Blog : Penny Stock Week: Goodbye to Spring/Medical MJ Debate Hits Congress

by Ed Zwirn on May 19th, 2014

As evidence of a U.S. economic recovery solidifies and with large-cap stocks flirting with record highs, stock market investors prepare to say goodbye to spring in this last trading week ahead of the three-day Memorial Day weekend.

A relatively light economic calendar this week will offer little distraction from the visions of barbequing burgers dancing in the heads of traders, with key players getting a jump on holiday plans and petrochemical companies salivating at the prospect that the public will jump in their cars and burn money in huge numbers.

After both the Dow Jones Industrial Average and the S&P 500 hit record levels on Wednesday and Thursday, the inevitable selling set in. After the dust had settled, the 30-stock Dow Jones Industrial Average broke its recent winning streak last week to close Friday at 16,491.31, down 0.6% from the previous week's 16,583.34.

At the same time, the broader market, including smaller and more speculative stocks, had a mixed showing, with the NASDAQ composite gaining 0.5% and the penny stock-rich Russell 2000 small-cap index down 0.4% on the week.

The latest news on the domestic economic front has been mixed:

-- Tuesday's retail sales report was somewhat of a disappointment, showing a 0.1% rise for April, a slowdown from March's upwardly revised 1.5% increase. And while the consensus had called for a 0.6% rise excluding the auto sector, this measure held absolutely flat, following March's upwardly revised 1% rise.

-- Producer prices spiked by a much higher-than expected 0.6% in April, following March's downwardly revised 0.2% increase. The core PPI, which rose 0.6% in March, rose 0.5% this time around.

-- Consumer prices, on the other hand, dovetailed exactly with the consensus, showing a 0.3% rise for April in Thursday's report, up from March's 0.2% rise. Excluding food and energy inputs, the closely watched "core" CPI as expected rose 0.2%, the same rate of increase seen in March.

-- Thursday brought word of a 0.6% decline for April industrial production, following March's upwardly revised 0.9% rise.

-- Friday brought good news from the real estate sector. April housing starts were reported at a higher-than-expected 1,072 million, up from March's upwardly revised 947,000. At the same time, building permits were reported at a better-than-expected 1.08 million, up from March's upwardly revised 1 million.

Looking ahead this week:

-- Thursday is expected to bring word of 4.66 million of existing home sales for April, up from March's 4.59 million.

-- Friday morning's new homes sales figure for April is expected to weigh in at 415,000, up from March's reported 384,000.

A few international developments worth noting:

-- In India, the landslide victory of Narendra Modi and his Hindu nationalist Bharatiya Janata Party (BJP) should prove a positive for world economic growth. The new Indian prime minister, who has a decidedly pro-business agenda, will look to ramp up his country's economic growth, which has slowed down to around 5% recently, giving it the potential to rival China. The voters in this populous country have given his BJP an absolute majority in Parliament, so Modi may actually be able to pull this off, provided of course that the sectarian (anti-Moslem) tendencies in his party are not permitted to run riot.

-- The May 25 presidential election in Ukraine may prove a flashpoint. As of this writing, the western-backed government in Kiev is not in effective control of the most populous, eastern, section of the country, and this could prove problematic for the legitimacy of any Ukrainian government going forward.
 
In News for MJ Aficionados:

We have it from our friends at the National Cannabis Industry Association that the U.S. Congress will take up an amendment to the Department of Justice's funding bill that would bar federal funds from being used to prosecute medical marijuana patients and caregivers who are abiding by state law. The measure will be introduced by Reps. Dana Rohrbacher (R-CA) and Sam Carr (D-CA) this week and get a discussion on the House floor, potentially giving a spotlight to MJ stocks of all caliber.

The bipartisan backing of this amendment notwithstanding, it is worth noting that the backers both come from California, a state which already has a medical MJ business interest and lobby. On the other hand, the last time I checked, some 25 other states allow medical MJ, so expect the amendment to get at least a serious hearing if it hits the floor. On the other hand, it is hard to imagine anything of consequence emerging out of the faction-ridden U.S. Congress, so MJ aficionados and investors alike may be forced to exhale well before anything comes of this measure, which would lessen the basic burden hampering growth of this new industry.