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After ignoring the problems of the world at large for the past couple of weeks, the market paused for a breath Monday, with the S&P 500 closing up just +0.03%, at 1,332.87. Last week, the S&P 500 moved ahead 1.7% after climbing almost 3% the week before. Small-cap stocks led the charge, with Small-cap Growth the solid leader for the past 12 months.

Small caps have indeed been on a tear. The S&P 600 Small-cap Index (SML) closed at 448.08 on Friday, which was not only a pre-recession high but an all-time closing high, topping the previous high of 444.90 set on July 13, 2007.

The reasons for the market’s oblivious behavior are many:

  1. QE2 continues to pour money into the system by buying Treasuries to keep interest rates low, which frees up cash at the primary dealers that is going into equities;
  2. those low interest rates are driving investor money out of bonds into equities;
  3. short sellers are scrambling to cover as the bulls have resumed their run;
  4. the economic recovery continues to inch along, with the unemployment rate falling another 0.1% to 8.8%, and
  5. corporate America is flush with cash and bulging with earnings.

As I said last week, earnings and projected earnings are strong and projected P/Es are low. From a purely investing viewpoint, the market should continue to move up in spite of world stress.
We’ll soon see whether earnings in fact match expectations. Quarter 1 earnings season officially started this week, but it kicks into second gear next week, with the announcement from bellwether Alcoa, Inc. (NYSE:AA) on Monday, April 11.

Market stats: As mentioned above, Small-cap Growth was the leading cap/style, up+3.07%; Large-cap Growth was at the bottom, but still up +1.5%.

All sectors were lifted by the market’s rising tide. Capital Goods (+2.95%) and Basic Industries (+2.94%) were lifted the most; Technology, at the bottom, rose +0.9%.

Click here to see the market stats.

Our forward-looking SectorCast accurately predicted four out of the top 5 sectors — Basic Industries, Capital Goods, Health Care and Public Utilities; we got it wrong on Energy, which slipped to #6 and Consumer Non-durables, which SectorCast placed near the bottom but in fact was the fifth best performing sector for the week.

This will be a slow week for economic news, with the only major reports being the FOMC minutes on Tuesday and the weekly initial jobless claims on Thursday.

4 Stock Ideas for this Market

This week, I employed the Hidden Gems preset search in MyStockFinder to find small-cap and microcap stocks that are lightly covered by Wall Street but highly ranked in the Sabrient Ratings Algorithm. Here are four stock ideas from some of the top-ranked sectors that look particularly intriguing.

NN, Inc. (NASDAQ:NNBR) – Basic Industries
CAI International (NYSE:CAP) – Basic Industries
Harvard Bioscience (NASDAQ:HBIO) – Healthcare
M&F Worldwide (NYSE:MFW) – Consumer Non-durables

Disclosure: The author does not personally hold any of the stocks mentioned in this week’s “Stock Ideas.”

Source: 4 Stock Ideas as Bulls Keep Their Horns Sharp