Market Report – July 23, 2012

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In The Rear View Mirror:Things were going along quite well for stocks this week. That is until Friday rolled around. The final trading session of the week was the worst in a month for the S&P 500 as traders hit the sell button on the back of more Eurozone fears.Spain screwed it up again!

While it might have felt Europe has been more docile than usual over the past couple of weeks, Spain reminded investors the continent’s sovereign debt crisis is far from over. Spain, the Eurozone’s fourth-largest economy, said its already deep recession will definitely run into 2013 and that the country’s various regional governments are facing financing issues of their own.

 Banks stocks hit the down button

Not surprisingly, the glum European news plagued bank stocks. Financial services is the second-largest sector weight in the S&P 500 behind technology, so to say the broader market needs bank stocks to chip in on this rally is stating the obvious. Unfortunately, the chipping in did not occur on Friday as financials were the worst-performing of the 10 tracked within the S&P 500.

The Markets @ 7/20/2012

Index Close Weekly % Change YTD Change YTD%
DJIA 12822.57 45.48 0.36% 605.01 4.95%
NASDAQ 2925.3 16.83 0.58% 320.15 12.29%
S&P 500 1362.66 5.88 0.43% 105.06 8.35%
NYSE Comp 7759.59 0.91 0.01% 282.56 3.78%
NYSE Amex 2380.72 7.35 0.31% 102.38 4.49%
RUS 2000 791.54 -9.45 -1.18% 50.62 6.83%
VANG INTL 13.36 -0.02 -0.15% 0.3 2.30%
USX CHINA 3944.91 -210.13 -5.06% -584.89 -12.91%
EMERG MKTS 6227.32 52.49 0.85% 222.01 3.70%

Market Report

Major Market Indexes Positive for Week in spite of Friday Sell Off

It wasn’t a strong showing but the Dow, Nasdaq, S&P 500, NYSE and AMEX Composites all finished in the green for the week… fueled by three days of positive earnings reports. Nearly three-fourths of the companies that have reported second-quarter earnings so far have beat expectations, according to FactSet. (Daily Finance)

Friday’s sell off took the bloom off that rose.

The US Dollar continued its rise against the Euro (closing at 0.8224 Euros, +0.0061); the price of treasuries continued to push yields down even more….the 10-year bond closed at $102.672 (up $0.281) while the 30-year bond was up $0.625 to close at $109.469.

WTI Crude Oil made a strong upward move… +$4.34 for the week…closing at $91.44 a barrel.

As we mentioned last week…the gold sea saw is making us seasick

Up, down…up, down…so naturally Gold was down; -$9.10 for this week to close at $1,582.50; and as it moves further away from the $1600 support level, the gold bugs get even more nervous.

The major loser again this week was China…the USX China Index gave back a whopping 5.06% and that was on top of a whopping -3.93% the previous week…and now it’s off 12.91% YTD…and by a wide margin, it is the only index we follow that is flashing big red numbers.

There were a few decent earnings report for the week, but economic data was once again mixed at best. In economic news, initial jobless claims surged by 34,000 last week to 386,000. Economists expected a reading of 365,000. The less volatile four-week moving average fell by 1,500 to 375,500.

Leading indicators fell more than expected in June

The National Association of Realtors said existing home sales fell 5.4% to an annual rate of 4.37 million units in June. That is well below the 4.63 million units economists expected. The June reading is an eight-month low. The Federal Reserve Bank of Philadelphia’s business activity index fell for a third consecutive month in July.

In earnings news, technology juggernauts such as IBM (NYSE: IBM) and Google (NASDAQ: GOOG) impressed. Microsoft (NASDAQ: MSFT) reported its first loss as a public company.

The Dow component reported a fiscal fourth-quarter loss of $492 million, or 6 cents a share, (after being forced to write off $6.2 billion it spent to acquire online ad company aQuantive) compared with a profit of $5.9 billion, or 69 cents, a year earlier. Revenue increased 4% to $18.06 billion.

On an adjusted basis, Microsoft earned 73 cents a share. Analysts expected a profit of 62 cents per share on revenue of $18.15 billion.

The Bottom Line for Stocks

In a familiar twist of fate, the market is giving off the impression that it wants to move higher, but is of course hamstrung by the goings on in Europe. That is bad news for the broader market and large-caps in particular, but it is not as grim for micro-caps as one might think…in spite of the fact that the iShares Russell Microcap Index ETF (NYSE: IWC) fell 2.2% on the week.

One of the primary advantages of micro-caps is that, as small companies, the businesses are insulated from international macroeconomic headwinds. That leads us back to biotechnology and, if you can believe it, financials.

Micro-cap banks do offer some opportunity at current levels not only because they are less bad than their larger counterparts, but also because they are safer, more conservative institutions. That means everything in the banking sector these days.

Take a look at our blog post of April 30; “Banking on Bank Stocks the Micro-Cap Way” ART could be an interesting play with its recent pull back, especially if you like to buy on the dips.

Research and Editorial Staff
MicroCap MarkePlace
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