Blog : Penny Stock Week: The Winter of Our Discontent

by Ed Zwirn on January 13th, 2014

George Washington once described the nascent American nation as being in the midst of the "winter of our discontent." Although I much prefer the portrait of the first U.S. president on the dollar bill (the more the merrier), the image of this intrepid leader standing in a boat as his soldiers bravely push their way through an icy Delaware River does much to sum up investor sentiment in the midst of this more modern Polar Vortex.

I live about 10 miles east of that very river, at a point some 100 miles upstream from Washington's Crossing. Like the father of our country, I've had to bravely endure ridiculously low (-18F at one point) as I pursue the American dream.

As I pointed out in my last Penny Stock Week, the cold weather had already received part of the blame (along with the expiration of many sales incentives) for the weak December showing seen by the U.S. auto and truck sectors, which capped off an otherwise robust 2013.

But, while December's downturn in vehicle sales was not a showstopper, the same can hardly be said of Friday's jobs report, another apparent unpleasant surprise for the "summer soldier" and, depending on who you listen to, evidence of a major economic reversal or a statistical fluke driven in part by the recent cold snap.

The consensus had called for the final jobs report of 2013 to show the addition of 203,000 jobs last month, the same rate of job creation seen in November, with the unemployment rate, which had fallen to 7% (from 7.2%) in November, holding steady.

Instead, in one of the rare surprises to confront investors as of late, the government reported that only 74,000 jobs had been added in December. November's tally, on the other hand was upwardly revised to 241,000. For the year, the job creation figure stands at 183,000 per month, about the same as in 2012.

At the same time, as many people left the ranks of the unemployed (some out of discouragement), the unemployment rate dropped to 6.7%, its lowest level in years, and a large relative gain compared to the 7.9% rate which had prevailed one year before that.

In the midst of this economic and meteorological cold snap, the stock market in the U.S. came in with a mixed showing last week, the first full trading week of 2014. Blue chip shares to a mild beating, with the Dow Jones Industrial Average closing Friday at 16,437.05, down 0.2% from the previous week's 16,469.99.

The broader market, including penny stocks, performed better than the Dow last week, with the NASDAQ Composite up 1% and the small-cap Russell 2000 up 0.7%.

Looking ahead this week, the market is expecting another round of reports which although upbeat enough, should continue to reflect the cooling influence of the Polar Vortex:

--Tuesday's retail sales report is expected to show no movement at all for December, following November's 0.7% rise. Excluding autos, the consensus calls for a 0.4% rise, the same as November.

--The focus shifts to inflation (or lack thereof) front later this week, with the release of two key reports expected to show only restrained price rises at both the producer and consumer end and therefore no significant shift in the current deflationary paradigm.

The consensus is calling for Wednesday morning's producer price index update to show a 0.3% rise for December, following the prior month's 0.1% decline. The closely watched "core" figure, which excludes the more volatile food and energy index components, is expected to show a more moderate 0.1% increase, the same seen in November.

--More news from the inflation front will come Thursday, with the release of a consumer price index report expected to show an overall 0.3% December rise, following November's flatline reading. Look for the core component in this case to rise 0.2%, continuing November's pace.

--The week wraps up Friday with a look at the real estate sector. The market is expecting to hear word of a slight cooling off having occurred in December, with housing starts weighing in at 986,000, down from November's 1.019 million, and December building permits totaling 1 million, versus the prior month's 1.07 million.

The picture for investors is one of a market holding on to its recent gains and, in the case of smaller stocks, actually making some progress. Of course, only time will tell whether or not the bull market of 2013 will receive a shot in the arm into 2014, but I'm guessing that it will. This is more of a psychological guess than an educated guess. It's not that I know any more than anybody else, it's just that the thermometer on my back deck is reading 40F and the ice has been sanded off of the road in front of my house. Bring out the beach chairs.