Blog : Penny Stock Week: Risk Appetite Returns

by Ed Zwirn on September 9th, 2013

The chances of action by the Federal Reserve to begin tapering its $85 billion monthly bond buying program on Sept. 18 have become seemingly more remote following the release of the latest jobs figures on Friday, which showed the labor market at nowhere near the robust level needed for the Fed to take off this set of training wheels from the U.S. economy

The stock market opened on the upside this morning, with the Dow Jones Industrial Average up 0.6% so far Monday morning. Broader indices are doing slightly better than the Dow so far this morning, with the NASDAQ up 0.76% and the penny stock-rich Russell 2000 up 0.86%.

This follows a week which saw the stock market reverse its recent losing streak, albeit anemically, with the DJIA closing Friday at 14,922.50, up 0.75% from the prior week's 14,810.31.

Risk appetite has been growing, with the more speculative end of the stock market, including penny stocks, outperforming the 30 DJIA blue chip stocks not only this morning but also last week, when the NASDAQ rose nearly 2% and the Russell 2000 gained over 1.8%.

Last week's news releases proved to be a Tale of Two Cities:

--Wednesday afternoon's report that year-on-year motor vehicle sales rose 17% in August, the biggest gain for this number in a year, increasing from 15.8 million in July to 16.1 million in August, making this the first time the 16 million mark was passed since November 2007.

--Friday's jobs report, on the other hand, was nothing to write home about. The market had been expecting to see a 177,000 rise in nonfarm payrolls for August, up from July's 162,000. The unemployment rate was expected to hold steady at 7.4%.

Instead, not only did the job creation rate weighed in at a disappointing 169,000, July's number was downwardly revised to 104,000, meaning that the past two months have seen an abysmally low 136,000 average monthly employment gain.

Looking ahead at this week, the headline economic news updates are to be expected on Friday morning:

--Retail sales are expected to show a rise of 0.4% for August, up from July's 0.2%.

--The producer price index report is important because this forward-looking indicator will be one of the last inflationary indicators (other than Sept. 17's CPI) to come out ahead of the Fed's Sept. 18 policy announcement. The consensus calls for a 0.2% increase being reported for August, following July's flat reading.