Increased Risk Appetite Fuels MicroCap Gains

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finance_stock_market_27037 MicroCap Market Report: March 1, 2014 – Another week, another record finish for U.S. stocks, though Friday’s gains should have been much better. Big Board and microcap stocks surged at the open with the Dow Jones Industrial Average, sporting a triple-digit gain for much of the day. Heightened fears about the developing and worsening situation in Ukraine eroded some of Friday’s gains.

Still, the S&P 500 was able to close higher by more than 4% in February good for the biggest monthly gain since October 2013 while the Dow posted its best monthly performance since January 2013. The Nasdaq Composite gained 4.97% in February, stoking speculation the tech and micro-cap heavy index could return to its pre-tech bubble highs.

MicroCap stocks continue to roll

The increased risk appetite was beneficial to micro-caps as the iShares Russell Microcap ETF (NYSE: IWC) gained 1.5 percent on the week to close near a new 52-week high. The Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) gained 1% for the week and resides one percent below a new high.

The Markets @ 2/28/2014
 
Index Close Weekly % Change YTD Change YTD%
           
DJIA 16321.71 218.41 1.36% -254.95 -1.54%
NASDAQ 4308.12 44.71 1.05% 131.53 3.15%
S&P 500 1859.45 23.2 1.26% 11.09 0.60%
NYSE Comp 10373.31 66.41 0.64% -27.02 -0.26%
NYSE MKT 2510.98 60.66 2.48% 84.78 3.49%
RUS 2000 117.52 1.86 1.61% 2.16 1.87%
RUS MICRO 78.2 1.13 1.47% 3.08 4.10%
VANG INTL 52.26 0.35 0.67% 0.28 0.54%
CHINA INDEX 7459.01 182.31 2.51% 404.18 5.73%
VANG EMER MKTS 39.18 0.16 0.41% -1.63 -3.99%

Market Report

Federal Reserve Chair Janet Yellen bolstered the market on Thursday when she said harsh weather seems to be to behind recent U.S. economic softness, Reuters reported. Those comments from Yellen helped investors tolerate another tepid batch of data points.

In economic news, the Conference Board said its index of consumer sentiment fell to 78.1 from a downwardly revised 79.4 in January. Economists expected a February reading of 80. The S&P/Case-Shiller index of home prices in 20 metro areas rose 0.8%. Economists expected an increase of 0.6%.

A Wednesday report showed new home sales jumped 9.6% last month to annual rate of 468,000. Economists expected a 3.4% increase. The December reading was revised higher to show a drop of 3.8% from an initial reading that showed a drop of 7%.

On Thursday, the Commerce Department said durable goods orders fell 1% last month after a 5.3% drop in December. Economists expected a January decline of 1.6%. The December number was revised down from an initial decline of 4.3%.

The Labor Department said weekly jobless claims rose by 14,000 to 348,000 last week. Economists expected a reading of 335,000 claims. The less volatile four-week moving average was unchanged at 338,250.

And on Friday, the Commerce Department said U.S. GDP grew 2.4% in the fourth quarter, below the 3.2% growth reported last month. Economists expected an increase of 2.5%. The National Association of Realtors said its pending home sales index, based on contracts signed last month, rose 0.1 percent to 95.0 in January, according to Reuters. The Thomson Reuters/University of Michigan’s final reading of consumer sentiment for February checked in at 81.6, above the 81.2 initial reading for February.

Overall, that is a mixed bag of economic data, but as long as the bad weather excuse stands up, and some investors would like to believe it will for a while, risk appetite will remain solid.

The Bottom Line for Stocks

There is good reason to be enthused about micro-caps in the weeks ahead. That being March and April are two of the best months of the year for stocks. Should that seasonal trend prove accurate again, it would be time to consider micro-cap financial services and industrial names.

It is also worth noting that the energy sector has entered its period of seasonal strength, providing some opportunity with micro-cap oil and natural gas names.

Research and Editorial Staff
MicroCap MarketPlace
Mike Casson, Executive Editor

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