MicroCap Market Report: April 1, 2013 – A holiday-shortened week brought good tidings and a record market performance for U.S. stocks as the S&P 500 added close to1% to finally touch a new record high. That record high, 1,570.28 to be precise, was hit during Thursday’s trading session before the benchmark U.S. index settled about one point below that level. The Dow Jones Industrial Average added almost 1/2% for the week while the NASDAQ Composite also closed in the green, adding .69%.
Q1 2013 rocks!
All and all, the first quarter of 2013 was a fine time to be long U.S. equities. That much is highlighted by the 11+% gain posted by the Dow and the 10.03% gain posted by the S&P 500 during the first three months. Noteworthy is the fact that when the market reopens today, we will be in the month of April and that is the last month in the best six-month cycle in which to own stocks.
How much ammunition the "sell in May and go away" crowd has this year remains to be seen.
At the micro-cap level, the situation is more positive than negative. In the just completed week, the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) surged 1.33%; the iShares Trust Russell 2000 Index Fund (NYSE: IWM) gained .3% and the iShares Russell Microcap Index Fund (NYSE: IWC) remained steady at 58.66 for no gain.
Over the past month, those three ETFs are higher by 6.5%, 4.4% and 5.3%, respectively.
|The Markets @ 3/28/2013|
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Record Market Performance…temper your enthusiasm!
If there is a point of criticism regarding the record market performance of the broader market in recent days it is a mixed batch of economic data released throughout the week.
In economic news, the Conference Board said its March reading of consumer confidence fell to 59.7 from a revised 68 in February. Economists expected a March reading of 68.7.
The Commerce Department said durable goods orders rose 5.7% in February after falling 3.8% in January. Economists expected a February increase of 4.9%. Core orders fell 0.5%. Economists expected a core increase of 0.5%.
The S&P/Case Shiller composite index of home prices in 20 metro areas rose 0.9% in December on a seasonally-adjusted basis. On a non-adjusted basis, the index rose 0.2%. Economists expected a seasonally-adjusted increase of 0.5%.
On Wednesday, the National Association of Realtors said pending home sales fell 0.4% in February from January, but added the number increased 8.4% on a year-over-year basis.
GDP better than first reported
On Thursday, the Commerce Department revised its estimate of U.S. fourth-quarter GDP growth to 0.4% from 0.1%. Today’s number was the third of three estimates for the final quarter of 2012. The Labor Department said initial claims for jobless benefits rose by 16,000 to 357,000 last week.
The March reading of the Chicago purchasing managers’ index fell 4.4% to 52.4%, well below the reading of 56.4% economists expected. Readings above 50% indicate expansion.
The upward revision to the fourth-quarter GDP number was a nice treat. However, the real estate data points were mixed and the consumer sentiment data is downright concerning.
More insight regarding the overall health of the economy comes this Friday when the Labor Department delivers the March jobs report.
With a strong quarter behind us and concerns ahead don’t be surprised by a “Pull Back!”
"As the market has gone higher … upward moves have generally gotten smaller, which suggests that the move is getting old and that we need a pullback," said Mark Arbeter, chief technical strategist for Standard & Poor’s in New York.
“Stocks could fall about 3 percent to 4 percent,” he said.
“The benchmark index [S&P 500] has risen almost 10 percent so far this year, fueled by strong profit growth and accommodative monetary policy from the Federal Reserve. But those gains have slowed as investors fret over Cyprus’s bailout and mixed signs about the economy.” Yahoo Finance
China and Emerging Markets show strength
The NASDAQ Golden Dragon China Index gained .65% this week…closing at 4436.83 and reducing the YTD loss to 0.04% while the Emerging Markets index posted very impressive gains of 1.52% for the week and moving back onto positive YTD ground at + 0.63%.
Oil prices continue an upward movement
WTI Crude Oil closed at $97.23 this week…gaining $3.52…as it moves toward that $100 level.
The Dollar reversed its trend… gaining $0.0105 for the week to close at 0.7803 euros.
Bonds were up again this week
The 10-year bond gained $0.57 to close at $101.34 and 30-year bonds gained $0.55 to close over $100 at $100.38.
The Gold bugs just can’t win for losing…using an old expression
Like no matter what happens for them to "win" they don’t. Gold lost $11.40 to close the week at $1,594.80. As we noted last week… if the Cyprus bail-out deal firms up look for a retreat back below $1,600.
The Bottom Line for Stocks
Another compelling fact about this rally has been what sectors are playing leading roles. For micro-cap investors, that means consumer staples and health care, particularly micro-cap biotechnology names, need to be at the top of any shopping list.
While we have generally been bullish on micro-cap discretionary names, we would advise treading carefully with that group for the near-term.
However, it has been encouraging to see many micro-cap energy names participate in the sector’s upside…and here’s one that should definitely be on your radar… Texas-based EnerJex Resources (OTCQB: ENRJ).
During 2012, the Company achieved a 97.6% drilling success rate, drilling 123 economically successful oil wells out of 126 wells drilled in its Kansas plays.
Plus, the Company has identified hundreds of low-risk shallow oil drilling opportunities on its existing properties.
Because the wells that EnerJex is drilling are vertical and shallow, they are very inexpensive to drill and complete…. And the cash on cash IRR’s on these wells often approaches or exceeds 50%.
I’ll be posting a more comprehensive report on EnerJex…you’ll be impressed with this micro-cap opportunity.
Research and Editorial Staff
Mike Casson, Executive Editor