trend called ath-leisure that
can be worn to break a sweat or socialize with friends. analysts say this segment outperformed. >> active apparel business was up in the mid teens and active footwear business was up in the mid and single digits. >> since launching in 2014, the fashion start-up has opened five brick-and-mortar locations, including this brand-new flagship which even has a studio from well-known instructors will teach classes. >> it's held fuel a culinary craze. nielsen says foods labeled with health attributes like gluten free, organic, a and gmo-free jumped. for "nightly business report" i'm morgan brennan in new york city. finally tonight, three wins tickets hit the 1.25 billion, in mull bourne beach, florida, mumford, tennessee, and a
7-eleven in chino hills, california. the clerk became a celebrity, where people showed up to celebrate the lucky sales. no one has come forward yet. the first number was 88, so that is on none of mine. >> i did. i went to bed. that does it for tonight's "nightly business report." >> thanks from me as well. have a great evening, everybody. we'll see you here tomorrow night.