Market Report – October 29, 2012

Filed under: Investor Blogs |

 In The Rear View Mirror:

With Halloween drawing closer, this is the time for tricks and treats, ghouls and goblins and related fare. Unfortunately, U.S. equities provided investors with few treats in the just completed week, but there were plenty of reasons to be frightened. Namely, a spate of less-than-impressive earnings reports from some marquee U.S. companies.

The S&P 500 lost 1.5% percent on the week while the Dow Jones Industrial Average, rocked by glum earnings from the likes of DuPont (NYSE: DD), 3M (NYSE: MMM) and United Technologies (NYSE: UTX), shed 1.8 percent. With Apple (NASDAQ: AAPL) delivering its second straight earnings miss, the Nasdaq was no place to find shelter from the storm.

Shares of Amazon (NASDAQ: AMZN) soared Friday even after the company reported a third-quarter loss of $274 million, or 60 cents per share, compared with a year-earlier profit of $63 million, or 14 cents per share. Revenue jumped to $13.81 billion, from $10.88 billion. Analysts expected a loss of 7 cents per share on revenue of $13.91 billion. The company forecast fourth-quarter revenue of $20.25-$20.75 billion. Analysts are expecting $20.82 billion.

The Markets @ 10/26/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 13107.21 -236.3 -1.77% 889.65 7.28%
NASDAQ 2987.95 -17.67 -0.59% 382.8 14.69%
S&P 500 1411.94 -21.25 -1.48% 154.34 12.27%
NYSE Comp 8190.2 -133.95 -1.61% 713.17 9.54%
NYSE MKT  2375.28 -33.26 -1.38% 96.94 4.25%
RUS 2000 813.25 -7.75 -0.94% 72.33 9.76%
RUS MICRO 314.63 -0.96 -0.30% 38.91 14.11%
VANG INTL 14.29 -0.12 -0.83% 1.23 9.42%
USX CHINA 4321.72 6.07 0.14% -208.08 -4.59%
EMERG MKTS 6665.93 -71.09 -1.06% 660.62 11.00%

Market Report

In economic news, the Commerce Department said U.S. GDP grew 2% in the third quarter, topping growth of 1.3% in the previous quarter. Economists expected a third-quarter increase of 1.9%. The Thomson Reuters/University of Michigan’s final reading on consumer sentiment surged to 82.6 from 78.3 in September. Economists expected an October reading of 83.

Initial claims for jobless benefits fell by 23,000 to 369,000 last week. Economists expected a reading of 370,000 new claims. The less volatile four-week moving average climbed to 368,000 last week from 366,500. The Commerce Department said durable goods rose 9.9% last month, well above the 8.3% increase economists expected. The National Association of Realtors said pending home sales rose 0.3% to 99.5 last month. Readings of 100 or higher are considered healthy.

Market losses limited by improved data

In other words, those are some decent economic data points, but stocks were still suffered from poor earnings…it could be worst. Of the 273 S&P 500 constituents that have reported earnings thus far, 59% missed analysts’ estimates for sales, according to Bloomberg.

A number like that provides a predictable drain on riskier assets. Surprisingly, the iShares Russell Microcap Index Fund (NYSE: IWC) is off just half a percent in the past week. On the other hand, the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) is off nearly 2% over the same time.

243 point drop on Tuesday ruined this week

On Tuesday, the DJIA lost 243.36 points (-1.82%), as investors were clearly disappointed by the industrial firms; NASDAQ only lost 0.88% as technology issues fared better.

For the week, every index we track flashed red with the exception of the USX China index…which showed a very modest gain…+0.14%.

Poor corporate earnings, a slowing global economy and announced layouts by some major blue chips drove the market lower…

For another week, gold continued its downward trend…off $11.90…closing at $1,710.90

Gold’s outlook hinges on uncertainty related to the U.S. election and the so-called “fiscal cliff”, a series of automatic spending cuts and tax increases in 2013 if Congress fails to reach a deficit-reduction deal by the end of the year.

Year-to-date, gold is up nearly 10 per cent, on track to gain for a 12th consecutive year. Bullion’s gains in the last several years have largely been powered by economic uncertainty related to the Fed’s bond-buying to stimulate growth.

Dollar moving sideways

The US Dollar was basically unchanged against the Euro (closing at 0.7726 Euros, +$0.0046); bonds registered small gains last week…the 10-year bond was up $0.172 to close at $98.922 and the 30-year bond gained $0.579 to close at $96.938.

6.4% drop in oil prices this month have consumers smiling…for now.

WTI Crude Oil gave back $3.77 this week to close at $86.28 on Friday. That’s a $5.91 reduction in oil prices this month. Since opening the year at $102.96, WTI Crude has lost $16.68 per 42-gallon barrel or 16.2%.

“WTI crude oil prices have fallen due to the gloomy economic outlook. European economic headwinds and slow economic growth rates in the United States and China have brought oil inventory levels up to record highs. Due to the fundamental change in demand and supply, we have seen a decline in oil prices. “Read the rest of this article on Seeking Alpha:

The Bottom Line for Stocks

There is a silver lining and we’re not just saying that. October is the last month in the six-month period in which stocks tend to languish the most. That is not an invitation to run out and bet the farm tomorrow, but if it history holds true and it usually does in the financial markets, risk on could be renewed sometime in the next four to six weeks.

For now, the best opportunities for micro-cap investors lie in the consumer staples and health care sectors. Patient investors should begin stalking entries into emerging markets, energy and materials micro-caps over the next week or two.

Research and Editorial Staff
MicroCap MarkePlace
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