U.S. stocks fall as economists predict Fed will reduce stimulus

Bullard Speech

Fed Bank of St. Louis President James Bullard, who has backed continued bond purchases by the Fed, said policy makers should be careful in changing course based solely on their economic forecasts, which have proven in the past to be too rosy.

Federal Open Market Committee forecasts “have tended to be too optimistic over the last several years,” Bullard, who votes on monetary policy this year, said today in the text of prepared slides for a speech in Paducah, Kentucky. “Given this experience, I think caution is warranted in taking policy action based on forecasts alone.”

Last week, Charles Evans, Sandra Pianalto and Richard Fisher, regional Fed presidents in Chicago, Cleveland and Dallas, said the central bank may be closer to tapering as the labor market recovers. Fed Bank of Atlanta President Dennis Lockhart said yesterday that policy makers may start to slow buying at any of their next few meetings amid “uneven performance” by the economy.

‘Lining Up’

“The market is beginning to get a little nervous of the fact that most things are probably lining up towards a taper,” Burt White, chief investment officer who helps oversee $390 billion at LPL Financial in Boston, said in a phone interview. “If you look at the data that’s been coming through in the last week or so, they’ve been supportive of taper.”

The Chicago Board Options Exchange Volatility Index, or VIX, rose 5.9% to 13.04. The equity volatility gauge reached its highest level this year in June and has since fallen 36%.

Nine of 10 S&P 500 industries slipped today as health-care and consumer-discretionary stocks fell the most, sinking at least 0.7%. Home Depot Inc. slid 2.5% to $77.44, for the largest drop in the Dow.

Macy’s fell 4.5% to $46.33. Chief Executive Officer Terry Lundgren used promotions during the quarter to clear inventory that had built up as a cool spring curtailed purchases of summer clothing and the bumpy economy restrained consumers’ spending.

787 Dreamliner

Boeing Co. lost 2% to $104.16. The company’s 787 Dreamliner suffered a fresh setback after ANA Holdings Inc., the model’s biggest operator, said it discovered wiring defects in the fire-suppression system on three aircraft. Boeing’s flagship jet is already under scrutiny following a fire in London last month that U.K. investigators linked to an emergency beacon.

An S&P gauge of homebuilder stocks sank 1.8% to the lowest since November as yields on Treasuries approached the highest level this year, spurring concern rising interest rates will hinder a housing recovery. Ten of the index’s 11 members declined. PulteGroup Inc. slid 1.7% to $15.11. D.R. Horton Inc. fell 2.4% to $18.09 for an eighth day of losses.

US Airways

US Airways Group Inc. slumped 1.2% to $16.17, extending its two-day slide to 14%. The U.S. Justice Department yesterday recommended blocking a proposed American Airlines-US Airways merger, saying the deal would lead to less competition in the industry and higher prices for consumers.

TripAdvisor Inc. tumbled 9.2% to $73.55 for the biggest drop in the S&P 500. The online travel research company fell after an executive speaking at the Canaccord Genuity Growth Conference in Boston said summer so far has been “bumpier” than forecast and traffic is “holding but not as strong” as anticipated.

Cree Inc. plunged 22% to $58.83. The maker of energy-efficient lighting products predicted earnings in the first quarter will be no more than 41 cents a share, missing the average analyst estimate by 2 cents.

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