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 that the Fed's effort to support the economy would probably 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 at Harris Private Bank. The plan includes buying 40 billion US dollars (£24 billion) in mortgage bonds each month until the economy improves.
The Standard & Poor's 500 index lost 15.30 points, its fourth straight decline, to close at 1,441.59. The 1.05% 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%. The world's largest maker of heavy plant equipment said on Monday that slower economic growth around the world dampened its earnings forecast. Its stock sank 3.86 dollars to 87.01 dollars.
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.
Caterpillar joined a growing collection of companies which have lowered their earnings forecasts. FedEx, a bellwether of world trade, said that shipping has sunk to recession-like levels. Rail giant Norfolk Southern has also warned that falling shipments and sinking coal prices will probably 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 dollars, but closed the trading day at 749.16 dollars. Meanwhile, Apple, the largest public company in the world, lost 17.25 dollars, or 2.5%, to close at 673.54 dollars. It has lost more than 26 dollars 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%.