Dow drops 100 after Fed official’s warning

MATTHEW CRAFT

AP Busi­ness Writer

NEW YORK — A quiet day on Wall Street turned into the worst sell-off in three months after a Fed­eral Reserve offi­cial said he doubted the bank’s effort to boost eco­nomic growth would work.

Charles Plosser, pres­i­dent of the Fed’s Philadel­phia branch, told an audi­ence Tues­day that the Fed’s effort to sup­port the econ­omy would likely fall short of its goals.

The speech prob­a­bly star­tled some investors who had faith in the Fed’s lat­est plan, said Jack Ablin, chief invest­ment offi­cer Har­ris Pri­vate Bank. The plan includes buy­ing $40 bil­lion in mort­gage bonds each month until the econ­omy improves.

“So many investors have bought into the illu­sion,” he said. “And it was like Plosser pulled up the cur­tain on the Wiz­ard of Oz.”

The Stan­dard & Poor’s 500 index lost 15.30 points, its fourth straight decline, to close at 1,441.59. The 1.05 per­cent drop was the worst for the S&P since June 25.

The Dow Jones indus­trial aver­age lost 101.37 points to close at 13,457.55. Cater­pil­lar tugged the Dow down, los­ing 4 per­cent. The world’s largest maker of bull­doz­ers and other heavy equip­ment said late Mon­day that slower eco­nomic growth around the world damp­ened its earn­ings fore­cast. Its stock sank $3.86 to $87.01.

Stocks enjoyed one of their biggest ral­lies of the year Sept. 6 after Mario Draghi, the pres­i­dent of the Euro­pean Cen­tral Bank, laid out a plan to buy unlim­ited amounts of gov­ern­ment bonds to lower bor­row­ing costs for Europe’s debt-burdened countries.

A week later, Fed Chair­man Ben Bernanke announced the cen­tral bank’s open-ended mort­gage bond-buying pro­gram and pledged to hold inter­est rates at super-low lev­els into 2015.

The S&P soared to a nearly five-year clos­ing high of 1,465 the next day, Sept. 14, but has drifted lower since and fallen back almost to where it was before Bernanke’s announcement.

On Tues­day, three eco­nomic reports gave the stock mar­ket a nudge in morn­ing trad­ing. House prices rose in major cities for a third straight month, and a gauge of con­sumer con­fi­dence came in sur­pris­ingly high.

More sur­pris­ing than those two eco­nomic reports was the Rich­mond Fed­eral Reserve’s strong read­ing on regional man­u­fac­tur­ing, a recent trou­ble spot, said Phil Orlando, chief equity strate­gist at Fed­er­ated Investors.

“Look at that. There were three data points on the econ­omy and we crushed them,” said Phil Orlando, chief equity strate­gist at Fed­er­ated Investors.

But sag­ging prof­its could drag on the stock mar­ket in the com­ing weeks, Orlando said. Cater­pil­lar joined a grow­ing col­lec­tion of com­pa­nies that have low­ered their earn­ings fore­casts. FedEx, a bell­wether of world trade, said Sept. 18 that ship­ping has sunk to recession-like lev­els. Rail­road giant Nor­folk South­ern has also warned that falling ship­ments and sink­ing coal prices will likely drag down its earnings.

Wall Street ana­lysts now esti­mate that cor­po­rate prof­its will be lower this quar­ter than a year ear­lier. That would be the first such drop in three years.

The Nas­daq com­pos­ite index dropped 43.05 points to 3,117.73. Google’s stock touched an all-time high in early trad­ing, clear­ing $764, but closed the trad­ing day at $749.16.

Apple, the largest pub­lic com­pany in the world, lost $17.25, or 2.5 per­cent, to close at $673.54. It has lost more than $26 in two days. Apple is the biggest com­po­nent in the S&P but is not included in the Dow, help­ing explain why the S&P suf­fered a greater per­cent­age decline than the Dow’s 0.8 percent.

The closely watched Stan­dard & Poor’s/Case Shiller index of national house prices increased 1.2 per­cent in July com­pared with the same month in 2011. Prices rose from the pre­vi­ous month in all 20 major cities tracked by the report for the third month in a row.

The Con­fer­ence Board said its gauge of con­sumer con­fi­dence shot to a seven-month high of 70.3 in Sep­tem­ber, up from 61.3 in August and far higher than the 63 ana­lysts were expect­ing. Peo­ple sur­veyed said they were more opti­mistic about the job market.

The Fed­eral Reserve’s man­u­fac­tur­ing index, which sur­veys com­pa­nies in the cen­tral Atlantic region, increased after shrink­ing for three months as busi­nesses turned more opti­mistic. Com­pa­nies said they antic­i­pate more orders and ship­ments even as employ­ment dips. The index turned pos­i­tive in Sep­tem­ber after a neg­a­tive read­ing in August.

Trea­sury prices rose as traders shifted money into safe assets. The 10-year Trea­sury yield, the bench­mark for mort­gages and other loans, dipped to 1.67 per­cent from 1.71 per­cent late Monday.

Posted by AP News on Sep 25 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.