Blog : Penny Stock Week: Low-Paying Jobs Boost Market

by Ed Zwirn on August 5th, 2013

To put the matter into perspective: The U.S. economy, weak as it is, continues to be one of the bright spots in a mainly bleak world outlook..

That being said, the U.S. economic news that penny stock investors were treated to last week was almost uniformly bleak, ranging from an FOMC downgrade of its descriptor for that economy's growth from "moderate" to "modest" to a jobs report that illustrated just how modest that growth has been. The main takeaway from the July employment report: Long-term unemployed people are increasingly resorting to jobs at fast-food outlets, which is the only way to reconcile a drop in hourly earnings with a fall in the unemployment rate.

In an indication of how dependent the stock market is upon Federal Reserve policy, stocks reacted positively to the "bad" news last week, with the Dow Jones Industrial Average closing Friday at 15,658.36, up 0.6% from the prior week's 15,558.83, to score its sixth consecutive weekly gain.

In a sign of increased appetite for penny stocks and other small-cap shares, the broader market indices outperformed the 40 DJIA blue chip stocks, with the NASDAQ up 2.1% and the penny stock-rich Russell 2000 up 1.1%.

Penny stock investors were treated last week to economic indicators that largely came in below consensus and/or represented a downtick from the prior month:

--Monday's pending home sales report actually turned out to be not as bad as feared, falling only 0.4% in June, down from May's 6.7% increase.

--Wednesday morning's advance report on Q2 GDP showed a better-than-expected 1.7% increase, a pickup from Q1's downwardly revised 1.1% rise.

--Thursday morning's construction spending report was a train wreck. While the consensus had called for a 0.2% June increase, the number actually fell 0.6%, after having risen by an upwardly adjusted 1.3% in May.

--Also on Thursday, the report on July auto sales weighed in at 5.6 million, a slight dip from June's 5.7 million figure. Similarly, truck sales, which came to 6.8 million the last time around, dipped to 6.6 million in July.

I guess we need a break from all this sobering stuff in any case. Looking ahead this week, it is perhaps an indicator of the mercy of the gods that the next several days calls for a light series of sleeper reports like the June trade balance and the June consumer credit and trade balance.

Peeking a bit farther into the future, Aug. 13's July retail sales report, the PPI to come out the following day and the Aug. 15 CPI will be among the many releases actually worth looking at next week. Given recent evidence, the odds against any pronounced upsurge of any of these numbers are steep.