Blog : Penny Stock Week: Bull Market Continuing Steady Gains

by Ed Zwirn on November 11th, 2013

Possibly signaling an end (for now) of the volatility which has plagued the market in recent months, and a continuing rally into the new year, stocks have opened little changed Monday morning, holding on to recent substantial gains.

This follows a week which saw the Dow Jones Industrial Average score its fifth consecutive winning week, hitting record levels and closing Friday at 15,761.78, up 0.9% from the prior week's 15,615.55. The blue chip index outperformed the broader market, with the NASDAQ Composite losing 0.5% and the penny stock-rich Russell 2000 up 0.4%.

Last week's economic releases were mixed, but on the whole showed that recent U.S. economic performance, while far from robust, was in fact not as much of a disaster as investors would have thought as little as a week ago:

--For one thing, Thursday's GDP update showed much better recent economic performance than the 1.9%  increase for Q3 the market had expected, instead rising 2.8%, a pickup from Q2's 2.5%.

--Monday morning's factory orders report had been expected to show a 0.3% rise for August, but instead weighed in with a 0.1% decline, following July's adjusted 2.8% decline. In addition, the report showed a 1.7% September increase.

--Of course, the scene stealer last week was Friday morning's jobs report. The market had expected another dismal labor market showing, but the increase in non-farm payrolls came for October came in at 204,000, more than twice the consensus forecast. Significantly, with the labor market impacted as it is by government shutdowns and cutbacks, private payrolls came in at nearly twice the consensus, with the private sector having added 212,000 jobs last month.

As expected, the unemployment rate ticked up slightly, to 7.3%, from 7.2%, while hourly earnings were up 0.1% during the period, the same as the prior month.

This apparently stellar performance naturally begs the question of whether the U.S. economic recovery has finally gained steam, renewing fears about whether the U.S. Federal Reserve will start scaling back its $85 billion monthly bond buying program any time soon.

But, as I reported in my Friday penny stock blog, the latest jobs numbers are actually more a reversion to the recent norm, as reflected by continuing tweaks to the labor market report. Friday morning's report seems much less like an outlier when you consider that total nonfarm payroll employment was up 238,000 in August, not the 193,000 last estimated, and September job gains are now pegged at 163,000, not 148,000. Monthly jobs growth over the past year has actually averaged 190,000.

This leaves only the remotest possibility that the Fed will do anything to lower the boom when it issues its next policy announcement (the last with Ben Bernanke in charge) just one week ahead of Christmas. The eye opener (if there is one) will possibly come on Jan. 25, when the Fed, presumably chaired at that point by Janet Yellen, will augment its usual statement with a Yellen press conference and a discussion of longer-run goals and policy strategy.

But there is a good chance the market will be in the throes of another politically induced debt ceiling crisis by then. If that proves to be the case, Yellen will hardly want to make her leadership debut by making things worse, leaving the "smart" money to predict a continuing rally through Q1 2014.