US stocks fall

U.S. stocks fell for the first time in three days as a worst-than-estimated reading on consumer confidence added to concern the rally in the Standard & Poor’s 500 Index to a 10-month high has outpaced the prospects for the economy’s recovery.

Boeing Co., the world’s second largest commercial airplane manufacturer, led declines in the Dow Jones Industrial Average after saying it found flaws in 23 of its 787 Dreamliners. Alcoa Inc., 3M Co. and Travelers Cos. also slumped as commodity, financial and industrial shares posted the biggest declines.

“A lot of people think the market has come up more than enough and it needs to rest,” said Charles Knott, chief investment officer at Knott Capital Management in Exton, Pennsylvania, who oversees about $550 million. “We’ve got a pretty sobering outlook and are concerned about the economy on a long-term basis. We think there’s neither the will power nor the means to fully finance that type of V shape recovery.”

The Standard & Poor’s 500 Index slipped 1.3 percent to 999.55 at 10:07 a.m. in New York. The Dow Jones Industrial Average lost 105.66 points, or 1.1 percent, to 9,292.53.

U.S. stocks are “dramatically overpriced” because the fallout from the financial crisis will continue to hurt consumer spending, said David Tice, Federated Investors Inc.’s chief portfolio strategist for bear markets. Tice, who predicts that the S&P 500 will eventually slump to 400, said he would add to short positions if the market goes much higher.

‘Need to Be Realistic’

“I’d love for prosperity to return, unfortunately I think you need to be realistic and it takes time to work off these excesses” from a bubble in credit markets, Tice said in an interview with Bloomberg Television.

Pacific Investment Management Co.’s Mohamed El-Erian said stock market investors are overly optimistic. Current market valuations aren’t warranted by the economic outlook for 2010, El-Erian, co-chief investment officer at Pimco, told CNBC.

Consumer confidence fell in August for the second straight month, as concern over jobs and wages grew. The Reuters/University of Michigan preliminary index of sentiment fell to 63.2 from 66 the month before. Economists had forecast a rise to 69, according to the average estimate in a Bloomberg News survey.

Equities declined even after industrial production in the U.S. rose for the first time in nine months after mid-year retooling at automakers and as a federal “cash-for-clunkers” program fueled demand for cars. The 0.5 percent increase in output at manufacturers, mines and utilities was more than forecast, Federal Reserve figures showed.

Source: Bloomberg

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