Microcap Stocks Lead Leap – Investors Taking on More Risk

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Arrow up imagesMicrocap Market Report: May 20, 2013 – U.S. stocks and especially the microcap sector enjoyed another excellent week. Despite persistent speculation that the Federal Reserve is close to winding down or ending its $85 billion per month bond-buying program known as the third version of quantitative easing, major indexes posted impressive gains.

Record highs continue

When the closing bell sounded on Friday, the S&P 500 settled with a weekly gain of almost 2.1%, good enough to bring the benchmark U.S. index to another record high.

The Dow Jones Industrial Average and the NASDAQ Composite also flirted with weekly gains of 2% before settling back below that mark. Still, all three major U.S. indexes closed noticeably higher on the week, indicating that talk of this rally’s waning strength is getting a bit old.

Microcap stocks continue to benefit from broader market ebullience

The iShares Russell Microcap Index Fund (NYSE: IWC) gained 2.5% last week and is now up nearly 9% in the past month. The Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) advanced 2.4% last week and is now higher by 8% in the past month.

Up 16.50% YTD…a broader measurement of the health of the small-cap segment of the U.S equity markets is the Russell 2000 Index, a sub-set of the Russell 3000. The Russell 2000 represents approximately 10% of the total market capitalization of that index; the median market cap of the 2000 smaller stocks in the index isaround $528 million. Last week’s gains of 2.21% were quite impressive and only provide more validation of the rally’s broad strength.

The Markets @ 5/17/2013
Index Close Weekly % Change YTD Change YTD%
DJIA 15354.4 235.91 1.56% 2250.26 17.17%
NASDAQ 3498.97 62.39 1.82% 479.46 15.88%
S&P 500 1667.47 33.77 2.07% 241.28 16.92%
NYSE Comp 9576.42 133.66 1.42% 1132.91 13.42%
NYSE MKT  2426.69 -13.44 -0.55% 71.03 3.02%
RUS 2000 989.53 21.42 2.21% 140.18 16.50%
RUS MICRO 61.42 1.48 2.47% 9.1 17.39%
VANG INTL 49.92 -0.06 -0.12% 3.62 7.82%
CHINA INDEX 4845.28 60.87 1.27% 406.76 9.16%
EMERG MKTS 7156.82 -43.67 -0.61% 116.85 1.66%

Market Report


Back to Back to Back to Back…sounds like a Texas High School State Championship Run!!!


Green numbers four weeks in a row have pushed the major indexes to record levels following continued optimism about the U.S. economy and better than expected corporate profits. “Sell in May and Go Away;” where are you?

As we noted last week and the week before, protect your profits with some intelligent stop-losses. If your stocks continue a strong upward move, then raise your stop-losses too.

Oil prices paused this week and gold retreated for the second week in a row
WTI Crude Oil closed at $96.02 last week…off $0.02. Gold gave back $71.90 to close the week at $1,364.90.
US Dollar was up – gaining $0.0092 $0.0074 to close at 0.779 euros.
Bonds were down…again – The 10-year bond lost $0.44 to close at $98.20 and the 30-year bond lost $1.17 to close at $94.41

In economic news, U.S retail sales rose 0.1% in April following a decline in March. The increase was helped by 1% rise in auto sales. Excluding auto sales, U.S. retail sales fell 0.1% in April…but then again, what sense does it make to exclude “car sales???”

The Labor Department said on Thursday that initial claims for state unemployment benefits increased by 32,000 to 360,000 last week; the biggest increase since November. That report was delivered on Thursday, the same day the Labor Department said its Consumer Price Index fell 0.4% last month. That was the biggest drop since December 2008, the height of the global financial crisis.

The Commerce Department said housing starts plunged 16.5% last month, but permits to build new homes increased, giving investors some confidence that the U.S. residential real estate market remains robust.

In better economic news, the Thomson Reuters/University of Michigan preliminary index of consumer sentiment jumped to 83.7 this month, the third-best reading in almost six years. Separately, the Conference Board’s gauge of the economic outlook for the next three to six months climbed 0.6 percent in April, more than forecast, Bloomberg reported.

It is not an ambitious assessment to say that the week’s economic data points were mixed at best and it is certainly difficult to put a rosy spin on the jobless claims number. However, the consumer sentiment data was particularly encouraging given that the “U.S. consumer accounts for 70% of this country’s GDP.”

The Bottom Line for Stocks

On the heels of a fairly good retail sales report and the aforementioned stellar consumer sentiment, continued good times should be ahead for microcap discretionary names. Consumer discretionary is the epitome of a sector where folks have been saying a retrenchment is overdue, but that decline has yet to materialize.

With metals prices continuing to wilt, we reiterate the familiar refrain of being extremely cautious with microcap miners. On a brighter note, continued improvement in the U.S. housing market should drive quality microcap bank stocks with mortgage exposure higher. Health care and technology micro-caps continue to look strong as well.

Research and Editorial Staff
MicroCap MarketPlace
Mike Casson, Executive Editor


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