Blog : Penny Stock Week: Taking Stock of Q2 Stocks

by Ed Zwirn on June 30th, 2014

FireworksWhatever it has meant to the wider world and to real people, the second quarter of 2014 was good to stocks. With most segments of the market hitting (and retreating from) all-time highs as recently as last week, investors would be right to count their blessings as we head into this abbreviated trading week, the last to precede the Fourth of July holiday weekend.

Taking stock of Q2, the Dow Jones Industrial Average was up 2.3% as of June 27's close. The broader NASDAQ Composite has outperformed the Dow to gain 6.9% over the previous three months while penny stocks, as represented by the Russell 2000 small-cap index, squeaked by with a 1.3% gain, hitting levels not seen since the beginning of April.

Taking stock of last week, the best that can be said is that the market managed to hold onto recent gains, with the Dow landing at 16,851.84, down 0.6% from the 16,947.08 previously noted on the Peter Leeds site.

The broader market did better, with the NASDAQ composite gaining 0.7% on the week. Penny stocks gained 0.1%.

Last week economic releases painted a mixed picture of the U.S. economy's recent performance, with upbeat real estate numbers coinciding with lackluster personal spending and further word of the sharp economic downturn which occurred during Q1:

-- Monday's existing homes sales report for May came in close to the consensus at 4.89 million, up from April's revised 4.66 million pace.

-- Tuesday's May new home sales report came in much higher than consensus at 504,000, up from April's downwardly revised 425,000.

-- Wednesday's May's durable orders report took the market by surprise with word of a 1% decline, following April's upwardly revised 0.8 increase. Excluding vehicles, May's decrease came to 0.1%, following April's upwardly adjusted 0.4% rise.

-- But Wednesday morning's headliner was undoubtedly supplied by the Bureau of Economic Analysis, which reported a 2.9% Q1 Gross Domestic Product decline, the worst showing for the domestic economy since Q1 2009. Analysts had been expecting the third estimate of that bleak period to show a 1.8% GDP decline, worse than the 1% decline reported in the second estimate.
 
And while the market has basically shrugged off this depressing news, questions remain over whether the latest information contains nuggets which may prove problematical for growth going forward. As I pointed out in Saturday's investment blog, at least some of the problems experienced during Q1 may potentially carry forward, as personal spending lags and trade deficits widen.

Look to July 30's initial BEA Q2 estimate to provide the next retrospective look at U.S. economic performance.

-- Thursday as expected brought word of a 0.4% rise in personal income for May, up from April's 0.3% increase. Significantly, personal spending disappointed with a 0.2% increased following April's upwardly revised flatline reading.

Looking ahead to this abbreviated trading week, all else being equal, expect rangebound trading to predominate ahead of the holiday weekend, at least until Thursday morning's jobs report:

-- Tuesday's construction spending report is expected to show a 0.4% rise for May, following April's 0.2% increase.

-- Later that day, June's auto sales report, which last weighed in at 5.7 million, will hit the Street, along with truck sales, which came to 7.7 million in May.

-- Thursday morning's nonfarm payroll report for June may prove a fitting end to the pre-holiday week. The consensus is calling for a reported 230,000 new payroll jobs, up from May's 217,000 and a continuation of recent trends. In addition, the unemployment rate is expected to hold steady at 6.3% as is the average workweek, at 34.5 hours. Expect a reported 0.2% rise for hourly earnings, the same as May.

Barbequed ribs and cornExpect market players who had not yet left town (or stepped away from their screens) to do so Thursday morning, following the jobs report. It goes without saying that any major deviation from the consensus (particularly on the minus side) on jobs could pose a problem for investors. On the other hand, volumes are likely to thin out in any case by the end of the four-day week, as anybody important takes a well-earned break from raking in cash.

And while raking in cash may be nice work if you can get it, it can be a tough slog all the same. There is significant risk to the progress of the stock market going forward, particularly during the summer, which can be brutal on stocks. On the other hand, there is also potential for much more seasonal gain, recalling that H2 2013 saw a huge bull market.

Assuming you can take your time away from fireworks and onerous barbeque pit responsibilities, it may be time to do your homework and research exciting penny stock opportunities. Assuming H2 2014 proves to be as lucrative to investors as did H2 2013, you may find that your research (not to mention ours, if you are a Peter Leeds subscriber) may pay for all that charcoal and meat (and then some).

 


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