Market Report – August 27, 2012

Filed under: Investor Blogs |

In The Rear View Mirror:

Stocks closed the week on an upbeat note, but Friday’s gains were not enough to erase weekly losses. In the process, a six-week winning streak for the S&P 500 was snapped.

Once again, global markets are hanging on the every word of central bankers as speculation has increased that monetary stimulus in some form or fashion is right around the corner.

On Friday, U.S. equities rallied after Fed Chairman Ben Bernanke said in a letter to Congress that the central bank has more room to engage in stimulus if circumstances dictate that such action is warranted. Traders also bid up riskier assets on speculation the European Central Bank is poised to engage in increased bond purchases.

Bernanke’s comments came one week ahead of the much ballyhooed economic summit in Jackson Hole, Wyoming. European Central Bank President Mario Draghi will also speak at the get-together.

Volume was predictably light on Friday, serving as a stark reminder to traders that there is still a case of the summer doldrums to contend with. According to Reuters, Volume was the second lowest for a full day this year, with 4.6 billion shares trading on the New York Stock Exchange, the Nasdaq and the Amex. The year-to-date average is 6.6 billion. The Dow Jones Industrial Average also snapped a six-week losing streak while the Nasdaq’s winning streak ended at five weeks.

The Markets @ 8/24/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 13157.97 -117.23 -0.88% 940.41 7.70%
NASDAQ 3069.79 -6.8 -0.22% 464.64 17.84%
S&P 500 1411.13 -7.03 -0.50% 153.53 12.21%
NYSE Comp 8047.87 -54.21 -0.67% 570.84 7.63%
NYSE Amex 2414.54 -10.15 -0.42% 136.2 5.98%
RUS 2000 809.19 -10.7 -1.31% 68.27 9.21%
RUS MICRO 310.24 -3.52 -1.12% 34.52 12.52%
VANG INTL 14.1 -0.04 -0.28% 1.04 7.96%
USX CHINA 4211.02 2.73 0.06% -318.78 -7.04%
EMERG MKTS 6386.03 -17.9 -0.28% 380.72 6.34%

Market Report

In economic news, initial claims for jobless benefits rose by 4,000 last week to 372,000. Economists expected a reading of 365,000. The four-week moving average rose to 368,000. New home sales increased 3.6% in July to a seasonally adjusted annual rate of 372,000. The Commerce Department said durable goods orders jumped 4.2% in July. Economists expected a 3% increase.

Europe puts a damper on the markets

Despite the decent economic data and the fact that stocks endure no more than moderate losses for the week, broader market action was listless and it seems investors are now back to staring a familiar foe square in the face: Europe.

Concerns about Europe’s sovereign debt crisis are believed to be the primary reason the S&P 500 has not accelerated further and there is not much the European Central Bank can do to dramatically change the Eurozone’s debt crisis in short order.

Broadly speaking, micro-caps endured a down week as the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) gave up 0.94 percent. The iShares Russell Microcap Index Fund (NYSE: IWC) lost one percent on the week, but is just 4.1 percent below its 52-week high.

Red and down was the market’s response

All major indexes were off last week in a broad market decline…snapping a six week run for the S&P 500 and a five week gainer for Nasdaq. The Russell 2000 and Russell Micro Indices gave back 1.31% and 1.12% respectively to further validate the small cap retreat.

This gold thing is still up down, up down…from one week to the next. Predictably gold moved up this past week…but the break out was significant

Gold was up $53.50 last week to close at $1,669.80; breaking above its 30-day trading range of 1555 to 1625. The gold bugs are now awake and paying attention. “Minutes from the U.S. central bank’s August meeting showed policymakers were ready to deliver more stimulus “fairly soon” unless the economy improves considerably.” Blanchard Investing News Blog

WTI Crude Oil inched a little closer to the $100 price level…up $0.14 to close the week at $96.15.

The US Dollar softened again this week against the Euro (closing at 0.7992 Euros, -0.0116); the 10-year bond closed up this week at $99.438 (+$1.125) and the 30-year bond moved up as well… +$2.594 to close at $98.969.

The Bottom Line for Stocks

With speculation rampant that more monetary easing is on the way, precious metals have been in rally mode. Recent bullishness in gold and silver implies it might be time for micro-cap investors to revisit mining shares. Another obvious beneficiary of more easing would be oil and gas names.

Plus, there are still attractive valuations to be had in the micro-cap health care space, although the biggest advantage of this sector is not valuation. It is the fact that Europe and central banks will have little impact – good or bad – on micro-cap health care names.

In the event that central banks disappoint, a very realistic possibility, investors might be forced to once again rely on consumer staples stocks. The good news in that scenario is that micro-cap staples do offer more exciting growth than their large-cap counterparts.

Research and Editorial Staff
MicroCap MarkePlace
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