Microcap Market Report: April 21, 2013 – Amid a flurry of earnings reports and a spate of negative, non-market news, U.S. stocks tumbled to their worst week of 2013. Stocks, including some microcap names, did end the week on a modestly higher note on the back of some small Friday gains. But Friday by itself was not enough to undo the damage wrought by nasty declines on Monday, Wednesday and Thursday.

Stocks and gold suffer major losses

Since touching a new record high on April 11, the S&P 500 has lost 2.4%. The Dow Jones Industrial Average lost 2.14% on the week. Worse yet was gold. The yellow metal plunged 7% in what was its worst weekly performance since September 2011.

In fact, last Monday, gold finished its worst two-day performance in over three decades. Still, the U.S. Mint, said that 153,000 ounces of U.S. gold coins have been sold since the month began, MarketWatch reported.

Microcap stocks suffer too

Overall, risk appetite was at a premium in the just completed week and that weighed on micro-caps, broadly speaking. The iShares Russell Microcap Index Fund (NYSE: IWC) fell by nearly 3% while the Guggenheim Wilshire Micro-Cap ETF (NYSE:WMCR) lost 3.1%.

Market Report

On the economic front, headlines for the week were a mixed bag at best. On Monday the New York Federal Reserve’s Empire State Manufacturing Survey fell to 3.05 this month, well below expectations for a reading of 7 and last month’s reading of 9.24. The general business conditions index slipped six points to 3.1.

The National Association of Home Builders said its home builder confidence index rose to 42 this month from 24 in April 2012. A reading of 50 is considered to be the dividing line between positive and negative.

On Tuesday, the U.S. Labor Department said the consumer price index fell 0.2% last month after a 0.7% increase in February. Excluding volatile food and energy prices, the CPI rose 0.1% last month.

The U.S. Census Bureau said housing starts increased 7% last month from February to a 1.036 million seasonally adjusted annual rate. That is the first time in nearly five years monthly housing starts have eclipsed 1 million. In March, building permits fell 3.9% from February, to a 902,000 annual rate.

And on Thursday, initial claims for jobless benefits rose to 352,000 last week from a revised 348,000 in the prior week. Economists expected the number to come in at 355,000. The less volatile four-week moving average rose slightly to 361,250.

The Philadelphia Federal Reserve said manufacturing activity in the region softened a bit this month with the business conditions index falling to 1.3 from 2 last month. Economists expected a rise to 4 this month. The new orders index slumped to -1 from 0.5 in March.

Combine those numbers with some concerning data reported by China earlier in the week, and it is no surprise riskier assets such as stocks and commodities slid on the week. Mixed earnings reports did not help matters and could be a sign that reducing risk might be a good idea in the near-term.

Last week was ugly all the way around

Week-ending red numbers are flashing for all the indexes we cover here at MicroCap MarketPlace. There’s no need to repeat the obvious…just look at the chart. But the question is why and are we seeing the pull-back many are expecting???

“It’s make-or-break time for the first-quarter earnings season, and it comes just as the stock market is showing signs of strain,” reports Patti Domm of CNBC.com.

“About 170 S&P 500 and 10 Dow companies report earnings in the week ahead, and they include everything from tech icon Apple to industrial names like Caterpillar and energy companies like giant Exxon.”

Bill Stone, chief investment strategist, PNC Wealth Management, said “By any sort of measure, we’re kind of overdue for some sort of a pull-back, and maybe we’re finally going to get it. Year to date, the S&P is up 9% and has not had a significant pull-back.” He noted that the economic data has been disappointing.

“Once you had a market that moved up like this one has, expectations are really your enemy. We’re not meeting expectations … then you throw in earnings season. Earnings, I would argue, are coming in better than expected. Underneath the surface is something that’s not quite so healthy,” he said. “They’re struggling on the top line, the revenue side. That’s indicative of a global economy growing below trend.” Source: CNBC

Oil prices headed south last week too

WTI Crude Oil closed at $88.01 last week…off $3.28. Here’s a brief explanation …The International Monetary Fund lowered its global economic growth forecasts for 2013 on April 16. The projection for the U.S., the world’s largest oil consumer, was cut to 1.9 percent from 2 percent. China, the second-biggest crude user, was reduced to 8 percent from 8.2 percent…reported by Bloomberg.

Gold goes down and the Dollar goes up… the US Dollar gained $0.0036 to close at 0.7661 euros.

Bonds were slightly up as well

The 10-year bond gained $0.12 to close at $102.64 and the 30-year bond was up $0.70 to close at $104.81.

The Gold bugs are trying to figure out what just hit ‘em!

“The trigger for the slump in the gold price… appears to have been aggressive selling by speculative traders, rather than any change in the fundamental drivers,” said Julian Jessop, head of commodities research for Capital Economics. “Gold has also been caught up in the broad-based weakness in commodity markets, including oil and industrial metals, due to softer U.S. and Chinese (economic) data.”

The release of minutes from the last Federal Open Market Committee meeting led to speculation that the Fed might scale back on its $85 billion per month bond purchases later in the year. Such a turn of events would mean that the price of bonds would fall, forcing up interest rates and thus making bonds more attractive than gold.

“Rising real yields could also reduce the attractiveness of assets like gold, which pay no income. But, if anything, the income U.S. data have made it less likely that monetary stimulus will be withdrawn any time soon,” said Jessop, referring to the anemic March job creation report from the Labor Department. Source: Ibtimes.com

The Bottom Line for Stocks

Forgive the reminder, but our previous calls to stay away from microcap gold miners have proven accurate. Bullion itself may find support in the near-term, but miners of all sizes probably have more downside ahead.

On the bright side for microcaps, biotechnology and health care names continue to work well along with food and beverage names. Noteworthy has been the recent jump in natural gas prices, which should bode well for microcap producers. The sector may not be pulling back just yet.

But…we do like opportunities to buy on the dips…keep your eye on two microcap names we recently profiled: Enerjex Resources (ENRJ) at or below $0.60 is an excellent entry point and in the case of Panache Beverage (WDKA) it has backed up about 35% and is an even better buy than when we first reported on the company.

Research and Editorial Staff
MicroCap MarkePlace
Mike Casson, Executive Editor

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