The downward correction in the stock market continued Tuesday, as equities trim big price run-ups from a strong summer. Capital goods manufacturers lost 1.5%, pulling the S&P 500 down more than 1%. The index had started strong with a spate of good news indicating underlying strength in the ongoing recovery. However, most companies were unable to hold onto gains after a regional central bank president expressed public skepticism toward Federal Reserve action and hinted at dissension among public bankers.

Among the day's items of good news was the release of the Case-Schiller index, a composite of home prices in major metropolitan areas. Prices rose in July by about 1.5%, beating expectations and adding support to the idea that the housing market has reached the bottom and is now swinging up.

A housing recovery would necessitate the buildout out of municipal water lines, which would benefit water infrastructure supply manufacturer Muller Water Products (NYSE: MWA). The company was one of the few to keep its morning gains through the afternoon, ending up more than 2%.

NCI Building Systems (NYSE: NCS) wasn't so lucky, ultimately losing more than 4.5%. Since the company manufactures metal products used in nonresidential construction, it might be expected to perform well in a housing recovery, as schools and retail would be needed to service new neighborhoods.

Investors may have been reacting to global equipment manufacturer Caterpillar (NYSE: CAT) and its announcement of earnings projections well below analyst estimates, with CEO Doug Oberhelman blaming prolonged economic weakness. "We think 2013 could look like 2012 in terms of worldwide economic growth," he told analysts.

With inside data from construction projections the world over, Caterpillar's outlook is taken seriously as an indicator of global economic health. Caterpillar's shares were down 4.25% on the news, but other equipment makers, often with weaker balance sheets than Cat, also suffered. Joy Global (NYSE: JOY) was particularly hard hit, down nearly 5.5%. Joy's equipment is used in coal mining, so low energy prices put cost pressure on Joy's customers.

Caterpillar wasn't the only company to cut earnings estimates: Tesla Motors (Nasdaq: TSLA) announced that it has fallen behind its production goals. The company blamed supplier shortcomings and asserted that it was more focused on product quality than production ramp-up, but investors weren't impressed, and the stock fell nearly 10%. Tesla also filed to sell more than 4 million shares, increasing the company's 105 million shares outstanding, to raise capital for general business expenses.

The biggest drag on stocks, however, was a speech from Charles Plosser, President of the Federal Reserve Bank of Philadelphia. Plosser asserted that the Federal Reserve's latest attempt to prop up house prices, stimulate economic recovery, and reduce unemployment, announced earlier this month, will probably fail. He was similarly skeptical of actions by Europe's central bank to spur economic growth, saying that the region's fiscal policy and politics were the cause.

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