In The Rear View Mirror:

Enthusiasm for the September non-farm payroll report delivered Friday waned as the trading day went along, snapping a four-day winning streak for the S&P 500 in the process. The small loss was not enough to keep the broader market index from a weekly gain and the Dow Jones Industrial Average also notched a weekly number while the Nasdaq was essentially flat.

Obviously, the jobs report was the week’s marquee economic news and that report showed the addition of 114,000 new jobs last month and that the unemployment rate fell to 7.8%. Of course, news of any jobs created is good news.

Political Ping Pong with Employment Numbers

However, there was some discontent over the unemployment rate, with some critics alleging that number only fell because a lot of folks are either underemployed or have stopped looking for work.

That is a debate for a different time, but what is not up for debate is that traders enjoyed the jobs number for a few hours on Friday and then decided to focus on the looming deluge of earnings reports on tap over the next few weeks.

Plenty of noteworthy companies have already issued third-quarter profit warnings, so downside should be priced into the market at this point. Emphasis on “should be.” Earnings season is always good for a few surprises, but if the surprises are good this time around, that could lead to increased risk appetite and that would be excellent news for micro-caps.

The Markets @ 10/05/2012
Index	Close	Weekly	% Change	YTD Change	YTD%
DJIA	13610.15	173.02	1.29%	1392.59	11.40%
NASDAQ	3136.19	19.96	0.64%	531.04	20.38%
S&P 500	1460.93	20.26	1.41%	203.33	16.17%
NYSE Comp	8384.07	133.07	1.61%	907.04	12.13%
NYSE MKT	2485.36	47.84	1.96%	207.02	9.09%
RUS 2000	842.86	5.41	0.65%	101.94	13.76%
RUS MICRO	329	2.38	0.73%	53.28	19.32%
VANG INTL	14.45	0.22	1.55%	1.39	10.64%
USX CHINA	4371.95	12.52	0.29%	-157.85	-3.48%
EMERG MKTS	6696.21	72.36	1.09%	690.9	11.50%

Market Report

In other economic news, weekly jobless claims rose to 367,000 from 363,000. Economists were expecting a reading of 370,000. So this was a small positive. The four-week moving average was flat at 3.28 million.

Are We Seeing Some Positives?

The Institute for Supply Management’s non-manufacturing index climbed to 55.1 last month from 53.7 in October. Readings above 50 signal expansion.

The ADP survey of private employers showed the addition of 162,000 jobs in September following an upwardly revised August reading of 189,000. Economists expected a September reading of 140,000 jobs. The Labor Department reports the September jobs number on Friday.

The Institute for Supply Management’s factory index climbed to 51.5 in September from 49.6 in August. Economists expected a September reading of 49.7. Readings above 50 indicate expansion…this sounds familiar.

The Commerce Department said construction spending fell 0.6% in August, following a 0.4% drop in July. Economists expected a 0.5% increase in August.

What a Difference a Week Makes…It’s all Green

Every index we follow was flashing green numbers for the week…with the NYSE MKT (AMEX) leading the way…+1.96%.

Among the majors, the NYSE Composite led the way…up 1.61% while the S&P 500 gained followed by the DJIA at +1.29%.

Big Boys and Little Guys are Both Looking Good

The NASDAQ only move up 0.64% for the week, but that was enough to bust through the 20% YTD barrier…up 20.38% since Jan 1.

And lookie here…the Russell MicroCap Index was right behind…+19.32% YTD.

Gold continued to move up this week…+$7.50 to close at $1,778.60

Up four weeks in a row; down one week; back up two. We’re going to repeat ourselves until we’re wrong…the consensus is that higher gold prices are in our future.

The US Dollar softened ever so slightly against the Euro (closing at 0.7671 Euros, -.0106); bonds closed off as well…the 10-year bond down $0.984 to close at $98.938 and the 30-year bond lost $2.875 to close at $95.625.

WTI Crude Oil was off just a bit (-$2.31); closing at $89.88 on Friday.

The Bottom Line for Stocks

The next few weeks could prove pivotal for the fortunes of micro-caps from all sectors. With Election Day drawing closer, stocks could be in a holding pattern until a winner becomes more readily apparent.

With gas prices soaring in California, oil equities across all cap spectrums could prove vulnerable to demand erosion.

Taking a broader view of micro-caps at the moment, it would be prudent to scale back on higher-beta sectors until the market confirms it wants to keep chugging.

Translation: A preference for micro-cap staples and some discretionary names is advisable at this point. Higher quality micro-cap bank stocks also merit consideration at current levels.

Research and Editorial Staff
MicroCap MarkePlace
Follow us on Twitter