Micro-caps Give Back Some Gains – But Don’t Count Them Out Just Yet

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imagesCA1PBM01 Micro-cap Market Report: November 4, 2013 – U.S. stocks rose in the just completed week, though only in modest fashion. Then again, we cannot expect epic rallies every week. The S&P 500 inched up 0.11% on the week while the Dow Jones Industrial Average gained 0.30%. However, all was not well with micro-caps nor the NASDAQ… the Composite lost 0.54%.

A good portion of the excitement in the past week, it if can be called that, was driven by earnings reports. Of the 368 S&P 500 companies that have reported results for the third quarter, 75% exceeded analysts’ predictions for profit, while 53% beat sales estimates, Bloomberg reported.

Data indicate investors are eager to be involved with stocks. October was one of the best months in the past several years in terms of inflows to equity-base ETFs and mutual funds. Equity ETFs have seen 2013 inflows of nearly $161 billion, (according to IndexUniverse), indicating investors believe this rally has legs.

Micro-caps lose a little luster

The increased level of risk appetite should be good for micro-caps, but in a curious phenomenon, some of the air came out of the small-cap/micro-cap trade last week with the iShares Russell Microcap ETF (NYSE: IWC) losing 2.7%. The Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) was even worse with a loss of 3.2%.

The Markets @ 11/1/2013
Index Close Weekly % Change YTD Change YTD%
DJIA 15615.55 45.27 0.29% 2511.41 19.17%
NASDAQ 3922.04 -21.32 -0.54% 902.53 29.89%
S&P 500 1761.64 1.87 0.11% 335.45 23.52%
NYSE Comp 10018.16 -35.7 -0.36% 1574.65 18.65%
NYSE MKT 2428.83 -27.8 -1.13% 73.17 3.11%
RUS 2000 108.72 -2.36 -2.12% 24.64 29.31%
RUS MICRO 69.27 -1.9 -2.67% 16.95 32.40%
VANG INTL 51.48 -0.59 -1.13% 5.18 11.19%
CHINA INDEX 6625.35 -131.55 -1.95% 2186.83 49.27%
EMERG MKTS 6981.51 -17.4 -0.25% -58.46 -0.83%

 

Market Report

In economic news out during the week, the ADP private sector payroll survey showed U.S. non-government employers added 142,000 jobs per month in the three months through October, well below the 220,000 seen early this year. Large businesses added 81,000 jobs this month while small businesses added 37,000.

On Thursday, the Labor Department said first-time claims for jobless benefits declined by 10,0000 to a seasonally adjusted 340,000 last week. Economists expected a decline to 339,000. The less volatile four-week moving average rose by 8,000 to 356,250.

And on Friday, the Institute for Supply Management said its index of national factory activity rose to 56.4 in October, the best reading in over three years. Markit said U.S. PMI was 51.8 in October, topping the initial reading. Readings above 50 indicate expansion.

Data not strong enough to trigger tapering

Those data points were decent enough, but probably not strong enough to renew fears of imminent tapering by the Federal Reserve. With November standing as the first month of the best six-month cycle in which to own stocks and chances of a “Santa Claus rally” looking strong, the less investors hear about the Fed over the next seven to eight weeks, the better.

A mixed bag of results

Two majors up, one down, and the rest of the crowd showing red too. We still have some nice looking YTD gains with China and US micro-caps leading the indexes we follow.

CONTINUING…

Gold was off last week… -$39.30 to close at $1,313.10.

Oil was also off this past week… prices closed Friday at $94.61, down $3.24.

The US Dollar was up… + $0.0169 for the week to close at 0.7414 euros.

Bonds lost a bit last week. The 10-year bond was down $0.99 to close at $98.98 and the 30-year bond lost $1.83 to close at $99.75.

The Bottom Line for Stocks

As we noted earlier, it was interesting, arguably concerning, to see micro-caps and small-caps retreat the way they did last week. That was probably a case of strength in the U.S. dollar and the U.S. Dollar Index is now nearing a key resistance area. With risk appetite high for the most part, the dollar scenario could mean this is an ideal time to revisit micro-caps.

Interestingly, November is one of the best months in which to be long gold, so this month could be kind to micro-cap miners. We are wary of most energy micro-caps simply because their large-cap counterparts have been disappointing as of late, but we would favor micro-cap materials and industrials due to favorable seasonal trends.

Research and Editorial Staff
MicroCap MarketPlace
Mike Casson, Executive Editor

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