The National Association of Realtors released data indicating a 2.7 percent decline in home sales for August. This was a surprise to many investors after a 4 month upturn in home sales figures and a 7.2 percent increase in July.

These surprising results heighten the anticipation of a coming end to the $8,000 tax credit for new homeowners expiring at the end of November. The Fed said on Wednesday that it would begin reducing purchases of mortgage-backed securities and that it would extend the program into the beginning of next year. While nationwide home sales are up and the inventory of unsold homes has dropped notably, sales are still down roughly 30 percent from the peak 4 years ago.

Commodities prices also fell sharply indicating that fears about disintegrating monetary fundamentals may be justified. In addition, Labor Department statistics clearly show a flagging job market despite conclusions regarding a 3 week decline in unemployment claims. Initial claims for benefits fell by roughly 3 percent last week, outstripping economist’s expectations. Apparently this good news was steamrollered by the housing and commodities data.

Analysts are questioning the 7 month rally, balking at seemingly indiscriminate buying as an indicator of artificial value. With all major indices posting losses in early afternoon trading and commodity prices following the dollar’s overall progress downward, the Russell index of small-caps fell 1.8 percent.

With the Fed so recently painting a rosy picture of the financial landscape, savvy investors have come to realize that the market potential has shifted to the smaller, more efficient and aggressive companies. As Stephen Wood of Russell Investments indicated in a recent interview, the market is shifting into a defensive position in anticipation of the Fed’s “withdrawal of life support”.

Thus, investors are turning to smaller, leaner companies as a stable port in a perfect storm. Because of this prevailing awareness of the disintegrating fundamentals and decline of the dollar, the smart money is chasing business models that are adaptable and light on their feet.

With oil posting a 4 percent drop Wednesday due to an Energy Information Administration report citing a weak demand for energy, Oil prices saw further losses today, falling $2.51 to $66.46 a barrel on the NYME.

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