Market Report – March 5, 2012

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In The Rear View Mirror:

Stocks sagged on Friday, incurring modest losses, but the Nasdaq and S&P 500 closed higher for the third consecutive week and for the eighth week in the past nine. The Dow Jones Industrial Average continues to hover around 13,000, but closed below that psychologically significant level on Friday with half of the index’s components closing high and the other 15 were lower on the day.

Pay more attention to the Nasdaq if you’re looking to measure risk

This is an ongoing, almost agonizing tryst with 13,000 the Dow is having. On an intraday basis during the week, the blue chip index crossed and fell back below the 13,000 market several dozen times. Still, investors should remember a couple of things on this front: The Dow is home to just 30 stocks and while a highly recognizable index, it’s not the most important game in town. Second, don’t look now, but the Nasdaq has crawled almost all the way back to 3,000.

It took over a decade, but Nasdaq 3,000 is actually a more significant event than Dow 13,000 not only because the Nasdaq is home to far more stocks, but also because the Nasdaq is a better gauge of risk appetite than the stodgy old Dow.

It was another wild week for commodities as the SPDR Gold Shares (NYSE: GLD) tumbled 3.33% and the iShares Silver Trust (NYSE: SLV) was off about 2%. Both ETFs fell off a cliff on Wednesday and struggled to regain that lost momentum late in the week.

The Markets @ 3/2/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 12977.57 -5.38 -0.04% 760.01 6.22%
NASDAQ 2976.19 12.44 0.42% 371.04 14.24%
S&P 500 1369.63 3.89 0.28% 112.03 8.91%
NYSE Comp 8125.18 -26.79 -0.33% 648.51 8.67%
NYSE Amex 2455.51 -14.11 -0.57% 177.17 7.78%
RUS 2000 802.42 -24.5 -2.96% 61.5 8.30%
VANG INTL 14.75 -0.04 -0.27% 1.69 12.94%
USX CHINA 5277.96 93.71 1.81% 748.16 16.52%
EMERG MKTS 7116.22 89.89 1.28% 1110.91 18.50%

 Market Report

In economic news, the Commerce Department said durable goods orders fell 4% in January, well above the 1% decline economists expected. The Conference Board said consumer confidence for February rose to 70.8 from 61.5 in January, easily topping the reading of 63 economists forecast.

The S&P/Case-Shiller Index of home prices in 20 cities fell 4% in December following a 3.9% drop in November. Economists expected a December decline of 3.7%. The Commerce Department revised its fourth-quarter GDP estimate to 3% growth from 2.8%. The U.S. economy grew at a pace of 1.8% in the third quarter of 2011.

The Institute for Supply Management-Chicago’s business index rose to 64 in February from 60.2 in January, beating the reading of 61.5 economists expected. Arguably more important than all of the aforementioned economic data points, new claims for jobless benefits fell by 2,000 to 351,000 last week. The previous week was revised up to 353,000. The four-week moving average fell by 5,500 to 354,000.

The Labor Department delivers the February jobs report on Friday March 9 and this data point could prove pivotal to the bulls’ near-term fortunes. A big disappointment and that could be just the excuse the bears need to start creeping back into the game.

Mixed results for last week

As noted above, the Dow disappointed but the Nasdaq and S&P 500 continued their impressive YTD gains…up 14.24% and 8.91% respectively. We also hated to see our bench mark small cap index give back almost 3% last week…it’s still hanging on to slightly more than 8% for the year so all in all…not too bad.

China and the emerging markets are still leading the parade with 16% to 18% gains,

Gold did an about face, closing Friday at $1,708.80…down $66.30. WTI Crude oil followed suit… down $3.07, to close at $106.70.

The dollar was up 0.0141 or 0.7577 Euros; the 10-year bond closed unchanged at $100.219 and the 30-year bond lost 0.062 to close the week at $100.438.

The Bottom Line for Stocks:

The week ahead promises to be an interesting one for equities. As we just noted, there is the jobs report on Friday, but we expect energy names to be in focus early this week following news of BP’s (NYSE: BP) Gulf of Mexico spill settlement. Europe’s second-largest oil company, over the weekend agreed to pay $7.8 billion to settle some claims related to the largest oil spill in U.S. history.

Risk takers should consider the following from Legend Merchant Group: “Small-cap stocks led the way from last October’s low, but are starting to underperform, another sign of late-stage action for the intermediate-term rally. Near last year’s low, micro-cap stocks marked time on good news, but are responding positively to good results now. Let’s see how they hold up [through] the next correction.”

Still, the overall environment, in our view, remains favorable to micro-caps.

Research and Editorial Staff
MicroCap MarkePlace