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
NCI Building Systems
Investors may have been reacting to global equipment manufacturer Caterpillar
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
Caterpillar wasn't the only company to cut earnings estimates: Tesla Motors
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.
Plosser's claim that only fiscal policy, rather than monetary policy, can help unemployment underscores the importance of the upcoming election. Obama and Romney have very different economic goals, but investors can profit from the election of either candidate. The Motley Fool can help you get a strategy in place, with a special report on four companies to buy before the 2012 election. This report is free, and with only one month before the election, you should get your copy now.
Fool contributor Daniel Ferry owns shares of Caterpillar. The Motley Fool owns shares of Joy Global and Tesla Motors. Motley Fool newsletter services have recommended buying shares of Mueller Water Products and Tesla Motors. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.