MicroCap Market Report: Buoyed by earnings momentum and news that Republicans in the House of Representatives plan to vote to raise the U.S. debt ceiling as soon as this coming week, stocks rose again last week. With modest gains on the week, the S&P 500 is now residing just 5.1% away from its all-time high set in 2007 while the Dow Jones Industrial Average is less than 4% away from its all-time high, also set in 2007.

Corporate earnings put politics on back burner

As we noted in our last recap, with political headlines finally taking a back seat to corporate earnings, stocks would have a decent chance to advance. Indeed, that has been the case as about 72% of the 67 S&P 500 companies which have reported quarterly results beat analysts’ forecasts, according to Bloomberg.

Predictably, market ebullience has helped propel micro-cap issues higher. Last week, the iShares Russell Microcap Index Fund (NYSE: IWC) added 0.35% while the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) advanced by half a percent.

Apple leads the earnings parade this week

The week ahead could bring more of the same for investors as the earnings deluge continue. In fact, this coming week could be even more important for the market’s near-term fortunes simply by virtue of the fact that Apple (NASDAQ: AAPL) reports earnings on Wednesday. Tuesday is a big day as well with Google (NASDAQ: GOOG), DuPont (NYSE: DD), IBM (NYSE: IBM) and Johnson & Johnson (NYSE: JNJ) reporting. Microsoft (NASDAQ: MSFT) and 3M (NYSE: MMM), among others take their turn on Thursday.

The Markets @ 1/18/2013
Index	Close	Weekly	% Change	YTD Change	YTD%
DJIA	13649.7	161.27	1.20%	545.56	4.16%
NASDAQ	3134.71	9.08	0.29%	115.2	3.82%
S&P 500	1485.98	13.93	0.95%	59.79	4.19%
NYSE Comp	8792.63	80.23	0.92%	349.12	4.13%
NYSE MKT	2391.44	-10.28	-0.43%	35.78	1.52%
RUS 2000	889.72	6.73	0.76%	40.37	4.75%
RUS MICRO	54.57	0.19	0.35%	2.25	4.30%
VANG INTL	47.73	0.08	0.17%	1.43	3.09%
CHINA INDEX	4625.92	-36.08	-0.77%	187.4	4.22%
EMERG MKTS	7298.24	95.92	1.33%	258.27	3.67%

Market Report

“One More Up Week”

The majors were led by a 1.20% gain in the DJIA which was up 161 points for the week. The S&P 500 gained 0.95% while the NYSE Comp followed suit with a 0.92% increase.

The Russell 2000 gained 0.76% and is now up 4.75% YTD, which leads all the indices we follow.

Our China Index gave back 0.77% this past week but is still showing a 4.22% gain for 2013.

Our Emerging Markets Index reversed itself this past week…gaining a very nice 1.33%, and is up 3.67% YTD.

The Dollar showed positive results

The US Dollar gained $0.0014 for the week, to close at 0.7509 Euros; bonds continued their upward trend…the 10-year bond gained $0.25 to close at $98.05 and the 30-year bond gained $0.41 to close at $94.52.

Oil prices made a strong move to the upside this past week

WTI Crude Oil gained $2.00 this week to close at $95.56.

Gold made an even stronger move…gaining $26.60…to close at $1,686.60. According to an article in “International Business Times” Gold is Setting Up for a Massive Breakout in 2H 2013. You can read the story here: http://www.ibtimes.com/gold-setting-massive-breakout-2h-2013-1025654

In economic news, the Commerce Department reported a 0.5% increase in retail sales for December compared with a 0.4% rise in November. Economists expected a December increase of just 0.2%.

The Labor Department said an index of wholesale prices fell 0.2% last month following a 0.8% decline in November. Excluding volatile food and energy prices, wholesale prices rose 0.1% in December and 2% for all of 2012.

The New York Empire State manufacturing index fell to -8.1 in December from -5.2 in November, well below the consensus estimate of -1. That is the fifth consecutive month the gauge has been in negative territory. The National Association of Home Builders/Wells Fargo builder sentiment index stayed at 47 in December, still good for the highest level since April 2006. However, readings below 50 indicate negative sentiment.

The Labor Department said its consumer price index was flat in December following a 0.3% decrease in November. Economists expected the unchanged reading. Initial claims for jobless benefits fell by 37,000 last week to 335,000. That is the lowest reading since early 2008 and well below the consensus estimate of 370,000 claims.

The Commerce Department said new housing starts surged 12.1% last month to a seasonally adjusted rate of 954,000 units. The November estimate was revised down to 851,000 from 861,000. The December reading was the best since June 2008. The Philadelphia Fed’s manufacturing index slipped to -5.8 in January from 4.6 last month. Economists expected a January reading of 5.

Overall, it is fair to say the week’s data points were decent as a group, but the housing numbers and jobless claims reading were arguably standouts. Continued improvement on both of those fronts is essential to further upside for stocks.

The Bottom Line for Stocks

With another week heavy on earnings reports looming, the reprieve from political headwinds must be exploited by the bulls. Said another way, this could be the ideal environment for near-term gains in riskier assets such as micro-caps.

For now, it might be wise to take a step back from financials, or at least be hyper-selective with that group, but micro-cap tech and energy names do look appealing here.

Research and Editorial Staff
MicroCap MarkePlace
Mike Casson, Executive Editor

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