Blog : Penny Stock Week: Dead Presidents Wanted!

by Ed Zwirn on February 16th, 2014

Monday will give Americans a chance to give honor to its dead presidents with a holiday for financial markets, at the same time honoring photos of George Washington, Abraham Lincoln, Andrew Jackson and other long-gone icons by distributing their paper likenesses (or their plastic equivalents) around to various retail outlets (or so it is hoped).

My local supermarket, for one, is selling meat and canned goods on the cheap in honor of George Washington's birthday and there will be sales for more durable items going on as well, as merchants try to convert a patriotic three-day weekend into the kind of increased receipts they must be craving, especially if you look at the disappointing news emanating recently from the retail sales sector.

This follows a week which saw the Dow Jones Industrial Average conclude its second consecutive winning week to close Friday at 16,154.39, up 2.3% from the previous week's 15,794.08.

Smaller stocks, including penny stocks, outperformed the 30 blue chip Dow stocks this week, with the NASDAQ Composite up 2.9% and the small-cap Russell 2000 also up 2.9%, following weeks of sharp declines.

These gains came despite the fact that nearly every major bit of economic news proved a disappointment last week.

The saving grace came in the form of Janet Yellen's Congressional testimony Tuesday -- her first in the series of six-month grillings she is expected to endure now that she has taken up the helm at the U.S. Federal Reserve. Her testimony, which revealed nothing new about Fed policy, nonetheless reassured financial markets, if only for their consistency, resulting in a pronounced rally for stocks, with the Dow finishing up 1.2% on the day, the NASDAQ Composite ahead 1% and the penny stock-rich Russell 2000 up 0.9%.

Whether attributable to Yellen or not, this bullish attitude continued through the remainder of the week, culminating in a Friday rally which saw the Dow gain 0.8% on the day.

Like I said, everything other than the soothing Yellen reassurances proved to be either a major or minor disappointment last week, with at least part of the blame for poor results placed on the harsh winter being experienced by much of the U.S. during January:

-- Thursday's retail sales report had been expected to record a flat reading for January, following December's 0.2% rise. Instead, not only did the retail sales report show a decline of 0.4%, December's 0.2% rise was revised to reflect a 0.1% decline.

The auto sector rightly received much of the blame for this downfall. But even excluding this sector, which was said to have been particularly impacted by the recent bout of severe weather seen in the U.S., sales remained flat, worse than the consensus forecast of a 0.1% rise, and December's previously announced 0.7% increase was downwardly revised, to 0.3%.

-- Friday's industrial production report was also disappointing, showing a 0.3% decrease last month instead of the 0.3% rise the market had been expecting.

Looking ahead, the abbreviated trading week will see key updates on both the health of the real estate sector and the latest inflationary trends, all of which are expected to fall at or below prior levels:

-- On Tuesday, investors are expecting to hear news of 964,000 of housing starts for the month of January, down from December's 999,000. Similarly, building permits are expected to weigh in at 980,000, down from 986,000.

-- Wednesday's producer price index is also expected to reflect a cooler economy, with this inflationary indicator showing a 0.2% rise for January, down from the prior month's 0.4%.

-- Look for more of the same on the inflation front on Thursday, with the release of a report expected to show a 0.1% increase for January consumer prices, following December's 0.3% rise (I thought they were supposed to lower prices for Christmas, but I guess that's why I don't go shopping). The less volatile and more closely watched "core" figure, which excludes food and energy, is expected to show a 0.1% rise, the same as the previous month.

-- The last day of the week will see a report expected to show existing home sales coming to 4.7 million in January, off slightly from December's 4.87 million tally.

Looking farther ahead, I have it on good authority that winter will end eventually. The first shoots of grass to come out of the ground will not only mean more work for homeowners, they will also either confirm or give the lie to the premise that at least part of the recent weakness of economic numbers is due to the cold weather. Whether this is the case or not will become apparent over the next few months. That being said, I'll be glad when this winter is over no matter what economic lessons arise with the spring, and my old man's fancy returns to focus on pictures of dead presidents.