In The Rear View Mirror:  It may not feel like it, but the just-completed week was the best one of 2012 as U.S. equities shrugged off tepid domestic data points and lingering concerns about Europe’s sovereign debt crisis to race higher. The S&P 500 jumped 3.7% for the week while the Dow added 3.6%. The Nasdaq led the charge with a gain of 4% in what turned out to be the best weekly run for U.S. stocks since December 2011.

Friday was the second-best day of the week after Wednesday, but the issue was volume. As in light volume, which some might take as a sign that either buyers are lacking conviction or plenty of investors remain on the sidelines. Gains were on light volume of 6.2 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, compared with the year-to-date daily average of 6.85 billion shares, according to Reuters data.

Micro-caps Outperform Big Boys

It was a strong week for micro-caps as well with the asset class outperforming their large-cap brethren. Just look at the gains accrued by some of the major micro-cap ETFs we track. The iShares Russell Microcap Index Fund (NYSE: IWC) was up 4.4% on the week. The PowerShares Zacks Micro Cap ETF (NYSE: PZI) jumped 3.8% while the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) led the way with a pop of 4.6%.

The Markets @ 6/8/2012
Index	Close	Weekly	% Change	YTD Change	YTD%
DJIA	12554.2	453.63	3.59%	336.64	2.76%
NASDAQ	2858.42	110.94	4.04%	253.27	9.72%
S&P 500	1325.66	47.62	3.73%	68.06	5.41%
NYSE Comp	7553.77	261.54	3.59%	76.74	1.03%
NYSE Amex	2262.88	86.95	4.00%	-15.46	-0.68%
RUS 2000	769.19	31.77	4.31%	28.27	3.82%
VANG INTL	12.92	0.43	3.44%	-0.14	-1.07%
USX CHINA	4401.14	143.25	3.36%	-128.66	-2.84%
EMERG MKTS	5986.8	139.46	2.39%	-18.51	-0.31%

Market Report

There was ample headline risk this past week as traders all over the world were betting on announcements for monetary stimulus from global central banks that did not materialize. Following the European Central Bank meeting on Wednesday, the ECB made no overt comments regarding more quantitative easing. If anything the ECB should have rattled global markets with its comments that essentially said Europe’s economic problem children need to do more heavy lifting on their own.

Bernanke Stands Pat…traders not impressed

Federal Reserve Chairman Ben Bernanke took to Capitol Hill on Thursday with traders once again hoping and praying the central bank chief would make comments that would indicate QE3 is imminent. Bernanke did no such thing. He did say that the Fed stands ready to act if the U.S. economy falters and/or if the health of the U.S. financial system again becomes comprised, but those comments weren’t enough to lift the spirits of eager traders hoping for more easing.

Following those comments, U.S. stocks erased what had been healthy gains in the earlier part of Thursday’s session, wilting into the close. However, Friday was a new day, and equities showed their resilience by closing the week in stellar fashion.

Are we on the roller coaster at “Six Flags?”

Green was the color of the week for the six domestic indices we follow…a total reversal of the reversal we saw only seven days ago.

Nasdaq rebounded with a 4.04% gain for the week; the DJIA and NYSE Composite turned in identical gains of 3.59% and the S&P 500 beat both of ‘em with a very nice bounce of 3.73%.

Five out of six domestic indices were back into positive territory for the year…only the Amex was lagging behind at -0.68% YTD.

China, Internationals and Emerging Markets Showing Strong Weekly Gains

The China sector, international markets and emerging growth made an abrupt about face and were dragged up this week along with the broader markets. ..Bernanke’s lack of support and continuing Euro problems put a damper on the party Friday, but the trend reversal was a welcome relief from what had been a full scale slide.

Crude Oil moved up slightly but Gold didn’t hold the support line

WTI Crude Oil was up $0.87 to close at $84.10…a small but important 1% move in the right direction. As was noted last week, $80 a barrel is a critical support level and “crude oil could be in deep trouble if it doesn’t hold that price.”

Gold lost $30.40 last week, closing at $1,590.10…$1600 is a round number support level and as we have seen several times of late, when it moves down thru this psychological point, central banks step in. The question that begs to be asked of course is…will there be enough buying or do we see a sell off to the $1550 range??? Keep an eye on early trends.

The US dollar took a breather last week, off $0.0053 to close at 0.7990 Euros… EUR/USD = 1.25.

The 10-year bond was off $1.703, closing at $101.047, and the 30-year bond gave back $4.859 (erasing all of last week’s gains plus) to close at $105.172.

The Bottom Line for Stocks

This was another weekend fraught with significant headline risk. Policymakers in Spain are widely expected to finally ask their Euro Zone counterparts for help in bolstering the ailing banking system in the Euro Zone’s fourth-largest economy. Should this plan look viable and if it emerges over the weekend, expect stocks to soar in early trading.

It could lead to a near-term rebirth of the “risk on” trade and that would be a boon for micro-caps, particularly energy, materials and mining names.

Per usual, China looms large as the world’s second-largest economy was expected to release some key data points of its own this past weekend. Should these data points disappoint and indicate China is headed for a hard landing, global stocks could prove even more vulnerable this week.

Research and Editorial Staff
MicroCap MarkePlace