Blog : Penny Stock Week: Putin Pushes Through the Screen

by Ed Zwirn on April 7th, 2014

It is easy enough to judge last week's stock market performance by the way things ended up. The dealbreaker was Friday's nonfarm payrolls report which came in somewhat lower than expected to show 192,000 jobs added in March. In addition, the unemployment rate held disappointingly steady at 6.7%. Hourly earnings, which had been expected to show a 0.2% rise, instead held flat, and the average workweek ticked up slightly, to 34.5 hours, up from February's upwardly revised 34.3.

While this was not exactly a derailment for the U.S. jobs market, the market tanked on Friday after having time to go over the fine print.

But the start of last week's trading tells a different story. An initial upsurge prompted in part by a perceived cooling down of the Ukrainian crisis was later augmented by the market's gleeful anticipation (the kind which usually disappoints) of the jobs report to propel the Dow Jones Industrial Average and other U.S. and global stock market indexes to all-time highs before being beaten partially back down for the week.

In the upshot, the Dow closed Friday at 16,412.71, up 0.5% from the previous week's 16,323.06. At the same time, it was a mixed showing for the broader market, with the NASDAQ Composite falling 0.7% while smaller stocks, including penny stock investments, bounced back from a disastrous showing the week before to tie the Dow by gaining 0.5%.

This mixed showing notwithstanding, there is reason to believe we may be in for a volatile stock market ride this week, including the start of earnings season. And then there is the overseas situation. While one week ago, there had been every reason for hope that the Ukrainian crisis would have settled down to an uneasy fait accompli, with the Russians taking a breather to digest the Crimean peninsula before moving on to other more benevolent pursuits.

All bets are now off on Ukraine, as pro-Russian forces over the weekend mounted a series of successful assaults on government buildings in three eastern cities near the Russian border. These insurgents have already proclaimed separatist republics, calling for votes in their respective regions similar to the Crimean referendum. The Ukrainians, who most recently admitted to having no more than 6,000 trained and armed troops and a 100-to-one outnumbered air force, may well prove powerless to put a brake to any of this.

Czech President Milos Zeman upped the ante on Sunday, reacting to the clashes in eastern Ukraine by saying that NATO should prepare itself to intervene, with troops if necessary, in the event that Vladimir Putin moves to annex these Ukrainian regions. This being the first time that the leader of a NATO country has taken the rhetoric to this level, the situation bears watching and could throw a monkey wrench into the works this week.

Investors deciding between stocks to buy and sell will also have to contend with a two-faced U.S. stock market, with attention divided between a set of basically benign domestic indicators and the prospect for real destabilization coming from overseas.

Looking domestically, there was nothing much to get too disappointed about, unless you're still having a hard time getting over the jobs report. Economic releases leading up to last week's jobs report generally backed up the horrible winter hypothesis for why things had been tanking as of late, consisting as they did of better-than-expected showings for current indicators coupled with downward revisions for prior, colder months:

-- Tuesday's construction spending report came in as expected to show a 0.1% rise for February. Also, the figure for January was downwardly revised, from a 0.1% increase to a 0.2% decrease.

-- The latest auto and truck sales figures were indicative of a possible spring upturn for the sector, falling in line with recent durable goods figures. In March, auto sales came to 5.5 million, up from the prior month's 5.2 million and truck sales to 7.6 million, up from 7 million.

-- Wednesday brought news of a much better-than-expected 1.6% uptick in factory orders for February, while the estimate of January's decline was worsened, from 0.7% to 1%.

Looking ahead this week, last week's crowded economic calendar will be followed by a much more sparse one this week, unfortunately leaving investors free to mull disappointing earnings and war threats from the east:

-- Friday's producer price index update is expected to bite a bit into the recent deflationary trend by showing a modest 0.1% rise for March, following February's 0.1% fall. The "core" PPI, which excludes the more volatile food and energy inputs and is better in determining monetary inflation, is expected to rise 0.1%, following February's 0.2% decline.