Market Report – June 18, 2012

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In The Rear View Mirror:

The weekly gains were small, but they were enough to help U.S. equities to their second consecutive weekly finish in the green. In a week fraught with headline risk, the performance of U.S. stocks can either be considered impressive or concerning, but not both. There are however two microcap sectors worth considering…read on.

Impressive or Concerning???

Impressive because some high-beta sectors such as energy and financial services helped lead the market higher. Concerning because the ebullience displayed by traders throughout seemed to indicate they were ignoring some hard-to-ignore issues. Spain’s credit ratings were lowered again this week and U.S. economic data was weak.

No Positive Spin for This Stuff

In economic news, the Commerce Department said retail sales fell 0.2% last month following a revised 0.2% drop in April. Excluding the 2.2% decline in gasoline sales, retail sales increased 0.1% in May.

The April/May declines were the first consecutive drops in retail sales in two years. On Friday, the University of Michigan-Thomson Reuters consumer-sentiment index slid to an initial June reading of 74.1from 79.3 in May. The initial June reading was the lowest since December and well below the 77.8 economists were expecting.

The New York Federal Reserve’s Empire Manufacturing Index fell to 2.3 this month, a 15-point drop from May and well below the reading of 13 economists expected.

A positive spin cannot be placed on any of these data points.

The Markets @ 6/15/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 12767.17 212.97 1.70% 549.61 4.50%
NASDAQ 2872.8 14.38 0.50% 267.65 10.27%
S&P 500 1342.84 17.18 1.30% 85.24 6.78%
NYSE Comp 7664.27 110.5 1.46% 187.24 2.50%
NYSE Amex 2288.54 25.66 1.13% 10.2 0.45%
RUS 2000 771.32 2.13 0.28% 30.4 4.10%
VANG INTL 13.17 0.25 1.93% 0.11 0.84%
USX CHINA 4433.87 32.73 0.74% -95.93 -2.12%
EMERG MKTS 6114.68 127.88 2.14% 109.37 1.82%

Market Report

What really drove the market higher this week was speculation that global central banks will act swiftly to flood financial markets with liquidity should the results of Sunday’s Greek election disappoint investors. This peculiar scenario deserves further examination.

First, all Greece has done for the better part of two years is disappoint investors.

Second, no central bank chief actually confirmed plans for additional quantitative easing are in place.

Third, given the fact that stocks and riskier assets rallied on rumors of more easing, it’s almost as if investors had been cheering for the worst-possible outcome in Greece on Sunday.

That was an intriguing situation to be sure, but the reality is neither of the outcomes regarding Greece are particularly appealing longer term. Greece still faces a mountain to climb to get its fiscal house in order.

The anti-bailout party is still able to swing some authority, we’ll see if they are interested in playing “nice;” had they won, that would almost certainly had punched Greece’s ticket out of the Eurozone, further calling into question the integrity of the common currency scheme.

Looking kinda sorta good…two weeks in a row!

Green, green and more green was the color of the week for all of the indices we follow…YEA. Not nearly as strong as last week, but welcomed nonetheless.

Nasdaq moved above the 10% YTD number with a 0.50% gain for the week; the DJIA, S&P 500, NYSE Comp and Amex all turned in gains of over a full percent…respectively 1.70%, 1.30%, 1.46% and 1.13%

That’s six out of six and now all are also back into positive territory for the year.

China, Internationals and Emerging Markets Continue a Comeback

The China sector, international markets and emerging growth continued their about face with the Emerging Markets index up a solid 2.14%.

Crude Oil and Gold keep Swapping Places…up one week and down the next!

WTI Crude Oil was off $0.07 to close at $84.03…virtually flat for the week; but still above the critical support level of $80.

Gold moved back above the $1,600 level…up $36.90 last week, closing at $1,627.00…the gold bugs like this trend.

The US dollar was up $0.0076 to close at 0.7914 Euros… EUR/USD = 1.27.

The 10-year bond was off again this week…losing $0.516, closing at $101.563, and the 30-year bond gave back $1.297 to close at $106.469.

The Bottom Line for Stocks

Forecasting what lies ahead is always difficult, but we know this much: The outcome of the Greek elections will determine the near-term direction for stocks. There may be a Monday rally awaiting investors… and that rally may have life for a few days, but there is already rampant speculation that the rally will fade and fade quickly.

To that end, the key to micro-cap investing at the moment is looking for sectors that are not expensive on a valuation basis and not intimately correlated to the goings-on on the other side of the Atlantic.

That brings us to two sectors that are giving micro-cap investors plenty of reason to cheer these days: Biotech and precious metals miners. We would assign both an “overweight” status for the next 30-60 days. Over the next few weeks we’ll focus on some of our favorite names.

Research and Editorial Staff
MicroCap MarkePlace