Market Report – December 3, 2012

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 In The Rear View Mirror 

Stocks capped a volatile November with a lethargic day of action in the last trading session of the month. Amid lingering fiscal cliff fears, the S&P 500 and the Dow Jones Industrial Average eked out small gains while the Nasdaq endured a small loss on what is traditionally a rough day for stocks, that being the final day of November. For the week, the S&P 500 gained half a percent. For the month, the gain was a third of a percent.

Not to rain on anyone’s parade, but it is fair to say that the bulk of those gains were accrued before Election Day and this week because since President Obama was reelected, the S&P 500 is off 0.9%.

Microcap indices showing strength

Despite the risk off tenor to November, it was a decent month to be involved with micro-caps as the iShares Russell Microcap Index Fund (NYSE: IWC) closed modestly higher for the month.

The Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) also closed in the green. Gains for both ETFs can be viewed as impressive given that energy and materials names across all cap spectrums struggled for most of November.

Gold declines again…gives back over $40 this week…to close at $1,710.90

Gold slid 1% on Friday alone, capping the second consecutive monthly decline for the yellow metal. Fiscal cliff fears punished gold. Some institutional investors lightened their gold holdings, worried that failure to reach a budget deal could hurt economic growth and undermine gold’s appeal as an inflation hedge, according to Reuters.

The Markets @ 11/30/2012
 
Index Close Weekly % Change YTD Change YTD%
DJIA 13025.58 15.9 0.12% 808.02 6.61%
NASDAQ 3010.24 43.39 1.46% 405.09 15.55%
S&P 500 1416.18 7.03 0.50% 158.58 12.61%
NYSE Comp 8260.43 34.92 0.42% 783.4 10.48%
NYSE MKT  2399.65 12.78 0.54% 121.31 5.32%
RUS 2000 821.92 14.74 1.83% 81 10.93%
RUS MICRO 315.86 8.32 2.71% 40.14 14.56%
VANG INTL 14.57 0.11 0.76% 1.51 11.56%
USX CHINA 4246.25 61.39 1.47% -283.55 -6.26%
EMERG MKTS 6684.4 55.17 0.83% 679.09 11.31%

Market Report

And…the fun continues for another week as we head into the holiday season

Every index we track flashed green numbers…that’s two weeks in a row. Nasdaq led the majors with a 1.46% gain for the week. The others were not nearly as exciting with the Dow up a measly 0.12%.

MicroCaps looking strong

The Russell Micro Index continued a strong recovery… up 2.71% to go with the 4.25%% it gained last week. The Russell 2000 was right behind again…gaining 1.83% which followed its 3.98% gain last week. The internationals showed a little strength with the China Index up 1.47%% and Emerging Markets up 0.83% at the close Friday.

The Dollar continued a very modest downward trend

The US Dollar ever so slightly softened this week against the Euro (closing at 0.7699 Euros; minus $0.0009); bonds were mixed…the 10-year bond gained $0.77 to close at $100.16 and the 30-year bond lost $0.69 to close at $99.08.

Same story for oil prices… holding steady but with a slight upward bias

WTI Crude Oil gained $0.63 this week to close at $88.91 on Friday. Consumers would definitely like to see these lower prices hold through the holiday travel season.

Economic news is a little better than OK

The Conference Board said November consumer confidence rose to 73.7 from an upwardly revised October reading of 73.1. Economists expected a November reading of 73. The S&P/Case-Shiller home price index jumped 3.6% in third quarter; good for the biggest increase since the second quarter of 2010. The monthly annual reading has risen for four consecutive months adding to a body of evidence that says the economic recovery is still underway.

The Commerce Department said durable goods orders were flat in October. Economists expected a decline of 0.4%. The Commerce Department said new home sales fell 0.3% last month to a 368,000-unit annual rate. The September number was also revised down to 369,000 from 389,000.

GDP surprises to the upside

U.S. third-quarter GDP jumped 2.7%, well above the 2% estimate released last month. Some economists have indicated that without stronger contributions from consumers and businesses, the economy is likely to remain stuck in this sluggish recovery.

The National Association of Realtors said its index of pending home sales rose to 104.8 in October from 99.6 in September as contracts to buy previously owned homes climbed 5.2 percent last month. Index readings above 100 are considered healthy. Initial claims for jobless benefits fell by 23,000 to 393,000 last week.

Both are positive factors to support the fact that the recovery is still underway, even if not as robustly as hoped for.

The Bottom Line for Stocks

We can only lament the potential fiscal cliff outcomes so many times before boring everyone to sleep. As of this moment, talks are at a stalemate, but there is reason to believe that the folks in our nation’s capitol will reach a compromise.

That reason is easy to identify: politicians like to get re-elected and polls indicate that the majority of voters expect a reasonable negotiation and solution to the pending problem. The President appears to have the upper hand at this point and the Republicans can’t afford to alienate any more voters. Whoever appears the most reasonable and willing to compromise…wins! And…the markets will respond positively if the drop off the cliff is avoided.

The current risk off environment does create a buying opportunity with micro-caps; that is good news for those of you looking to add to your portfolio. Look at gold and silver miners; that group has been beaten up too harshly too quickly and now looks poised for an oversold bounce. Micro-cap biotech names continue to show their resilience, something we’ve talked about all year, and we reiterated the strong seasonal trends facing discretionary names right now.

Research and Editorial Staff
MicroCap MarkePlace
Mike Casson, Executive Editor

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