Market Report – February 6, 2012

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In the Rear View Mirror: Buoyed by a surprisingly strong January jobs report, U.S. stocks surged into Super Bowl Weekend led by the Nasdaq, which finished higher by more than 3% on the week. The S&P 500 closed higher by more than 2% and the Dow Jones Industrial Average was up more than 1.6%. On Friday morning, the Labor Department said employers added 243,000 jobs in January, good for one of the best, if not the best, monthly jobs reports since President Obama took office. The unemployment rate dropped to 8.3%, the lowest mark in three years.

Micro & Small-caps are Rewarding Early Risk Takers

There were other decent economic data points throughout the week. Some came courtesy of the U.S., others came courtesy of global economic powers such as China and Germany… but it was all about Friday’s jobs report which seemed to confirm that it might be time for the broader markets to embrace riskier assets again. Small-caps certainly fit the bill as higher risk fare and the iShares Russell 2000 Index Fund (NYSE: IWM) was up more than 4% for the week while the iShares S&P SmallCap 600 Index Fund (NYSE: IJR) was up 4.3%. Early movers have been smiling for weeks now.

Micro-cap ETFs were even more impressive. The PowerShares Zacks Micro Cap ETF (NYSE: PZI) and the iShares Russell Microcap Index Fund (NYSE: IWC), two ETFs we’ve previously highlighted on Micro Cap Marketplace, were both higher by more than 4.7%. As we mentioned throughout January, if small-caps and micro-caps could take on a leadership role, than it would be confirmation Mr. Market wants to move higher and that appears to be the scenario we’re experiencing right now.

Those looking for large-cap opportunities should be aware of an interesting phenomenon taking place in 2012. Two of 2011’s best performing sectors, consumer staples and utilities, have become outright laggards this year while energy, financial services and materials names have all been market leaders. Again, this is a very healthy sign.

The Markets @ 2/3/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 12862.23 201.77 1.59% 644.67 5.28%
NASDAQ 2905.66 89.11 3.16% 300.51 11.54%
S&P 500 1344.9 28.57 2.17% 87.3 6.94%
NYSE Comp 8060.43 183.82 2.33% 583.4 7.80%
NYSE Amex 2417.81 61.39 2.61% 139..47 6.12%
RUS 2000 831.11 32.26 4.04% 90.19 12.17%
VANG INTL 14.49 0.39 2.77% 1.43 10.95%
USX CHINA 5229.97 108.65 2.12% 700.17 15.46%
EMERG MKTS 6939.33 213.61 3.18% 934.02 15.55%

 

Market Report

Did you know that the January performances for the S&P 500 and the Dow Jones Industrial Average were the best since 1997, gaining 4.4% and 3.3% respectively? Trading just over 2,900, the Nasdaq Composite could surpass 3,000 for the first time in over a decade if growth stocks and technology names continue their solid runs. What’s even more impressive about the market’s start to February ties into something we noted last week, and that is February is usually the weak link in the favorable six months of the year to own stocks.

Granted, we’re just three trading days into the month, but February is off to a solid start and the broader market’s strength is being validated by robust performances from small-caps and micro-caps. The longer this trend remains in place, the longer the bulls will have the ball in their court. Even though we’re just a month and a few days into 2012, it might just be safe to say the path of least resistance is higher and the bears are running out of ammunition.

Emerging Markets are Surging

Emerging-market stocks have been sprinting to the top of the heap and posted their best start to a year since 2001. Buoyed by improving macro data and reduced credit crunch fears, “Investors are taking on more risk,” said Yue Hin Pong, one of Citigroup’s analysts.

“Emerging markets will ‘perform very well’ this year as inflation is no longer a problem,” Adrian Mowat, JPMorgan Chase & Co.’s Hong Kong-based chief Asian and emerging-market strategist, said at a press briefing in Manila on Jan. 31. Source: Bloomberg.com

The USX China Index is up 15.46% YTD and the Dow Jones Emerging Markets Total Return Index took the lead position…gaining 15.55% since 12/31.

Nasdaq continues to be the leader for the majors, flashing a very strong 11.54% gain YTD. We of course are more than pleased to see the Russell 2000 up 12.17% for the year as it further underscores our penchant for the micro and small-cap sectors.

Gold has made a strong upward movement in the past several weeks; closing Friday at $1,737.90…up $6.10. Crude oil also moved back up a bit… +$1.72, to close at $97.84.

The dollar moved the other direction (-0.0036 or 0.7600 Euros); the 10-year bond lost $0.903 to close at $100.066 and the 30-year bond lost $1.187 to close the week at $100.094.

The Bottom Line for Stocks

Clearly, this is not the time to be establishing new positions in most conservative sectors and if you have positions in staples or utilities, be sure they’re dividend stocks so you’re at least compensated for your troubles. We’re not necessarily forecasting big declines for those sectors, but we are saying the current market environment is more conducive to risk.

If you have already added one or more of our featured micro-caps to your portfolio, like China XD Plastics Company Ltd. (NASDAQ: CXDC) or American Manganese, Inc. (TSX-V: AMY; PINKS: AMYZF) and are looking for more small cap exposure, consider one of the micro-cap ETFs we’ve profiled on MicroCap Marketplace in the past month.

CXDC is working its way back to positive territory…however, AMY has already rewarded us with a nice 33.33% gain in less than 60 days and we feel like it has another 40-50% short-term upside from here…and a lot more than that in the next 12 to 18 months as the Company gets closer to production.

Research and Editorial Staff
MicroCap MarkePlace