Market Report – May 28, 2012

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In The Rear View Mirror: U.S. stocks headed into the long holiday weekend on a down after enduring modest losses in Friday’s light-volume, lethargic session. The good news is that on a weekly basis, the S&P 500 gained 1.7% this week and the Dow Jones Industrial Average added 0.7%. Mercifully, a four-week losing streak for the S&P 500 was snapped in the process.

Give U.S. stocks credit for even getting that far because the market had to contend with plenty of international economic reports that showed global growth is slowing. Of course, Europe was at the center of this week’s calamity as well. Policymakers on the other side of the Atlantic are talking the talk, saying they want Greece to remain part of the Euro Zone and that Greece itself wants to retain its membership.

Greece is slipping away while Spain sticks its head in the sand

The reality is Greece is more than likely on its way out. Citigroup said Greece will no longer be a Euro Zone nation sometime next year. The problems don’t end there. Spain, the Euro Zone’s fourth-largest economy, desperately needs to recapitalize its banks. Everyone in the world seems to know that except for the powers that be in Spain because they’re refusing to commence with recapitalization. In other words, this has been a long weekend with substantial headline risk that could affect the short market week.

The Markets @ 5/25/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 12454.83 85.45 0.69% 237.27 1.94%
NASDAQ 2837.53 58.74 2.11% 232.38 8.92%
S&P 500 1317.82 22.6 1.74% 60.22 4.79%
NYSE Comp 7534.33 106.59 1.44% 57.3 0.77%
NYSE Amex 2227.38 17.84 0.81% -50.96 -2.24%
RUS 2000 766.41 19.2 2.57% 25.49 3.44%
VANG INTL 12.82 -0.01 -0.08% -0.24 -1.84%
USX CHINA 4360.93 -43.14 -0.98% -168.87 -3.73%
EMERG MKTS 5943.23 -33.57 -0.56% -62.08 -1.03%


Market Report

It would seem that if you’re going to be involved with stocks these days, best to carry out that posture with U.S. equities. For as bad as the S&P 500 has been over the past few weeks, things are much worse in foreign markets, both established and emerging; but there could be some building opportunity here…will have additional comments below.

Here at home, at least there were some decent economic data points this week.

The weekly jobless claims number fell to 368,000 last week from 370,000 the week before. The less volatile four-week moving average has fallen for three straight weeks. Continuing claims declined to 3.26 million.

The Commerce Department said durable goods orders rose 0.2% in April after a 3.7 percent decline in March. Core capital goods orders fell 1.9% following a 2.2% drop in March. Excluding transportation, durable goods orders fell 0.6% compared with a 0.8% decline in March.

On Friday, the Thomson Reuters/University of Michigan’s final reading on May consumer sentiment jumped to 79.3 from 76.4 in April. Economists expected a May reading of 77.8.

Remember, next Friday is the first Friday of a new month and that means the Labor Department will be releasing the May jobs report. Economists are forecasting the addition of 150,000 new jobs.

Domestic Indices Reverse Trend

The six domestic indices we follow all were spray painted with green numbers…a welcome sight for individual as well as institutional investors.

Of the majors, Nasdaq led the reversal, gaining 2.11% and moving the YTD number back up to 8.92%.

The Dow eked out a weekly gain of 0.69% and is hanging onto a 1.94% gain YTD. The S&P 500 showed some signs of recovery with a 1.74% weekly gain and is just under five percent for the year at 4.79%. The NYSE Amex is the only major index still in the red YTD, at -2.24%.

The Russell 2000, our small-cap benchmark, reclaimed some luster this week with a +2.57% gain and sits at a +3.44% for the year.

China, Internationals and Emerging Markets continue to lose ground

The China sector, international markets and emerging growth continued to lose ground…and as we noted last week, money in those funds was flowing south like the Mississippi River. However…where there’s wide spread investor sentiment, there may also be opportunity, because the crowd is very seldom right.

Growth and Opportunity Demand Attention

We read an interesting article by Ken Moraif, CFP, addressing the long term trends in emerging markets, in particular, Brazil, Russia, India and China. To paraphrase his thoughts, these countries represent 75% of the world’s land mass, 80% of the population, 65% of all economic growth and 75% of the world’s cash…the last stat being a key to this short missive.

They have young growing populations, which translates to a lot of new consumers… (editor’s note: and lots of new companies to satisfy this growing demand)…and these markets represent just 13% of the world’s stock markets.

With Europe on its back and the U.S. slowly recovering, emerging economies will most likely drive world growth in the short to mid-term and for sure in the longer view of things and savvy investors should try to participate within the limits of their risk tolerance.

In our opinion, look at individual stocks if you are an experienced investor or mutual funds and ETFs if you want broader diversification.

Crude Oil and Gold slip while the US Dollar strengthens

WTI Crude Oil lost $0.62 to close at $90.86…gold lost $22.80 to close the week at $1,568.80…while the US dollar gained 0.0167, closing at 0.79898 Euros… EUR/USD = 1.25.

The 10-year bond stayed above the 100 dollar level, but lost $0.156 to close at $100.094, and the 30-year bond continued its upward march, gaining $2.313 to close the week at $106.188.

The Bottom Line for Stocks

Another issue for stocks to contend with, particularly high beta, riskier sectors, is the stronger dollar. The rising greenback explains the 15% decline this month for oil and the recent repudiation of gold. It also indicates that investors are resisting risk.

That leads us to again reiterate a preference for staples and health care micro-caps at the moment. There is a silver lining, no pun intended, and it exists in the form of noticeable strength among precious metals miners in recent days.

Gold and silver miners have been badly beaten down in the past 12-18 months, falling even while the metals they produce increase in value. That trend has shown signs of reversing and the rising tide could lift the sails of plenty of micro-cap miners. Check back frequently because we intend to cover some interesting opportunities in the coming weeks/months here at MicroCap MarketPlace.

Research and Editorial Staff
MicroCap MarkePlace