Micro-Cap Market Report: July 8, 2013 – Buoyed by a strong June jobs report, U.S. stocks (Blue-chips and Micro-caps) ended the holiday-shortened week in blistering fashion with all three major indexes closing higher.
Although the trading week amounted to just 3.5 days, the S&P still managed to tack on 1.6% while the Dow Jones Industrial Average tacked on just a little bit less at 1.52%. In an encouraging sign for the technology sector, the Nasdaq Composite jumped 2.24% for the week.
Jobs report surprises to the upside
Perhaps the most encouraging economic sign was that for a second consecutive month, U.S. employers added 195,000 jobs. This easily trumped expectations which were in the 165,000 to 170,000 range.
What was truly encouraging was that even with speculation that the jobs report was good enough to allow the Federal Reserve to begin tapering its quantitative easing program as soon as September, stocks still rallied Friday showing that good news really is, well, good news.
Micro-caps surged to new highs
Elevated risk appetite was excellent news for micro-caps as the iShares Russell Microcap Index Fund (NYSE: IWC) surged 2.96%. The Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) topped that performance, with a 3.29% gain. Both hit new 52-week highs at 63.56 and 22.95 respectively.
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In other economic news out during the week, the Institute for Supply Management said its June manufacturing index rose to 50.9 from 49 in May. Economists expected a June reading of 50.6. Readings above 50 indicate expansion.
The Commerce Department said May construction spending jumped 0.5% following a 0.1% increase in April. Total spending rose to a seasonally adjusted annual rate of $874.9 billion in May, up 5.4% on a year-over-year basis.
On Tuesday, the Commerce Department said U.S. factory orders rose 2.1% in May following a revised 1.3% gain in April. Economists expected a May increase of 2%.
Home Prices: Biggest year-over-year increase since February 2006
Real estate data provider CoreLogic said U.S. home prices surged 12.2% year-over-year in May. Of the 100 largest U.S. metro areas, home prices advanced in all but three. Prices rose in 48 of 50 states.
As we always say, when the monthly jobs report rolls around, all other data points take a backseat and that was the case again this week.
Worth noting is that July is a long trading month and there are only a few major economic data points expected out this month before the August Fed meeting. However, earnings season kicks off today and that means there will be plenty of catalyst to light a fire under micro-caps over the next few weeks.
Green numbers for Micro-caps and Blue-chips… Emerging Markets take a step backwards
The S&P gained 1.6% for the week and is showing a solid 14.42% YTD gain. The DJIA jumped up 1.52% last week… however the YTD gain of 15.50% is what is really impressive.
However…with a 2.24% weekly gain the NASDAQ is showing a good bit of strength and is in second place for the major indexes with a 15.23% YTD gain.
China added another 0.52% gain for the week and is now comfortably over the 10% YTD hurdle. The Emerging Markets Index gave back 2.36% last week and is in negative returns territory at -11.17% YTD.
Micro-caps continue to reward risk
As noted above, the Guggenheim Wilshire Micro-Cap ETF and the iShares Russell Microcap Index hit 52-week highs. To further validate our interest in the micro-cap/small-cap sector, the Russell 2000 gained 2.75% for the week and is up 18.54% YTD.
Let me repeat last week’s report…Oil was up and gold lost more ground
Oil prices closed Friday at $103.22 (up $6.66 for the week)… gold is approaching the $1200 level; closing the week at $1,212.90, off $10.90.
The US Dollar was up + $0.0107 to close at 0.7794 euros.
Bonds reversed direction and lost a bit… the 10-year bond dropped $1.92 to close at $91.67 and the 30-year bond shed $2.98 to close at $85.47.
The Bottom Line for Stocks
Yields on 10-year Treasuries surged 8.56% Friday while gold continued to plunge. Those two scenarios make micro-cap stock picking a little easier over the next few weeks.
Rising interest rates could be good news for small banks and there remains little reason get involved with the miners here. After all, they just keep getting cheaper.
Buoyant economic data bodes well for micro-cap discretionary and energy names while it should be noted that the materials sector is usually a strong July performer. In this case, we would be focusing on companies with no precious metals exposure.
Research and Editorial Staff
Mike Casson, Executive Editor