Market Report – December 10, 2012

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 In The Rear View Mirror 

December, historically a very good month for equities, has gotten off to a fine start for the bulls. In the first full trading week of the last month of the year, the S&P 500 gained a scant 0.1 percent, but that was enough to push the benchmark index to its third consecutive weekly win. The Dow Jones Industrial Average added one percent while the Nasdaq finished the week lower due to a savage nine percent beating to shares of Apple (NASDAQ: AAPL).

It was an interesting week to say the least and one heavy on economic data points, which we’ll delve into in a minute. Financials led the gains, but technology and commodities issues waned. Tech’s woes can be primarily attributed to Apple, but on that note, one could make a case that the broader market’s performance was impressive given that Apple is the largest U.S. company by market value.

Still, concerns about the fiscal cliff are running high and that issue is capping risk appetite. Along those lines, micro-caps languished on the week. The iShares Russell Microcap Index Fund (NYSE: IWC) lost nearly one percent while the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) was far worse with a loss of nearly two percent.

The Markets @ 12/07/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 13155.13 129.55 0.99% 937.57 7.67%
NASDAQ 2978.04 -32.2 -1.07% 372.89 14.31%
S&P 500 1418.07 1.89 0.13% 160.47 12.76%
NYSE Comp 8314.29 53.86 0.65% 837.26 11.20%
NYSE MKT  2398.42 -1.23 -0.05% 120.08 5.27%
RUS 2000 821.86 -0.06 -0.01% 80.94 10.92%
RUS MICRO 312.55 -3.31 -1.05% 36.83 13.36%
VANG INTL 14.71 0.14 0.96% 1.65 12.63%
USX CHINA 4070.12 -176.13 -4.15% -459.68 -10.15%
EMERG MKTS 6790.38 105.98 1.59% 785.07 13.07%

Market Report

The fun only lasted for two weeks

The Dow led the majors with a 0.99% gain for the week. As noted above…Nasdaq suffered along with Apple and dropped 1.07% for the week. The other majors were not nearly as exciting with the S&P barely staying in positive territory at +0.13%.

MicroCaps give back some hard fought gains

The Russell Micro Index gave back some of it recent gains… off 1.05%. The Russell 2000 was virtually unchanged at -0.06%. Emerging Markets were up for the second week…gaining 1.59%; The Internationals also showed a little strength with a 0.96% gain.

China got hammered…our China Index lost 4.15% for the week and is now at a 10.15% loss YTD. All other indices we follow are solidly in the green with the NYSE MKT (AMEX) being the laggard at +5.27% gains for the year.

The Dollar reversed its downward trend

The US Dollar moved up this week against the Euro (closing at 0.7735 Euros; plus $0.0036); bonds were off…the 10-year bond lost $0.18 to close at $99.98 and the 30-year bond lost $0.33 to close at $98.75.

Oil prices took a decidedly downward move

WTI Crude Oil lost $2.98 this week to close at $85.93 on Friday. Consumers could enjoy an extra present with lower holiday travel costs…we stay cautious on this front.

Gold declines again…gives back $6.90 this week…to close at $1,704.00

As we reported last week, fiscal cliff fears punished gold…and that trend continues. Institutional investors lightened gold holdings, worried that a failure to reach a budget deal could hurt economic growth and undermine gold’s appeal as an inflation hedge, according to Reuters. We don’t have a budget deal yet so the dumping continues too.

Economic data is mixed at best

In economic news reported Friday, the Labor Department said the U.S. economy added 146,000 new jobs last month and that the unemployment rate fell to 7.7%. Economists expected the addition of 85,000 new jobs. Check the positive box.

The Thomson Reuters/University of Michigan’s consumer sentiment index plunged to 74.5% in December from 82.7% last month. Check the negative box.

On Wednesday, the Institute Supply Management said the November reading of its non-manufacturing index climbed to 54.7 from 54.2 in October. Economists expected a reading of 53.5. “Positive box…”

The ADP private payroll report showed employers added 118,000 new jobs last month, the lowest reading since August and well below the October reading of 157,000. Economists expected a November reading of 125,000 new jobs. Negative box.

The U.S. Census Bureau said factory orders jumped 0.8% in October. Economists expected a decline of 0.1%. Positive…!

Obviously, the marquee report was Friday’s jobs number. It is fair to call that number a pleasant surprise given that many economists were expecting Hurricane Sandy to restrain hiring in November. Clearly, that was not the case. However, the unemployment rate remains uncomfortably high at 7.7 percent. In an effort to be positive, at least we can say that number is declining.

The Bottom Line for Stocks

The good news is that after one week, stocks are living up to their December seasonal trends. It should be noted that the S&P 500 has risen in 16 of the past 20 Decembers. Those are pretty good odds if you ask us.

Micro-caps are, of course, a different ballgame. With oil prices continuing to falter, we remain cautious on that corner of the micro-cap universe. Conversely, continued strength in large-cap financials should trickle down to micro-cap names in the same sector. We also will take this opportunity to reiterate bullish views on the biotech and discretionary names.

Research and Editorial Staff
MicroCap MarkePlace
Mike Casson, Executive Editor

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