Market Report – August 6, 2012

Filed under: Investor Blogs |

In The Rear View Mirror: The just completed week was eerily similar to the previous one in that it would have been perfectly logical for investors to expect U.S. equities to close the week on a downbeat note. After all, the market entered Friday’s trading session riding a four-day losing streak after the Federal Reserve and European Central Bank failed to deliver on much-anticipated stimulus measures.

Jobs data surprises to the upside

Of course Friday was a much-anticipated day in its own right because the Labor Department delivered the July jobs report. Given the state of affairs in the U.S. jobs market and the dismal results of the last several jobs updates, expectations were low for the July number.

Economists were expecting a gain of just 100,000 new jobs. Fortunately, that estimate was shattered with the addition of 163,000 new jobs. Not nearly enough to say the U.S. economy is truly recovering, but certainly enough to send stocks surging into the weekend.

When all was said and done, Friday’s big up day helped the S&P 500 gain a quarter of a percent for the week and helped give pensive investors some reassurance that there is still upside to be had, even after four consecutive down days.

With Friday’s strong performance in the books, it is hard to gloss over the fact that U.S. equities have been surprisingly strong this summer. And the June through August time frame is not one of historical strength for riskier assets. At the end of the day, it must be noted that the market has been in rally mode, for the most part, since early June.

The Markets @ 8/3/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 13096.17 20.51 0.16% 878.61 7.19%
NASDAQ 2967.9 9.81 0.33% 362.75 13.92%
S&P 500 1390.99 5.02 0.36% 133.39 10.61%
NYSE Comp 7939.55 27.38 0.35% 462.52 6.19%
NYSE Amex 2424.53 39.1 1.64% 146.19 6.42%
RUS 2000 788.49 -7.51 -0.94% 47.57 6.42%
VANG INTL 13.79 0.16 1.17% 0.73 5.59%
USX CHINA 3921.76 -62.7 -1.57% -608.04 -13.42%
EMERG MKTS 6325.58 69.32 1.11% 320.27 5.33%

Market Report

With a disappointing second-quarter earnings season drawing to close and expectations already in place that third-quarter profit reports will not be much better, investors are looking for catalysts to get back into stocks. The Federal Reserve, among other global central banks, was being looked to by most investors to provide more monetary stimulus for the flailing U.S. economy.

So with earnings and central banks doing nothing to truly excite investors to this point, hopes for continued upside are pinned to a simple premise: That folks find valuations and yields on equities to be compelling. There is something to be said for that line of thinking as P/E ratios for some of the market’s more marquee names are nowhere near stretched.

Even in the micro-cap universe, some of the higher quality names are sporting reasonable valuations and there are some dividend yields to be had that are far superior to what you’ll get with U.S. Treasuries or high-grade corporate bonds. For example, the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) has a dividend yield of about 3.6%. That is a lot better than what you’ll get with the S&P 500 or Treasuries.

Major Market Indexes Have Another Strong Friday… Closed Up for the Week

Led by the Dow, Nasdaq and the NYSE the market turned in some impressive numbers… up 1.69%, 2.00% and 2.24% respectively on Friday. For the week, the numbers were fairly benign. The Dow was up 20.51 points, +0.16%; the Nasdaq was up 9.81 points, +0.33%; the NYSE was up 5.02 points, +0.36%. As noted earlier, the catalyst was the US Labor Dept’s jobs report and the fact that stocks are more attractive than bonds.

Based on measures like dividends and price-to-earnings ratios, equities appear cheap compared to other assets like Treasuries where yields on the 10-year note fell to a record low this past month. Stocks are the best house in a bad neighborhood. Ryan Vlastelica, Yahoo Finance

The US Dollar backed up again this week against the Euro (closing at 0.8072 Euros, -0.0045); the 10-year bond closed at $101.688 (- $0.156) and the 30-year bond followed suit as well; -$0.344 to close at $107.281.

WTI Crude Oil inched up… +$1.27 for the week…closing at $91.40 a barrel.

Of course gold moved down this week…the sea saw was due to move in the opposite direction which keeps our record in tact

Down $11.90 for this week to close at $1,606.00; staying above the major support level of $1600…still within the 30-day trading range of 1555 to 1625.

The USX China Index’s upward trend was short-lived… down 1.57% this week and off 13.42% YTD…it continues to be the only index we follow that is flashing ugly red numbers.

The Bottom Line for Stocks

In reality, investors probably want more than the mere fact that stocks look like good buys. They want some kind of sweeping headlines that the economy is sharply improving or that the Fed is going to do something to suddenly jolt economic growth. While it is fair to say the U.S. economy is not dreadful, it is also fair to say that the Fed has waited so long to unleash added stimulus, that the impact of such action may be muted.

The good news is that there are a fewer reasons to knock stocks down than run them higher at this point. That certainly plays well for micro-cap investors. In the micro-cap universe, sectors that currently hold appeal include those with an avenue to the consumer, financials, health care and technology.

Research and Editorial Staff
MicroCap MarkePlace
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