Stock Market Rally; European Stocks Trading High; Iran Celebrates Nuclear Deal; Markets and the Economy
MAGGIE LAKE, HOST: It's milestone Monday for the markets. The NASDAQ breaks a 13-year barrier as the Dow holds ground. It's Monday, November the 25th. Tonight, a rally for Iran. Global stocks rise as oil falls. A legal bonus for big business as Switzerland says no to pay caps. And "Catching Fire" at the box office. "Hunger Games 2" storms into the records. I'm Maggie Lake, and this is QUEST MEANS BUSINESS. Good evening. Let's get straight to the markets. The NASDAQ in focus today, it closing shy of 4,000. Earlier in the day, though, it was able to briefly cross that mark, and it's the first time that's happened in 13 years. So it gives you an indication that that bullish sentiment we've seen in the markets is in place. The Dow and S&P; have risen for the past seven weeks. If we take a look, the Dow closing up just fractionally, but it was able to stay above that 16,000 level. The S&P; 500 did succumb to a little bit of selling at the end, but also managing to stay above that psychologically-important 1800 mark. So all in all, still a pretty nice kick-off to a holiday week. Now remember, markets are closed for Thanksgiving on Thursday, and it will be a half-day session on Friday, so volume could be on the light side, but it looks like the buyers are still in control. Alison Kosik is at the New York Stock Exchange to walk us through it. And Alison, a little bit tepid, but it seems like the path of least resistance is still higher.</s>ALISON KOSIK, CNN BUSINESS CORRESPONDENT: It really is. We certainly saw caution play into the trade today. Even when we saw the NASDAQ touch that 4,000 level, it was kind of like 2000 again, wasn't it? But yes, it was, because the last time it hit that level was 13 years ago. What was propping up stocks initially was that deal with Iran, helping to give stocks that extra boost. That deal, of course, loosening economic sanctions in exchange for Iran scaling back its nuclear program. What we also were watching today, not just stocks, but oil prices. Oil prices fell today to about 90 -- about 1 percent to about $93 a barrel, which means that more Iranian oil could be exported, so that is why we saw oil, certainly, react. A drop in pending home sales in October. That's really what kept stocks sort of in check today. The reading fell for a fifth month in a row as the government shutdown apparently sidelined potential buyers. We have been seeing a bit of a slowdown. It was -- it's been really a strong recovery in the housing market, but we certainly did see more caution play into the trade today, Maggie.</s>LAKE: Caution, but no real selling in earnest, at least not yet.</s>KOSIK: Exactly.</s>LAKE: All right, Alison, thank you so much. Now, Iran's impact was not limited to Wall Street. In Europe, Germany's DAX hit a new all-time high. Overall, European stocks are trading near five and a half year highs. Oil prices moved in the opposite direction. Brent Crude fell by as much as $3 before stabilizing. Analysts describe the move as a knee-jerk reaction as the deal does not allow Iran to increase oil sales for six months. The dollar, meanwhile, climbed against major currencies. Traders say lower oil prices will help the US economy, which in turn will strengthen the dollar. The easing of sanctions is worth about $7 billion to Iran. The US describes the relief as "limited, temporary, targeted, and reversible." But for an economy crippled by sanctions, it's enough cause for celebration. Sara Sidner reports.</s>SARA SIDNER, CNN INTERNATIONAL CORRESPONDENT (voice-over): Celebrations erupt in the country as the Iranian negotiating team returns to Tehran with a deal over its nuclear program. It's no wonder, because this deal means for the first time in decades, sanctions on Iran's biggest export, oil, are being eased instead of increased. There is a sense of hope in the streets of Iran and among shopkeepers.</s>UNIDENTIFIED MALE (through translator): These meetings make us Iranians proud. The market will be great. It will start moving. Thanks to these meetings, people have been happy over the past couple of days because they are overcoming their problems.</s>SIDNER: But analysts caution, those problems are deeply entrenched and may be difficult to overcome.</s>SIDNER: The economic crackdown started as revolution swept Iran. The US levied the first round of sanctions in 1980 after 52 Americans were taken hostage in the US embassy in Tehran, a moment that marked the end of diplomatic relations. Iran's oil imports were banned. Billions in Iranian assets were frozen. In the following years, international sanctions tightened over accusations of Iranian-sponsored terrorism and eventually its nuclear program. Iran's economy has been battered, unemployment high, and over recent years, inflation has soared. The price of items such as bread has skyrocketed, a crushing reality for everyday Iranians. But analysts say limited sanctions relief will not likely be felt by the average person.</s>UNIDENTIFIED MALE (through translator): They were effective, very effective, especially during the past few months. We have felt the effects even more. They have to be lifted for us to see just how much effect it will have.</s>SIDNER (on camera): But world markets reacted positively, with a dip in oil prices. Though here in the oil-rich Gulf in the Middle East, there is deep concern about the new relations between Iran and the West, with Saudi Arabia, long at odds with Iran, expressing displeasure, as well as Israel. However, here in the Gulf in the UAE, you're seeing headlines that reflect a positive tone.</s>FAISAL AL YAFAI, CHIEF COLUMNIST, "THE NATIONAL": I think it's more a suggestion of where this is going. If the international community can reintegrate Iran into the economy, the global economy and the regional economy, that would be very beneficial, both to the Iranians and for the companies in the Gulf.</s>SIDNER (voice-over): But Tehran and world powers are still working out a permanent solution, the country still facing a long, difficult road ahead before it regains the world's trust and investment. Sara Sidner, CNN, Abu Dhabi.</s>LAKE: The nuclear deal is seen as a first step toward a broader agreement. I spoke to Mehdi Varzi, the president of Varzi Energy, and I asked him what kind of lasting impact will the easing of sanctions have.</s>MEHDI VARZI, PRESIDENT, VARZI ENERGY: I think the whole point is that this is an interim agreement and that we have to wait to see how the situation unfolds. I don't expect, for instance, Iran's oil exports to jump. I think there will still be tight constraints on Iran's ability to earn foreign exchange.</s>LAKE: The market seems to be anticipating, even if it is a slow transition, though, that this is going to be moving in the direction of more supply coming from Iran. What does that do to the landscape? How does this affect OPEC, for example?</s>VARZI: I don't think -- if we're talking about a few hundred thousand barrels a day additional supply for OPEC, this really shouldn't make that much difference, because other countries can adjust their production levels if they fear that prices are going to really come down. And prices still are quite firm.</s>LAKE: What is the state of the oil industry infrastructure in Iran? Even if they get the green light and sanctions are eased, is the infrastructure in good enough shape? Do they have the talent, the labor pool to be able to ramp up exports?</s>VARZI: No, the problem with Iran is that for a whole host of reasons, there has been underinvestment -- dramatic underinvestment -- in Iran's exploration, development, and production activities. And also, there has been, I would say, politicization of the Iranian oil industry whereby it's very difficult to know today who is a technocrat and who is a bureaucrat. I think there needs to be major internal reforms before Iran can get back to the former level of, let us say, 4 million barrels per day.</s>LAKE: And do you think there is an appetite in Iran to see those kind of internal reforms?</s>VARZI: Well, I think there is a will to do them, but whether there is a way, whether people are really prepared to undertake what could be some painful reforms, that is open to question.</s>LAKE: And painful in what way?</s>VARZI: Painful in the sense that the old kind of agreements, which Iran had with foreign oil companies, that is the so-called buy-back schemes, the so- called service agreements, really should have no part to play if we're thinking about the oil industry turning a page, if Iran really wants to invite foreign oil companies back in a major way.</s>LAKE: Iran's nuclear deal is not the only talking point in the markets today. Let's bring in Nathan Sheets, global head of international economics at CitiGroup. Nathan, thank you so much for joining us today. Iran a mild catalyst today. It's going to be a big issue geopolitically. But if we turn back to the markets, they have just been unstoppable. It's got a lot of people excited, but it's also got a lot of people nervous. Is this stock rally justified?</s>NATHAN SHEETS, GLOBAL HEAD OF INTERNATIONAL ECONOMICS, CITIGROUP: Broadly speaking, I would say yes. When I look around the world, I think that the situation isn't great, but it feels a little bit better to me than it did six months or so ago. We've seen the euro area emerge from recession. We've seen some very significant reforms put forward recently by the Chinese leadership. The US labor market, recent data suggests, is picking up. And I think more and more, the markets are beginning to understand that for the Federal Reserve, even if they begin tapering, it's going to be a long time until they start hiking rates.</s>LAKE: Well, that's certainly the message that the Fed has been trying to deliver. But there does seem to be a disconnect. Listen, "not terrible" doesn't seem to justify 20 percent. Is all of the good news about the improvement and the turn already priced into stocks, and are we going to deal with the reality that it's hard to exit? Can the Fed do that smoothly?</s>SHEETS: So, my feeling is what you're seeing is a somewhat better macro environment. But then, as investors look at the micro-economics of the US corporate sector, they see a lot of firms that are very competitive and profitable in their industries, and there's a real business story there. So I think the macro is less negative than it was, and the micro is very supportive. And I think that that will manifest itself over time in stronger investment, in stronger hiring, and the economy that the Federal Reserve is looking for to eventually start to hike rates and tighten policy.</s>LAKE: And that's the key, isn't it? Everyone's been waiting for the US economy to reach escape velocity and for that hand-off of the baton as they start to withdraw stimulus, the economy would be strong enough to move on its own. Do you have faith that it's going to happen that way? Sounds like a great plan, but timing is everything.</s>SHEETS: It's a wonderful story, and as you indicate, economists have been articulating it now for a couple of years. It does start to feel at this stage that --</s>LAKE: Inevitably, they're going to get it right? Inevitably, it's going to happen?</s>SHEETS: Yes. That it's coming together, that the consumer's in a better spot and the banks are in a better spot, and we won't have the drag from taxes and new expenditure cuts that we've had in 2013.</s>LAKE: Well, that makes me feel better.</s>SHEETS: So, 2014 is the key.</s>LAKE: Very quickly, let's just wrap up with Europe, though. And you touched on this, so I want to circle back. The recovery looks like it's faltering there a little bit. Very different situation. We've had a central bank here that has had their foot slamming on the gas with quantitative easing. Is -- are we going to see some moves like that from Europe? Should the ECB be doing more, or did they play it right?</s>SHEETS: My expectation is that we'll see some modest positive growth in the euro area, and I think that what the ECB is going to do is they're going to continue to find some modest ways to support the recovery. But as you say, the ECB is not the Federal Reserve. The Federal Reserve is a very activist central bank. The Federal Reserve, if they see a problem, they want to address it. The ECB has taken a much more hands-off strategy and hasn't provided the same degree of support or stimulus to the euro area economy as the Fed has. And as a result of that, they have a weaker recovery.</s>LAKE: And you're seeing US equities outperform almost everything right now --</s>SHEETS: Yes.</s>LAKE: -- as a result as well. Nathan, thank you so much for joining us.</s>SHEETS: Pleasure.</s>LAKE: Nathan Sheets from CitiGroup. The Swiss said no to capping executive pay. We'll tell you about the 1-to- 12 initiative when we return.