Blog : Can the Bull Charge Without Europe?

by Ed Zwirn on April 1st, 2013

The Dow Jones Industrial Average closed an abbreviated trading week Thursday at a record 14,578.04, up about 0.5% from the prior week's 14,512.01 and up about 11.25% for Q1. This performance was mirrored in the broader market, with the S&P 500 now at 1,569.19, its best close in history, putting this index just over 10% ahead so far this year. 

In the meantime, the end of the quarter saw the market for penny stocks and larger companies boosted by continued inflows of investor money from Europe. The outflow of cash from European equity funds continued last week, as to be expected, but the capital flight from the continent also extended to more bearish investments, with even money market funds in Europe bleeding cash and the U.S. and even Japan taking up the slack, according to EPFR Global 

This inflow of cash looking for stocks to buy coincided with relatively strong economic announcements. The best of these was probably Tuesday morning's announcement that orders for durable goods rose 5.7% in February, after falling 3.8% in January. On the other hand, February new home sales came in weaker than expected, at 411,000, down from the prior month's 431,000.

The consumer outlook was also mixed, with the University of Michigan's Consumer Sentiment report showing a sharp index drop, from 68 in February to 59.7 in March, while personal spending by these same consumers was reported up a relatively robust 0.7% for February.

Scheduled economic releases worth a penny stock picker's attention this week include: 

• Monday morning's construction spending release is expected to show a 0.9% rise for February following a 2.1% January drop.
• Tuesday afternoon's releases on auto sales, pegged at 5.5 million in February, and truck sales, which came in at 6.7 million, will be closely watch for indicators as to the health of that sector of the economy.

In the meantime, penny stock investors, at any rate those not hoping for a rise of exports to Europe, stand bolstered by both the money pouring in from overseas and evidence of a continued recovery of the domestic economy. 

But the questions for penny stock investors remain: Is the performance of the U.S. economy sustainable on its own, even if Europe descends into chaos and China's economic growth levels off?  Will this bull market for everything from penny stocks to blue chips continue to rage even after the money coming in starts to level off? Investors of all varieties are taking big hits to the east of us, and the penny stock party will either end soon or just continue to shift venues. Stay tuned.