Blog : Penny Stock Week: More Plodding Progress Ahead

by Ed Zwirn on January 20th, 2014

As key market players take a well-earned day off to ponder the course of social justice in the U.S. in honor of Martin Luther King Jr's birthday, look for these players to come back to the fore on Tuesday and continue to participate in the incremental progress seen for U.S. stocks.

And this progress has been incremental so far this year. The performance of the stock market since Dec. 31 has been lackluster but mixed, with the Dow Jones Industrial Average off about 0.7% while the broader NASDAQ Composite is ahead by 0.5% and penny stocks, as measured by the Russell 2000 index, have risen 0.4%.

The second full trading week of 2014 continued this recent trend, seeing limited gains across the board for the U.S. market for everything from penny stocks to blue chip shares. The Dow closed Friday at 16,458.56, up 0.1% from the previous week's 16,437.05.

The broader market, including penny stocks, continued to beat the 30 Dow blue chip stocks last week, with the NASDAQ Composite up 0.6% and the small-cap Russell 2000 up 0.3%.

This moderately bullish showing came against a backdrop of economic releases indicating continued positive movement for the U.S. economy:

--Tuesday's retail sales report, which had been expected to show no movement at all for December, following November's 0.7% rise, actually beat expectations. Sales for December were reported to have risen 0.2%, although the figure for November was downwardly revised to a 0.4% increase. Excluding autos, which made what industry analysts called a "soft landing" at the end of last year, sales rose by 0.7%, following November's downwardly revised (from 0.4%) 0.1% rise.

--On the inflation front, Wednesday morning's producer price index update showed a higher-than-expected 0.4% December increase, following the 0.1% drop recorded for November. The closely watched "core" figure, which excludes the index's more volatile food and energy index components, had been expected to show a more moderate 0.1% increase, the same seen in November, but actually rose 0.3%.

--This moderate inflationary upswing was confirmed on Thursday, with the release of a consumer price index report coming in at the consensus level, showing a 0.3% December rise, following November's flatline reading. The CPI's core component, on the other hand, rose by a less-than expected 0.1%, a slowdown from November's 0.2% increase.

--Friday saw evidence of a slight real estate sector slowdown. While December housing starts came in at above expectations, at 999,000, this was in fact a retreat from the 1.107 million figure for the prior month, itself upwardly revised from the earlier estimate of 1.091 million.

December building permits also showed a slight retreat, weighing in at a less-than-expected 986,000, a decline from November's 1.017 million, which was upwardly revised from 1.007 million.

--Also on Friday came word of an increase for December industrial production. This key indicator was reported to have risen 0.3%, as expected. This follows a rise of 1% for November, downwardly revised from the earlier reported 1.1% increase.

Looking ahead, the current abbreviated trading week is expected to show continued plodding progress for real estate, with December existing home sales coming in at 4.9 million, the same pace as the prior month.

A bit farther down the road, Jan. 29's Federal Reserve Open Markets Committee, the first to come out with Janet Yellen at the helm, will be closely watched for any deviation from the previous guidance offered by the U.S. central bank. The year-end bull run that followed Dec. 18's Fed policy announcement that the bank would be tapering its $85 billion monthly bond buying stimulus by $10 billion starting in January eliminated one of the many uncertainties that had plagued the market for much of the year.

--Jan. 30's first estimate of gross domestic product for Q4 2013 will also be closely scrutinized for any clue as to whether or not the 4.1% rise registered for the U.S. economy in Q3 had been a statistical fluke or evidence of a genuine upsurge. While initial GDP reports are unreliable and notoriously subject to drastic revision (as the Q3 report illustrated), this estimate could well indicate whether the economic upswing seen in late 2013 was more than an anomaly, which could mean a much stronger 2014 than that indicated by the anemic growth forecasts previously made by economists.

In the meantime, look for the stock market to continue its recent holding pattern, holding on to the mammoth gains seen last year while continuing to moderately advance. This, coupled with the fact that we have been seeing less static on the political front so far, will probably mean a less volatile path in the months ahead.