S&P 500 Falls in February for a Third Month; SBC Leads Decline
By Justin Baer - Top Financial News - 03/01 09:39
New York, March 1 (Bloomberg) -- The Standard & Poor's 500 Index fell in February for the third straight month on investor concern the prospect of a war with Iraq is restraining spending and threatening to undermine corporate profit growth.
``Confidence is really shaken,'' said Edward Maraccini, whose JohnsonFamily Large Cap Value Fund has beaten the Standard & Poor's 500 Index the past three years. ``People are seeing the terror news, the global problems, the stock market being down again this year, and that's causing consumers to retrench. That's bad news.''
The S&P 500 Index fell 1.7 percent to 841.15 in February. The Dow Jones Industrial Average slid 2 percent to 7891.08, also a third consecutive decline, while the Nasdaq Composite Index rose 1.3 percent to 1337.54.
SBC Communications Inc. and Hewlett-Packard Co. were among the stocks contributing the most to the S&P 500's decline. Shares of SBC, the second-biggest U.S. local phone company, lost 15 percent last month. The company was stung by a Federal Communications Commission decision to give states control over the leasing of phone networks to rivals at a discount.
Hewlett-Packard, which dipped 9 percent, said the threat of a U.S.-led war against Iraq had left companies reluctant to buy its computers.
Intel Corp. jumped 9.9 percent for the month, boosted by a trio of analysts. Merrill Lynch & Co.'s Joseph Osha said shares of chipmakers such as Intel are inexpensive. Morgan Stanley's Mark Edelstone said chip suppliers would benefit from new products and cost cuts. Today, Lehman Brothers Holdings Inc. analyst Dan Niles raised his earnings forecasts for Intel, citing demand for its chips overseas.
Weekly Drop
For the week, the S&P 500 fell 0.8 percent, its first weekly decline in three, led by Hewlett-Packard, network-equipment supplier Cisco Systems Inc. and software-maker Microsoft Corp. The Dow lost 1.6 percent and the Nasdaq dropped 0.9 percent.
The week began with a 1.8 percent decline for the S&P 500, the index's biggest loss during the month of February, amid concern that Iraq would fail to comply with a United Nations order to destroy missiles.
A poll by UBS AG and the Gallup Organization showed investor optimism tumbled to its lowest level since at least October 1996 on concern about the possible war.
Late Tuesday, Hewlett-Packard said fiscal first-quarter sales missed analysts' forecasts. The announcement from the world's second-biggest computer company triggered declines in technology shares such as Microsoft.
Delays in corporate spending may undermine profit growth, say investors such as Maraccini. Fourth-quarter earnings rose an average of 10.4 percent for the 473 companies in the S&P 500 that have announced results, according to Thomson First Call.
Profit Forecasts Fall
Profits for S&P 500 companies in the first quarter will rise 7.3 percent, according to the analyst estimates compiled by First Call, down from the Jan. 1 forecast of an 11.7 percent gain. Analysts have lowered their second-quarter estimates, too. They now predict a 7.3 percent rise, down from 10.9 percent on Jan. 1.
Maraccini, who helps oversee $500 million, recently bought shares of food retailer Supervalu Inc. because the company pays a 4.1 percent annual dividend, more than double the yield on the S&P 500.
The S&P 500 rose Thursday and Friday, its first back-to-back gains in two weeks, as government reports showed better-than- expected economic growth and orders for capital goods. News that the Justice Department had lowered the nation's terror alert level, and that Iraq agreed to comply with a UN order to destroy longer-range missiles, also helped lift shares.
Ready to Rally
``It doesn't take much for the market to rally on positive news,'' said Jeff Van Harte, head of equities at Transamerica Investment Services, which manages $5 billion. Van Harte recently bought shares of EchoStar Communications Corp., the No. 2 U.S. broadcaster of satellite television, and top U.S. radio company Clear Channel Communications Inc.
Some investors say stocks would surge if not for the Iraq confrontation, in part because shares are cheaper after a three- year bear market. The S&P 500 sells for less than 16 times this year's forecast earnings, down from 22 times at the start of 2002.
Still, many stockholders remained engrossed by escalating tensions between the U.S., some of its allies and Iraq. White House spokesman Ari Fleischer dismissed Iraq's pledge to destroy banned missiles as ``the deception that we had predicted.''
The UN's chief weapons inspector, Hans Blix, said Iraq's decision is a ``very significant'' step that leads to ``real disarmament.''
``It's a jittery market,'' said Ron Gibbs, a money manager at Columbia Management Co., which oversees $170 billion. ````When we hear a rumor, like `Russia has brokered a deal with Iraq' or that `Saddam will cooperate,' the market grabs onto that -- only to have those hopes get dashed.''
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