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Futures take on defensive look after telecom downgrades

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Stock futures have slowly been deteriorating to the downside as we approach the opening bell after downgrades in the telecom sector take some of the charge out of the markets recent bullish rebound.

UBS Warburg downgraded select names in Verizon (NYSE:VZ) $43.62, SBC Communications (NYSE:SBC) $30.28 and Bellsouth (NYSE:BLS) $28.92 to "reduce" from "hold" ratings saying the baby bells' fundamentals remain weak and do not justify current price levels. UBS also said it continues to also believe that consensus earnings estimates are still too high for 2003, and the FCC's Triennial Review will not return as favorable an outcome as recent media reports suggest.

In a separate note, UBS Warburg also downgraded shares of Dow component J.M. Morgan Chase (NYSE:JPM) $27.84 to "hold" from "buy" as the firm believes the stock now discounts a healthier economy and improved market conditions for 2003. However, UBS Warburg feels the investment banking environment is going to continue to experience "choppy waters" in the near-term, and provides little catalyst for upside much above the $29-$31 level.

S&P futures (sp03h) currently trade down 5 points at 918.80, NASDAQ futures (nd03h) are off 11 points at 1,064 and Dow futures (dj03h) are lower by 55 points at 8,695.

Fair value for the S&P 500 today is $0.20. That price will not change during the session. HL Camp & Company has their computers set for program buying at $0.42 and set for program selling at $-2.06.

There have been few "key" drivers for this morning's weakness in equity futures, other than a multitude of other downgrades, most of which look to be "valuation" calls and tend to look more like calls of "take profits" after a nice rebound in recent sessions.

Gaming/entertainment stocks may come under some pressure today after MGM Mirage (NYSE:MGG) $13.83 said it was reducing its Q4 outlook to a range of $0.24-$0.27, which was well below the consensus of $0.44. The company cited ongoing weakness in the U.S. economy and its continued impact on high-end domestic customers.

Jeff Bailey

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