Market Report – November 19, 2012

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 In The Rear View Mirror

It was another down week for stocks as Friday’s gains were not enough to wipe out the week’s earlier fiscal cliff-induced losses. Since Election Day, the major U.S. indexes are all off more than 5%. The Dow Jones Industrial Average has fallen in four consecutive weeks while the S&P 500 has tumbled in three of the past four weeks.

Concern is running high that President Obama and Congress will not reach a deal to avert the fiscal cliff before the end of the year. Perhaps in an effort to assuage jittery investors, the President held a meeting Friday with House Speaker John Boehner and Senate Minority Leader Mitch McConnell, both Republicans.

Meetings without result will not mean much to investors’ returns so, for fear of stating the obvious, the market’s near-term upside is limited until substantive fiscal cliff avoidance legislation is passed.

With risk appetite running low, the broader micro-cap universe is having trouble catching a bid at the moment. The Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) has tumbled 4.2 % in the past week while the iShares Russell Microcap Index Fund (NYSE: IWC) is down nearly 3.3 % over the same time. The PowerShares Zacks Micro Cap Portfolio (NYSE: PZI) is a little better with a loss of “just” 2.5 %.

The Markets @ 11/16/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 12588.31 -227.08 -1.77% 370.75 3.03%
NASDAQ 2853.13 -51.74 -1.78% 247.98 9.52%
S&P 500 1359.88 -19.97 -1.45% 102.28 8.13%
NYSE Comp 7931.55 -122.02 -1.52% 454.52 6.08%
NYSE MKT  2315.34 -70.06 -2.94% 37 1.62%
RUS 2000 776.28 -18.74 -2.36% 35.36 4.77%
RUS MICRO 295.01 -9.54 -3.13% 19.29 7.00%
VANG INTL 13.9 -0.39 -2.73% 0.84 6.43%
USX CHINA 4064.52 -239.87 -5.57% -465.28 -10.27%
EMERG MKTS 6491.47 -127.6 -1.93% 486.16 8.10%

Market Report

For the second week in a row

Every index we track flashed red…the major indices were off from 1.45% to 2.94%. The Russell Micro was off over 3% again this week and is barely hanging on to a 7.00% gain YTD. The DJIA is only up 3.03% for the year…two more weeks like the previous ones and the Dow will be in negative territory.

Gold gave back some gains this week…but don’t worry

Gold lost$16.00 this week to close on Friday at $1,714.30. However I read some interesting comments from Marc Faber (Swiss ex-pat and long-time Asian resident) that may provide you with a reason to hold on for a while.

“I would rather be long precious metals than industrial commodities,” said Marc Faber. Which was of course what most people at the LBMA conference wanted to hear. Less welcome was his warning not to hold gold in the United States or even Switzerland.

“Because “if gold is owned by a minority, then in a crisis the government will take it away.” But even Faber said that some of his 25% personal allocation to precious metals is still in his home country, rather than in Asia where he’s lived for almost 30 years.

Once the deflationary collapse finally arrives (the impossible question is knowing when, said Faber), there will be great opportunities in real and productive assets. But until then, and as for the gold price ahead, “Gold is not anywhere close to a bubble stage,” he concluded. And every time he thinks about selling to take profit?

“I keep in my toilet a picture of Mr. Bernanke. And every time I think about selling my gold, I look at it and I know better!” Adrian Ash at Bullion Vault.

Mixed Dollar results

The US Dollar was basically unchanged again this week against the Euro (closing at 0.7847 Euros; minus $0.0023); bonds continued to registered small gains last week…the 10-year bond was up $0.31 to close at $100.48 and the 30-year bond gained $0.40 to close at $100.59.

Oil prices holding steady

WTI Crude Oil gained a paltry $0.60 this week to close at $86.67 on Friday. Consumers are enjoying the lower prices at the gas pump too.

Is the economy really improving???

Need another encouraging sign that the U.S. economy is slowly on the mend?

Look to this year’s Thanksgiving holiday travel forecasts.

AAA predicts that 43.6 million Americans will travel 50 miles or more from home during the holiday weekend, up almost 1 percent over the 43.3 million who traveled last year.

That’s the fourth consecutive year for holiday travel growth since 2008, when Thanksgiving travel plummeted 25 percent as the economy tanked. AAA defines the holiday period as Wednesday through Sunday. Lynn Horsley, Kansas City Star

The Bottom Line for Stocks

An unfortunate reality of the current environment is that, at best, investors will be locked in a holding pattern until the fiscal cliff is avoided. Until that time, discretion with riskier assets will be the order of the day. That said, that does not mean the micro-cap universe at large is off limits.

The areas to avoid clearly are utilities and telecommunications names because the large-cap issues in those sectors have been hammered by fiscal cliff fears and valuation concerns. Micro-cap sectors to embrace at the moment include biotechnology, consumer staples and consumer discretionary because the holiday shopping season is officially upon us.

Research and Editorial Staff
MicroCap MarkePlace
Mike Casson, Executive Editor

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