this is "nightly business report." with tyler mathisen and sue herara. >> bubble in crude. oil prices dip below $30 a barrel for the first time since 2003. as supply swamps demand. pressuring prices. what's next? nasdaq gains for a change. the tech heavy index ends higher for the first time this year. but small company shares are mireed near bear mark territory. why someone says 2016 is the time to think small. >> political theater. the president delivers his last state of the union speech tonight. what he'll say and what congress might do and what it surely won't. all that and more tonight on "nightly business report" for tuesday, january 12th. >> good evening, everyone.

welcome. up through the ground came a bubbling crude. it made jed clampett rich but today the unrelenting supply of crude oil from saudi arabia and the oil states, russia and the united states is causing nothing but pain in the petroleum world. today, domestic crude prices cracked $30 a barrel, heading down. that hasn't happened since 2003. supply and demand are way out of what can. after breaking that level, oil managed to settle just above that psychologically important level of 30 bucks. and the pressure though is mounting. prices are down 17% since the start of this year. that's just 11 days ago. seven trading sessions. it's even uglier for some of the world's biggest commodity companies. freeport mcmoran cratering 40% this year. bill laton down 20%, rio tinto off 18%.

jacquie deangel lis reports on the dramatic day in the oil pits. >> reporter: volatility continues for the crude oil trade intraday low today $29.93. before we managed to settle back over the $30 mark. adding to the skittish hadness to the downside, another bold call on wall street calling for $10 crude from standard chartered. the company explaining its other factors driving crude oil right now like currencies and equities that can tribute to the downside fall. on the supply/demand side, there's still no equilibrium. the eia saying today it's demand forecast remains stable. so if supply moves up and demand doesn't move with it, we still continue to stay out of whack here in terms of that aspect of the story. adding more pressure, opec two delegates saying emergency meetings were requested, but the cartel will not hold an emergency meeting. we won't see something till june the next scheduled time the group will come together to

discuss cuts in production. having said that, all of these factors together adding more pressure. remember six months ago, goldman sachs called for $20 oil. it will certainly seems possible and just yesterday, morgan stanley saying these other factors mentioned could take us into the 2 handle, as well. traders think the fact that we broke the $30 level today really leaves us open to break and hold in the future. reporting for "nightly business report," i'm jacquie deangel lis. >> despite the decline in oil, stocks managed to finish another volatile session higher. the dow jones industrial average rose 117 points to 16,516. the nasdaq added 47 snapping an eight-session losing streak and the s&p 500 gained 15. much attention is being paid to the small cap sector which is down nearly 20% from its most recent intraday high last june. and that's because small cap stocks tend to lead the broader market both lower and higher again. here to talk more about that group is francis gannon,

co-chief investment officer with the royce funds. welcome. >> thank you, how are you? >> i'm good, thank you. tell me whether you think we're closer to the end of the rout notice small caps or do we have further to go in your noim? >> what you're seeing in the small cap is not too surprising. you know, you're in a healthy correction notice overall market as you said, down roughly about 20% and kind of conventional definition of what a bear market is. by the same token, you've been in a market that has been in the small cap world straight up for the past six years. to have a 20% correction is quite healthy. and what's even more healthy is the end of that bear market has really come you know at a time where we saw some of the riskier side of small.cas doing quite well-being nonerns or biotech companies. >> what's going to flip it around, frank? >> the transitions and i would say the small cap market is a market in transition today is that you're seeing the market

rotate from growthing to value. value has dramatically underperformed growth in the small cap space over the past six years. in fact, growth has outperformed in five of the past six years within the small cap space. that transition started in the latter part of last year and it's one that i think is going to continue throughout this year. >> you also say that this year is the year of active management. you're going to having to pick and choose. >> well, i think they're one and the same believe it or not. i think it's a year of value investing especially within the small cap space and across most asset classes. but active management is going to make a comeback here. in a market where market peaks and market transitions where you see the market loaded with yesterday's winners i think the next yearen an next five years is going to be dramatically different than the last five years we just had. >> i want to bear down on value funds which is the royce funds speeshltdty. explains what that means.

i guess companies that are selling below what you see is air intrinsic value as opposed to growth funds whose prices are buoyed by earnings growth pace. why will value start to outperform? >> well, that's essentially right. that's what we do. we're trying to find great businesses at great prices and think of ourselves asterisk takers within the small cap space. over the past five years, that risk has been forgotten about within the space. in fact, i would say one of the unintended consequences of being a 0 interest rate environment for a long period of time is any company had access to the capital markets. for a period of time, the laws of finance in the small cap space have been suspended. you could have biotechnology companies not typically companies you would find in the s&p 500. but these are speculative businesses at best. of the 155 biotech companies in the russell, only 18 have cash flow and generate earnings. so you can see that this is a market that has been buoyed by

and companies that have been able to take advantage of the fact that they've had access to easy capital and you've been able to value them on a longer duration aspect given the fact we've been in the zero interest rate environment. >> thank you for spending time with us. frank gannon with royce funds sfloob in china, that country's stock market saw a choppy session but managed to close higher. the shanghai composite rising fractionally as the central bank tried to stabilize currency and reports surfaced the cabinet may take a more active role in regulation. data due overnight may undergo the slowdown. as eunice yoon reports, china's factories being particularly hard hit. >> reporter: if an you've ever bought a decorative glaze lamp at home depot or lowe's in the u.s., chances are it was made by iraq lee from his factory in china, the taiwanese business mann has been making colored glass for fix fewers for 15 years but not sure he'll be

doing it for much longer. our factory has been facing big challenges this year, he says. the business has dropped by 10%. china's economic rise was powered by manufacturers like lee, but with demand so sluggish for chinese products at home and overseas, the government says hundreds of factories have been deserted. businesses fear the plant closures are in the thousands with so many in the country's industrial south now for lease. we're in the manufacturing town. >> we're in a part of the city that used to be prosperous. business people would place orders at factories here for clothing and shoes but now this area is almost entirely abandoned. shops like these that used to indicator to factory workers are shut down. lee had to idle his plant for 40 days over the summer because his inventory got toot high. he's also been battling rising costs. higher minimum wage and rising living standards have forced lim to offer pay races as much as 10% every year for the past five

years to the current salary level of more than $1,000 a month for many of his workers. the main difficulty we are facing now is rising costs. especially for labor. this casts a huge shadow over our operation, he says. the recent devaluation of the chooirnz currency helped narrow losses but he sees it as temporary relief. i'm afraid we've seen just the beginning and it's far from the bottom, he says. his survival strategy? >> we play every day. >> praying for a miracle in china's rapidly cooling economy. for "nightly business report," i'm eunice yoon. the head of the international monetary fund says slower but more sustainable growth in china may benefit the world in the long run. but christine lagarde made it clear there are no risks that there are risks rather to china's economic transformation. >> in the short run, however,

this transformation generates spillover effects through trade and lower demand for commodities as well as through financial channels. >> reporter: at her speech in 35ir ris, she also said interest rate hikes by the federal reserve need to be gradual or they risk hurting already fragile emerging economies. >> to the job market now. the number of openings rose in november, the labor department reports an increase of 82,000 in its monthly survey. more people also quit their jobs which is viewed as a sign of growing confidence in the labor market. and the economy is just one of the many topics president obama is likely to touch on during his state of the union address tonight. john harwood is in washington with more on what we can expect to hear. good to see you as always. white house aides say said he will deliver kind of a different kind of state of the union address tonight. what do they mean by that. >> typically state of the unions are long speeches that include a request for congress to take

action across a wide front big issues, small issues. the president's getting to the end of the line. he's got a republican congress. he knows they're not going to give a lot. he's not going to go through that and do some looking back, looking at the distance that the united states has traveled under his presidency. from the days of the financial crisis and the great recession but also look forward and try to give some prescriptions for where the country needs to go even if it doesn't go there during his presidency. >> so if he's not going to ask the gop-controlled congress for specific legislative priorities, what does he want from them? >> well, he'll ask for a couple in particular. the most notable i would say are the transpacific partnership, the big trade deal. congress has given him fast track to the way to move that quickly through congress but they're not sure they want to move it that fast. paul ryan is more interested than mitch mcconnell in the senate. the other thing is the new authorization to use military force in syria.

the administration has been acting under the old authorization that dates back to the iraq war. they say they can continue to act but would like a new statement from congress to demonstrate unity of purpose in the united states strategy against isis. >> the president did face some setbacks in 2015 on the fight against isis in particular. but he had a lot of successes, as well. so gauge the mood of the president as he goes into his final state of the union for us. >> sue, i think the president's going to be more upbeat in in the state of the union address than he's been for any of the prior ones. he believes that with 292,000 jobs added last month, just as to underscore the economic recovery that the economy is in solid shape. he believes that the record auto sales are signs his policies have worked. he's gotten action internationally on climate change, on iran's nuclear program. all of those things lead him to think he's coming to his last year with a sense of momentum and bart of what he wants to do is galvanize the public to press

for priorities he may not achieve like immigration reform and paid family leave, things liking that. >> john, we'll be watching. john harwood in washington. why fourth quarter earnings could be the next hurdle for the market and your money. ♪ csx reports better than expected fourth quarter earnings but revenues disappointed. the railroad operator earned 48 cents a share, two kents better than stipulates. revenues light coming in at $2.8 billion a decline of more than 12% from a year ago. the company also reported a drop in freight volumes and said the weak global economy would weigh on results in the coming year. and shares were volatile after that report.

mary thompson takes a closer look at the results. >> reporter: after a tough year for the railroads, cs x is suggesting the road ahead doesn't look easier. the nation's third largest railroad saying earnings for 2016 are expected to come in below the $2 a share earned in 2015. the company citing continued low commodity prices, a strong u.s. dollar and the energy markets transition. all of this coming as the railroad's fourth quarter profits declined from last year though did beat expectations. like many railroads, csx's business has been hurt by a decline in demand for coal at home. low natural gas prices have u.s. utilities opting for that fuel. add to that experts of thermal and metallurgical sales remain soft because of oversupply in the markets. i'm mary thompson. >> csx reported better than expected fourth quarter results for today. how will the rest of the quarter go for other companies reporting their results in the days and

weeks ahead? mike thompson, chairman of s&p investment advisory vfss and joins us to talk more about the numbers. you say the big drag on earnings as we all know is going to energy. we expect that to be way down. materials we expect way down. but my notes indicate that you also think materials, information technology, staples, utilities, financials, industrials, will also be down. that doesn't leave much to be up. >> no, well, that's right. three out of tin is the best you're going to get this time, tyler. what you have is health care. you have telecommunications and our stalwart consumer discret n discretionary sector, the gift that keeps on giving. those are the only ones having green next to them in terms of earnings growthing. >> everybody is talking about or using the phrase "profit recession 0i6789 but you don't seem to agree with that. >> well, i think people love the drama behind it. i think it started several years

ago. you have two consecutive quarters of negative growth in something and immediately people want to go and make a story out of it. this could be very well the last of the negative growth quarters. i feel like that's the expectation from the wall street analysts, indeed. we were down last quarter and had quarter it's even worse. we're down 6% for the feather quarter. if you take energy out, maybe you break even. next quarter expectations aren't that high. up a half a percent. if you take energy out, you get a little bit of growth there by the end of the year, you know, you're kind of feeling like you're going to get probably in totality about 7% analyzed growth which is just about where you want to be to be on a historic average. >> we were speaking earlier today to another investment pro who said last year, earnings growth kind of flat, 1, 2%. that's kind of what you got in the stock market. is that what you expect in the stock market this year? in other words, will stock

prices basically track corporate earnings which i just said might be up year over year 7 ers? >> well, honestly, i think that there's a new dynamic. you're pretty much rightly val you'd on historical fundamental perspective but we're in a new paradigm. honestly, you can't get any yield in the credit market. so the u.s. equity market is probably the most rational and best place to investment money in the world. and when i talk to people globally, no matter all the woes of people talking about and certainly it was harder to digest the 17.5 times next year's earnings multiple but we've corrected in line with the 15-year average, yields are next to nothing in the fixed income markets. you get as much on a dividend yield on the s&p 500 as you do the u.s. treasury ten-year. with profit margins stable at 9% across the 500, equity is probably the least worst alternative. >> do you think this will be a better year for s&p 500 returns,

stock market returns than last year was? is. >> indeed i do. >> okay. mike, that was a quick answer. i appreciate it. mike thompson with s&p investment advisory services. >> starbucks has ambitious plans to expand in china and that is where we begin tonight's markets focus. the company looks to open 500 stores per year for the next five years. starbucks already has 2,000 stores in that country and about 100 cities. shares of the company up nearly 3% to 59.46. lululemon saw its holiday sales improve. this comes after the company initially released weak guidents last month citing declines in foot traffic. however, the company has raised earnings and revenue guidance for the quarter. shares of the apparel retailer up nearly 4% to 56.82. bp cutting jobs due to the continuing decline in oil and plans to lay off 4,000 workers in its exploration and production units this year, 600 in the u.s. the announcement follows the path of other energy companies

who had to shave their workforce due to the falling price of oil. shares off 19 cents to 28.65. >> and ford reports upbeat earnings guidance. the automaker expects to have profit of at least $10 billion in 2016 as a result of its strong performance. it will issue a $1 billion supplemental cash dividend. shares dipped in early after hours trading. ford was up slightly at 12.85 in the regular session. metlife intends to separate a large portion of its u.s. life insurance business via a sale spinoff or initial public offering. the life goes out of metlife. shares rose in after hours trading. the stock ended fractionally higher during the regular at 41.99. >> a ground breaking deal in the newspaper business. the "philadelphia inquirer" has been donated to a non-profit institute. it's just one of many traditional plib publishers trying to overhaul its business model. julia boorstin takes a look at

the future of print journalism and attempts to survive in the digital age. >> reporter: monday the nation announced its implementing a pay wall. today the i don't knower of the "philadelphia inquirer," the daily news and philly.com donated the media company to a foundation in the hope that a non-profit business model will help them survive. and the new republic put itself up for sale. its owner nearly four years. chris hughes saying he underestimated the difficulty of transitioning an old and traditional institution into a digital media company. >> it's clearly a tough time. it's capricious. there are going to be some survivors and some fatalities in this. it's not going to be easy transition. we've seen it right along. it's been in progress for 15 years. difficult to mon nan tise con dent. >> these announcements come in the face of rising questions about how many people are actually reading articles in apple's news app. to which all the major publishers are contributing. but there are signs of hope from two of the most established

publishers. "the new york times" ceo telling me in december he expects the company to return to strong digital ad growth. and the publisher ceo just announced it's already making money off virtual reality after distributing google cardboard head sets to a million newspaper subscribers. "the washington post" has seen a surge in traffic under bezos ownership. >> it's chaos. >> but all these legacy players are up against a slew of rivals including buzzfeed and new millenial focus news apps such as infusion and free services have the advantage. >> people are unwilling to pay for content because it got free throw 10, 15 years ago. and it's hard to get that genie back in the bottle. >> there's no doubt the 80 million young people in the u.s. are interested in news. it's a question of which services will be able to make it a profitable business. for "nightly business report,"

i'm julia boorstin in los angeles. >> coming up, office space. 9 secretive startup that's making mysterious moves in the palo alto real estate market. ♪ california regulators today rejected volkswagen's plan to fix their diesel cars. that had the emissions cheating software installed. the state's air resources board said the fix not adequate. in response, vw says it is developing a revised plan and committed to working with california regulators. they'll meet with the epa tomorrow. pal lan tir, a silicon valley startup is scooping up a lot of property in a pricey real estate market. and there are a few reasons why.

josh lipton in palo alto explains. >> reporter: it's a $20 billion startup best known for its clients such as the cia. but palantire is also becoming a force in silicon valley real estate. cnbc has learned that palantire now leases more than 20 buildings in downtown palo alto or up to 15% of total office space. there is 542 high street, a building it remade into a company cafeteria for its 1800 employees or 101 forest best known to locals for the phil's coffee shop and recently palantire signed a long-term lease at 2861 hamilton. palo alto real estate is some of the most expensive in the country. that is not a problem for palantire. sources say the company generated revenues last year

topping $1.5 billion. pal lan tir's software allows government agencies to see relationships among a large amount of data such as phone records. and that's one reason it needs so many different facilities. it sometimes has to operate in offices outfitted with special security. >> i'm sure that their computers are behind double locked doors that they need biometrics to enter into those buildings into those rooms. and more than bye metrics i'm sure they have to have a special pass code. and so the idea is it's physically locked down. >> reporter: beyond security, palantire wants to stay close to stanford university when it recruits top talent. palantire is the most popular destination among private companies for stanford computer science graduates according to data from the linked in. palantire's expansion is a boon for the palo alto economy but it

squeezes the city's startup community. venture capitalists say it is is fundamentally changing the character and culture of this college town. here you just have consolidation where a lot of the buildings that used to have 25 companies now have one. so there's a large behemoth that's occupying the downtown scene. case in point, pebble and wealth front are relocating because they can't find space or compete with a company that has now raised nearly $2 billion from investors. pal lan tir declined to comment for the story but soon enough, is the company could be facing more competition of its own. amazon is becoming an increasingly active player here recently outbidding them for a 50,000 square foot space. for "nightly business report," i'm josh lipton in palo alto, california. and to read more about palantire's strategy, head to our website, nbr.com. >> the entire nation talking

about the powerball drawing wednesday night and today, the jackpot increases to a staggering $1.5 billion. it may not stop there. single winner would have the option of a lump sum cash payout of an estimated $930 million. >> look at that. >> and given the strong ticket sales, see line, the jackpot could climb even higher. wow. >> it's exciting. that does it for "nightly business report" tonight. i'm sue herara. thanks for joining us. >> i'm tyler mathison. thanks from me, as well. have a great evening everybody. and we'll see you right back here tomorrow night. hollar: tonight on "revolutionaries"...

agag: i felt that something was missing in racing. the big corporations and the sponsors were starting to get worried about the... lack of sustainability of motorsport. and i really didn't know how to solve that equation until, you know -- until i felt it could be through electric racing. ♪ hollar: when alejandro agag announced in 2012 the launch of a formula 1 style racing circuit for all-electric cars, he was met with skepticism from the racing community. formula e is now a reality and generating a new breed of racing enthusiasts. tonight agag talks about the trajectory of formula e and the future of electric racing.