By Corrie Driebusch
U.S. stocks fell Friday, but still ended February with their
biggest monthly percentage gains in more than two years.
In February, the Dow Jones Industrial Average jumped 5.64%, its
best month since January 2013, while the S&P 500 rose 5.49%,
its best month since October 2011. The Nasdaq Composite rose 7.08%,
positioning it within striking distance of 5000, a level last
touched nearly 15 years ago.
The strong month followed a lackluster January, when U.S. stocks
posted their biggest monthly losses in a year, with the Dow losing
3.7% and the S&P 500 falling 3.1%.
Despite the big gains in February, in recent sessions equities
trading volumes have been muted and stocks have traded in a narrow
range.
"There's more applauding going on for U.S. stocks and there's
more excitement building up around the market," said Tony Scherrer,
director of research at Smead Capital Management, which manages
roughly $1.3 billion, referring to the February rally in U.S.
equities.
This excitement can be seen playing out particularly in the
Nasdaq, though Mr. Scherrer said he was wary of some of the names
leading the index higher.
"Some of the young tech, the conceptual tech kind of stocks, we
think they're getting rewarded with too high of multiples, and that
there's too much excitement around them," he said, adding that his
firm prefers some "old tech" names based on lower price-to-earnings
valuations and strong cash flows.
On Friday, the Dow fell 81.72 points, or 0.4%, to 18132.70. The
S&P 500 slipped 6.24 points, or 0.3%, to 2104.50 and the Nasdaq
Composite declined 24.36 points, or 0.5%, to 4963.53.
In economic news, the Commerce Department said Friday that U.S.
gross domestic product expanded at a 2.2% annual rate in the fourth
quarter, down from an initial estimate of 2.6%. Economists surveyed
by The Wall Street Journal had expected an advance of 2%.
The report showed that the economy's recent fast pace of
economic growth was unsustainable. The economy expanded at a 5%
pace in the third quarter.
Separately, the Chicago Business Barometer fell to its lowest
point since July 2009, declining to 45.8 in February from January's
59.4. The decline indicates that business activity is
contracting.
"The data over the last two months has been more mixed on a
macroeconomic front, but as stock investors you're not thriving off
of GDP numbers," said Stephen Freedman, head of cross-asset
strategy at UBS Wealth Management Americas, which manages roughly
$1 trillion. "Earnings ultimately are what matters."
With 485 companies in the S&P 500 reporting results, the
blended earnings growth rate for the fourth quarter of 2014 is
3.7%, more than the estimate of 1.7% at the end of the fourth
quarter, according to FactSet.
Investors say in addition to strong earnings from technology and
retail companies, a stabilization in oil prices as well as
diminished international risks, namely concerns about a Greek exit
from the eurozone, have helped stocks rally in February.
The types of stocks leading indexes higher show that investors
are confident about further stock-market gains, said Peter Kenny,
chief market strategist at Clearpool Group.
For the month, the best performing sector in the S&P 500 was
consumer discretionary, with shares of those companies in the index
rising 8.5%. Investors have been putting money in the group in part
because they view the segment benefiting from lower oil prices.
"We're a believer that cheaper gas puts more money into peoples'
pockets, and people have a tendency to spend what's in their
pockets," said Tom Stringfellow, chief investment officer of Frost
Investment Advisors, which manages about $10 billion. He said
currently consumer discretionary is one of the sectors he likes the
most.
Technology stocks were the second-biggest gainers for the month.
Utilities stocks, known as bond proxies because they pay out big
dividends, have tumbled the most in February. The gains in tech
stocks, demonstrated by the tech-heavy Nasdaq's performance this
month, show "investor appetite for growth-oriented equity
investments," said Mr. Kenny.
"That's a big deal...and speaks to investor confidence," he
added.
In other markets, gold futures rose 0.2% to $1212.60 an ounce.
Crude-oil futures rallied 3.3% to $49.76 a barrel.
Action was muted in the Treasury market. The yield on the
10-year note slipped to 2.002% from 2.016% on Thursday. Yields rise
as prices fall.
In corporate news, J.C. Penney Co.'s stock tumbled 6.8% after
the retailer reported a surprise loss for the fourth quarter.
Weight Watchers International Inc. swung to a loss in the fourth
quarter as the company continued to lose members. The weight-loss
company's shares fell 35%.
Ross Stores Inc. shares rose 6.8% after the retailer reported
sales and earnings well above its expectations.
Saumya Vaishampayan contributed to this article.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
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