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Benchmarks lost out on their their initial gains to close in the red following comments made by a key Fed official. The official said the central bank’s bond buying program will not be effective enough to accelerate growth or improve the employment scenario. The S&P 500 and Nasdaq suffered their biggest percentage fall since 25th June and 20th July, respectively.
The Dow Jones Industrial Average (DJI) slipped 0.7% and ended at 13,457.55. The Standard & Poor 500 (S&P 500) lost 1.1% to close at 1,441.59. The tech-laden Nasdaq Composite shed 1.4% and finished yesterday’s trading session at 3,117.73. The fear-gauge CBOE Volatility Index (VIX) was up 9.1% and settled at 15.43. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and the Nasdaq were roughly 6.75 billion shares, higher than the year-to-date average of 6.54 billion shares. Declining stocks outpaced the advancers on the NYSE; as for 71% stocks that dropped, 27% stocks moved higher.
Charles Plosser, President of the Federal Reserve Bank of Philadelphia, said the Fed’s recent initiation of a bond buying program will not accelerate growth or improve the existing labor market conditions. He further added that this program would probably endanger the central bank’s credibility. Plosser’s comments were in sharp contrast to San Francisco Fed President John William’s comments on Monday that the central bank could expand the bond-buying program to reduce the unemployment rate more rapidly.
Separately, encouraging consumer confidence and home prices data failed to prevent the benchmarks from closing in the red. The Conference Board reported that the Consumer Confidence Index rose from 61.3 in August to 70.3 in August. This comes after a fall in August and also surpasses consensus estimates of a reading of 63.1. It is also the highest jump in the last seven months. Lynn Franco, the Director of Economic Indicators at The Conference Board, said: “Consumers were more positive in their assessment of current conditions, in particular the job market, and considerably more optimistic about the short-term outlook for business conditions, employment and their financial situation”. Moreover, the Expectations Index increased from 71.1 to 83.7 and the Present Situation Index rose from 46.5 to 50.2.
The Standard & Poor's/Case-Shiller home price data for July was also released yesterday. According to the report, the S&P/Case-Shiller 20-city composite index and 10-city composite index registered a month-on-month gain of 1.6% and 1.5%, respectively. Both these composites recorded their third straight month of gains in July.
Despite encouraging housing data, the sector suffered a decline yesterday. The SPDR S&P Homebuilders (XHB) lost 1.7% and stocks including Standard Pacific Corp. (NYSE:SPF), Lennar Corporation (NYSE:LEN), KB Home (NYSE:KBH), D.R. Horton, Inc. (NYSE:DHI) and Meritage Homes Corporation (NYSE:MTH) plunged 3.8%, 1.9%, 1.5%, 1.3% and 1.3%, respectively.
Meanwhile, shares of Caterpillar Inc. (NYSE:CAT) fell for the second day after it lowered its earnings forecast for 2015 on Monday. Shares of the world's largest construction equipment manufacturer dropped 4.2% and ended at $87.01. Last week, FedEx Corporation (NYSE:FDX) reduced its second quarter earnings estimates and Norfolk Southern Corp. (NYSE:NSC) reduced estimates for the third quarter.
The Technology Select Sector SPDR (XLK) also dipped 1.4% following the second day of declines for shares for Apple Inc. (NASDAQ:AAPL) as concerns arose about whether the company can produce and supply sufficient quantities of its iPhone 5 to meet the huge demand in time. The company’s shares lost 2.5% and closed at $673.54. Other stocks including Oracle Corporation (NASDAQ:ORCL), QUALCOMM, Inc. (NASDAQ:QCOM), Microsoft Corporation (NASDAQ:MSFT), Cisco Systems, Inc. (NASDAQ:CSCO) and Verizon Communications Inc. (NYSE:VZ) lost 2.9%, 1.5%, 1.3%, 0.7% and 0.1%, respectively.