Micro-Cap and China Stocks Lead Equity Parade

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China FlagMicro-Cap Market Report: September 30, 2013 – September finally lived up to its billing as a rough month for stocks as U.S. equities (excluding the micro-cap and China sectors) endured their first weekly loss since the last week in August. Concerns over a possible government shutdown and lingering uncertainty regarding the Federal Reserve’s timetable for tapering its quantitative easing program weight on the markets.

For the week, the S&P 500 lost slightly over one percent while the Dow Jones Industrial Average lost a bit more than that. With Internet stocks acting like it is the late 1990s all over again, the NASDAQ Composite was able to eke out a small-gain on the week.

Washington puts a damper on the markets

Although economic data was mostly solid, risk appetite was limited by Washington. On Friday, the Senate voted to finance the government through Nov. 15 after removing language to choke off funding for the health care law, Bloomberg reported.

While it remains likely the U.S. will avert a debt ceiling crisis, the political haggling investors are going to have to endure over the coming days could pressure stocks as it has all too frequently in the past.

Micro-cap stocks hang tough

Micro-caps were positive performers last week as the iShares Russell Microcap ETF (NYSE: IWC) gained 0.41 percent while the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) rose a more modest 0.16 percent.

The Markets @ 9/27/2013
Index Close Weekly % Change YTD Change YTD%
DJIA 15258.24 -192.85 -1.25% 2154.1 16.44%
NASDAQ 3781.6 6.87 0.18% 762.09 25.24%
S&P 500 1691.75 -18.16 -1.06% 265.56 18.62%
NYSE Comp 9684.19 -85.54 -0.88% 1240.68 14.69%
NYSE MKT 2382.16 4.83 0.20% 26.5 1.12%
RUS 2000 106.58 -0.01 -0.01% 22.5 26.76%
RUS MICRO 68.45 0.28 0.41% 16.13 30.83%
VANG INTL 50.52 -0.37 -0.73% 4.22 9.11%
CHINA INDEX 6622.98 165.45 2.56% 2184.46 49.22%
EMERG MKTS 6774.44 -203.8 -2.92% -265.53 -3.77%

 

Market Report

It was a fairly brisk week on the economic data front and the coming week could bring more of the same. That is unless the government averts a shutdown. If not, it is likely the September jobs report due out on Friday will be delayed.

In economic news, the Commerce Department said durable goods orders rose 0.1% in August, but slid 8.1% in July after the number for that month was revised lower. Economists were expecting a 0.5% decrease in August. Excluding transportation, durable goods orders fell 0.1% last month, below the 1% increase economists forecast.

Separately, the Commerce Department said new home sales rose 7.9% last month to a seasonally adjusted rate of 421,000. On a year-over-year basis, that is a 12.6% increase. Economists expected an August reading of 425,000 units. Sales of new homes rose in all regions except the West.

On Thursday, the Commerce Department’s third estimate of second-quarter U.S. GDP growth was 2.5%, matching the second estimate released last month. Consumer spending rose 1.8% in the second quarter after increasing 2.3% in the first quarter.

The Labor Department said initial claims for jobless benefits fell by 5,000 to 305,000 last week. Economists were expecting an increase to 327,000 claims. The less volatile four-week moving average fell by 7,000 to 308,000, the lowest reading since June 2007.

The National Association of Realtors said pending home sales dropped 1.6% last month after a downwardly revised 1.4% drop in July. Economists expected a 1% August decline. Purchases rose 2.9% on a year-over-year basis.

Yes, those were pretty good data points, but they may be trumped in the week ahead by goings on in Washington. Financial markets hate uncertainty, but that is exactly what policymakers and the Fed have delivered and that could endanger near-term upside.

It was pretty much RED on my charts

Every major index we follow was down with the exception of the NASDAQ which as was noted earlier managed a small gain…+0.18%

China leading the parade

China was by far the leader in the club house… + 2.56% for the week. And that added up to a 49.22% gain YTD.

CONTINUING…

Gold was up… +$5.90 to close at $1,338.40.

Oil backed off $1.80 this past week… prices closed Friday at $102.87.

The US Dollar was up…but just by the slightest of margins: + $0.0001 for the week to close at 0.7396 euros.

Bonds were up. The 10-year bond gained $0.99 to close at $98.96 and the 30-year bond was up $1.53 to close at $98.97.

The Bottom Line for Stocks

From a micro-cap sector perspective, believers that depressed valuations could trigger a round of mergers and acquisitions activity, may want to have a look at micro-cap precious metals miners. It is a possibility though it should not be the sole reason to buy that sector.

The micro-cap sector that continues to perform and perform well, one that is often to immune macro issues, too, is biotech. Additionally, micro-cap names in the clean/alternative energy space also merit consideration through the end of the year.

Research and Editorial Staff
MicroCap MarketPlace
Mike Casson, Executive Editor