Why that could bode well for corporate earnings in 2013. That and more tonight on nightly Business Report for friday, january 3rd. Good evening, everyone. And welcome. Im tyler mathisen. Susie gharib is off tonight. Well, no time for panic or even a double cocktail, but stocks arent exactly off to a great start so far this year. Day dtwo in the markets and day two of decline, the biggest losing streak to begin a year since 2005. Fraction l but loses they were on this mixed and chilly day on wall street. Traders watched out going fed chairman ben bernanke give what may be his final big speech before stepping down speaking to the American Economic association in philadelphia, bernanke had generally positive things to say about the u. S. Economy. The combination of financial healing, greater balance in the housing market, less fiscal restraint and policy accommodation bodes well for u. S. Economic growth in coming quarters. The bernanke pep talk helped but not a jolt of red bull. Todays final numbers, the dow up a modest 28 points and the nasdaq lower by 11 and s p was a fraction of a point lower. Well, big blue chip stocks started haltingly. Dominic chu reports why many market pros are watching small, Fast Growing Companies more closely than those suddenly stumbling big company shares. Reporter the skies are getting a bit darker for some investors. Its not a full blown storm yet but many traders are keeping a close eye on small cap stocks. They had a rocky start to 2014 and there is a big reason why investors care. They are considered to be leading indicators for the overall market and economy. Small Cap Companies are the largest employer in the u. S. They are reflective of what would be going on in the u. S. Employment market which is critical. Often times, optimism leads investors to bet on smaller companies. They are the ones with room to grow and get hit the hardest in tough economic times. Since hitting a 5 2week high, small cap stocks as measured have under performed a broader market. And add in under performance on the first day of trading in 2014, and you get why there is worry brewing. The trend for stocks is very positive since the deaths of the financial crisis in 2009. So some traders think any pull back could be consider add buying opportunity. I think the russell 2000 and 2014 will be higher. The u. S. Economy is still the place to be chl the dollar will strengthen, which means its good for small cap stocks Like Technology and industrial lanes, overweight of the small cap. Reporter no matter you view, keep on eye on the small cap stocks, a lot of the professionals are. For nightly Business Report, im dominic chu. Our next guest says what worked last year for investors wont work this year. Hes joe duran. Joe, welcome. Good to have you with us. Before i get your answer to see why you say things that worked last year wont this year, let me get you overall take how you see the u. S. Economy in 2014. Chairman bernanke thinks its getting better, do you . I totally agree. I think weve seen a very nice recovery, especially the back end of the year and broadening and the fed hinting at tapering is also telling us they are seeing things that were not yet seeing, which makes me feel optimistic about the ceconomy, maybe 3 and approaching 4 which is quite incouraging. That is a bullish forecast. Lets talk about why you say what worked so well in 2013 may not or wont in 2014. What specifically are you are you referring to and why . First, its historical that people will typically crowd at the beginning of the year to the things that worked well last year, but the market is a living organism and it changes with time. So what you had for most of last year was a stagnant and slow and disappointing recovery, and in times like that, pay pay up for high gross, high revenue growing companies. You saw that with tesla and apple for awhile, very high growth, high octane, netflix, they get a premium. When the broad economy starts to grow more, it changes and people then shift to more industrial names, less exciting names like General Electric or United Technologies that provide infa structure. So the larger not so exciting names often do better than in the early stages as we saw last year. I think youll see a shift from the very wellknown top line growers to more Boring Companies this coming year, which thankfully is not bad because you dont want to invest in last years winners. You really seem to be saying that its not a year so much maybe for speculation and betting on fast growers, but more a year to be betting on underlying Economic Growth and earnings per share growth. And the reason you want to do that in a very in a time when the market is already received as much as it has, remember, we had a 30 year. Thats really big. Uhhuh. So you have more speculation in the market than before and you dont want to do what the most dangerous times in the markets are is when nobody sees risks and were approaching that. People are very complacent and feel good. So you want to be more conservati conservative. So what were saying is be more selective. Invest with stocks that have not doubled or tripled and be safe. Very quick thought. You think that were due, over due for some sharp pull backs in 2014. How sharp, and why do you say that . Well, its very unusual to go through six quarters where you do not have a 10 decline. Every 18 months you have two ten percent declines. Weve not had that for 18 months. The first pull back we have, which could be used by anything, the reason not to sell will be for new investors to get nervous once again so the first decline will probably be 10 to 15 decline and we think it will be in the next six to nine months because its been so long since weve had one and the longer we go without one, the sharper the decline. We have to leave it there, joe. Happy new year from beautiful irvine, california here in snowy jersey. The Auto Industry just wrapped up the best annual performance in six years, even sales last month were disappointing. Phil lebeau has more on what lies ahead in the new year. Reporter december was not exactly a month to remember for the Auto Industry. Sales in the u. S. Were well below expectations with modest gains for ford and chrysler while gm and toyota actually saw their sales decline. Some in the Auto Industry blame winter storms for keeping buyers out of showrooms. The weather that swept across the midwest and into the northeast had some impact, but, you know, november was a very strong month as far as the industry was concerned. So there was a little pay back there, as well. Reporter the average price paid for a new model last month was just over 30,000. According to true car. Com, and because demand remained relatively strong, auto makers didnt have to jack up incentives to close sales. What did well in december . Trucks and suvs. They were hot just as they were for most of 2013 thanks to moderate gas prices. Trucks are in kind of an upward swing now. Reporter as are auto sales. Just four years after the recession when annual sales bottomed out, they steadily climbed to more than 15 million vehicles sold last year. That led to more plants adding shifts and workers as they keep up with demand that should continue to grow, although, at a lightly slower pace. As we move throughout 2014, the rate of growth is going to slow just a bit. Youre not going to see the same rate of growth that we saw in 2012 or this last year in 2013. Reporter as much as things changed in 2013 with newer vehicles like the tesla model s becoming hot sellers last year, some things remain the same. Take the Ford F Series pickup truck. In 2013, it was the best selling vehicle in the United States for the 32nd straight year. Phil lebeau, nightly Business Report, chicago. That is some kind of winning streak. At 1 billiondollar Internet Security acquisition was announced today and shares ate it up. Fire eye, which is buying a rival shot up nearly 37 on the news of the deal, and some think todays takeover could kick start a wave of acquisitions in the cybersecurity space. Josh lipton has more. Reporter hacking is a huge problem for companies in the u. S. And worldwide. There was that massive attack on targets customers involving 40 million debit and credit accounts and snapchat had personal information leaked. But now there is a deal that could shake up the cybersecurity landscape, fire eye is buying mandiant for 1 million. They made a name when they leased a report with suspected activities of a Chinese Military hacking unit. Fire eye knows whether your company has been hacked and they can tell the damage that has been done. Fire eye ceo says the partnership will fight off the growing signer security throat. Just yesterday, we saw the Electronic Army bring down, obviously, skype. Were seeing a lot of infrastructure attacks like twitter, the associated press. Some are successful, some are not. There is a lot of activities happening in the world right now. I view this as the tip of the iceberg. Reporter dan says this deal creates a Security Platform that poses a real challenge to rivals in the sector like mcafee. The stock is up more than 175 since it went public last september. They say to expect more consolidation in 2014, companies are potential takeout targets. Securities become so key. Without security, customers wont go there. Thats why i see the emcs, ibms, microsoft looking for activity like cisco source fire. Again, i view this as the start of what i view as an active year in the sector. Reporter fire eye was considered a possible acquisition candidate, but analysts say the company is now signaling that its a console day tore, not a take off target itself. Josh lipton, nightly business repor report, silicon valley. Still ahead, Corporate Pension funds are finally getting fit and healthier funding levels could mean stronger corporate profits in the new year. Good news for some retirees, Corporate Pension funds are now in the best shape since before the great recession, and that could help tone up corporate profits in the year ahead. Mary tompson has more now. Reporter the rally and rising Corporate Bond yields delivering record relief for Corporate Pensions last year. We had everything working in our favor, lights went down, assets went up. Reporter two studies finding Pension Funding for the s p 1500 and fortune 1,000 companies topping 90 in 2013. The s ps rally boosting the Equity Assets while rising yields on high corporate debt helped on the liability side. So under pension accounting as highgrade corporate yields go up, liabilities go down. Alan is senior retirement consultant estimates this should improve the Balance Sheets of a fortune 1,000 company to the tune of 285 billion. That improve Balance Sheet also has an impact on the charge against profits that these companies will calculate for 2014. So it will improve the earnings picture by lowering the cost of pensions. Reporter not all firms are equal. Firms with big pensions like Telecom Companies and older industrial firms. As the funds approach or exceed 100 funding. Jonathan berry expects companies to be risked or move out of stocks or bonds or annuities or offer voluntary cashouts to employees helping to smooth earnings by eliminating lumpy pension expenses. For nightly Business Report, im mary thompson. To read more about the rebound in Company Pension funds, head to nbr. Com. Shares of Delta Airlines took off after the company said it saw revenue jump more than expected last month and thats where we begin the market focus. The late thanksgiving holiday that kept travelers away until early december helped the airline up revenue per passenger by 10 last month and the fuel cost, 3 less per gallon than delta predicted. The stock up 5. 5 to 29. 23. General electric was downgraded to perform to out perform. The ge stock price now reasonably reflects ex piece takes because according to the analyst there, 2014 will be a transitional period for the company as it refocuses on its industrial businesses. Shares of ge down slightly 27. 48 the close there. We told you earlier this week hertz adopted a shareholder rights plan or pill to protect itself from a possible takeover. Today there are reports that carl icahn is the target of that poison pill because he purchased 30 to 40 million shares of the car rental company. There was also buzz that dan low took a steak in the company as well as core vex capital. Shares were down today at hertz by 18 cents, down 2 3rds of a percent. General mills produced the iconic serial with no genetically modified content, known as gmos. They switched the sugar and corn sources to stop the growing controversy. A spokesperson for General Mills says the change required a significant investment and applies to the organiiginal cheerios, not to others like honey nut. Sirrus wants to be a subsidiary. Wants to buy the remaining shares. The proposal value Common Shares at around 3. 68. Sirius finished at 3. 57 and liberty closed at 145. 33. Our market monitor says u. S. Equity markets will post mid single digit returns in 2014 and expects International Markets to do considerably better. Vice president of Equity Investments at usa a investments. Welcome. Good to have you with us. Thank you, tyler. Why do you think the u. S. Market will have comparatively a very modest gaining year in 2014 . Well, on the tear of the equity markets particularly in the u. S. , the returns are so strong for quite awhile as your earlier guest pointed out, as well, a pull back may be in order but that may also reflect a reduction, a gradual reduction in the quantitative easing or bond buying program. So we think given the factors, especially the fact that the Profit Margins of u. S. Companies are at alltime highs, that makes for a mix where the returns Going Forward for next year, for this year, are likely to be tempted where as on the nonu. S. Side outside the country, youre likely to see slightly better results because marge ps are lower, there is more room for up sight and evaluations are evaluations are better. That doesnt mean that you dont have choices to share with the viewers. Lets start with the first one. Tell us what will drive that stock to better gains this year. Well as you know, gilliad has two specialty drugs among a lot of the other ones that they have, but the key ones that is really driving the stock is the hiv drug as well as the new one that they have created for hepatitis c. And the early test results for that hepatitis c drug are very, very positive and thats an untapped market if the look at the u. S. Market. There is about 4 million folks estimated in the country to have hepatitis c. So that creates a big market for them, and thats just the u. S. Thats not to mention the Global Market potential out there. So its a pretty good growth story. The stock has run in 2013 but we think there is more room. Lets get the next three in. You go old school with the next pick. Yeah, you know, the others are more state and steady and its really a reflection of the look at the market to say you need to be a bit more cautious so oxy is a company with attractive evaluations and a story where they are trying to sell nonu. S. Assets and assets in california but we think the assets create cash flow that will come in to pay down debt or buy back shares and have a good dividend. Lets get two for one here. Cisco systems and microsoft. Well, you know, these are the Old Technology companies. They are not the new ones but old ones and good value stories. They are both attractively valued and both pay a good dividend. They have a lot of cash flow business that continues to generate cash flow, and the dividend is steadily growing, as well. What do you think will happen with microsoft when they get a new ceo . Does it depend on the ceo . Quick thought . There will be a Quick Reaction from the market but it doesnt mean the stocks long term trajectory will be that. Do you own them, your company owns them, i assume . We own them in the funds, the ones i manage we own them in the funds, yeah. Thank you very much. Vice president of the Equity Investments at usa a investments. Coming up, the big money being invested by big gaining companies on the Las Vegas Strip and not just casinos, but will it pay off. . . . A big vote taking place today in washington state. Union machinest at boeing will decide whether to accept a contract. The carrot in the deal, boeing says if the unit goes along, the company will build the 777 x jets in the seattle area. Local Union Officials are urging 30,000 members to oppose the deal saying they have to give up too much while Company Profits are sky high. Boeing has already begun exploring moving the 777 x assembly to other states if the Union Rejects this latest contract offer. After getting slammed by the recession and hit hard by the housing crisis, las vegas is now betting big with new hotels, casinos and complexes. Will 2014 be a strong year for sin city . Jane wells went to las vegas. Reporter las vegas, americas adult disneyland is showing signs of life. We saw an improvement in 13. Reporter nearly 40 Million People visited sin city, a new record that should be topped this year. Hotel rooms rates are going up and 9 billion in Development Projects in the works. The recovery is a tale of two cities. The vegas for americans is doing okay with revenues up two percent and vegas for foreigners is doing great, up double digits. The airport added a new terminal. International represents 17 of the market share. Today we want to grow that by 30 . Reporter challenges remain as the median age of visitors gets younger, turns out young people dont play slots, which account for 80 of profits. At a time when the gamers, the younger people on their smart phones have to be addressed from a gaming perspective. I think youre going to find at 14 and 15 for more interactive games. Reporter also, the increasing number of clubs may reach a saturation point. The growth in nightclubs has been significant over the last couple of years, and the cost of running that business has increased pretty dramatically, and now we have three or four more clubs coming into the market this year. Reporter so john hopes to shake up the concept with a throw back dinner club like the rose lie, cesars is looking to cash in on the faster growing business for the now Shopping Experience called link including a ferris while bigger than the london eye and the largest player has announced plans to build an arena that could host an nba or nhl team. Las vegas is really not just for gambling anymore. The fact people are willing to invest again in las vegas, i think is an affirmation people see this recovery. I would say my colleagues in las vegas were encouraged about 2014, and they are backing that up with a lot of Capital Investment into the market, as are we. That may be the biggest bet in town. For nightly Business Report, jane wells, las vegas. Finally tonight, for the First Time Since the revolution in 1959, residents of cuba can buy new and used cars on what passes for the open market there. Until now, cuens had to get permission from the government first and then to shop for a car but only from state run dealers. But it wont be easy these new practices. Cars are still very expensive there. The least expensive new car for sell is a 2013 car that cost 91,000 and the average income in cuba is 22 u. S. Dollars per month. No new u. S. Cars are being sold there. Thats nightly Business Report for to believe the. Thanks for watching. Have a great weekend. Stay warm, see you monday. Nightly Business Report has been brought to you in part by. Thestreet. Com, up to the minute Stock Market News and in depth analysis. Our quant Rating Service provides objective independent ratings daily on over 4300 stocks. Learn more at the street. Com nbr. 2014 is here with a clean slate. After the yearend budget deal, can washington find more compromise or is it back to politics as usual in a Midterm Election year . Im john harwood in for gwen ifill. Well explore those questions tonight on washington week. More than anyone else in washington, the president hopes the new year will be better than the lousy old one. I firmly believe that 2014 can be a breakthrough year for america. Theres some optimism in congress too. I think the pendulum is starting to swing back towards the center. John one early test will be whether congress can raise the debt ceiling without a congress. I doubt if the house or for that matter the senate is willing to give the president a clean de
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