Blog : Penny Stock Week: Fed Leadership Field Narrows

by Ed Zwirn on September 16th, 2013

Just days ahead of a landmark meeting of the Federal Reserve Open Markets Committee, the field of contenders to succeed Fed Chairman Ben Bernanke narrowed over the weekend with the news that former Treasury Secretary Larry Summers has bowed out of the race.

Summers - whose name had been floated by the Obama administration, causing a selloff in July - had been a lightning rod for liberals because of his role in Clinton-era deregulation. He is also unpopular on Wall Street due to the perception that he is less in favor of continuing the expansive Fed monetary policy that has boosted everything from penny stocks to large-cap shares.

His absence leaves Fed Vice Chair Janet Yellen in the lead for the top spot at the U.S. central bank. Other candidates are said to include former Fed Vice Chair Don Kohn and TIAA-CREF CEO Roger Ferguson, who was fed vice chair at the time of the 9-11-01 attacks.

This follows a week which saw the stock market continue to gain ground, with the DJIA closing Friday at 15,376.06 up 3% from the prior week's 14,922.50. The more speculative end of the stock market, including penny stocks, has participated in this rally, with the NASDAQ rising 1.7% and the penny stock-rich Russell 2000 up 2.4%.

Last week's news releases were indicative of continued weakness in the U.S. economy:

--Retail sales, which had been expected to show a rise of 0.4% for August, came in at a disappointing 0.2%, the same rate of increase seen in July.

--The producer price index report, one of the last inflationary indicators (other than Sept. 17's CPI) to come out ahead of the Fed's Wednesday policy announcement, revealed little sign of inflationary pressure on the economy. Although the overall number showed a slightly higher-than-expected 0.3% rise for August, the "core" figure - which excludes food and energy - stayed flat, the first time this has happened since October 2012.

Looking ahead at this week, penny stock investors should pay close attention to:

Center stage this week undoubtedly belongs to Wednesday afternoon's Federal Reserve policy announcement, which will include a press conference with Chairman Ben Bernanke. This announcement will be closely parsed for any guidance as to the fate of the Fed's $85 billion monthly bond-buying program.

--On Monday morning, the markets are expecting to hear that industrial production rose 0.2% in August, after flatlining in July. Capacity utilization is expected to have notched up to 77.8%, from July's 77.6%.

--Tuesday morning's consumer price index update for August will be the last inflationary indicator to go public ahead of the Fed announcement. The consensus calls for a rise of 0.2%, continuing July's pace.

--On Wednesday morning, investors are looking to an uptick in housing starts for August, to 910,000, from July's 896,000. Building permits are expected at 943,000, the same rate seen in July.

--Thursday's existing home sales report is expected to weigh in at 5.3 million for August, off a tad from July's 5.39 million.