>> susie: with more economists looking at a tepid u.s. recovery, what's an investor to do? >> as the economy slows, you tend to want to be in bigger stocks, larger market caps, because those are the companies that have-- for example, tend to have better balance sheets. >> tom: a look at where best to invest in a slow-growth environment. you're watching "nightly business repor for friday,gust . this is "nightly business report" and tom hudson.

this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening everyone.

worry, worry, worry. that was the watchword on wall street today, and all week long. tom, everyone's nervous the u.s. economy is screeching to a halt. >> tom: susie, there's been a steady stream of downbeat economic reports in recent weeks, and investors have found little reason to buy stocks. today was no different. the dow and s&p were in the red, and the nasdaq was virtually unchanged. >> susie: so can investors still make money in a "down" economy? suzanne pratt reports. >> reporter: the stock market doesn't like it when the economy is growing slowly, or worse, not growing at all. since the beginning of may, the s&p 500 has lost about 10%, and it was about that time that economic data began to deteriorate. in recent days, investors have grown increasingly worried about the pace of the recovery, and talk of a so-called double-dip recession has escalated. but, experts say it's still possible to make money in equities even in an anemic economy, provided you choose wisely. market strategist nick colas

says this is a sector-pickers market, and recommends stocks in consumer staples, healthcare and energy. >> i think those sectors will oupace the overall market, but only modestly. i think the important thing for investors is, you should see significantly less volatility in those stocks than you will in the market as a whole. >> reporter: many experts agree volatility will be routine in the stock market as the economy struggles to improve. and, market strategist john canally says this is not a "set- and-forget stock market." he suggests investors try to be tactical. >> staples, utlities and tech-- and somewhat telecom-- would be our favorites, if you're going to stay in u.s. equities and if you believe that there's a double-dip coming. >> reporter: both colas and canally also say, against this economic backdrop, size matters. they believe large-cap stocks will outpace their smaller cousins. >> if the economy slows, you tend to want to be in bigger

stocks, larger market caps, because those are the companies that have-- for example, tend to have better balance sheets. they have more cash on the books and less debt. >> if there is increased threat of a double-dip recession, funding for these small-cap companies is going to dry up, that makes it very difficult for them to grow their earnings and grow their business models. >> reporter: there's no question it's tougher to see big returns from stocks when the economy is struggling. but, experts say that doesn't mean investors should avoid equities entirely. after all, history shows a balanced portfolio is the way to go. suzanne pratt, "nightly business report," new york. >> tom: here are the stories in tonight's n.b.r. newswheel: as we mentioned, the blue chips struggled today. the dow fell 57 points, the nasdaq was up almost a point and the s&p 500 was down nearly four points. the end of the week was marked by light trading volume on both

the n.y.s.e. and the nasdaq. more states were able to shrink their unemployment rates last month than those that saw more people out of work. 18 states managed to cut their unemployment levels last month compared to june. 14 saw their jobless rates rise, the rest stayed the same. when it comes to claims on b.p.'s gulf oil disaster, it's location, location, location. the $20 billion fund administered by ken feinberg says how close a person or business was to the gulf spill will play a key role in claims. people will also be asked for details on how the spill caused damage or economic loss. and france sees a slower economy next year, president nicolas sarkozy's government today slashed the nation's g.d.p. growth forecast from 2.5% to just 2% for 2011. the move comes as that nation prepares for its biggest budget squeeze in two decades. >> tom: still ahead, who will run the world's largest computer maker? we look at the horse race to replace mark hurd as head of hewlett packard.

>> susie: record numbers of americans are tapping their retirement savings to get through the recession. that's according to fidelity investments, which manages one out of every five 401k accounts in the country. fidelity says one out of ten people with a retirement accounts at work took out a loan over the last year, and others took hardship withdrawals. darren gersh has more. >> reporter: while he worked writing up technical manuals for chip designers, lance carter also built up his 401k. but in 2007, he lost his job and was soon forced to cash out his retirement savings. >> considering that it was either that or homelessness, i had to make the decision. i mean, there wasn't any other choice. >> reporter: but, cashing in a 401k is expensive. there's a 10% penalty on top of the taxes due on retirement withdrawals. retirement security expert david john says you should think of tapping your 401k as a last resort.

>> and most people do that. they are not using hardship withdrawals for a swimming pool or a vacation or something like that. they are using it because they are in genuine economic distress. >> reporter: cashing out 401k's is not an epidemic, but it is a rising trend that reflects the tough economy. according to fidelity investments, 229,000 out of 11 million 401k participants with fidelity accounts took hardship withdrawals over the last 12 months. most of those withdrawals fall into three categories. preventing foreclosure, buying a new home, and paying for college. financial planner harold evensky agrees education is important, but he'd look elsewhere for cash. >> either borrowing from family or having their children get a part-time job to pay part of it. because the cost of taking it out of a 401k can be significant. not only the tax penalties, or

the tax consequences when you take it out, but the real problem is not having that nest egg when you retire. >> reporter: most 401k investors seem to realize that, which may explain why contribution rates have held steady through the recession. but, that's for the people who have access to retirement plans. >> 401k's only cover half the workforce in any one year. the other half of the work force doesn't have a way to save for retirement at work. >> reporter: but all in all, evensky says most americans are staying the retirement savings course. >> my experience is investors, in general, are reasonable when times get tough. they do batten down the hatches, they do cut back their expenses, they live in a house of bricks and not sticks, which is good news. >> reporter: but those who are falling behind seem to be falling further behind. fidelity reports almost half of those who took one hardship withdrawal were back a year later tapping their 401k.

darren gersh, "nightly business report," washington. >> tom: making mortgage payments is a hardship as well. nearly half the homeowners trying to get help from uncle sam's housing rescue program have dropped out. a new report from the treasury department shows 48% of the homeowners who started a mortgage modification through july didn't finish it. many borrowers call the program a nightmare of red tape. it was launched two years ago to slash payments for struggling homeowners who might otherwise face foreclosure. the report suggests foreclosures could rise later this year.

sglom just some light selling to end the week, but clearly the direction has been down later on in the week. we'll get you updated. >> tom: it was a mixed finish today, and for the week. trading this week was marked by a strong rally tuesday, and stiff selling yesterday. for the week, the dow industrials fell 0.9%. it is down 2% for the year. the nasdaq finished the week up 0.3% of a percent, thanks to the small gain today. the s&p 500 dropped 0.7% this week to close at its lowest level in a month. with the prospects for a brighter economy dimming, oil prices continue dropping. that pushed the energy sector down today, and it was the

worst-performing sector throughout the week. exxon mobile fell fractionally, but with this drop, its market value has fallen just below $300 billion. tonight's close is a one-month low. fellow oil company conoco- phillips lost more than 1%, down to a five-week low. and schlumberger fell to a six- week low with its 2% drop today. leading the dow lower was h.p. investors were not impressed with its earnings after the close, and instead seem focused on leadership. here's how h.p. stock has traded in the two weeks since mark hurd's surprise exit as c.e.o. was announced. pulling out to a 12-month chart, this selling has taken shares to a new 52-week low today. the company tried to re-assure investors during its earnings report last night, saying there are no issues with its top customers despite hurd's departure. other tech standouts today

include semiconductor company marvell technology. shares were up 8%. earnings were better than expected. it also announced a big stock buyback plan, helping out shares. business software maker salesforce.com followed through with the after-hours action we reported last night. strong earnings and an outlook had shares hit a new high. and akamai tech hit a new high. it's the latest to be the focus of buyout rumors. volume was three times normal. bad loans are not only a problem for banks. for-profit education company corinthian continues wrestling with them. earnings were a penny less than anticipated, even as enrollment grew. but its outlook was less than expected. the company says student loan default rates for 2009 graduates are "substantially higher" than loans going back from the class of 2008. shares fell on that guidance, falling to another new low on seven times its average volume. the company also faces new guidelines from the department of education, which may restrict access to federal student aid.

j.m. smucker laid it on for shareholders by expanding its profit margins in the latest quarter. bottom-line earnings came in much stronger than estimates-- a dime better than expectations. a lower tax rate also helped results. while its know for its jelly, coffee is its biggest business, thanks to its buyout of folgers. its coffee sales were up 7% thanks to higher prices. shares have bounced around between $55 and $65 since last fall. volume was twice its usual pace on today's almost 3% rally. finally, no i.p.o.'s this week, but standard & poor's did announce changes coming to its marquee index. next friday, tyco international will be a member of the s&p 500 shares caught a nice bid on that, up 5% on five times its average volume. it will replace smith international, which is being bought by schlumberger. and that's tonight's "market focus."

>> susie: who will succeed mark hurd at the helm of hewlett packard? so far the company has only said it's hired the executive recruiting firm spencer stuart. but, that hasn't stopped speculation in silicon valley and throughout the tech world. scott gurvey reports there's a long list of insiders, and a few candidates who may surprise you. >> reporter: mark hurd's watch ended in scandal, but on that watch, h.p. passed i.b.m. to become number one in information technology. wall street loved hurd, who increased profits by sharply cutting expenses. but, he was not popular among employees, because cutting expenses meant cutting jobs.

carly fiorina, hurd's predecessor, also left h.p. in controversy. what the h.p. board would like, say people familiar with its discussions, is someone who understands company traditions-- known as the h.p. way-- but still appreciates the newly lean and tough competitor h.p. has become. after twice going outside, h.p. may now look within. ann livermore runs h.p.'s $54 billion enterprise business and has been leading the battle with i.b.m. in services. insiders like her. vyomesh joshi runs hp's imaging and printing group, a longtime core business. but, he may not have the big- systems experience the board would like. todd bradley doesn't either, but he has the consumer experience, running the $42 billion personal systems group. his resume includes palm, g.e., fedex and gateway. an insider long-shot is bill veghte, a recent steal from microsoft. he runs h.p.'s software and solutions division.

handicappers say someday, but probably not now. and then there's the insider who's also an outsider. jon rubinstein ran the ipod group at apple, and then palm, which h.p. just bought. depends again on how much the board wants a consumer expert in the top job. a real outsider is steve mills, head of i.b.m.'s software group. he has the experience, but people close to him say he doesn't want to leave big blue. for a long shot, try mike capellas, who ran compaq and joined h.p. when the two companies merged. after a short term working with fiorina, capellas left. and now for the wild card, marc andreesen, the man who founded netscape, joined the h.p. board last year and is now supervising the c.e.o. search. yes, i know the guy running the search committee isn't supposed to get it, but there is talk, and stranger things have happened. the firing of marc hurd shook investor confidence and cost h.p. dearly in terms of share price. so, after having problems with its last two c.e.o. choices,

h.p.'s board finds itself is under a microscope with this search. scott gurvey, "nightly business report," new york. >> tom: ford is accelerating plans to pay off its heavy debt. chairman bill ford says $27 billion will be gone a.s.a.p. ford says getting rid of that debt is a priority to get its bonds back to investment grade, and so far things are ahead of schedule. rival general motors is facing just $8 billion of debt, after bankruptcy last year. ford doesn't view g.m.'s planned i.p.o. as a threat to his firm's stock. he says performance is the key to both automakers' success. >> susie: the tribune company's plan to exit bankruptcy has fallen apart. the media conglomerate told the bankruptcy judge today it has not reached a deal with creditors on a reorganization. tribune's lawyers will amend the plan next week, and if a deal doesn't happen, they could sue. one of the firm's biggest creditors, j.p. morgan, has dropped out of the settlement. it would have been one of tribune's new owners. >> tom: here's what we're watching for next week:

our friday "market monitor" guest is jeff everett, president of everkey global partners. we'll also see reports on existing and new home sales. investing in emerging markets. all next week, we'll look at ways to make money by investing in each of the "bric" countries- - brazil, russia, india and china. our coverage begins monday with brazil. >> susie: if you're going to the airport tonight to meet a flight from europe, you might want to double check the arrival time. apparently computer problems at a traffic control center in the netherlands are messing up air traffic all over the continent. there's a backlog of flights taking off from holland, germany and belgium, and hundreds of flights in northern europe are also running late. the system is expected to be back to normal tomorrow. >> tom: some furloughed flight attendants at delta airlines could be getting a call to return to work. in a message to employees, the airline said it has begun recruiting those former workers for its international routes. it especially needs folks with

foreign language skills. training is scheduled to start in january, and while it won't say how many people it plans to bring back, delta did say it is asking all 700 flight attendants on voluntary furlough to return.

>> tom: investors are so concerned with the return of their money that they're not getting much return on their money. so says tonight's "market monitor." she's cindy sweeting, portfolio manager for the templeton growth fund and world fund. welcome to nightly business report, cindy, nice to see you. >> thanks very much, tom. pleasure to be here. >> tom: the economic expansion is slowing in the u.s. is it prupt investing to focus on the return of an investor's money? >> well, investors are so-- still shellshocked from the global financial system on the precipice in the end of 2008, that risk aversion and fear is a powerful motivator, and the return of money is much more attractive right now to many investors. >> tom: so with all the people that have been piling into the bond market, and we've seen with interest rates continuing to move lower almost every day, what's the message that you would have to all those that are piling in to bonds? >> well, we try to tell

investors rye the now it's time to try to put your emotions in check, even though that's extremely difficult given the loss of wealth we've seen over the last few years, but looking forward instead of looking in a rearview mirror will probably indicate 2% on 10-year bonds, 2.5% on 10-year treasures is not really going to keep up with purchasing power should we see the return of inflation over the years to come sgloim imagine you're not in the deflation camp? you don't think prices will enter that kind of spiral? >> i would say we are still in the early phases of deleveraging and so this will be a multi-year process but we are not anticipating that we are going to go into a massive deflationary or great depression scenario, so there really is an asymmetric pave profile for bonds at the current low levels. >> tom: you help run the templeton growth fund, $13 billion, up about 4% over the last 12 months. where do you think the greatest stock returns will be in the world? >> we are actually looking at a number of companies in

the the sectors that were high-flying sectors of 10 years ago, the so-called t.m.t. sectors. we're finding good opportunities in technology, media, and telecom, and also in a pretty beaten down sector, pharmaceuticals and health care. >> tom: interesting trio, and you brought some specific examples, including microsoft. this is one that has only a 2% yeerblgd a little bit rare fair tech company, but, boy, with almost $40 billion in cash certainly has the ability to increase that. is that why you're holding? >> we are. we also think the valuation is extremely attractive. investors were willing to pay 50 times earnings 10 years ago. it's trading at 10 times earning with a 2% difld yield, but they're also buying back shares and in the midst of a great new product psyche welmore earnings growth to come. >> tom: do you think still microsoft is a growth stock, even at these levels? >> the company has doubled its earnings and doubled its revenues from 2003, and we

think there's great opportunities in cloud computing as well as i mentioned the new product psyche welwindows 7 and windows phone 7. >> tom: speak receiving phones, looking for a wireless carrier, voda-phone, a global wireless service provider. it's been below $24 per share most of the last 12 months. what's the catalyst? >> well, there's a number of catalysts. firstly, valuation alone, giving us a 10% free cash flow-year-old and a 5.5% dividend yield. it is priced for growth, but they have a number of stakes in wireless companies around the expworld company trading at a 20%, 25% discount to its net asset value, and we think they're going to be getting a dividend soon from verizon, probably over the next 18 months or so, which is going to goose their cash flow, as well as the potential increase in dividend yeeldzs to shareholders. >> tom: okay. and the final sector you mentioned was health care. you've been looking for

increase and you found it. we know about the avandia diabetes drugs earlier this certainly but they talked about price pressures in europe. does that concern you? >> pricing pressure has been faced by these companies for a number of years, and i think a lot of the concerns with health care in general and glaxico specifically are well known now by the market so there are very low expectations embedded in valuations 9.5 times earning and 5.25% dividend yield. it's a very diversified company. they are exposure not only to vaccine, consumer health, antibiotics, dermatology, but also, merging markets, not only for glaxico but other pharmaceutical companies will offer growth potential over the years to come. >> tom: disclosures, cindy? >> i don't own any individually but i do own them through the funds i'm invested in. >> tom: cindy sweeting, with templeton growth fund. >> tom: that's "nightly business report" for friday, august 20. i'm tom hudson.

good night everybody, and have a great weekend. goodnight to you too, susie. >> susie: good night tom. i'm susie gharib. good night everyone.ight everyo. we hope to see all of you again monday night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you.

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