Blog : Penny Stock Week: And Now for the Good News...

by Ed Zwirn on February 3rd, 2014

In one of the few unambiguously bullish signals to come our way recently, the victory of the Seattle Seahawks over the Denver Broncos means that we will probably see stock market gains for the remainder of 2014, at least if you go by statistics.

In the aftermath of the first 47 Super Bowls held up until Sunday, those years in which the NFC team emerged victorious saw the S&P 500 rally an average 10% in the remaining 11 months, emerging in positive territory 80% of the time. This is more than double the average 4% gain seen in years in which an AFC team won the trophy. The AFC consists largely of teams that were part of the American Football League, which was founded in 1960 and merged with the National Football League in 1970.

And there is evidence that the 43-8 trashing the Seahawks gave the Broncos is ground for even more pronounced optimism. When the point spread has been 10 points or less, as it has been in 16 games, the economy grew 2.4% on average. But in the 11 games when the point spread was 20 points or more, the economy grew an average of 3.5% per year.

But, the Super Bowl indicator notwithstanding, the more traditional indicators give little ground for optimism. Concern about the impact of U.S. Federal Reserve Bank tightening has pulled the rug out from more speculative investments, including penny stocks and other small-cap shares as well as emerging markets, many of which are suffering from their own problems as well.

Look for stocks to face continuing pressure this week, especially as the emerging market debacle sorts itself out and investors digest updates on construction, vehicle sales and factory orders and a January jobs report due Friday.

The Dow Jones Industrial Average closed Friday at 15,698.85, down 0.1% from the previous week's 15,879.11. The broader market, including penny stocks, performed much worse than the 30 Dow blue chip stocks last week, with the NASDAQ Composite down 0.6% and the small-cap Russell 2000 off 1.1%.

On Wednesday, investors got their last look at monetary as conducted by Ben Bernanke, who chaired his last FOMC meeting, producing no surprises whatsoever. Trimmed to $75 billion monthly as of January, the Fed's bond-buying stimulus was pared back to $65 billion this time around.

In other news last week:

-- Monday morning's new home sales report for December was a disappointment at a much lower than expected 414,000, down from the prior month's revised (down from 464,000) 445,000.

-- By way of comparison, Tuesday's durable goods orders report was a train wreck. The consensus had called for a 2.1% increase for December, following November's 3.4% rise. Instead, the December figure showed a 4.3% decline, led by a fall in vehicle sales, and November's figure was downwardly revised, to 2.6%. Excluding transportation, December durable goods orders fell 1.6%, following November's downwardly revised 0.1% rise.

-- Thursday's Q4 2013 initial estimate came in better than expected, showing a 3.2% increase. But this estimate, if confirmed by later revisions, would represent a slowdown from the 4.1% Q3 rise seen by the U.S. economy.

-- Friday saw the release of personal income and personal spending figures for December. Personal income, which had been expected to rise 0.2%, the same as the prior month, stayed flat. Despite this, personal spending, which had been expected to increase 0.2%, rose by 0.4%, following November's 0.5% spike, and the figure for November's increase was upwardly revised to 0.6&.
Looking ahead this week:

-- The consensus is calling for Monday morning's construction spending report to show a 0.1% rise for December, a slowdown from November's 1% increase.

-- Also on Monday, January's auto and truck sales figures are expected to shed light on whether the "soft landing" recorded for motor vehicles in December is evidence of a longer-term decline. As I blogged in a Penny Stock Week last month, December auto sales weighed in at 5.3 million, down from  November's 5.7 million, while truck sales, which came to 7.1 million in November, slid to 6.6 million. This capped a year which saw overall vehicle sales up 8%, Industry analysts attributed the fall to both the cold weather and the fact that many sales incentives had come to an end.

-- Tuesday's December factory orders report is expected to show a 1.7% decline, following November's 1.8% increase.

-- The showstopper this week will be Friday's non-farm payrolls report. The consensus is calling for a January job creation figure of 175,000, following December's disappointing 74,000 showing. The unemployment rate is expected to hold steady at 6.7%, and hourly earnings expected to go up 0.2%, following the prior month's 0.1% rise. The average work week is expected to hold steady at 34.4 hours.