Blog : Penny Stock Week: All Eyes on the Fed

by Ed Zwirn on June 17th, 2013

The market for everything from penny stocks to blue chips returned to its losing streak last week, with the Dow Jones Industrial Average closing Friday at 15,070.18, down nearly 1.2% from the prior week's 15,248.12.

With penny stocks as heavily dependent upon monetary policy as they've ever been, center stage this week will be taken up by the Fed, particularly the FOMC policy announcement to be issued Wednesday afternoon. Any deviation from the guidance issued six weeks ago, in which the Fed clearly set inflationary and employment benchmarks for any possible upscaling or downscaling of its $85 billion monthly bond buying program and general expansive monetary policy could send shockwaves through every investment category from penny stocks to blue chips.

But, assuming present Fed guidelines remain unchanged going forward, penny stock investors stand to continue to benefit from monetary policy, bearing in mind that the inflationary outlook is well below the 2% "medium-term" mark and unemployment well above the 6.5% goal set the last time around. Betting on the hunch that Bernanke and company will prove ill-disposed toward rocking the boat this time around, penny stock pickers should look for a market upsurge on Wednesday afternoon.

The latest evidence released last week shows some hint of economic growth:

--Thursday morning's retail sales report showed a better-than-expected 0.6% rise for May, up from April's 0.1% increase.

--A slight uptick of inflationary expectations was triggered Friday morning with the producer price index rising 0.5% in May, higher than the consensus 0.2% and a stark contrast to April, when producer prices fell 0.7%. On the other hand, the core PPI, which excludes energy, rose 0.1%, keeping pace with the prior month.

--Also on Friday morning, industrial production for May was reported flat, following an adjusted 0.4% April fall.

As the eyes of the financial world focus on the Fed's Thursday policy announcement, a few economic releases leading up to that event are likely to be closely followed for any clues about the further direction of the U.S. economy. Economic releases worthy of a penny stock picker's attention this week include:

--Tuesday morning's May Consumer Price Index is expected to show a 0.2% rise for May, following April's 0.4% fall.

--Also on Tuesday morning, May housing starts are expected to come to 950,000, up from April's 853,000, while the consensus calls for a 975,000 May building permits figure, down from 1.017 million.

--On Thursday morning, existing home sales for May is expected to weigh in at 5 million, following April's 4.97 million.

Does $500 cash, a year's subscription to the Peter Leeds Penny Stock newsletter and two autographed books sound good to you? Find out more.