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US stocks fall on Fed’s Fisher comments

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US stocks fall on Fed’s Fisher comments

The benchmark gauges took a tumble Monday following comments from Federal Bank of Dallas President Richard Fisher. As one of the Fed’s most outspoken critics of quantitative easing, Fisher warned investors not to rely on the central bank’s monthly asset purchase program. Speaking in front of an audience in Portland, Oregon, the Dallas Fed President went on to say market participants have grown too accustomed to federal stimulus, a trend that has distorted the pricing of financial assets. Despite the Fed’s decision last week to maintain the current pace of quantitative easing, anxiety over bond tapering re-emerged following Fisher’s speech.

Stock indices fell from their record highs on Fisher’s comments, as investors look to reshuffle their portfolios on expectations of imminent bond tapering. The S&P 500 declined 0.15 percent to 1,707.14, following a Friday close of 1,709.67. The Dow Jones Industrial Average took the biggest hit, closing at 15,612.10 after a 0.3 percent decline. The NASDAQ Composite managed to hold ground, gaining less than 0.1 percent to 3,692.95.

The debate over the pace and timing of the Fed’s latest round of quantitative easing has raged on for most of the year. The debate reached its apex during the June 18-19 FOMC policy meetings, which had most investors convinced bond tapering was imminent. The Fed has since backed off its rhetoric, with central bank Chairman Ben Bernanke doing his part to ease the market’s expectations. Fisher’s comments point to an increasingly divided Fed, as the possibility of QE reduction continues to hang in the balance.

US stocks were unable to rally on news the US services sector advanced at a significantly faster rate than expected in July. The ISM Non-Manufacturing PMI showed a reading of 56.0 for July, higher than the previous month and beating expectations for 52.2. A reading above 50.0 is a general sign of growth in the non-manufacturing industries, further indication of deepening US recovery.

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