In The Rear View Mirror: April continues to be a tricky month, and that’s putting it delicately for U.S. stocks. Sure, the Dow Jones Industrial Average finished the week slightly higher, but the S&P 500 and the Nasdaq both closed down on the week as disappointing earnings reports, concerning U.S. economic data points and global macroeconomic risk courtesy of Europe conspired to be a drag on riskier assets.

Earning beating expectations…but not by enough to excite the market

Regarding first-quarter earnings reports, so far, with 23% of S&P 500 companies having reported results, more than four-fifths have beaten expectations, topping consensus forecasts with an average surprise factor of 8.8%, according to Reuters. Translation: The bar was set really low and companies are clearing that bar, but not by enough to really excite investors and lure them back into the market.

Europe is a big drag in more ways than one

And then there’s Europe. This is what’s happening across the Atlantic right now: Yields on 10-year bonds issued by Italy and Spain are racing higher. That leads to higher borrowing costs for both countries. Italy is officially in a recession, has been for a while, and many traders are saying a default by Spain is practically a guarantee. There’s also plenty of speculation that France will see its credit ratings cut. France and Spain are the Euro Zone’s second-largest and fourth-largest economies respectively.

Market Report

In economic news, initial jobless claims fell by 2,000 last week to 386,000, but that is well above the 375,000 new claims economists expected. The National Association of Realtors said sales of existing homes fell 2.6% in March to a seasonally adjusted annual rate of 4.48 million from 4.60 million in February. Economists expected a reading of 4.63 million for March.

Those were two of the marquee data points for the week, both issued Thursday. The jobless claims number was decent, but not great. The housing number was downright disappointing. Even the most optimist economists would say regarding the economic data that has come in over the past four or five weeks that growth is evident, but the U.S. economy still isn’t where it needs to be.

To say the week ahead is important for U.S. equities is an understatement.

China’s industrial activity will be reported on Sunday and suffice to say, the market is in no position to handle another weak economic report from the world’s second-largest economy. Here in the U.S. it’s all about earnings as almost 180 of the S&P 500’s components will report earnings next week. With "sell in May and go away" lurking right around the corner, stocks have precious little time to get their respective acts together.

Major Indexes were mostly “Green” this past week, with only NASDAQ spoiling the party

The Dow turned in a nice performance this past week…up 180 points (+1.40%), reclaiming some lost ground and hanging onto a 6.64% gain YTD.

The S&P 500 had a modest up swing of 0.60% for the week and is inching back up to the 10% YTD gain number. The Nasdaq was the one major index that disappointed us…losing 10.88 points or 0.36% for the week. YTD gains are still over 15%.

All of our other weekly bench marks were in green numbers, with the NYSE Amex leading the way at +2.73%.

Make it five weeks in a row for mixed results

WTI Crude Oil did an about face and moved up $0.22 to $103.05.

The US dollar lost 0.0084, closing at 0.7562 Euros.

The 10-year bond continued up slightly… +$0.188 at $100.313, and the 30-year bond gained $0.062 to close the week at $100.000 on the nose.

Gold is going to be interesting to say the least

Gold lost $17.00 to close at $1,642.10…and the 60 day gold chart looks downright ugly. But that is a very small snap shot for the yellow stuff. The one year chart shows gold moving up from the $1500 range to $1650, a 10% gain…and the five year chart is very impressive. How about a 135% gain from $700 to $1650…that’s an average of over 25%. We wish stocks had done as well.

In a recent article, Jim Cramer offered a compelling reason why gold remains a BUY. Wealthy Europeans, most notably the Spanish and for that matter, throw in the Italians, will be desperate to preserve their wealth. The Euro won’t do that for them and the U.S. Dollar provides no real return with short-term bills and notes.

That leaves gold…to many it is a currency and not just a metal. And make no mistake, they will be buying the metal. Add that to purchases by emerging countries, the Chinese, the Indians, wealthy American gold bugs and you have the makings of a continuing bull market for gold…that is unless you’re convinced Europe has solved their debt crisis. That’s what we thought too!!!

The Bottom Line for Stocks

There is some good news. Analysts see double-digit earnings growth for the S&P’s financial and consumer discretionary sectors in 2012, with industrials close behind, Reuters reported. Those are high-beta, cyclical sectors and double-digit EPS growth for them could not be forecast unless the economy was expected to cooperate. More good news: There are plenty of alluring options in all three of those sectors in the micro-cap universe.

The economy is still fragile, but on far firmer footing than where it was a year ago, so using pullbacks to grab high-quality, cyclical micro-cap names now could lead to some stellar returns for your portfolio later this year.

Unlike some, we believe there are significant returns to be had with select names in the metals and mining sector. If the yellow metal marches upward as expected, you can be sure it will pull some good gold stocks right along with it. And of course, we favor the smaller names for higher returns. Be looking on these pages for individual stocks that we’ll highlight for your consideration.

Research and Editorial Staff
MicroCap MarkePlace