Transcripts For KQED Nightly Business Report 20170614

Their worst drop of the year helped propel the Broader Market l today. Investor attention turned to washington. Above the the testimony from atto Jeff Sessions and the Federal Reserves twoday policy meeting. More on those stories in just a moment. First, a look at the numbers. The Dow Jones Industrial average rose 92 points to 21,328. The nasdaq advanced 44. The s p 500 was up nearly 11. And with stocks at or near new highs, a new survey shows a Record Number of investors say stocks are overvalued. Bob pisani h reporter the markets are back in record territory after snapping a twoday tech slump. Beyond tech, a broader debate is emerging over whether equities overall are overvalued. Bank of america released the results of a survey today and 44 of respondents said they think the stock market is expensive. Its the highest level ever. Rougy 50 believe global profits will continue to improve. Thats good news, but it suggests the markets are vulnerable to profit weakness down the road. You might think the biggest risk in investors minds is for a potential selloff in tech, a big mover. But chinas credit problem is the biggest risk, managers believe, followed by a risk in the bond market and then a delay in tax reform in the u. S. It might be surprising to see tax reform delay s assigned suc a low number on the risk scale. With tech stocks, the big winners this year, no surprise, Fund Managers say the techheavy nasdaq is the most crowded trade followed by european equities. Finally, what would it take to kill the equity rally . Equity traders are still worried about a sudden rise in bond yields. 64 said it would take tenyear treasury yields to move to 3. 5 to 4 for an equity bear market way from that one. Bob pisani at the New York Stock Exchange for nightly business re bank stocks got a lift after the Treasury Department released a broad plan to change the rules regulatg the financial sector. It calls for streamlining rules at big and small and mediumsized banks, and a restructuring of the consumer production bureau. Paring back the annual stress tests on banks to twice a year. And modernizing the Community Reinvestment act. The report wants to look at that law and how it can better meet its purpose. As a result, most of the bank stocks rose in todays trading session. Investor optimism is indeed fueling the overall stock market, albeit a shrinking one. Thats because there are fewer than half as many stocks to choose from than they were just 20 years ago. Today there are 3600 listed company compared to the 7300 back in the late 1990s. Mark lehman, president of jmp securities, and Todd Rosenbluth from cfra, join us to talk about what this winner takes all market will mean for you. Welcome, gentlemen, nice to have you here. Thanks, sue. Mark, let me start with you. How dangerous is this for the individual investor or concerning is it for the individual investor . I think for the individual investor, the fewer choices that you have, obviously, is an alarming thing to think about. Also for the individual investor, over time, its been tough to own individual stocks. A broad portfolio and mutual funds and other ways to participate in the market as opposed to a narrow list of stocks is always a good idea, and the narrowness is inflated by the number of equities to be bought. I think a broader strategy is better than individual stocks for most investors. One of the other factors is, of that shrinking pool of stocks, an even smaller number of stocks control most of the revenue that is generated by those companies. So argue the individual stock portion of things compared to the broad exposure you could get n etf. Were big believers that past performance isnt indicative of future results. What weve seen is individual active managers struggle to keep up with the benchmark. This year alone about a third or a less than a third of those active managers are outperforming the s p 500 index. High fees play a role into that. But an indexbased approach from an ishares or a vanguard offers a great diversification and a low cost structure that is appealing to many individual mark, do you think that that will change, not the indexing but the number of companies that choose to list . I mean, there are many reasons why were seeing a shrinking pool of stocks. Some of it is m a, some of it is the ipo market has dried up. Do you see this situation chaining at all or not . Its slightly better, sue. This year has been a better year in terms of the number of ipos for the first five months of the year. Secondarily, the performance of those ipos has been quite good. Nothing helps an ipo market than performance. Theres that demand pull from investors. Its not to any level like we saw back in the 90s or early 2000s. Usually demand and performance reign supreme. The other thing i point out is thers this infinite amount of capital and still is for private companies, and some companies that decided to stay private longer. Uber has stayed private much later than any other company could or would have stayed public 20 years ago. Some of the illiquidity could push towards that. Mark, if you decide to pick individual stocks, one of the problems is, with the smaller pool, youre getting in with everybody else, which drives up the stock price, which leads people to think, maybe this stock is too rich. Can you work around that phenomenon, or not . Well, if youre going to check individual stocks, obviously youve got to be good. Youve got to be really, really patient. Youve got to really find the kind of companies that have the expanding marketplace that some of the big winners that youve talked about have. I think you have to be very cautious because owning individual stocks is fraught with peril. There clearly are these winners that weve talked about. And although a lot of people are out there talking today about how expensive they are and whether to worry, people had these conversations six months ago, a year ago, two years ago, and guess what, those stocks have outperformed the market because fundamentals are that big. You ha what youre inveg in over the long term. Quickly, if you were to pick a broad based etf that would fight the phenomenon weve been talking about, where would you put your money . Yeah, i mean you can go with welldiversified etfs like ivv or vvo, ones that have stocks that have not risen as much, iee is a value, etf is a good way of going, instead of piling into the apples, the googles, the facebooks, you can get diversification in a lowcost manner. Gentlemen, thank you so much, we appreciate your perspective. Inflation precious appear muted after a rise to start out the year. The Producer Price index which measures prices that businesses receive from customers was unchanged in may as energy costs recorded their biggest decline in more than a year. Prices were flat from the prior month. They did advance nearly 2. 5 from a year earlier. And that report on inflation comes as Federal Reserve policymakers meet to discuss the direction of Interest Rates. A decision is due tomorrow. And its something that investors, money managers, and economists will be watching closely. Steve liesman surveyed them to get a sense of what they think about the fed and the market. Reporter the cnbc fed survey ahead of the Federal Reserves meeting shows 100 of respondents expect a rate hike. That third rate hike will happen in september and the Balance Sheet will decline by december, quite a bill earlier than believed earlier this year. You can see the three rate hikes this year, up to 1. 4 , 2. 1 in 2018, then a little bit more modest in 2018, leading up to 2. 8 which they believe is a terminal rate. Thats a bit below where the feds own forecast is for 2019 and for the long run. Kind of pessimistic when it comes to the stock outlook. 2429 is the current level, going up to 2442 for the rest of this year. They think most of the gains are in this year. But a little bit more in the 2018, up to 2562 for 5 . But some optimism as to the reasons why stocks are at current levels. Earlier this year, 82 thought it was expectations for fiscal policy from the new trump administration. Thats come way down, 29 . 63 believe whats underpinning markets are economic fundamentals and earnings. Now, when it comes to the outlook for growth, thats come down a bit, in part because they factored out policy expectations. Was 2. 5 in january, its come down to 2. 25 . For 2018, its 2. 45 . You can see the reason, how much growth was factored in from policy stimulus, it had been a quarter point, almost all gone for 2017. 40 basis points was factored in from trump policies for 2018, thats just 0. 2 . That reflects an expectation, if theres going to be fiscal polio hapn next year, not this year. For nightly Business Report, im steve liesman. If the Federal Reserve does hike Interest Rates tomorrow, it will be the fourth time in this rate hike cycle. Savers arent yet ben from that. Well look at why later in the program. Traders were watching the Late Afternoon hearing on capitol hill where attorney general Jeff Sessions testified on russia. And he was fiery from the getgo. The suggestion that i participated in any collusion, that i was aware of any collusion with the russian government to hurt this country, which i have served with honor for 35 years, or to undermine the integrity of our democratic process, is an appalling and detestable lie. John harwood is in washington for us tonight. John, he answered some questions but he refused to answer others. So did we learn anything new . What was the big takeaway . Reporter not a lot new. It wasnt like james comeys testimony last week. What we saw from Jeff Sessions, as you played in that clip, a very emotional defense of his honor, his patriotism, his integrity, defended himself more than he defended president trump. He provided some additional detail about how he says he responded to james comey when james comey expressed that he was uncomfortable with a meeting the previous day with the president. He affirmed part of comeys statement which is that there was a meeting on the 14th of february, that the president did have everyone else leave the room other than james comey, so he could be alone with the president. However, Jeff Sessions refused to say whether the president had ordered everyone else to leave or refused to characterize in any other way the president s statements to him about why he fired james comey. So there was a mix, and some of the senators were frustrated. They did seem frustrated. How did this compare in general to the fbi directors hearing last week . We certainly seemed to learn things in that testimony that we did not know before. Reporter this was a lot more partisan session with sessions. The democrats were pressing him. They felt he misled senator al franken during his confirmation hearing, saying he had not had any communications with the russians. Senator sessions somewhat angrily responded that he was saying in context to the question senator franken asked, he was responding accurately. And republicans were very strong in defending their former colleague. People like tom cotton and john cornyn and others where standing up for Jeff Sessions. So did jim risch of idaho. It didnt advance the ball that much on the investigation. The big takeaway was Jeff Sessions saying im an honest guy and i didnt collude with the russians. I have to add, though, that Jeff Sessions had not been accused of colluding with the russians, there had just been questions raised about his contacts. Indeed. John, thank you, john harwood in washington. Still ahead tonight, opec promised to hold its production cuts. But that appears to be easier. One Health Insurer is doing what most others are not. Its planning a broad expansion of its obamacare offerings next year. Centene plans to sell plans in three additional states, kansas, missouri, and nevada. It will expand in six states where it already sells plans. Aetna and other companies have largely quit the obama markets. North dakota isnt the only one trying to stabilize oil production. Jackie deangelis has more. Reporter the oil cartels monthly report confirms an increase of a little less than a half Million Barrels a day. Libya, nigeria, iraq, all boosting output. Opec is seeing an increasing in shale production, a little less than a Million Barrels per day. Can demand increases absorb excess oil . Not exactly. Opec sees demand rising year over year but a Million Barrels a day is not a lot. I think prices will go lower, 45 is a critical level for crude soil. We tesd that this week. If we get below 45 a barrel, the market will say opec is not abiding by its own cuts. We see that everyby now looks to be cheating. Its tough to see how we dont revisit some of the more recent lows, say 40 a barrel. Reporter theres a reason opec didnt play all its cards at the last meeting. It could make deeper cuts from the more cashrich countries like saudi arabia. The saudis said theyll hold back some additional exports to the u. S. And asia in july. That could help, but some argue its not enough. I dont see any reason that the saudis are going to cut production. They have t fund all of their social programs. We know that saudi aramco wants to come to market with an ipo. They want to show as much production as possible, they want to show as much net earnings as possible. I dont see how saudi arabia would decide to be the hero among the opec cou and cut while everybody else is cheating. Reporter crude isnt moving as it usually does this time of year. Less robust driving demands in the u. S. Is another problem for prices. Triple a says National Average for a gallon of regular is 2. 33, down a nickel from a year ago. For nightly Business Report, im jackie deane an did he ange angeles. H aefr said promotions helped grow profit. The company hiked its Quarterly Dividend to 24 cents per share. Shares were initially higher in after hours trading adding to a 2 gain during the regular session where they closed at 26. 99. Sears is cutting jobs to turn around its struggling business. They said the layoffs will come from the companys headquarters and support functions. Shares were off by more than 2. 5 to 6. 85. Cheesecake factory blamed bad weather for its outlook being cut for the quarter. The company said it expects the new forecast to negatively effect margins and earnings. Shares fell nearly 10 to 52. 58. The lawn and Guard Company scotts miracle grow also blamed poor weather and is cutting guidance for the full year. The company said tighter inventory management, changes in merchandising strategies hit sales and now expects sales and earnings to come in lower than expected. Nonethel to 89. 83. Since it began its rate hike cycle in 2015, savers have gotten nothing. The yield on cds and savings accounts have remained flat. At what point will savers see benefits from rising rates . Scott brown from Raymond James joins us. Good to see, scott. Nice to be with you. It seems rates are always going up on Adjustable Rate Mortgages and credit cards but dont seem to be going up on cds and savings accounts. Why is that . Deposit rates have always lagged the Federal Reserve rates on their way up. Thats just the way it is. Banks arent particularly competing against themselves very aggressively at this point to attract deposits. Over time we should see a gradual increase. Bear in mind this Interest Rate path were on from the fed is a lot shallower than past cycles. Weve had two increases in the last three years, two this year, one expected tomorrow. This is a very slow pace. So we dont really see deposit rates rising very rapidly. Its a bit of a problem for savers. It is a problem for savers. I think you make an interesting and good point, for those of us who remember when Interest Rates were going higher at a more rapid pace, you did see cd rates much more attractive for savers and thats not the case now, partly because of some of the economics in t. Well, also were looking out in the future, and one of the interesting things about tomorrows fed meeting is that were not just looking for what the fed is going to do with Interest Rates, but what sort of signals well get about the pace of future rate increases. Weve got this Division Going on between the market, which seems not to be expecting a whole lot more from the fed, maybe about a 50 chance they may end up raising rates once more by the end of the year. By contrast, we get every other fed meeting, the stop plot, the expected year ends federal funds target rate for forecasts from each of the fed officials. Those are not likely to move too much. That implies the fed is looking for two to three rate increases in each of the next couple of years. Its interesting that were not seeing more competition, is it not, between or among the various banks out there for consumers money. I mean, we saw Goldman Sachs come out with a much higher rate offered on some Investment Products than others. Would you expect to see, as the inc rates, more competition . You may see more with this latest rate increase. Typically what happens is one bank will raise its deposit rates and others will be forced to follow to remain competitive. Again, i dont think theres a whole lot of upward pressure in the short term. This is likely to happen over a period of time. But even still, when we look at the end result, were looking at the fed probably ending this tightening cycle at a much lower rate than we have in the past. Investors are still not going to get rich on their savings and checking accounts. They may end up earning more money than they have in past years. But its not like it was a couple of years ago. Thats largely due to the demographic changes, the slower labor force growth. Absolutely. Scott, thank you so much. Scott brown with Raymond James. My pleasure. Coming up, game on. What the video Game Industry is bettin b ubers ceo is taking a leave of absence. Yesterday we told you the move was likely. Today it was mailed official. Whats not clear is how long travis kalanick, who founded the ride hailing company, will remain away. His direct reports will run that company. The decision follows an investigation into Sexual Harassment at ube and h and a lf recommendations to improve the companys culture, including the addition of board seats, an overseat committee for issues related to diversity and ethical practices, and the prohibition against romantic relationships between employees and superiors. The video Game Industry is always looking for the next big thing. Players are always looking for the next big game. The two groups are converging at the biggest video game event of the year. Julia boorstin is th reporter e3 is drawing around 55,000 gamers and industry executives here to the Los Angeles Convention center to check out the latest gaming hardware and software. The biggest console announcement this year is from microsoft. Today were proud to welcome the newest member of our xbox family, fittingly named xbox 1x. Reporter the new console costs 499. 100 more than sonys comparable p schlts ps4 pro. But it features Higher Definition graphics. If you want the ultimate, the most powerful console, and gamers want the most powerful conso you wt true 4k gaming. Reporter playstation 4 continues to dominate, sony announcing more subscribers to its plus service. Game makers have shifted their focus away from the onetime sale of the game to ongoing digital. One of the games Electronic Arts unveiled, one that features low cost goods that drive whats called microtransactions, which add up to an increasingly important source of revenue. Ea and other game makers are also investing in esports to keep their gamers engaged. 20 million players, were bringing new maps, a whole component to that game that will be a meaningful thing for us. Reporter there are always plenty of vr demos here, that Virtual Technology still hasnt tipped to the mainstream. This is not hundreds of millions of people experiencing vr. This is not the year its going to hatch into a big chicken. Reporter but with game stocks including ea trading their alltime highs, investors think theyre plenty of room for the industry to grow. For nightly Business Report, im Julia Boorstin in los and before we go, another look at the 19th record close for the dow this year and the 23rd for the s p 500. Today, the dow rose 92 points, 21,328. Nasdaq advanced 44. The s p 500 was up nearly 11. On that bullish note, thats nightly Business Report f tonight. Im sue herera. Thanks for joining us. This is bbc world news america. 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