captioning sponsored by wpbt >> paul: u.s. stocks take it on the chin with the dow posting its biggest drop in over a month, down 2%. that has some wondering if the summer rally's over or just taking a breather. >> jeff: today's selling started in asia and spread around the globe, despite japan's emergence from recession. global markets strategist stu schweitzer joins us for a look at the big picture. >> just to be on the safe side we decided not to kill any engines or shred any cars until the government funds the program. and pays for it. >> paul: sam mansouri's among thousands of car dealers waiting on a "cash for clunkers" payday and wondering what's next for the industry. >> jeff: then, shares of lowe's get nailed, falling 10% as the home improvement retailer's latest earnings miss the mark. and it pulls back on expansion plans.

>> paul: i'm paul kangas. >> jeff: and i'm jeff yastine. susie gharib is off tonight. this is "nightly business report" for monday, august 17. "nightly business report" is made possible by: this program was made possible

by contributions to your pbs station from viewers like you. thank you. >> jeff: good evening, everyone. stocks tumbled today as a global sell-off spilled over to wall street. dragging the global economy lower. on wall street, the selling was broad and deep, the dow dropped 186 points, nasdaq fell 54 and the s&p 500 lost 24. worries about the recovery and consumers' willingness to spend has some wondering the summer rally is over. erika miller gets some answers. >> reporter: these may be the dog days of summer. but man's best friend isn't the only one trying to beat the heat. stocks are also taking breather. after a steamy summer rally that sent the s&p 500 up 15% in a month.

the bulls say it's just a temporarily lull. s&p's sam stovall sees more than 20% upside for the s&p 500 from here, although he won't give a timeframe. >> i think there's a combination of both fear of missing out on the rally. and an economic rationale. i think now, based on most recent data, that we will probably see a positive third quarter g.d.p. rather than the negative that we were earlier expecting. >> reporter: but not everyone is optimistic. the bears say the government's massive stimulus efforts have made consumer demand look healthier than it really is. that's why portfolio manager emmanuel ferreira warns against buying most u.s. stocks now. >> it makes the picture extremely cloudy because you are talking about so many one time events that are so large in nature. that they're tremendously disturbing and distortive of what the actual economic view is. >> reporter: he says investors should position themselves defensively by looking for

stocks with low valuations, strong earnings growth and a conservative balance sheet. ferreira says he won't turn bullish on the broader market until there's significant improvement in housing. >> first and foremost i think in the u.s. you have to see housing start to grow again. and we're not seeing that. as a matter of fact, the housing numbers continue to be bad. >> reporter: but even the bulls are warning of wild market swings in the coming weeks. september is fast approaching, historically a terrible month for the stock market. >> september is by far the worst month for the s&p 500. whether you look back to 1990, 1970, 1945 or 1929. it's the only month that has a negative price performance, on average, for all of those four periods. and it has a frequency of decline of more than 50% >> reporter: with that kind of reputation, you might even call september a month for the dogs. erika miller "nightly business report" new york. >> jeff: our guest tonight is optimistic about the stock market.

he thinks today's selloff is merely a pause that refreshes. stu schweitzer is global markets strategist at jp morgan private bank. stu welcome back to "nightly business report". >> always a pleasure. >> jeff: you know, i don't know if you've seen the headlines or not these days but things look rather bad out there, so why the optimism? >> well, you know when -- when people feel that there's no, no potential for things to do better, when all you hear is bad news, then i start to think that maybe it's pretty well priced in. admittedly the market moved awfully far, awfully fast in the month of july but i think after some setback here while we wait for third-quarter earnings that the market will end up moving somewhat higher in the balance of the year. >> jeff: stu, if the economy is bottoming here, what's driving this growth or at least this bottoming process? if the consumers are not still spending, who is doing the buying out there? >> well, for sure, the consumer

is 70% of this economy and the consumer is not ready to start spending yet, not until the job market comes back, but companies have been underproducing all year long. they've been producing far less than people have been selling and that means there's a big deficiency now in the amount of goods on the shelves. even some of these retailers that have reported disappointing sales have nonetheless reported decent profit margins because they've not had that much on the shelves they've had to discount sharply. now i think we're going to see output start to increase. there's already quite a bit of evidence of this, not only here but around the world. and with corporate costs having been cut sharply, i would expect any increase in output will mean an increase in revenue and much of that will drop straight through to the bottom line. >> jeff: so for now, this is companies rebuilding their inventories, restocking their warehouses, that sort of thing? >> exactly. then the question, jeff, becomes do they have to hire people

back? having cut labor costs so sharply, having fired so many workers with such a huge human toll, do companies now find that they need more people now that they're going to ramp up production to some extent? that's going to determine to what degree the consumer is able to come back. >> jeff: do you take any optimism from some of the bits of news we see out there with japan emerging from recession and some sort of signs of spring if you will, in the economies in europe? >> i think all of them are recovering to the extent they are and to me it looks pretty minimal so far. mainly from the same process, the process of inventory rebuilding. japan had its production cut the sharpest of any major economy around the world and it has not nearly seen the bounce back even though it had positive gdp reported today, it's not nearly seen the bounce back in production that it would need to have to make up for the shortfall of the last 6-9 months. i do think that the world does

need the u.s. consumer to come back eventually. you know, look at china how much they were exporting to the u.s. and those exports have slowed down, but for a time, this economy and the stock market, i think, can benefit from increased production from the shortage of goods on the shelv shelves. eventually, that's not going to be enough and i wouldn't be terribly optimistic about the pace of growth beyond this inventory rebuilding period. i think that's yet to be determined, but while inventories are being rebuilt and output is increasing, i expect companies are going to make a lot more money. >> jeff: you know, one thing you said in the past, you said this recovery will not feel the way it should feel in terms of consumer sentiment. elaborate a little bit on that for us? >> i think that's exactly it. we normally think a recovery means more job growth and means consumers feel better, open their wallets and start to spend

more liberally. here, i think the start of recovery has to emanate from, recovery has to emanate from the corporate sector, from the entrepreneural and animal spirits almost of the corporate sector that responds to the opportunity to make a bigger profit by hiring people back. >> jeff: all right. we'll wait to see what the consumer does after that. >> let's hope. >> jeff: stu, i appreciate your time on the program. >> always a pleasure. >> jeff: our guest, stu schweitzer global market strategist at g.p. morgan. >> paul: wall street took its opening cue from steep selloffs in most world stock markets which gave way to pessimism over the staying power of recent gains because of cautious consumer spending. the dow tumbled nearly 200 points by 11 a.m. with the nasdaq off 50 points. stocks stabilized over the mid- session hours with the help of a rise in the new york region's manufacturing activity. then, thanks to late buying of some committed bulls, the market ended slightly above the day's lows.

>> jeff: the nation's homebuilders are gaining confidence in the housing recovery. the national association of homebuilders' "housing market index" climbed to its highest level in a year this month. the group says builders are encouraged by strong response to the federal first time home buyer tax credit. but builders are also concerned because that program which has helped lift sales ends november 30.

they're worried the sales momentum will dry up when the tax credit ends. >> paul: while policymakers say the economy's improving they're extending a key consumer lending program. the federal reserve's term asset lending facility or talf was supposed to end on december 31, it will now run through march 31. the move comes as the central bank released its latest survey of loan officers showing they expect bank lending to remain tight through the middle of next year. the talf has helped provide more credit for auto, student and commercial real estate loans since the market for private credit seized up. >> jeff: the obama administration is tripling the number of workers processing cash for clunkers claims. the move comes as clunkers pile up at auto dealers across the country with few dealers being reimbursed. as stephanie dhue reports while dealers are thrilled with the new-found sales they're anxiously awaiting a check from uncle sam. >> reporter: cash for clunkers has been a boon for auto dealers like sam mansouri.

his back lot is jammed full. >> we had a record month last month in sales >> reporter: while sales are soaring, his hyundai dealership is still waiting for the government to pay for the 250 clunkers he's taken in. >> i think it's gonna be all fine, but it's very nerve- racking sitting, waiting for all the funds. >> reporter: $1.2 million worth. to play it safe, he's decided not to kill any engines or shred any cars until the money is safe in hand. >> a delightful catastrophe is the best way to put it, we're excited because we are selling cars, doing a lot of work, but it's been a mess because to some degree it's an element of unknown, it's something new that neither us nor the government really had any idea how to do it. >> reporter: the story is similar at other dealers we spoke with. sheehy auto stores is waiting on nearly $3 million for its 700 clunker deals. the dealership received its first payment from the government on friday for $4,500. a survey last week of virginia dealers found the government

processed 9% of trade-in's, rejected 9%, and paid fewer than 3%. and while dealers worry about being paid, they are also worried about what's next. auto analyst rebecca linland lowered her sales forecast for next year, as some buyers moved up purchases to take advantage of the program. >> we have seen some incremental sales or really true new buyers in the market, probably about 150,000 to 200,000 new buyers in the market, so they're not all pull ahead, some long term benefits here, but we'll feel a little bit of this in 2010. >> reporter: dealers are already working to stimulate new demand, considering programs to keep the cash for clunkers sales momentum rolling. but mansouri worries about customer expectations. >> everybody will think that there car is worth something, the reality is it'll sink in, you're $500 car is worth that, $500 there's no incentive, no program on it.

>> reporter: the cash for clunkers program is expected to run out of money around labor day. dealers have mixed feelings about the program ending, worried about the impact on sales, but also eager to get paid and move on. stephanie dhue, "nightly business report", fairfax, virginia. >> jeff: the justice department calls it the biggest identity theft case in u.s. history. three men have been charged with hacking more than 130 million credit and debit card numbers from the computer systems of five companies, including 7- eleven and supermarket chain hannaford brothers.

federal authorities say 28-year- old american alberto gonzales and two russian men, used software programs to steal the information. gonzales is no stranger to these types of charges. he's already in jail, awaiting trial related to a security breach at tjx stores, that snagged 40 million credit card numbers. >> paul: sears and k-mart want customers to start saving for holiday presents, now. today, parent sears holdings dusted off the concept of a christmas club account. it lets shoppers store funds on a sears or kmart holiday card to be used for christmas spending. consumers have until october 31st to start saving and qualify for a matching 3% reward of up to $100. last year, the retail siblings resurrected their lay-away programs to help consumers manage holiday spending without racking up credit card debt. >> jeff: many consumers who have racked up that debt are having a hard time paying it off.

capital one says its 30 day credit card delinquencies rose last month as did its loan charge-offs. that's the accounts it believes will never pay up. capital one caters to borrowers with lower credit histories. so it's not too surprising that its rivals saw a somewhat better picture. credit card charge-off rates fell slightly at citigroup, american express and discover financial services. bank of america, which has the highest default and delinquency rates among the top credit card issuers, said its charge-off rate inched down just a bit from june to july. >> paul: bank of america and citi shares were among the big board's most active. we'll see them as we take a look at our stocks in the news tonight.

>> paul: and those are the stocks in the news tonight, jeff. >> jeff: reader's digest association which publishes the country's most popular general interest magazine, is filing for chapter 11 bankruptcy protection. the company has reached a deal with lenders for $150 million in financing, so it can operate while reorganizing. declining circulation, a drop in advertising and a $2-billion debt load drove the move. reader's digest hopes to shed about $1.5 billion of that debt while in bankruptcy protection. >> paul: tomorrow, hewlett packard checks in with quarterly results. we'll see how computer sales are

trending as the nation heads back to school. >> jeff: charles schwab corp was sued today by new york attorney general andrew cuomo. he accused the brokerage business of misleading customers in the sale and marketing of auction rates securities. cuomo wants schwab to repurchase the securities at face value from investors. schwab says the allegations lack merit. instead, the company says cuomo should go after the underwriters that deceived brokers about the safety of auction rate securities. >> paul: dreamworks studio has gotten the greenlight on its funding. steven spielberg's company has completed its 825 million dollar financing deal with indian conglomerate reliance ada group. the financing has been in negotiations since dreamworks cut ties with viacom's paramount pictures last year. walt disney will now handle dreamworks studio's marketing and distribution.

>> jeff: here's a look at what's happening tomorrow: >> jeff: tonight's commentator says while it's just getting started the recovery does indeed have legs. he's bernard baumohl chief global economist at the economic outlook group.

>> here we are in the middle of august, with its gentle, mellow days of summer. it's a time to re-energize by enjoying diversions outside the office. but with august's arrival also comes a sense that summer is slowly starting to slip away and that conjures up the question of what comes next. that question has taken on more meaning now. as the recession fades this summer, we wonder what comes next for the economy? does the emerging recovery have legs? will it last through next year? some predict this recovery will be temporary and that the u.s. will slip back into recession in 2010. this group argues that household and bank balance sheets are still in awful shape, and that a new wave of bank losses will occur from failing commercial real estate loans. any upturn in the economy will thus prove to be short-lived, they say. but that scenario is not likely in my opinion. one powerful and often

overlooked source of strength during a recovery is the enormous pent up demand by consumers. americans postpone their spending on autos, houses and home appliances during an economic downturn and this downturn was the longest in 80 years. but with the worst of the recession now history, look for the 90% of the work force who do have jobs to unleash some of that pent-up demand. that, and the federal stimulus program, should provide the critical mass needed to keep this recovery on track through 2010. i'm bernard baumohl. >> paul: recapping today's market action u.s. stocks head lower as the global sell-off continues. the dow dropped 186 points and the nasdaq tumbled 54 points. to learn more about the stories in tonight's broadcast, to watch our streaming video and to take part in our daily blog, go to "nightly business report" on pbs.org. you can also email us at nbr@pbs.org.

>> jeff: and finally tonight, lotto fever is cooking in italy. the country's lottery jackpot for tonight's drawing has grown to nearly $200 million. prize officials say it's europe's highest jackpot ever! $6 million of that was raised today as the buying frenzy continued. no one has picked the winning combination of numbers since the end of january. and that trend continued today. no one picked today's winning numbers so that jackpot remains unclaimed. that's in part because the odds of winning are about one in 622 million. that said, there is one big winner in all of this: the italian government. jackpot hopefuls have spent nearly $3 billion on tickets and half of the money goes to the italian treasury. >> it's always the government that's the big winner. >> powerball lottery in the u.s. is 125 million to 1. >> and keeps growing. >> jeff: that's "nightly business report" for monday, august 17. i'm jeff yastine. goodnight everyone. and good night to you paul. >> paul: goodnight jeff. i'm paul kangas wishing all of you the best of good buys.

"nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org