Microcaps Indicate Bull Run May Not Be Over

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WS BullMicrocaps Indicate Bull Run May Not Be Over

Microcap Market Report: May 11, 2013 – Fueled by some decent earnings reports at the tail-end of first-quarter earnings season and powered by a spate of central bank news that surprisingly did not directly involve the Federal Reserve, U.S. stocks, including microcaps notched another set of really nice weekly gains.

For the week, the S&P 500 added 1.2% while the Dow Jones Industrial Average climbed 1%. The NASDAQ Composite was the best of the three major U.S. indexes with a weekly pop of 1.71%. The Russell Microcap Index turned in a most impressive gain at 1.94% and is up 14.56% YTD.

With the S&P 500 and the Dow both reaching record closes yet again in the final trading day of the week, it is fair to say that animal spirits are high and that the “Sell in May and Go Away” crowd have been unable to impart their will on this market.

Is the S&P Over-valued?

The rub is that the S&P 500 is starting to look expensive relative to historical standards. The index is valued at 16 times reported profits, approaching the most expensive levels in almost three years, according to data compiled by Bloomberg. The multiple was 17.5 at the previous market peak in October 2007, also reported by Bloomberg.

Another indication that microcaps are shaking off the valuation noise and are embracing elevated risk appetite to climb higher, the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) jumped 1.6%. The bull run seems to have some legs left as indicated by the movement beyond big-cap stocks into thousands of smaller names.

The Markets @ 5/10/2013
Index Close Weekly % Change YTD Change YTD%
DJIA 15118.49 144.53 0.97% 2014.35 15.37%
NASDAQ 3436.58 57.85 1.71% 417.07 13.81%
S&P 500 1633.7 19.28 1.19% 207.51 14.55%
NYSE Comp 9442.76 102.29 1.10% 999.25 11.83%
NYSE MKT  2440.13 9.1 0.37% 84.47 3.59%
RUS 2000 968.11 17.52 1.84% 118.76 13.98%
RUS MICRO 59.94 1.14 1.94% 7.62 14.56%
VANG INTL 49.98 0.46 0.93% 3.68 7.95%
CHINA INDEX 4784.41 238.82 5.25% 345.89 7.79%
EMERG MKTS 7200.49 106.75 1.50% 160.52 2.28%

Market Report

Back to Back to Back Weeks Like This Can Make Your Head Spin

You gotta love all these Green numbers… especially because it keeps the “Sell in May and Go Away” crowd at bay. As we noted last week, it’s still a little early to tell, so enjoy the gains and consider protecting them with some intelligent stop-losses. If your stocks continue a strong upward move, then raise your stop-losses too.

Oil prices continue a slight upward move – WTI Crude Oil closed at $96.04 last week…+$0.43.
Of course gold reversed its direction…the US Dollar was up – Gold closed at $1,436.80 on Friday, off $27.50 while the US Dollar gained $0.0074 to close at 0.7698 euros.
Bonds were down…Big Time Down – The 10-year bond lost $3.69 to close at $98.64 and the 30-year really backed up, losing $7.78 to close at $95.58.

Compared to the previous week, the trading week ending May 10 was light on economic data, but the data points that were reported were mostly positive.

In economic news, the Mortgage Bankers Association said the number of mortgage applications filed in the U.S. last week rose 7% while the refinancing index increased 8%.

On Thursday, the U.S. Labor Department said initial claims for jobless benefits fell by 18,000 last week to a five-year low of 324,000. Analysts expected a reading of 345,000 claims.

Separately, the Commerce Department said the U.S. trade deficit narrowed to $38.8 billion in the first quarter.

On the economic data front, the week was more about global central banks lowering interest rates, including those in Australia, South Korea and Vietnam. Those actions come on the heels of the European Central Bank lowering rates in the prior week and there is increased speculation that before May is over, investors will be treated to lower rates in other parts of the world as well.

This is good news for those looking for global micro-cap exposure, including both developed and emerging markets fare.

The Bottom Line for Stocks

Here is an interesting tidbit for those that think they have missed out on the rally or that stocks have risen too far too fast: This year is only the 11th-best start to a year since 1991, according to Bespoke Investment Group.

In terms of places to go shopping for micro-cap opportunities, as we noted earlier, the emerging markets arena is clearly an attractive place right now. That could continue to be the case as more central banks step up to the rate cutting plate. Thailand is believed to be a prime candidate to pare rates later this month and that is just one example.

Laggards are starting to show some signs of playing catch-up, and that includes technology and basic materials names (industrial, not precious metals). We reiterate previous bullish calls on financial services and health care microcaps.

Research and Editorial Staff
MicroCap MarketPlace
Mike Casson, Executive Editor


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