Blog : Penny Stocks Stand to Gain From Jobs Report

by Ed Zwirn on June 7th, 2013

This morning's release of the latest jobs report should prove good news for the market for everything from penny stocks to blue chips.

On the one hand, according to the Bureau of Labor Statistics, the U.S. economy added a higher-than-expected 170,000 jobs in May, giving a small amount of ammunition to those worried that the Fed may at some point scale back its $85 billion monthly bond-buying program and overall accommodative monetary policy and reduce the volume of money looking for stocks to buy.

On the other hand, in a good news/bad news penny stock scenario, the overall unemployment rate remained relatively steady, actually hitting 7.6%, up from April's 7.5%. For those with jobs, hourly earnings, which had been expected to rise 0.2% in May, remained flat.

Despite all the fear of a scaling back by the Fed, these numbers, assuming investors react rationally, ought to indicate that monetary stimulation should continue for some time to come. Following the end of the last FOMC meeting on May 1, Bernanke and company said they would continue the bond-buying program until there is substantial improvement in the labor market, which is clearly not the case with this announcement.

In addition, the Fed at that time indicated that it would continue to print money to maintain interest rates at their current low level until the unemployment rate stabilizes below 6.5% or inflation increases above 2.5%. Neither is apparently going to happen any time soon.

The upshot ought to be that sweet combination for penny stocks: A continued supply of fresh money to chase investments of all kinds, and an increasing risk appetite as low rates drive yield seekers to migrate from safer investments to penny stocks.

On the inflationary side of the equation, next week's PPI release and the June 19 CPI report will be watched closely for any sign of an inflationary resurgence, which is unlikely given the still sluggish overall economy and jobs market.

On the employment variable, the next BLS report is scheduled for July 5, and hardly anybody with any common sense is expecting to hear about any improvement in the labor market hefty enough to raise Fed fears.

In the meantime, the FOMC announcement due June 18 will provide the next signals to penny stock investors trying to read Fed tea leaves.

Any surprises from these sources ought to prove major market movers. But they will have to be big surprises indeed for them to indicate a possible change in monetary policy, and, all else being equal, the penny stock party ought to continue in the absence of any shocks from that quarter.