Micro-Cap Market Report: September 9, 2013 – It was holiday-shortened week, but that didn’t deter micro-caps and big-cap stocks from starting September on a strong note. The S&P 500 needed just four days to gain nearly one percent, although the Dow Jones Industrial Average lagged a bit with a gain of about 0.7 percent. The NASDAQ Composite set the pace with a weekly gain of around 1.2 percent.
We’ve previously noted, and we’re sure you heard some of this in the just completed week, that September is the worst month of the year for stocks. The addendum to that factoid is that the first week of the month is usually strong, which it was. That is another way of saying there is still a good chance September will live up to its billing as a rough month for the bulls.
Micro-caps show strength
In a week that should have been risk-off in tenor due to geopolitical events involving Syria, Friday’s jobs report and intense speculation about Federal Reserve tapering, micro-caps held up pretty well. The iShares Russell Microcap ETF (NYSE: IWC) added 0.4 percent on the week while the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) rose 0.6 percent.
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The major economic data point out during the week was, of course, the August jobs report and it was not good. The U.S. Labor Department said employers in the world’s largest economy added 169,000 jobs last month, below the 177,000 new jobs analysts expected. The July reading was slashed to 104,000 new jobs added from the initial estimate of 162,000.
In other U.S. economic news, Labor Department said initial claims for jobless benefits fell by 9,000 last week to 323,000. The less volatile four-week moving average fell 3,000 to 328,500, the lowest reading since October 2007. The Labor Department releases the August jobs report Friday before the open of U.S. markets.
The Institute for Supply Management said its August services purchasing managers index rose to 58.6% last month from 56.0% in July. That is good for the best reading since the index was created in 2008. Economists expected an August reading of 55%.
On Tuesday, the Institute for Supply Management said its August manufacturing index climbed to 55.7% from 55.4% in July, good for the highest reading since June 2011. Economists expected a reading of 54.1%. The new orders index soared to 63.2% from 58.3%, but the production index fell to 62.4% from 65%.
The only way of looking at all of this data is that it was all pretty good…except the jobs report.
Arguably, July’s downward revision was more concerning than the August miss. However, in a quantitative easing world, this bad news is good news because traders now believe the Fed cannot taper because of the disappointing jobs report.
It was a sea of GREEN across the board
Every sector was up… but that was somewhat surprising. With Egypt, Syria, Fed Tapering, Japan, emerging market uncertainty to name a few questions… what the heck was going on???
Yahoo Finance reported… “A recent stretch of better-than-expected data played into the expectation that the Fed may lower the pace of its asset purchases at the upcoming September 17/18 FOMC meeting.
“However, [Friday’s] jobs report painted a more uncertain picture, which sparked a market reaction consistent with lowered expectations of tapering in the near term.”
Gold was off… -$9.60 to close at $1,386.50.
Oil continued a modest upward trend… prices closed Friday at $110.53 (+ $2.88 for the week). We’re still waiting on a Syrian decision.
The US Dollar was up…slightly: + $0.0027 for the week to close at 0.7591 euros.
Bonds were off. The 10-year bond lost $1.59 to close at $96.27 and the 30-year bond lost $3.46 to close at $95.67.
The Bottom Line for Stocks
It would probably be best for the Fed to stop delaying the inevitable and just taper. Tapering is coming whether the market likes it or not and delaying it only makes matters worse. The good news is plenty of micro-cap sectors can soar even if tapering arrives and interest rates continue to rise.
We reiterate our long held view that micro-cap health care names are excellent plays regardless of macro headwinds and that much was proven last week. Consumer discretionary and industrials are two other groups that work well even when interest rates rise.
Additionally, micro-caps Internet stocks are showing signs of life and that is another group that is hardly affected by rising rates.
Research and Editorial Staff
Mike Casson, Executive Editor