Micro-cap Market Report: December 30, 2013 – In a holiday-shortened week, U.S. stocks (big, mid, small and micro-cap) actually brought some good cheer to investors, stoking hopes of more upside to come next year. During a trading week that lasted just three and a half days, the S&P 500 mustered a gain slightly over one percent while the Dow Jones Industrial Average added 1.59 percent. The NASDAQ Composite moved up 1.26 percent.
Predictably, volume was light throughout the week due to the Christmas holiday. About 4 billion shares changed hands on U.S. exchanges Friday, 34 percent below the three-month average, according to Bloomberg.
Small and micro-cap stocks show strength
Small- and micro-caps continued to climb. The iShares Russell Microcap ETF (NYSE: IWC) gained 1.08% while the Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) posted a gain of 1.40%. The good news for micro-cap investors is that both funds closed the week right near new 52-week highs. The Russell Microcap has posted a 43.50% gain YTD while the Wilshire Micro-cap is sporting a YTD gain of 45.29%. Both outstanding marks.
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Although it was a holiday-shortened week, it was a fairly brisk one on the economic data front. Again, there was good news that buoyed hopes for another strong year for riskier assets in 2014.
On Thursday, the Labor Department said initial jobless claims dropped by 42,000 last week to a seasonally adjusted 338,000, good for the biggest drop since November 2012. The less-volatile four-week average rose 4,250 to 348,000.
On Monday, the University of Michigan’s consumer sentiment index read 82.5 for December, below the reading of 83 economists expected. Combine those data points with some strong housing data out during the week and it appears the Federal Reserve was on target with its pre-holiday tapering announcement.
More importantly, it appears that market participants have become comfortable with the idea that the Fed will reduce its bond-buying program next month, and the economy and financial markets are strengthening enough to stand on their own merits. The S&P 500 is up 29% this year and is on the road to its best yearly performance since 1997.
It was another GREEN week for our indexes
All of the indexes we cover were flashing green numbers last week. The major indexes were led by the DJIA at +1.59%. However, the NASDAQ Golden Dragon China Index (^HXC) surged up 3.10% for the week and has gained a preposterous 57.89% YTD.
Gold turned north… up $11.00 to close at $1,216.10.
Oil moved up slightly… prices closed Friday at $100.32, +$1.00.
The US Dollar slipped a bit… -0.0038 for the week to close at 0.7276 euros.
Bonds were off too… The 10-year bond lost $1.00 to close at $97.84 and the 30-year bond lost $2.03 to close at $96.64.
The Bottom Line for Stocks
With substantial evidence of a legitimate cyclical rotation taking place, micro-cap industrial names make for an ideal sector play. Micro-cap base materials producers can be added to that list as well.
There were signs in the just completed week that micro-cap precious metals miners are trying to end the year on an upbeat, but that group has a long way to earn back investors’ confidence. That is to say caution remains the order of the day with micro-cap gold and silver names.
In addition to industrial and basic materials names, financial services micro-caps are looking strong and that is a group primed to benefit from higher interest rates, an expected scenario in the wake of Fed tapering.
Research and Editorial Staff
Mike Casson, Executive Editor