Market Report – September 10, 2012

Filed under: Investor Blogs |

In The Rear View Mirror:

As has been noted so many times leading up to the start of this month, September is usually the worst month of the year for stocks. However, it would be hard to see that as the truth following the performance turned in by U.S. equities this week. In the four-day trading week, the Dow Jones Industrial Average gained 1.6 percent while the S&P 500 added 2.2 percent. The latter is now found within 10 percent of its all-time high set in 2007.

ECB to the rescue

Once again, it was more talk of monetary easing that lifted stocks at the end of the week. On Thursday, European Central Bank President Mario Draghi said the ECB stands ready to purchase an unlimited amount of European bonds to help set the course for the end of the Eurozone’s sovereign debt crisis.

That was enough to stoke a major buying spree. In turn, those that had entered short positions in anticipation of a dreary September were forced to cover, further fanning the flames of Thursday’s rally.

Draghi said the ECB will have a “fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area,” Bloomberg reported. Once again, it was another week where traders and investors were held hostage by central bank speak. This time it worked out, but betting on more help from other central banks is a murkier proposition.

The Markets @ 9/7/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 13306.64 215.8 1.65% 1089.08 8.91%
NASDAQ 3136.42 69.46 2.26% 531.27 20.39%
S&P 500 1437.92 31.34 2.23% 180.32 14.34%
NYSE Comp 8243.51 228.58 2.85% 766.48 10.25%
NYSE Amex 2426.17 9.65 0.40% 147.83 6.49%
RUS 2000 842.27 30.18 3.72% 101.35 13.68%
RUS MICRO 320.9 9.21 2.95% 45.18 16.39%
VANG INTL 14.35 0.39 2.79% 1.29 9.88%
USX CHINA 4238.15 81.06 1.95% -291.65 -6.44%
EMERG MKTS 6418.84 130.35 2.07% 413.53 6.89%


Market Report

In economic news, initial claims for jobless benefits fell by 12,000 last week to 365,000. The ADP survey of private employers showed 201,000 new jobs were added last month, topping economists’ expectations for 140,000 new private sector jobs.

The Institute for Supply Management said its services index climbed to 53.7 last month from 52.6 in July. Economists expected a reading of 52.5. Of course both of those economic data points paled in comparison the big kahuna delivered on Friday, that being the August non-farm payroll number.

Jobs data is deceiving

The Labor Department said employers added 96,000 new jobs in August. The June number was revised lower to 45,000 from 64,000 new jobs and the July number was pared down to 141,000 from 163,000. The unemployment rate slid to 8.1% from 8.3%.

Don’t be deceived by the drop in the unemployment, the experts say. They say it is because more people are giving up looking for work. Regardless of one’s political leanings, the August jobs report was another mediocre one. However, it was good in that it led to more speculation the Federal Reserve will engage in a third round of quantitative easing.

Fed Chairman Ben Bernanke has already publicly said he is concerned about the unemployment rate. Whether or not that concern morphs into QE3 will soon be told as the Federal Open Market Committee meets once again next week.

Complete Market Turnaround

The market reversed itself last week…with every index we follow showing green numbers. The Russell 2000 and Russell Micro Indices led the way again this week gaining 3.72% and 2.95% respectively. The Nasdaq has gained over 20% YTD and the Russell Micro is close behind at 16.39%.

Gold was up for the third week in a row…+$52.90 last week to close at $1,737.50

“For the first time in six months, the price of gold is above $1,700/oz, a level that the metal has been struggling to breach for several sessions. The catalyst for this move higher? Speculative buying amid hopes for imminent central bank stimulus.” WSJ Blogs, Francesca Freeman
WTI Crude Oil ran out of gas (pun intended) this week…off $0.05 to close the week at $96.42. The US Dollar softened ever so slightly again this past week against the Euro (closing at 0.7802 Euros, -0.0150); the 10-year bond closed off this week at $99.609 (-$1.079) and the 30-year bond also lost ground… -$3.094 to close at $98.500.

The Bottom Line for Stocks

There is a disconnect in this market, that much is clear. It is understandable that stocks rallied on Thursday on the back of the Draghi comments. However, it can be argued that Friday’s jobs report was bad news that was treated as good news because the bad news means Bernanke may act to prop up the economy.

The Chinese government is doing just that by announcing a massive infrastructure stimulus program. Those headlines sent Chinese equities soaring on Friday and could be enough to focus attention on some of the downtrodden Chinese micro-caps. We however suggest a cautious approach until retail and institutional investors show a lot more confidence in the numbers being reported by smaller China-based stocks.

As we noted last week, gold and silver are on fire and the miners are finally doing a bit better. Actually, the miners are THE story in the precious metals space right now. Along with miners, energy and Internet-related micro-caps would be names to consider.

Research and Editorial Staff
MicroCap MarkePlace
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