Transcripts For KQED Nightly Business Report 20170103

With the fresh calendar of course comes renewal and resolutions. While we cant hp you fulfill your promises to work out more and lose that five or ten pounds, we can help you get your finances in shape by shedding light on what may happen in the coming months. And we begin, as we often do, with the markets. Stocks are coming off a powerful yearend rally. But there are questions now about how much gas is left in the markets tank. Bob pisani takes a look at what may shape equities in the year ahead. Reporter stock rally, oil rally. Everyones bullish right now. But thats going to get tougher in 2017. Heres three predictions. First, the stock rally will continue but will hit major headwinds. The s p 500 will hit a series of historic highs again within Donald Trumps first 100 days but that will be it. The problem . Market participants are anticipating higher revenues and earnings due to tax cuts and fiscal stimulus but reality wont match those high expectations. Second, the oil rally will be a bust. American producers will ramp up production. That will keep prices down and the muchdiscussed agreement between opec and nonopec members to cut Oil Production will collapse among charges of widespread cheating. Finally, 2017 will be the year Stock Ownership expands. The American Public has seen declining levels of Stock Ownership for years. Only 52 of households own stocks. Rising gdp and greater optimism on the economy will finally reverse those trends in 2017 and folks who abandoned the market after the financial crisis in 2008 will return and start buying stocks once again. For nightly business report, im bob pisani at the new york stock exchange. Technical, financials, and health care are three sectors that could majorly influence your portfolio this year. Thats because they are the largest groups in the s p 500. We begin with josh lipton on technology. Reporter the nasdaq surged to new highs this year. And 2017 promises more fireworks. With dynamic gadgets, services, and the ongoing cloud wars. First, googles head is in the cloud. The search giant controls just 5 of the Cloud Infrastructure market. In 2017, google will double that, putting pressure on Industry Leaders like amazon and microsoft. Second, trump doesnt scare cook. On the campaign trail, donald trump went after apple for manufacturing overseas, saying he wants apple to bring iphone production home to the u. S. Thats not going to happen. The economics of bringing large scale, lowskill Assembly Line work back here dont make sense. Tim cook will counter that he already directly employs some 80,000 people. Third, the tech ipo pipeline heats up for enterprise. Snap makes its public debut next year. But its the smaller, enterprisefocused startups that will dominate the ipo market in 2017. Mulesoft and app dynamics will go public. Big established Companies Want to see the financials of their vendors before opening up their wallets. For nightly business report, im josh lipton. Reporter not just for 2016 but most of the last decade, banks have taken off in the Fourth Quarter, not least because of the election. Into 2017, the year curve will be key. Of all the Fourth Quarter factors, the most important is the rise in Interest Rates. Whether the yield curve maintains its recent rise and steepening will be the major factor for banks share prices. Bank of america remains the most geared toward Interest Rates, which is why it has performed so well since the election. The key thing for trump is whether he can deliver more positive surprises as 2017 arrives. As far as low taxes and repatriation of cash overseas, all of which is positive for banks. But how much is already priced in . A glance at how valuations have changed over the last few months Shows Improvement in Investors Sentiment but also the scope for it to improve still further based on long term averages. Risks remain. The main outstanding risk is credit quality. Loan growth has been fairly strong in 2016. And fears remain about how late in the cycle the economy is. A spike in provisions would derail the positive turn in sentiment weve seen in recent months. The improvement in oil prices in q4 has been another short term positive in this regard. For nightly business report, im wilfred frost. Reporter repealing obamacare is easy. The challenge for the Trump Administration and republicans in 2017 will be coming up with a replacement plan and pulling off a smooth transition. Three predictions . First, repeal and maintain obamacare. Republicans will repeal the aca, especially the unpopular individual mandate, early next year. But replacing it could take a couple of years. In the meantime, theyll keep obamacare subsidies and to prevent a collapse of the market, they may come up with funding to offset insurers losses, funding they opposed under obama. Second, changes to the medicaid medicare Government Health programs. Insurers will aim at partnerships which bring down costs. Hospitals are already feeling the pressure. Next year, drug makers, distributors, and pharmacy benefit firms will be on the hot seat to deliver lower prices too. Lets turn to mark lashini, chief investment strategist at Janney Montgomery stocks. Who can forget last year when the stock market had about as rocky a start as i remember, and ive been following this a long time. There are some similarities, but a lot of differences. What are the odds that we get off to a rocky start in 2017 . Tyler, my judgment, those odds are pretty low. The dissimilarities outweigh the similarities by an order of magnitude. We did get a rate hike, but it was the first one in almost a decade. While it took a year to get the second one, it was so widely anticipated, and the fed has nurtured along a certain narrative with regard to how delicate theyre going to be with rate hikes, the market is prepared for that. Secondly, were not seeing the exogenous issues that we had last year particularly as it relates to china, a lot of questions about exactly what the pace of chinese Economic Growth is. While its decelerated, the worry last year at this time was that it was decelerating towards Something Like a hard landing and was going to suck in with it the emerging market complex that relies on chinese growth for exporting goods and services. Thats not the case this time around. I have a more sanguine view on how we start the year, even if we have to overcome some correction in the meantime, simply to work off some of the euphoria in equity markets. How can i make money this year . What sectors, what individual names do you pinpoint for 2017 . Sure. Well, giving the aforementioned with regard to one of the sectors that was mentioned, financials, i agree thats a sector likely to prosper. A steeper yield curve ought to help net interest margins, making them attractive to banks. Economic growth ought to bode well for lending activated. At the end of the day, if we see any kind of reregulation regarding dodd frank, that ought to boost the ability to put capital reserves to work. Do you love the Money Center Banks that have multiple platforms and big Trading Operations . Or do you like banks that do banking . I like banks that do banking, an example would be pnc bank, kind of a super regional, if you will. Nice energy play there. Ill eat my own cooking on that one as well. It has a great footprint up and down the east coast. A great franchise which should benefit economically and structurally. A lot of the Defense Sectors led the way in the first half of 2016. Is this a year to get defensive on the defensives . I dont think so. I think the prospects for Interest Rates moving measurably higher from here which is to Say Something with a 3 1 2 to 4 handle seems unlikely. Directions directionally thats going to be the way prices work. Thats going to be a bit of a headwind into those classic sectors, the socalled defens e defensives. What you want to be poised to do is take advantage of economically sensitive sectors like energy and some of the Consumer Discretionary industries. Got to leave it there, happy new year, mark. Now to the economy. More broadly, it hit a number of milestones back in 2016. The Federal Reserve did raise Interest Rates, as we were just discussing. Growth accelerated, especially toward the end of the year. The Unemployment Rate continued to drop. And the Housing Market saw prices hit a new peak. What should you watch over the next 12 months . Diana olick whats a look at housing. First, Steve Liesman with an outlook for the broader economy. Reporter predictions for the economy in 2017 depend chiefly on how much Donald Trumps ambitious agenda gets through the republican congress. One prediction, were about to see a whole lot more stock and bond market volatility when it makes to the making of Economic Policy than weve seen in the past. Congress leaks like a sieve and everyone likes to talk. It goes without saying that congress will become at least as important as the fed at moving if not the whole market, certainly parts of it, like banking stocks when it comes to repealing dodd frank or health care when it comes to obamacare. Second prediction, the fed will hike twice, likely three times, depending on how quickly new fiscal programs get put in place. Final prediction, growth will accelerate to the 2. 5 to 3 range but more than that will likely elude the president , at least for next year. Im Steve Liesman for nightly business report. Reporter the Housing Market was on its hair this year. Sales and construction surging ahead. But 2017 will see big changes. Home sales will slow. Dont get me wrong, there is plenty of demand for homes. But listings continue to drop and Mortgage Rates are starting to rise. Younger potential buyers may want to get out of those pricey rentals. But with affordability weakening, they may just not have the means. Mortgage rates will rise. Mortgage rates spiked after the president ial election and the gains will continue, albeit at a more moderate pace. A potentially stronger economy and job growth are fueling the race, but will not be enough to counter the higher cost, especially for First Time Buyers of getting a loan. On the other hand, if the president elect does make a big move into banking deregulation, it could get easier to get a mortgage. Mortgages more expensive but more available. Home prices will cool. The spike in Mortgage Rates has already made homes for expensive for buyers. Sellers may have to come down a bit if they want to get that fast offer. Tight supply has been pushing Prices Higher faster than Income Growth and in a lot of markets, prices are becoming unsustainable. Theyre unlikely to drop, but the gains should shrink. If only that were true for rents, which continue to push through the roof. Im diana olick in washington. Ahead, the one prediction many are making for 2017 is that washington will be unpredictable. One of 2016s biggest surprises, of course, was perhaps Donald Trumps white house win. And later this month hell be sworn in as the 45th president of the u. S. What can investors expect from a Trump Administration . John harwood takes a look. Reporter if the 2016 campaign taught us anything, it was the unpredictability of anything about donald j. Trump. Anyone making predictions about his first year in the white house, not to mention those of us who thought he would never get there in the first place, better do it with a lot of humility. Here goes. In 2017, President Donald Trump will sign tax reform into law. But it wont be comprehensive tax reform of both individual and corporate systems. Hell focus on International Tax reform with the goal of returning corporate profits to the u. S. And raising money to finance his Infrastructure Spending plans. At least one of president trumps cabinet picks will be defeated by the senate. Even though republicans control more than enough votes, opposition democrats will look for opportunities to peel off a few moderate republicans to block trump picks they consider too far out of the mainstream. Target number one, health and Human Services secretary designee tom price who favors big changes to medicare and medicaid. And finally, the incoming president will not rip up the nuclear deal the outgoing president struck with iran, even though donald trump criticized it during the campaign. U. S. Allies britain and france were part of that deal and so was russia. The u. S. Adversary mr. Trump wants better relations with. The new president may embrace stricter monitoring of the deal, but getting rid of it altogether is just not worth the trouble and the risk. For nightly business report, im john harwood. Across the board tax cuts is what president elect trump has promised from the wealthy to the middle class. But how could they impact you . The chief strategist at silver crest asset management, good to have you with us. John harwood just said he expects the focus in tax reform will be on International Corporate taxation and repatriation of monies held overseas and maybe not so much on individual tax reform. Do you agree . I think we have to see. The Congress Wants to move forward with tax cuts, both personal and corporate. There is certainly a windfall to be gained from bringing back profits from overseas. But, you know, i think youre hearing a lot of Different Things from a lot of different people in the Trump Administration and from congress about what the priorities are going to be. I remember writing a cover story for my former employer, the last time there was tax reform, 1986, and i basically led by saying tax reform equals lower rates plus less deductions. Is that the same formula this time around . The question is whether they intend for tax reform to be revenue neutral or not. If its revenue neutral, if you lower rates, you have to broaden the base. You have to get it back through getting rid of exclusions, deductions, credits. If they just want cuts, well then, theyll have to deal with the consequences of a much larger deficit. A lot of people watching this program are active investors. Will Capital Gains rates go down next year . I think they will. But again, this is the thing. A lot of people are all excited about tax cuts. And they need to look at the other side of the equation, which is how are they going to pay for these tax cuts. How is the government going to pay. How is the government going to pay for the tax cuts, especially if they want it to be not ballooning the deficit. You have a situation people are saying, for instance, wall street analysts are saying, 35 corporate taxes go down to 15 or 20 , thats a big windfall for companies, but not if they lose a lot of the deductions. Lose the ability to deduct interest, for example. Exactly. Or they dont have as rapid depreciation as some have been saying. Which deduction on the individual side of the ledger is the one that you think is the most vulnerable in the sort of game playing situation here thats going to go on on capitol hill . The think theyre talking about is the deductibility of state and local taxes. Whoa. In a high tax state, thats a big matter. Exactly. Thats why in 1986, when that was put on the table, that was immediately shot down by high tax states like california and new york. Those were not trump states, new york, california. They were not. But there are republican congressman from those states. And for many of the people in those states, that would turn a tax cut potentially into a tax hike. It is going to be a fascinating year to watch taxes. Indeed. Patrick, thank you, happy new year. All right. The Defense Sector could see big changes in the year ahead. President elect trump has pledged to increase military spending. And he has already focused attention on some of the Biggest Companies in the industry. Morgan brennan looks at whats ahead for defense. Reporter in 2016, syrias civil war escalated. North korea tested more nukes. And u. S. Agencies linked russia to electionrelated hacks. In 2017, russian tensions will mount, china will further flex its muscle in the south china sea. First, its all about the budget. And the budget will increase. Despite sequestration. Details will be key with more focus on cost efficiencies, when president elect trump releases the proposal this spring. Second, the Nuclear Triad could become a dyad as contractors jockey for the new missileman 3 contract. The fate of the arsenal could come into question, even as modernization moves forward for the sub built by General Dynamics and the air forces bomber from northrop grumman. Third, the race to secure space will take off. Call this the other infrastructure plan. As the pentagon fortifies a sal light system that china and russia have been developing weaponry to be able to disable. Expect more potential business for boeing, lockheed, raytheon and others. One wild card . Spacex which finally landed a big military contract for a 2018 launch. On the heels of a rocket explosion, first its got to get back into space. For nightly business report, im morgan brennan. Coming up, will americans hit the road and head to showrooms to buy a Record Number of cars this year . Changes may be in store for the biotech and pharmaceutical industries this year. The sectors garnered a lot of attention last year from both congress and the president elect for the high price of medicine. Whats ahead for 2017 . Meg terrell takes a look. Reporter uncertainty in the drug industry is as high as ever. The focus for 2017 will continue to be on drug prices, the fda, and m a. Here is what to expect. First, pricing pressure. Donald trump says hes going to bring drug prices down. He could look to legislation to do it but most likely it will be continued public pressure on drug companies. Expect also increasing scrutiny of the rest of the Health Care System with mounting pressure on middle men like pharmacy benefits managers. Next, an eye on fda. After two years of historic highs on new drug approvals, medicine cleared in the u. S. Sank to sixyear lows in 2016. 2017 brings multipiecle pieces legislation on how we price drugs. Finally, investors hopes for a biotech rebound rest on a trump tax hiday. Big Pharma Companies own billions in cash overseas. The expectation is if they bring it back, theyll gobble up smaller companies. On buyers wish list, Companies Working on drugs for cancer and rare diseases, seen as more insulated from pricing pressure. For nightly business report, im meg terrell. The air transport Association Says the airlines are poised for record prices in 2017. Another group that benefitted from cheaper gas was autos. That industry on pace to deliver record sales for 2017. As phil lebeau reports, 2017 may paint a Bigger Picture for both sectors. Reporter pardon the pun, but in 2017 airlines are trying to fly through the type of turbulence that could keep profits and Airline Stocks from flying higher. First, the battle of basic airfares raises the question of whether airlines can finally grow passenger revenue. In the fight to keep from losing passengers to low cost carriers, Larger Airlines like delta have rolled out basic fares. They may be filling seats, but those cheap seats and that competition is keeping airfares down. Good for travelers. Not for the bottom line of airlines. Second, congestion at americas biggest airports is not going away. For all the talk about fixing americas airports, its the air Traffic Control system that needs to be upgraded. The faa has made progress. Still, at the largest airports, you can expect some rough days in the next year. The good news . The tsa security lines that we saw in 2016 are unlikely to return due to greater staffing by airlines and airports. Finally, some fliers could be in store for a better experience in the air. Uniteds new polaris brand is a major upgrade of its Business Class service. Meanwhile, american is adding premium economy to more international routes. And delta is experimenting is bringing back complimentary meals on some transcontinental flights. Overall, if youre flying in the u. S. Next year, be prepared for packed planes. Buckle up and get ready for the Auto Industry to hit the gas on new technology in the next year. That will drive three big stories behind the wheel in 2017. First, new autonomous drive systems will mean more of us taking our hands off the wheel. Tes tesla, gm and other automakers will roll out features next year where more cars will do the driving for short periods of time. But automakers will stress drivers remain in control. A fully autonomous drive car, were still years from seeing that expand beyond limited testing. Second, in 2017, well find out if america embraces lowerpriced electric cars. The chevy bolt will be sold all of next year. Starting on the west coast. Meanwhile, teslas model 3 is scheduled to be delivered late in 2017. Lets see if there are strong sales for two models that will be priced under 40,000. Third, americas love affair with trucks and suvs will stay redhot in 2017. Right now, almost 60 of the vehicles sold are trucks and suvs. That will continue next year, especially if gas prices stay in check. And if the economy remains strong, we could see record auto sales next year. For nightly business report, im phil lebeau. Thank you all so much for watching this special Holiday Edition of nightly business report. Im tyler mathisen. Happy new year to everybody. Well see you right back here tomorrow night. Announcer nightly business eport has been funded in part our value principles are patient first. And we want to deliver the highest quality care. The goal of creating and sustaining value is all about putting the patient at the center of the equation. The purpose of this organization is to help people get back to what they need and love to do. Man its like holy mother of comfort food. Ion. Kastner throw it down. Its noodle crack. Patel you have to be ready for the heart attack on a platter. Crowell okay, im the bacon guy. Man oh, i just did a jig every time i dipped into it. Man 2 it just completely blew my mind. Woman it felt like i had a mouthful of raw vegetables and dry dough. Sbrocco oh, please. I want the Dessert First [ laughs ] i told him he had to wait