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Kathy Panagopouloskathy.panagopoulos@morningstar.com
No Sunshine for Stocks During Dismal Third Quarter, Says Morningstar

CHICAGO, Sep 30, 2002 – Morningstar, Inc., a global investment research firm, today released its special Third Quarter in Review report on the firm's investment Web site, Morningstar.com.

"There were few places to hide in the third quarter, at least in the equities markets," said Haywood Kelly, editor in chief of Morningstar.com. "Each of the 12 Morningstar sectors was down. We're seeing the continued unwinding of the stock-market bubble, exemplified in the continued reports of malfeasance in companies such as WorldCom and Adelphia. The silver lining is that investors are asking the right questions: How conservative is management? What's in the footnotes of the financial statements? What hidden risks has this company been exposed to?"

Third Quarter 2002 Stock Performance Highlights
(data through Friday, September 27):

  • The new Morningstar U.S. Market Index, a barometer for broad market performance, fell nearly 16 percent, with small-cap stocks posting the biggest losses.  
  • For the second consecutive quarter, other market indexes suffered double-digit losses. The Dow Jones Industrial Average and the S&P 500 fell more than 16 percent, while the Nasdaq Composite fell nearly 18 percent.   
  • Health care was the best-performing stock sector during the third quarter, although the sector declined more than 6 percent.   
  • The utility sector was one of the worst-performing sectors, with a 16-percent decline during the third quarter.   
  • The restaurant and homebuilding industries suffered during the third quarter. Restaurant stocks lost 20 percent, while homebuilding companies dropped 18 percent in spite of the strong housing boom.   
  • Nextel Communications was the best-performing stock, increasing 127 percent for the quarter.  
  • Distressed software stock Openwave Systems was the worst-performing stock for the quarter, declining 88 percent.

Morningstar's Large-Cap Index, which tracks performance of large-capitalization stocks in the value, core, and growth columns of Morningstar's Style Box™, fell 15 percent. The Morningstar Small-Cap Index, which tracks small-capitalization stocks across the value, core and growth columns of Morningstar's Style Box™, dropped 20 percent during the same period.

"Smaller stocks got hammered," Kelly added, "especially those in the technology-related fields." 

Top-Performing Stocks
Examples of the top-performing health-care sector include IDEC Pharmaceuticals (IDPH) which gained 19 percent, spurred by the success of its non-Hodgkin's lymphoma treatment, Rixutan, and Food and Drug Administration approval of a new radiation therapy injection. ICOS (ICOS) increased nearly 24 percent, thanks to the pending FDA approval of Cialis, an erectile-dysfunction drug.

Bottom-Performing Stocks
Stocks in the utilities sector tumbled during the third quarter. Investors shied away from energy-trading companies, influenced in part by federal investigations into schemes to drive up prices during the California energy crisis. Big losers in the utilities sector were Reliant Resources (RRI), which lost 75 percent, Mirant (MIR), which dropped 72 percent, and Williams Companies (WMB), which fell 65 percent. 

The restaurant industry suffered as consumers spent less money dining out during the past three months. McDonald's (MCD) announced it would not meet third-quarter earnings expectations as the company struggles to boost low U.S. sales figures. The company's stock fell nearly 36 percent in the third quarter. Shares of other restaurant chains dropped, including the Outback Steakhouse (OSI), which fell 19 percent. 

For the most current data on more than 13,000 funds and 7,000 stocks, as well as in-depth analysis on the quarter's top investing news, go to Morningstar's Quarter in Review section:

http://www.morningstar.com/QtrEnd/CoverQ302.html

About Morningstar, Inc.
Morningstar, Inc. is a global investment research firm, offering an extensive line of print, software, and Internet-based products and services for individuals, financial advisors, institutions, and the media. The company is a trusted source for investment information, data, and analysis of stocks, mutual funds, exchange-traded funds, closed-end funds, and variable annuity/life subaccounts.

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