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Benchmarks ended lower on Wednesday after minutes of the US Federal Reserve’s latest policy meeting showed policymakers may continue with the tapering process. At the same time, they also debated when to raise short term interest rates. The largest drop in housing starts in about three years also weighed on the benchmarks coupled with International Monetary Fund’s view that that global growth remains unsteady.

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) gave away its 95 points gain in the morning to settle 0.6% lower at 16040.56. The Standard & Poor (S&P 500) went down 0.7% and finished Wednesday’s trading session at 1828.75. The tech-laden Nasdaq Composite Index lost 0.8% to drop to 4237.95, snapping its eight-day winning streak. The fear-gauge CBOE Volatility Index (VIX) increased 11.8% to settle at 15.50. The total composite volume on the NYSE was 3.6 billion. Advancing stocks were outnumbered by the declining stocks on the NYSE. For 35% stocks that gained, 63% declined.
 
The S&P 500 surged during the first half of the session but the rally was halted shortly before noon. Investors had focused on dismal housing data apart from searching for clues in the Fed minutes. The mood remained bearish following news that International Monetary Fund believes that global growth remains erratic with insistent downside risk. The IMF said “significant downside risks remain”; citing slowdown in China’s economic progression, growing political tensions from Ukraine to Thailand and Fed’s stimulus cuts as reasons for the drop in emerging markets’ stocks and currencies.
 
Coming back to domestic developments, housing starts data reported by the U.S. Census Bureau and the Department of Housing and Urban Development was a big disappointment. According to the data, privately owned housing starts in January plunged 16% to a seasonally adjusted annual rate of 880,000. Consensus estimate was expecting housing starts to be at 954,000. Also, single family housing starts tumbled 15.9%.  The privately owned housing units authorized by building permits were also down 5.4% to a seasonally adjusted annual rate of 937,000.
 
Following the news, SPDR S&P Homebuilders ETF (XHB) dropped 0.5%. Housing stocks such as Lennar Corp. (NYSE:LEN), DR Horton Inc. (NYSE:DHI), Toll Brothers Inc. (NYSE:TOL), KB Home (NYSE:KBH), Beazer Homes USA Inc. (NYSE:BZH) and PulteGroup, Inc. (NYSE:PHM) declined 0.5%, 0.6%, 1.3%, 1.8%, 1.0% and 0.7%, respectively.
 
US stocks were also negatively impacted after minutes from Federal Open Market Committee’s January meeting indicated that the central bank is willing to continue reductions in the asset purchase program. Moreover policymakers debated when the short term interest rate should be raised. According to the minutes, some officials “raised the possibility that it might be appropriate to increase the federal funds rate relatively soon”. Rates have remained near zero since December 2008.
 
Coming back to sectorial performance, eight of the ten sectors of the S&P 500 were in red with Financials declining the most. Financials sector SPDR (XLF) was the biggest laggard as it lost 1.4%. Key stocks such as Goldman Sachs Group Inc. (NYSE:GS), MetLife Inc. (NYSE:MET), Bank of America Corp. (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS), Wells Fargo & Company (NYSE:WFC) and Citigroup Inc. (NYSE:C) shares dropped 0.8%, 0.6%, 1.6%, 2.1%, 2.0%, 1.3% and 2.4%, respectively.

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