Market Report – April 16, 2012

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In The Rear View Mirror:

Maybe April showers will bring some May flowers, but the storm U.S. stocks have drummed up in 2012 has been no fun for investors to deal with. The week that was saw the S&P 500 tumble to its first two-week decline since November.

Actually, the just completed trading week was the worst for the benchmark U.S. index since mid-December and that’s even more alarming when taking into account Wednesday and Thursday combined for the best two-day run for U.S. stocks in 2012.

Macroeconomic factors weighing heavy on investors

Perhaps it sounds like playing a broken record, so please forgive us, but once again global macroeconomic concerns played a large part in the declines investors had to contend with over the past week. Of course, Europe played a hand in that, but economic data points unveiled here in the U.S. were tepid at best.

U.S. factors add to concerns

On Thursday, the Labor Department said weekly jobless claims rose by 13,000 last week to a seasonally adjusted 380,000 claims. That’s the highest reading in two months and well above the 355,000 claims economists expected.

Then on Friday, the Consumer Price Index was unveiled, showing an increase of 0.3% last month, matching economists’ expectations. Excluding food and energy prices, CPI rose 0.2%. The preliminary consumer sentiment reading for April fell to 75.7 from a final March level of 76.2, according to the University of Michigan/Thomson Reuters survey.

The Markets @ 4/13/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 12849.59 -210.55 -1.61% 632.03 5.17%
NASDAQ 3011.33 -69.17 -2.25% 406.18 15.59%
S&P 500 1387.57 -11.39 -0.81% 129.97 10.33%
NYSE Comp 7931.1 -150.25 -1.86% 454.07 6.07%
NYSE Amex 2353.34 -25.58 -1.08% 75 3.29%
RUS 2000 796.29 -21.89 -2.68% 55.37 7.47%
VANG INTL 14.06 -0.19 -1.33% 1 7.66%
USX CHINA 4978.64 -4.89 -0.10% 448.84 9.91%
EMERG MKTS 6728.06 -69.86 -1.03% 722.75 12.04%

Market Report

Believe it or not, the U.S. data points were actually pretty good compared to what we saw overseas. Yields on 10-year government bonds issued by Italy and Spain are blowing out, with Spanish 10-year yields rapidly approaching 6%.

In addition, Spain suffered through a bond auction earlier in the week that show less-than-inspired demand indicating investors aren’t all that excited about Spanish bonds and the ones that are want to be compensated for taking the risk.

Bottom line: The market now views a bailout for Spain as almost a foregone conclusion. That means the Euro Zone’s fourth-largest economy would also be the fourth European nation to command a bailout. The problem with that scenario is a bailout for Spain probably means one for Italy and neither the International Monetary Fund nor the European Central Bank has a way of quickly dealing with either ugly scenario.

China growth slower than expected

Of course, we cannot forget China, which doomed U.S. stocks from closing the week in strong fashion. Early Friday, China reported a first-quarter GDP growth rate of 8.1%. That sounds good, but part of the reason for the market rally on Thursday was a rumor that China’s first-quarter GDP would come in above estimates. That was not the case as economists were expecting growth of 8.3%.

RED makes for an “Ugly Chart”

The Dow lost 210 points this week (-1.61%)…add that to the 152 point loss last week and we’re seeing an ugly trend. Mr. Dow closed below 13,000 at 12,849.59…still up 632.03 and +5.17% YTD…but losing ground fast.

The Nasdaq got killed…losing 69.17 points or 2.25%. YTD gains are still really good at 15.59%, but like the Dow, leaking oil too fast for comfort. The S&P 500 gave back a little more than last week… down 11.39 points and 0.81% for the week. Up slightly more than 10% YTD.

The Russell 2000 led our list of losers…off 21.89 or down 2.68%…our small-cap benchmark dropped way below 10% gains YTD…hanging on for dear life at 7.47%.

The NYSE Composite and NYSE Amex were not immune either…losing 1.86% and 1.08% respectively.

The Internationals and Emerging Markets both gave back over 1% each and China completed the Red March with a small 0.10% loss…and that was in face of some less than sterling economic news.

As we noted last week…when things go south…they can really go south in a hurry.

This Mixed Results Story is repeating itself…four weeks in a row

Gold is up…the dollar is down…bonds are up…oil is down.

Gold gained $30.60 to close at $1,659.10.

The US dollar lost 0.0009, closing at 0.7646 Euros.

The 10-year bond continued up… +$1.750 at $100.125, and the 30-year bond gained $3.750 to close the week at $99.938.

WTI Crude Oil did an about face for the week…closing at $102.83; off $0.48.

Offering a difference of opinion to T. Boone Pickens’ $148 forecast which we reported in our Market Report of April 9th…the International Monetary Fund said last week that it expects prices of oil and other commodities to decline this year and next due to a weak global economic outlook; they also stated that “sizable” threats to world growth could force a further fall in prices.

The IMF further noted that a sudden shortage of crude-oil supplies would send prices higher, “but the ensuing slowdown in global growth could lead to a decline in the prices of other commodities.”

“The global outlook…is pretty grim still,” said senior IMF economist Rupa Duttagupta.

The Bottom Line for Stocks

The current market environment is telling investors that now is not the time to embrace substantial risk, though sentiment can shift on a dime these days. With earnings season upon us, it would not be surprising to see the market trade sideways until after the marquee reports from large-caps have been absorbed and investors can sort out where to take the market from here.

Sector specific micro-caps offer opportunities

The good news is the March/April retrenchment has created buying opportunities across several sub-sectors of the micro-cap universe, notably emerging markets, energy and raw materials, financials and health care. Those are the places to look for the good micro-cap deals at the moment.

Research and Editorial Staff
MicroCap MarkePlace