All but four states start their tomorrow. D lawmakers in about 20 of those states have yet to finalize a budget. Maines governor is threatening a shutdown for the First Time Since 1991. Its the 11th hour negotiations for negotiatigauche for legislations and nowhere are the financial pressures greater than in illinois. Which has faced its own twoyear budget stalemate and is now on the verge of having its credit downgraded to junk, but there is some movement today. Today, the house gave initial approval to a spending plan. Leslie picker reports from chicago. If you want to better understand the economic prices in illinois, look no further thap the 16 stories government building known as the jean r. Thompson center in downtown chicago. Everyone agrees it could be sold. Its worth about 200 million, money that could be used to help the state, which is broke, but the democrat emanuel and Bruce Browner couldnt find a way. The governor announ thats okay. With all these bells and whistles. I said ill give it to you, everything you want. You sign Municipal Pension reforms that we have made. He said no. This is just one example of the lack of political compromise that has brought illinois to one of the worst Economic Crises that any state has ever faced. The government has been operating for two ye bt a is ses third at midnight tonight. If the democraticled general ably and republican golfvernor cant agree, the bonds could be means it will become much more expensive for illinois to borrow in the future, make it harder to climb out of the hole. Without a budget, illinois hasnt been able to pay its bills. It currently owes about 15 billion in unpaid bills from everything to chicago publ nonprofits have had to lay off staff and shut their own doors as a res i was talking to an organization this morning, ff of so many programs because they havent been getting paid and their Youth Service provider, so theyre in the uncommunities working with kids after school and they have to cut back so, where do those kids go . Well, you know, theyve got nothing else to do. What are they going to do besides do things they shouldnt be doing. Some services are expected to stop as lawmakers cant agree to a budget tonight. The Illinois Department of transportation said it would start shutting down Road Construction projects beginning today. The idot loses its ability to pay contractors, which could cause thousa work. Powe ball sales have stopped and theyre due to be halted because the state doesnt have enough funds. Its going to take more than luck for this john hicks joins us now to discuss how the states got here and what they need to do to resolve their issues. He is executive director of the national ass of state Budget Officers. John, welcome, nice to have you here. Thank you for having me. A number of of us find it puzzling this such a large t in the dire es find themselves situation that illinois is at at this point, but with these budget impasses, the economy is is doipg well, still in recovery road and unemployment is very low levels. So, what are reasons why we find ourselves looking at these states across the country struggling . Couple of reasons. One is that state reve growg much more lower than the economy is. Theres a disconnect between the growth in e in their tax revend so, that combined with spending pressures, particularly about fixed costs such as pensions and medicaid spending and of course, elementary and secondary education is always a high pr r in the eig year ofates in ter a recovery, states are under a fiscal struggle right now. In some states combined with political divisions over fm and nonfinancial things have led us to an unusual situation here. Illinois most intractable problem seemed to involve around its pension situation. Theyve made promises and are locked into those promgss, but ey the taxes they needed to do or to devote the money to it. How do you break that kind of knot . Yes, its very difficult. Illinois and other states, new jersey, connecticut, kentucky, have having significant unfunded liabilities and in those cases where you cant change the enefit structure of those active retirees, you have to get out the checkbook. You have the pay the determined contribution and a lot of times, thats very difficult. States are resorting to some pretty creative ways not only raising revenues and crowding out other funding, but devoting new resources to Pension Funds in nnlew jersey, a proposal to have the ln fund and california, internal borrowing of an Investment Fund of 6 million, so it is an important issue, but states do have to at some point, if indeed we gate compromise on Health Care Reform in washington, which would include medica medicaid, how much relief would that bring to states with those fixed costs . Well, the legislatuion that been discussed would bring no relief. In fact, it would impose a new financial risk by capping fed cade funding thats now an open ended shared financing arrangement and so, states would have to make the hard choices down the road with the current legislation and either raising more revenues, cutting expenditures elsewhere or cutting the medicaid program. On that note, john, well see what happens. John hicks with the National Association of state Budget Office stocks ended mixed on this last day of 2017s first half. Last day of the quarter. Last day of the month. Last day of the week. Blue chip dow index was helped by shares of nike, which rallied about 11 . The major indexes lost some steam late in the afternoon. The Dow Jones Industrials added 62 points to 21,349, but that cut in half earlier gains from the day. Nasdaq off about four, the s p 500 added three. As for the first half of the year, the dow and the s p were up 8 and the nasdaq was the big winner. A gain of 14 . First half showing since 2009. As for oil, it climbed for a seventh straight session today, pu it is down as you see there, 14 so far this year. Biggest first half decline since 1998. Well, in the first half of this year, investors plowed a record amount of money into chan Exchange Traded funds. These are passive and less expensive than others. Bob pisani takes a look at the moe mentous first half of e the tfs. Theyre having a banner first half of the year. They saw inflows of 247 billion, inclecreased about 10 . Just shy trillion. Been quite a run. Theyve been positive for 16 straight months. Whats going on . Mostly about saving money. Investors have been switch iing because theyre cheaper. A etf might charge 0. 3 while a typical mutual fund would charge 1 . Doesnt sound like much, but it adds up. Its also about performance. They pegged indexes like the s p 500. Active managers who picked stocks themselves charged more t outperform their benchmark so why pay more. Most money is still going into plain funds. They track the s p 500, small cap russell 2,000 for example, but theres also substantial money going into europe and emerging market funds as the fwloebl economy continues to slowly improve. Tech has been the hot sector all year signs of momentum is starting to shift geps them. In june for example, there were outflows from the main nasdaq 100 etf. As well as from semiconductor etfs. What about this argument that there is too much money going into these kinds of massive investmen investme most are not concerned about that because etfs are of all u. S. Equities. Thats a small number compared to 401 k plans. Im bob pisani at the new york stock exchange. He for t second . Heres what history tells us. The average return for the past 20 years for the final six months of the year shows a gain of about 2. 5 for all three of the major indexes. A little higher than that for nasdaq as you see. Brad mcmillan, chief Investment Officer at commonwealth financial joins us now to discuss. Brad, i see in your forecast that you have the s p 500 moving up to about 2500. Thats about what . 20 from here, right . Just about there. And i think thats going to be about par for the course. What do you think drives it to that level and what are your worries . Well, where we are right now, weve seen the market come back on fundamentals. And i think the fundamentals, the earnings are going to continue to improve. That should carry the market up higher. So, what about the fact that Economic Growth has not been as strong as some people thought it would be . The administration is hoping for something close to 3 . But som of the forecasts that came out this morning came out at 1. 5, 1. 6 . Does that worry you or not. It does worry me because we are seeing signs that Economic Growth may be slowing, but at the same time, can confidence is high. Business confidence is high. And actually, the economy despite the worries has continued to grow about 2 or better for a long time. Big a head wind is Monetary Policy basically higher interest rates, likely to be in the second half . Not just in the united states, but globally and how big a head wind is lower Government Spending going to be . As far as Monetary Policy, you have to remember, rates are sill very, very low. So were just getting back to na normal and because the economy is still growing. As far as Government Spending, right now, expectations are very, very low for spending growth. So, theres not a lot of hope built in there and there coun u. The consumer, lets turn to the consumer because Consumer Spending is so important. And they have been spending and personal income has been up as well. That certainly bodes well. Consumers can spend certainly d the confidence shows they e not. Be thats more of o an upside. Were still growing even though consumers havent been spending that well, but thats a real upside once they start spending. Lets put your chief Investment Officer hat on, brad. Where have you been putting money lately . Right now, weve seen a bit of a pullback in tech. But investors are looking for growth and thats one of the few areas where were going to see growth. I think the Energy Sector offers some opportunities. You may be early today, but none is less, the Energy Industry isnt going away. All right, brad, thanks very much. Have a great long weekend. Appreciate your time tonight. With the commonwealth financial network. And another sector to watch in the second half of the year maybe defense. That group had a Strong Performance during the First Six Months of 2017 and given the likelihood of an increase to the countrys defense budget, some are upbeat about the second half as wellful Morgan Brennan has more. So far, its been another strong year for defense stocks. As the ita aerospace and defense etfs outperforming the broader s p 500. The second half, its all about the budget. In the first phase, congressionae proposed at least 18 billion more than President Trump had requested, but there are still many steps to go before the money actually makes it to the pentagon. Three big competitions to watch all for the air force. The 16 billion trainer contract for 350 training jets will be b awarded by years end after Lockheed Martin following and leonardo all submitted final flight test data this week. Second, replacement of the flying Surveillance Aircraft known in shorthand as j start. Thats a 17 billion deal for 17 plaeps in two parts. Three prime bidding for the integration contract. Boeing, lockheed and grumt. Also watch to replace the minuteman three missiles to drop from three to twoment a deal expected to be worth at least 60 billion over three decades. Northrup, boeing and lockheed are all bidding. Nato allies just s4 this year after intense pressure from President Trump. And while it will take time for approval, a flurry of arms deals will boost futures. Im Morgan Brennan. Still ahead, why small caps could delive Warren Buffetts Berkshire Hathaway way is buying 700 million shares in bank of america. That makes him the largest shareholder in that bank. Berkshire plans to convert the purchase into common shares. It gives the holder the right, but not the obligation, to buy a security at a certain price and quantity at future time. Also the top shareholder of wells fargo. Cara therapeutics tanks. Thats where we begin the market focus. They cut the rating on the stock today to neutral from buy. Saying the results from the companys pain medication study were disappointing. The trial showed that patients who were treated with the tested drug at lower doses did not experience significant reductions in joint pain. Shares of the small cap plunged to nearly 40 to 15. 39. Not a good day there. Real Estate Investment trust Parkway Properties will be bought by Canada Pension Plan for more than a million dollars. Canadas Largest Public Pension Fund said the deal compliments its longterm real estate strategy. Parkway properties up 12 to 22. 89 and e trade could consider up for sale, the wall street journal say executives are calling on the ceo to define the brokerages future by the end of the year or consider a possible sa looking o ore juve nate the companys core business to stay competitive. Shares up just about a percent at 38. 03. Microsoft will reportedly announce a restructuring plan. Seattles Business Journal says they will reorganize its business to create a focus on cloud computing. The announcement is expected next wednesday. Microsoft shares rose 44 cents to 68. 93. A filing shows hedge fund engaged capitals took a nearly 10 stake in celestial and also nominated seven to a eightperson board. Engaged capital said a potential sell is not off the table. It jumped to 38. 82 and elon musk said the automaker will make an announcement on sunday regarding the release date. The vehicle has received more than 400,000 preorders and is expected to begin production next month. Tesla shares rose to 361. 61. And now the our market monitor, who he not having a problem finding new Investment Opportunities in small cap names. This is his first time joining us on the program. Chris terry of the hostagdges f. Small caps have underperformed large caps. Prices havent risen so much and you can find value there. You can. And we continue to find value at the value fund and the russell is more or less traded sideways the past six months. But overall in a blod mark perspective, we think its going to continue to grind higher. The resiliency of the market has been impressive, but also indicative of the market is feeling like tmts it wants to g speaking of grindin higher, your first bid, farmers brothers. The Coffee Roaster and tributer. I think everybodys familiar with coffee. Con sungs is growing. The interesting thing about these guys is a new pha a silty theyve just opened up which coul so if you think about these guys and roasting coffee and selling coffee to Large National accounts, mcdonalds, target but also stores and hotel chains, this new facility allows them to go out and win new national accounts, which again could be very material for their business over the next several years. Lets go from consumable to a wearable. The next one is steve madden. S interesting. I think were all very well aware of whats happened in retail land. And these guys, the stock has really stood out. Its held up really well in a difficult retail space and these guys have trend right product and are taking market share and you can just look at the stock. Theyre definitely bucking the trend in whats going on in retail land today. And finally, hopefully ill pronounce this correctly. An logic. Alog. This is really top of mind considering whats come out of homeland s in talking about an insecurity measures at airports. So, these guys make baggage screening devices. Their legacy business has been the check baggage side, but theyve taken that same technology and have put anytime a smaller box so now, you have to ability with these newer technologies to screen your carryons and the nice thing about this is you dont have to take your liquids, your gels or aerosols or laptop of your carry on bag. The goal is to speed up the Security Check in process, which i think we would all agree is pretty tedious today. 20 seconds on your view of u. S. Stocks. I think theres always pockets of strength, of weakness. We are like you mentioned in the opening we continue to find a lot of opportunities. And again, were looking for turn arounds in the Intrinsic Value fund, hidden asset values, earnings expectations that arent fully understood and we continue to see a lot of that and i think these three stocks well fin out. Chris, thank you for being with us. Have a great weekend. Chris terry. Thank you. Happy fourth. You, too. Well, coming up, why theres some extra sizzle at steak houses this summer. Heres look at what to watch next week. The markets will follow an abbreviated schedule and june auto sales. Wednesday, we get the minutes from the federal reserves last me policymakers heighten feds and on friday, the government releases its closely watched employment report for june. Farmers planted a record amount of soybeans this spring. The hope is that the fall harvest will meet strong export demand even as a bump er crop i south america has increa farm steered away from planting heat, which fell to a record low on the expectation that e as we head into the fourth of july weekend, odds are, you may well be going to eat burger or steak, going to a party, a restaurant and steak houses are noticing a change this year in why. Its the lunch rush at bob bobbys. One of manhattans best known steak houses and the rib eyes arent the only thing thats sizzling. So are the costs of prime cuts. Anytime something is out of your con espec in business. Lennys family owns the restaurant. He say a side of beef cost him 30 more than it did a month ago. Thats a drag on his bottom line. But so far, theyre eating the cost. Its really not much we can do. I mean, we are a steak house, so people come here for our fine beef. So we make adjustments. Its not in the quality of the beef or cut of the beef or the sibeef. Analysts say the home sale prices of choice select and prime beef usually pique around memorial day. Before sliding down as demand wears off. But this year, theyre not seeing a let down in demand or prices. They say its because the weak dollar has heightened up. According to the u. S. Department of agriculture, u. S. Beef experts 17 by doll amounts this year. Theres been talk that removing further raise prices. There are so many exported to china and starting to impact prices for now. The u. S. Is also beef from brazil due to safety concerns. That, too, isnt expected to affect wholesale beef prices, but thats little consolation. Our best seller is meat and probably always will be. Well probably have to add swrus and live and die by the price. I talk to some who say typically, wholesale beef prices go down over the summer. Why they havent seen that yet, some remain hopeful that demand will wear off after july fourth, bringi burger in time for labor day. And finally tonight, one of the biggest music labels is bringing back vinyl records. Sony will t making them again after stopping production nearly three decades ago. There are few details, but the pressing will reportedly be in a factory in japan. Vinyl record sales have been rising. One estimate put sales at more than 9 million in 2014. An accounting if i reca they could grow into a billion dollar sfri in the coming years. I threw all of min out. Im sick. Oh, no. My husband makes me, come over to our ga rarage. Good. That dot for nightly business report. Thanks for joining us. Have a great weekend, everybody. We expect to see you here monday evening on nbr. This is bbc world news america. Funding of this presentation is made possible by. The freemen foundation. And coal Fuller Foundation pursuing solutions for americas neglected me. Planning a vacation escape thats relaxing inviting. And exciting. Is a lot easier than you think. You can find it here in aruba. 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