Market Report – May 7, 2012

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In The Rear View Mirror:

U.S. stocks faltered on the week following the release of what can only be considered a major disappointment in terms of the April jobs report. On Friday, the Labor Department said employers added 115,000 new jobs in April, well below the 160,000 economists expected. The March number was revised up to 154,000 from 120,000. Of course it was nice that the March number was revised higher, and it’s worth noting the April number also has a tendency to be revised up, but traders spent the last day of the week focusing on the bad news.

The bad news was indeed bad

That sent the Dow Jones Industrial Average down almost 170 points on Friday alone. The blue chip index lost 1.4% for the week. The S&P 500 was far worse. A weekly loss of almost 2.5% means the broader market index endured its worst weekly performance of 2012. The bad week for the S&P 500 all but wiped out last week’s gains and now has traders fretting that the market may well be held hostage to a “sell in May and go away scenario” this year.

No help on the economic front

Without the help of positive economic data, high beta sectors were dealt significant blows on the week. While it doesn’t represent the entire energy sector, the Energy Select Sector SPDR (NYSE: XLE) tumbled 3.6% for the week and while the PowerShares QQQ (Nasdaq: QQQ) only tracks 100 stocks, it’s worth noting that fund fell 3.8%.

The Markets @ 5/4/2012
 
Index Close Weekly % Change YTD Change YTD%
DJIA 13038.27 -190.04 -1.44% 820.71 6,72%
NASDAQ 2956.34 -112.86 -3.68% 351.19 13.48%
S&P 500 1369.1 -34.26 -2.44% 111.5 8.87%
NYSE Comp 7933.3 -218.61 -2.68% 456.27 6.10%
NYSE Amex 2390.74 -44.13 -1.81% 112.4 4.93%
RUS 2000 791.84 -33.63 -4.07% 50.92 6.87%
VANG INTL 13.99 -0.42 -2.91% 0.93 7.12%
USX CHINA 4904.68 -98.82 -1.98% 374.88 8.28%
EMERG MKTS 6601.53 -111.67 -1.66% 596.22 9.93%

 Market Report

Last week, we said it was all about earnings. This week it was all about data and while there were some decent data points released earlier in the week, nothing compares to the magnitude of the monthly jobs update. The best thing that can be said is that the jobs situation is crawling in the right direction. The problem is the market doesn’t like crawls. It likes sprints.

Few of the earnings reports on the week were of the marquee varietal and we suspect even if they were, they would not have been enough to save stocks from the glum jobs news. For those interested, next week’s big earnings news comes courtesy of Dow components Cisco Systems (Nasdaq: CSCO) and Walt Disney (NYSE: DIS).

Foreign politics driving the show

Traders must now come to grips with the fact that the U.S. economic recovery is not as strong as previously expected and that down may be the path of least resistance in the near-term. Additional hurdles exist in the form of the French and Greek elections this weekend. With so few earnings reports to consider next week, market action will be determined by foreign politics and technicals.

What a difference a week makes…haven’t we said that before???

Totally across the board…every index we follow was flashing red numbers.

Of the major indices/indexes/take your pick… the Nasdaq was the most disappointing…dropping almost 113 points and closing down 3.68% “for the week!” Nasdaq is still showing a 13.48% gain YTD, but a far cry from the gaudy over 17% number we saw at last week’s close.

On the small cap front…the Russell 2000 gave back over 4% this week and sits just under a 7% gain for the year.

Gold and Oil moving in lock step…only this week, it’s down

Gold lost $19.30 for the week…closing at $1,644.70 while WTI Crude Oil lost $6.44 to close at under the hundred dollar level at $98.49.

The US dollar gained 0.0099, closing at 0.7643 Euros… EUR/USD = 1.30.

The 10-year bond is continuing its upward trend… +$0.500 to close at $101.063, and the 30-year bond gained $1.00 to close the week at $101.047.

The Bottom Line for Stocks

Do not take the “sell in May and go away” business to mean there are no opportunities in the micro-cap universe. Quite the contrary…we have identified several very interesting opportunities that we will be reporting on in the coming weeks.

While this is the type of market environment that try investors’ souls and patience, it is conducive to being selective with lower beta micro-caps such as health care, staples and select tech names. Energy names appear oversold at this juncture but some others in the micro-cap universe will reward us as we head into the summer months.

Research and Editorial Staff
MicroCap MarkePlace