Blog : Penny Stock Week: Scary World, Scary Jobs Report

by Ed Zwirn on March 3rd, 2014

The market for everything from penny stocks to blue chip shares is likely to face pressure this week, being forced to confront not only a frightening international situation, but a heavy calendar of economic releases, including a potentially frightening jobs report, to boot.

Russian stocks were down as much as 10% in early Monday trading, as Russia and Ukraine slip toward a possible military confrontation too horrible to contemplate. Look for this fear to spread to Europe (which has tremendous trade and energy ties with Russia) and beyond. Whether this will turn into a Monday morning contagion remains to be seen and depends in large part on whether the situation in that part of the world veers farther out of control.

At the same time, looking toward the end of an economic release-packed week, Friday's jobs report for February has the capacity to either elate or spook the market, depending upon whether there is an upturn for the horrible job gains seen for December (75,000) and January (113,000).

This follows a week which saw the market forge ahead on all cylinders, with the Dow Jones Industrial Average closing Friday at 16,321.71, up 1.4% from the previous week's 16,103.30.

The broader NASDAQ Composite rose 1%. At the same time smaller stocks, including penny stocks, continued to outperform, with the small-cap Russell 2000 up 1.6%, after hitting a record on Thursday, scoring its third weekly gain.

These gains occurred against a backdrop of mixed (but mostly bad) news about the recent performance of the U.S. economy:

-- Wednesday morning's new home sales report for January was the one relatively bright spot on an otherwise bleak calendar for economic releases.

Stats for January released two weeks ago had revealed lower-than-expected numbers for both housing starts and building permits. Wednesday's new home sales report had been expected to weigh in at 400,000, down from December's 414,000. Instead, January came in higher than expected, at 468,000, and December's tally was upwardly revised, to 427,000.

-- Thursday's durable orders report was indicative of continued weakness, driven mainly by the weak showing seen for motor vehicles. Although the January durable orders decrease came in slightly less than expected at 1%, the fall for December, which had been initially estimated at 4.2% has proven to be worse than expected, at 5.3%. Excluding transportation, durable orders rose 1.1%, better than the 0.3% decline called for by the consensus and following the 1.3% drop reported in December.

-- Friday's second GDP estimate for Q4 2013 as expected confirmed word of a slowdown that began late last year. The indicator showed a rise of 2.4% for Q4, worse than the market had expected and a pronounced trimming from the initially estimated 3.2%.

Looking ahead this week, investors face a heavy calendar of releases providing updates about income and spending, construction spending, vehicle sales and (maybe most significantly) jobs:

-- Consumers in the U.S. dipped into their savings in December, with the government reporting personal income staying flat while personal spending rose 0.4%. The consensus expects this blip to reverse itself when figures are announced for January Monday morning. Look for a reported uptick of 0.3% for personal income and a 0.1% personal spending rise.

-- Later Monday morning, the market is expecting to hear word of a 0.1% fall for January construction spending, reversing December's 0.1% rise.

-- Given the disastrous showing seen for the motor vehicle sector over the past couple of months, and its impact upon last week's January durable orders report, Monday afternoon ought to find an eager audience for auto and truck sales figures for February. January saw the sale of 5.1 million autos and 7.0 million trucks.

-- Thursday's factory orders report is expected to show continued decline, although the decline is expected to slow. The consensus calls for a 0.5% January drop, following December's 1.5% decline.

-- Friday's jobs report has the potential to be a major market mover. The market appears to be betting that February nonfarm payrolls will show the creation of 163,000 jobs, not an especially imposing number but still an improvement over the prior two months, during which an average of 94,000 jobs opened up.

Most market analysts are expecting the unemployment rate to remain unchanged at 6.6%. In addition, hourly earnings are expected to rise 0.2%, the same rate of increase seen in January, and the average workweek is expected to hold steady at 34.4 hours.