Dow drops 100 after Fed official's warning

NEW YORK (AP) — 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. And if the Fed looks ineffective, it could undermine future Fed action.

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 set a four-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, a batch of encouraging 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 have lowered their earnings forecasts. FedEx, a bellwether of world trade, said 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 sink this quarter from 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 in September, trumping forecasts by a large margin. 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, down from 1.71 percent late Monday.

Not expecting much here

With the Jewish holidays tomorrow I am not expecting much today or tomorrow. Not much giving in the market only if you are a market scalper.
It seems like as we head towards the elections we are dwindling down on the market and I expect we will more with meaningful volume after the election is over.

Uber Bear Sees S&P at 800, Just Not Yet

Bob Janjuah, the bearish contributing strategist at Nomura in London, has long predicted the S&P 500 index will head towards 800, a level not seen since the aftermath of the collapse of Lehman Brothers. With the S&P 500 closing on Monday at 1,456, Janjuah has been forced to review his timing.
"My stop loss on my risk-off 'short S&P 500' trade, initiated on 21 August at an S&P 500 level of 1425, has been triggered," said Janjuah in a research note in which he outlined why he is still a long-term bear.
"It was extremely informative to see that post the QE-infinity announcement, which drove the S&P above 1,450 on the day of the Fed action on 13 September, and after an opening high of 1,475 on 14 September, the S&P sold off and got down to a 1,450 low last week! And then - confirming that 1,450 was an important level, and is now a critical pivot point for the S&P - mutedly bullish price action on last Friday activated the stop loss," he wrote.
Given underlying concerns over growth, debt and policymakers' phlegmatic reaction to the debt crisis, Janjuah believes any upside from here will be limited to a 10 percent gain. He stands by his 800 call.
"Until and unless the S&P 500 index (^GSPC) demonstrates a weekly close below 1,450, I believe it is premature to go aggressively short risk - tactically at least - at this precise moment," said Janjuah, who believes that could happen with months, or even weeks.
"The important message now is to accept that, in my view, risk assets are in a bubble, which of course can extend, but which can reverse sharply and suddenly. Up here, 'valuation metrics' are not going to help much." Janjuah believes 10 percent to 15 percent losses for equities could come in a "heartbeat."