tv Nightly Business Report PBS August 12, 2015 6:30pm-7:01pm PDT
this is "nightly business report" with tyler mathisen and sue herera. >> stocks stage a comeback. is it all part of a bigger correction many have been calling for? >> change in taste. if shoppers aren't spending as much at macy's, what are they buying? >> cuba. the one thing standing in the way of google getting the island nation online. all that and more tonight on "nightly business report" for wednesday, august 12th. >> good evening, everyone. thank you for joining us. it could have been worse, a lot worse. after the dow dropped close to 300 points this morning on concerns of china's economic situation, the selling abruptly stopped. the buying kicked in and the major indexes staged a major reversal. by the closing bell, the dow jones industrial average fell a
fraction of a point to 17,402. well off its lows. the nasdaq rose 7 and the s&p 500 gained 2. the turn-around doesn't really tell the whole story. some on wall street think the reversal is emblem attic of confusion. rather than conviction about where stocks are headed. in fact, 56% of the s&p 500 fell into correction territory. as dominick tells us, there are other issues making investors nervous. >> the stock market has been struggling to get back to its record high. there are a number of reasons why some investors are proceeding with caution. china is one of the biggest concerns as traders group well the possible slowdown in the world's second biggest economy. >> well, china has emerged as one of the biggest consumers of almost every product on earth. so that will of course have an impact globally for companies that sell things which is all companies. so it will have a significant impact.
but i think that the headlines make it appear much worse than what the reality will ultimately be. >> another big worry for the market is tied to what's happening in the oil markets. a big question here is whether or not the drop in oil prices is due to a global economic slowdown. china plays into that story as well. >> i think it is depending whether it is supply or demand driven. if it is demand driven such as china slowing down, i think the world economy could slow down. if it is supply driven, then i think that's okay and there's too much oil coming on to the market which is great for the consumer. >> then there's what's happening with earnings season. there will be very modest grows because energy-related company are making less money given oil prices. >> the biggest one is the impact of the stronger dollar and energy prices. truly weighing down one particular sector and that's energy. energy sectors contribute to the vast majority of really the
revenue declines, as well as the earnings declines. >> it is all very interconnected. is it really affecting how the average investor is feeling? >> who wouldn't be worried? >> the apple pie and all that. it looks like it is going down the tubes. what do i do as a retiree? >> how much time do you have, not what is the market doing? we haven't had a 10% correction for a long time of i plan to live forever. >> it is safe to say the jury is still out but it is safe to say there will be more move in the markets as. of manager gets back from summer vacation. for "nightly business report." >> let's turn now to our bull and bear guests for their differing views on this market. michael tyler is chief ininvestiga ininvestigai investment market. christina, i'm going to turn to you first.
for a while, this is the bear case was intact. and then we saw this dramatic turn-around. what makes you worry about this market at this juncture? >> we know history, august is typically a bad month for stocks. but beyond that, we're on the precipice of some very historic moments in monetary policy. not only have we seen over the past number of years since the global financial crisis. interest rates at 0%. we have balance sheets of several central bank that's are incredibly goalen. we are awaiting eagerly, some very nervously for the fed to meet. there is likely to be a lot of hesitation and nervousness in advance of that meeting, given how historic and unprecedented monetary policy has been over the past few years. >> michael, let me turn to you.
christina said august historically is a bad month for stocks. i'm looking at my notes. you're quoted as saying that august is a good month for stocks. you seem to disagree. >> it is an okay month. >> tell me about it. >> yes. since 1980 there have been 35 years. in those 35 augusts, the month was up 20 times. the average return over that period in august only was about flat. but remember, one of those was august of 2011 when we had the debt ceiling and government shutdown which tanked the market 5% in that one month. so actually, august is really a neutralish month. not a bad month historically. to address christina's other point, i think that by now, pretty much everybody is expecting the fed to take some action on interest rates. they may or may not raise rates this time around in september. i think they will but i could be wrong.
there's so much expectation and attention around it that yeah, maybe there will be one or two-day confusion but i think there will be a relief rally coming out of that that finally they did it, if in fact they do raise. that i think can actually spur a leg upward. >> talk to me about puerto rico. you listed five reasons why the market may have extreme volatility ahead of it. we've talked little about the fed, the history, the data dependency which feeds into it. but puerto rico, you say people are underestimating the impact of that. >> absolutely. if you look at the numbers in puerto rico, it is a pretty dire situation. for example, labor force participation is not great in the united states but it is abysmal in puerto rico. bits 40%. there are some really big head winds and no big solutions. now, puerto rico in and of itself will not tank the u.s. economy. but it could create something of a crisis of confidence,
particularly as investors start looking at other areas of the united states where there is some weakness, an enormous amount of pension burdens. a lot of issues that are affecting puerto rico are affecting other states and municipalities but some smaller ways. >> let's move away from the question of history and so forth. back to the question of fundamentals of corporation that's make up the s&p 500. are you persuaded that their earnings will be strong enough, not only to support prices at these levels but to propel them higher and maybe more critically, how about revenues? are they going to grow fast enough to help these companies drop more money to the bottom line? we've had a shadowy revenue picture in the most recent quarter for sure. >> there's no question, second quarter was a bit disappointing. they beat published estimates. but that was a pretty low bar to jump. and that i think we will be seeing as christina mentioned, i
think we will be seeing a lot more volatility in the markets after the very tight trading range we've had in the first six months or seven months. the question is what can we expect? and the biggest head wind for corporate earnings has been lower oil prices. that knocked with 4% or 5% off s&p 500 earnings in the past year simply because the price has come down so much. guess what. by the december quarter, we'll be at year on year comparison that's have 40 or $50 oil in both quarters. that's no longer a head wind. that becomes almost a tail wind as we go forward. that alone can jump start the earnings growth for the s&p 500. earnings have been basically flat for the past year. and then secondarily, the other 4% or 5% hit on earnings this year has been the stronger dollar. and hit roughly 7 or 8% of revenues to the multinational companies. maybe half of that drops to
earnings. i think the dollar will continue to gain ground, not quite as robustly as did it the first half of the year. what that would mean is you would see some head wind. not quite as strong. the directionality is that earnings should be getting somewhat better. i think you can see a nice growth there. >> michael and kristine, a thank you very much. appreciate it. >> energy is having a big impact on the market. december pipt the rise in oil prices, it has been much lower and most say prices have further to fall. that's good news for consumers. at what point is it bad for the economy? we're just talking a little about that. >> crude oil prices have fallen nearly 30% over the last three months. the tumble catching many by surprise. prices climb in the summer along with gasoline.
a global supply glut that doesn't appear to be slowing. slowing demand from europe and china as well as a stronger dollar. all pressuring crude. >> it's really about the oversupply situation. many traders thought the u.s. production would start dropping at this point because we've lost almost 60% of our rigs but that hasn't happened. they've learned to be more firnlt with the rigs they have online. opec the same thing. you would have thought production would drop there but now 31.5 billion barrels a day. >> when prices drop, the first thing consumers look for is a drop in the prices at the pump. the national average for a gallon of regular, $2.59. why is crude oil down 20% in a month and gas prices only down 6.5? >> it is a matter of, they need to whittle through the higher expensive gas they bought for the summer. once we get into the winter gas, prices will drop. >> consumers are spending 87
cents a gallon on gas compared to last year. they say it's possible to see $2 gas again by the end of the year. it is good news for consumers but bad news for crude oil producers. big oil companies continue to try to reduce costs, traffic cuts and many have said they expect the second half of the year to remain challenging. stock market investors are worried there will be a tipping point. where low oil prices have a chilling effect on the economy that can't be balanced by low prices at the pump. >> if crude oil stays in the 30s for a significant period of time, what that shows to me and other traders and investors, there is some economic slack in the world. you're seeing with it china. their demand has been ratcheted back with all problems they're having in the economy and the stock market. >> still, some analysts believe as crude drops to the 30s, it won't stay there for long. there are a lot of if's in that
equation. an outage at the biggest, midwest refinery is accepting gas prices. in area higher. you can see chicago raising prices after a piece of equipment at a bp refinery in indiana was damaged. gas stations in illinois, indiana, ohio and wisconsin get most of their fuel from that plan. ? positive news on the job market. hiring trorose to a six-month h. more people quit their jobs and that's a sign of confidence in their ability to land new ones. ? an improving labor market and growing prices supposed to help retailers like macy's. that was not the case this time around. there was a decline in revenue and earnings in the most reason quarter. that single macy's shares lower in trading today. if consumers are not buying as much at department stores, what
are they buying? >> reporter: it's tough to be a clothing retailer these days. macy's is the latest retailer to report changes in consumer spending preferences. profits and sales both falling short, causing the department store to cut its full-year forecast. while broader data reveals consumers are spending, the macy's ceo said shoppers are diverting spending to other areas. items that macy's doesn't sell. >> you're just seeing where the consumer is spending and definitely starting to see a little uptick many consumer spending in the second quarter versus the first. not great but a little better. it is in automobiles, clothing, health care, and they're going on get to our categories but they were not there to the degree we expected them to be. >> but there are concerns that consumers won't return to spending and clothing and other traditional retail categories like they once did.
>> i do try to save about 20% of each paycheck and put it into savings. >> nothing is an impulse buy. i have to hem and haw. >> now that i have more income, i can use it or the my student loans and pitch in more for rental. >> there is a shift in preferences. technology, eating out, traveling, anything disney or apple related. when it comes down to it, i don't think this is very temporary. >> reporter: smartphone plans and streaming entertainment subscriptions are taking a bigger bite out of moyly budgets. evidence consumers are spending more on big ticket categories. taking more from smaller more discretionary categories like clothing and shoes. and previous quarter results from home deem over and lowe's show strong spending on home improvement. along with an improving housing
market. with results still to come from jcpenney and more, some analysts are concerned macy's could be the canary in the coal mine. dow come possibly cisco reported better than expected earnings and revenue there's a to increased demand for its routers and swixers. the company earned 59 cents a share topping consensus by 3 cents. revenue was higher than in the same quarter last year. shares rose in initial after hours trading. mary thompson has the one key takeaway from cisco's report. >> the networking drive reporting solid results thanks to acceleration in the key swixers and routters. cisco has been facing tough competition but new products have helped reinvigorate the company. chuck robbins said he is stepping in at an incredible time for cisco. one in which governments and businesses will be looking to
cisco to deliver the solutions they need as they make the move toward digital and he will brace the cloud. in order to do this, they are shedding noncore businesses and said it is committed to looking to help drive the strategy. for "nightly business report." i'm mary thompson. still ahead, a house united? the issue springing together both republicans and democrats. the move by china to devalue the currency has not gone unnoticed by politicians who have long complained that the country manipulates its currency to benefit china's businesses and its economy. and it's not just one side of
the aisle that is voicing concerns but both of them. john harwood joins us from the nation's capital. a rare moment of agreement, i suppose. how has washington reacted to the currency moves? >> you've seen a lot of criticism from the traditional critics of chinese trade practices that this is another attempt to manipulate the value to the benefit of chinese and the detriment of american manufacturers. so you heard that from chuck schumer. he of course has worked for a long time with lindsey graham on legislation to try to substantial chinese for this policy. it has been resisted by administrations of both parties. you're seeing that talk which has been quieted lately. the value of the yuan has gone up. that's being revived right now. >> what is the administration likely to do in response if anything at all? >> i think not a lot, sue. look, the administration put out an equivocal statement yesterday saying it is possible this could be spogs to short term market
forces as the chinese economy weakens but it would be troubling if they're moving away from their long term commit. to let the value of the yuan float to where it ought to. i think the biggest thing any time soon is to complete the transpacific partnership designed to contain and counter china's influence in the region. >> let's talk a little about the 2016 race. i can't imagine that a 2% devaluation in the currency is something that will be a big issue in the race. it is too esoteric for most people to grasp. i can imagine that china and its competitive posture could be. >> two words for you, tyler. donald trump. he is talking about the united states getting beat by foreign competitors like japan, like china. a new poll out today in iowa after that debate everyone thought was so damaging, he is leading. that is an indication he will put this issue on the table in a
broadway to talk about trade. >> all right. thank you very much. john harwood in washington. mixed results single shares of alibaba tumbling and that's where we begin. the china he's ecommerce giant hit a low today after reported earnings that beat estimates that that sales that missed. its revenue growth was the slow nest more than three years. shares were down 5% to 73.38. news corps earnings, revenue declined from the same period a year early because of decreasing advertise sales. like the new york post and the "wall street journal." shares were higher initially in afterhours trading but during the regular trading stocks were up slightly. ? kraft is reducing costs after the two companies merged. the workers affected are in the u.s. and in canada. ketchup maker among other things has about 46,000 global
employees. shares were off more than 1.5% to 76.69. at&t said it expects earnings revenue and free cash flow to rise through the year 2018. the positive guidance comes after the company's purchase of directv. still the stock was off about 2% to 34.02. the online home goods retailer way fair saw the loss narrow in its most recent quarter. advertising helped increase sales but trags-related into higher costs. those better than expected results single shares up 28%. and coming up, connecting cuba. even one of the biggest players in the internet is struggling to get cubans online.
here's a look at what to watch for tomorrow. a read on the labor market with weekly jobless claim report. another important data point. retail sales. we'll look at how the consumer is doing. and the import/export index is out. that's some of what to watch for on thursday. the man who runs fidelity's funnel, a fund often found in retirement plans, 401(k)s, said he is growing very cautious on commodities and more optimistic about internet companies. he oversees $113 billion in assets expects google, amazon, facebook and apple to generate earnings faster. the return this year, more than 7.5% ask that easily whips the s&p 500. and google is one american company that wants to enter cube and connect that country to the
internet. no that you diplomatic and economic relations have been restored. as michelle reports from havana, it handle been easy for google to make some headway. >> reporter: cuba is one of the least connected countries in the world and the peel of cuba are desperate to get on the internet. until last month, it was illegal for most cubans to get wi-fi. last week 35 hot spots went up across the country in a country of 11 million people. they are constantly busy. we were at one yesterday in havana. there were many, many people eager to get on the internet. it is $2.50. that's a lot on average when most people make $20 a month. most appear to be using skype-like a.m.s to talk to relatives overseas. >> i'm here trying to connect wi-fi with my children. it is the possibility to have a
connection. >> reporter: overhead, you can see t routers for the traffic. they are chinese made devices and there in lies the big thing for company wanting to be here. one of those, google. the executives have visited the country at least twice including eric schmidt last year. google has offered a big expansion of internet on the island at very low cost to the cuba an government. it might even be free. so far the signals from the government doesn't look good. this is the government's plan for internet access on the island. it relies on copper cables and chinese equipment. would it get internet access into 260,000 homes by the year 2017. a second blow against google, according to local cubans, when a government official gave an interview to the state backed newspaper saying, quote, there exist people who want to give us the internet for free but they are not doing with it the goal of allowing the cuban people to
communicate but rather with the that you recall of penetrating us. to use it as one more way to destroy the revolution. it's not clear if that was the final nail in the coffin for google. google declined to come. that does it for "nightly business report." i'm sue herera. we want to remind you, this is the time of year your public television statement seeks your support. >> and we thank you for that support. have a great evening, everybody. we'll see you back here tomorrow night. >> announcer: explore news
and new ideas through programs like this, made available for everyone through contributions to your pbs station from viewers like you. thank you. >> season 5 of "downton abbey" left us with so many unanswered questions. will lady mary finally find true love with her new suitor? >> maybe we'll meet again. are you ever in yorkshire? >> what will become of downton after branson and sybbie leave for america? >> always remember you have a home to come back to. >> will marigold take her rightful place at the downton table? >> i can't give her up. >> of course not. >> and what will become of anna and bates? there's still a dark cloud hanging over them. >> we'll worry about everything else later. but for now, let's just have a very happy christmas.