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Benchmarks dropped on Monday on concerns over dismal home sales data and apprehensions that the Federal Reserve may again trim its stimulus plan. Concerns related to emerging markets and fears an economic slowdown in China had dealt a severe blow to the benchmarks last week. These concerns were also evident yesterday and markets extended the losses.

For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article
The Dow Jones Industrial Average (DJI) dropped 0.3% to close at 15,837.88. The Standard & Poor 500 (S&P 500) was down 0.5% to 1,781.56. The tech-laden Nasdaq Composite Index tanked, the most as it dropped 1.1% to end at 4,083.61. The fear-gauge CBOE Volatility Index (VIX) dropped about 4% to settle at 17.42. Total volume on the New York Stock Exchange was 4.05 billion. The advancers were far outnumbered by the decliners on the NYSE, as for 26% stocks that gained, 72% stocks moved lower.
A move below the technical level of 1,800 for the S&P 500 may have accelerated selling. The next support level for the S&P 500 is pegged at 1,775. Apart from technical signals, the selloff was also triggered somewhat by the drop in sales of new single-family houses.
The U.S. Census Bureau and the Department of Housing and Urban Development jointly reported a 7% month-on-month decline in new single-family houses sales in December. Sales fell to 414,000, which was sharply lower than the consensus estimate of a seasonally adjusted annual rate of 414,000.
The SPDR S&P Homebuilders ETF (XHB) was down 0.5% yesterday and housing stocks like PulteGroup, Inc (NYSE:PHM), Lennar Corp. (NYSE:LEN), KB Home (NYSE:KBH), Hovnanian Enterprises Inc. (NYSE:HOV), Toll Brothers Inc. (NYSE:TOL) and Beazer Homes USA Inc. (NYSE:BZH) dropped 0.7%, 0.3%, 2.7%, 1.7%, 1.6% and 1.1%, respectively.
Markets were also dragged lower by apprehensions that the central bank will further trim its stimulus plan. The central bank had announced its decision following the conclusion of the Federal Open Market Committee meeting on Dec 18 to start tapering its $85 billion bond buyback plan. It was decided to reduce bond repurchases by $10 billion, bringing monetary stimulus to $75 billion a month from January.
Monday’s decline is a continuation of the bearish mood last week. The Dow was down 3.5% last week, registering its worst weekly loss since 2011. The Standard & Poor 500’s 2.6% weekly loss led to its worst weekly percentage decline since June 2012. The Nasdaq dropped 1.7% in the week.
Last week, reports of a contraction in China’s manufacturing activity had unnerved investors. At the same time, political and economic concerns emanating from emerging markets dragged currencies to multi-months low. In fact, emerging-market currencies suffered their worst selloff in five years. Argentina’s government said it would curtail its support to the foreign-exchange market, dragging the peso lower.
The peso had its worst fall since 2002. A threat to the stability of the government in Turkey has seen its currency hitting record lows of late. Separately, hryvnia, Ukraine’s currency, dropped to a four-year low. South Africa’s rand saw itself weakening beyond 11 per dollar for the first time since 2008.

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