Micro-cap Indexes Flinch, But Still Lead the Pack

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Micro-Cap Market Report: June 17, 2013 – It was a volatile week for stocks including the micro-cap sector amid continued hemming and hawing about the next moves by global central banks, particularly the Bank of Japan and the Federal Reserve. The former provided some disappointment earlier in the week and the latter was in focus leading up to a meeting in the week ahead.

IMF forecast blisters stocks

The International Monetary Fund lowered its U.S. growth forecast for 2014 to 2.7 percent, from 3 percent on Friday and that was enough to send stocks into the weekend on a downbeat note. The major U.S. indexes all closed in the red on Friday and each closed lower by more than one percent on the week.

With the Bank of Japan failing to provide new stimulus measures at the end of its meeting earlier in the week and with expectations in place that the Fed will announce a winding down of QE3 next week, there was an obvious risk-avoidance tenor to the trading week.

Micro-cap sector fairs better

Micro-cap stocks held up relatively well as the iShares Russell Micro-cap Index Fund (NYSE: IWC) lost less than 0.4%. Despite a poor showing Friday, the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) eked out a small weekly 0.22% gain which added to its YTD number… a gaudy 20.56%. Following close behind is the Russell 2000 at 16.21% YTD and the Russell Micro at 17.8% YTD.

The Markets @ 6/14/2013
Index Close Weekly % Change YTD Change YTD%
DJIA 15070.18 -177.94 -1.17% 1966.04 15.00%
NASDAQ 3423.56 -45.66 -1.32% 404.05 13.38%
S&P 500 1626.73 -16.65 -1.01% 200.54 14.06%
NYSE Comp 9263.69 -91.72 -0.98% 820.18 9.71%
NYSE MKT  2337.22 -25.4 -1.08% -18.44 -0.78%
RUS 2000 97.71 -0.49 -0.50% 13.63 16.21%
RUS MICRO 61.64 -0.23 -0.37% 9.32 17.81%
VANG INTL 47.52 -0.16 -0.34% 1.22 2.63%
CHINA INDEX 4883.82 -117.73 -2.35% 445.3 10.03%
EMERG MKTS 6527.66 -177.82 -2.65% -512.31 -7.28%


Market Report

After the previous week’s data deluge, the just completed week was light on economic news and that was probably a good thing as stocks are not off to the best of starts in June, a month that is usually the best in the worst six-month time frame in which to own stocks.

In economic news, the U.S. Commerce Department said retail sales rose 0.6% last month after rising just 0.1% in April. Economists expected an increase of 0.4%. Core sales excluding automobiles, gasoline and building materials, rose 0.3% in May after 0.2% increase in April.

The Labor Department said initial claims for jobless benefits fell by 12,000 last week to 334,000. The less volatile four-week moving average fell by 7,250 to 345,250.

Consumer confidence drops

On Friday, the Thomson Reuters/University of Michigan’s preliminary reading for the June consumer sentiment index fell to 82.7 from 84.5 in May. Economists expected a June reading of 84.5, which was an almost six-year high when reported last month.

The market’s reaction to Friday’s consumer sentiment shows investors have become accustomed to positive consumer data. That was a good number even it was below the previous month’s and it serves as a reminder that consumer discretionary names, particularly micro-caps, are showing some signs of weakness here.

Major indexes reverse direction – China and the Emerging Market Index took a big hit!

It was a sea of red numbers for all the major indexes last week… however, the DJIA is still the leader in the club-house for the big boys with a 15.00% YTD gain.

The Emerging Markets dropped 2.65% last week which was on the heels of a 2.25% drop the previous week and moved further into red territory at -7.28% YTD…not a pretty sight.

The Golden China Index gave back 2.65% to old Mr. Market and is back to a 10% gain for the year…which is considerably better than the Vanguard International Index with its YTD gain of 2.53%.

Oil prices moved higher again this week and closed Friday at $97.85 (up $1.82)…and gold for a change moved in the same direction.

Gold closed the week at $1,387.30, up $4.30 for the week…still in the trading range of the 1350s to low 1420s.

Since its peak in September 2011, gold has dropped 25%. The biggest problem for the yellow metal over the last two years has been the stubborn refusal of inflation to appear in any tangible way. Fed money printing was supposed to push gold higher relative to paper money. Never happened… says KKM Financial founder & CEO and CNBC contributor Jeff Kilburg as reported on Yahoo Finance.

Until inflation shows up and it will, what we’re seeing is a traders market.

The US Dollar was off again, –$0.0073, to close at 0.7493 euros.

Bonds made a positive move this week… the 10-year bond gained $0.31 to close at $96.66 and the 30-year bond moved up $0.53 to close at $92.06.

The Bottom Line for Stocks

For once, no one needs a crystal ball to figure out how the coming week is going to play. We expect some lethargic trading sessions until the Fed completes its two-day meeting. Of course, no one knows exactly what the Fed will say, but chances the stance about low interest rates through 2015 will remain in place. Still, it’s all about tapering.

The way to look at that is that the Fed will only taper if it thinks the U.S. economy is performing well. That entire scenario would mean micro-cap energy, financial services and technology names should be on investors’ radars in the days and weeks ahead.

Research and Editorial Staff 
MicroCap MarketPlace
Mike Casson, Executive Editor

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