Markets Get Into the Holiday Spirit

by: David Brown

It’s the holiday season . . . and it sure feels like the holiday season, with the market as jolly as Santa, reaching a new two-year high last week and then again today. But frankly it’s hard to be jolly with a continuing unemployment rate over 9% and a mounting Treasury deficit now more than $150 billion for November.

One would normally expect a less vibrant economy to follow numbers like these, but the economy appears to be at least trying to get into the holiday spirit, boosted by last week’s reports. Consumer sentiment continued to rise; initial jobless claims, while nasty, were slightly lower than the week before; and the trade balance was solidly improved. Of course, the Treasury deficit was about $20 billion worse than expected, but that really didn’t surprise anyone.

Contributing to the optimistic holiday spirit was a host of merger announcements that included General Electric (NYSE:GE), Dell (DELL), and Paychex (NASDAQ:PAYX). GE is buying Wellstream, a UK oil and gas services company; DELL is pairing up with Compellent Technologies (NYSE:CML); and Paychex (PAYX) is going online with SurePayroll, Inc. So maybe Santa really is coming.

We’ll get another reality check on Santa’s progress — or maybe an unreality check — with this week’s economic numbers. On Tuesday, we’ll get the producer price index (PPI), retail sales, and business inventories. Pay particular attention to retail sales. On Wednesday, there’s the consumer price index (CPI) and industrial production/capacity utilization report, with industrial production being the one to watch.

Thursday brings the weekly initial jobless claims and housing starts/building permits. It will be interesting to see if the housing starts and permit numbers continue the upward bias of last month. The LEI (leading indicators report) will be released on Friday.

Market stats. Last week’s cap/style performance reflected the mostly good economic news, with Small-cap Value leading the way, up +2.8%, and Large-cap Growth at the bottom, but still up almost +1%. Let me re-emphasize that over the last 12 months, Small-cap Growth has consistently performed the best, up +34.9%, while Large-cap Value has dragged its tail, up only +14.1%.

Our forward-looking SectorCast (on December 3) was quite prescient, forecasting that Finance would come in as #1 last week, and indeed it did, jumping all the way from #5. Energy and Technology were projected to be in the top five slots, and they were. Health Care did a bit better than expected, coming in fourth instead of sixth, and the other sectors were pretty much as SectorCast expected with the only surprise being Basic Industries. The December 3rd SectorCast projected it to be in second place last week, but it came in eighth instead.

Looking ahead, Consumer Non-Durables edges out Finance for the #1 position in SectorCast, with Energy, Basic Industries and Technology rounding out the top five. At the bottom of the SectorCast rankings are the less favored Transportation, Consumer Durables and Consumer Services.

4 Stock Ideas for This Market

This week, I started with Sabrient’s GARP (Growth At a Reasonable Price) preset search on MyStockFinder to identify Strong Buys that are still priced well relative to their growth prospects. I limited the search to small-caps in the five sectors ranked at the top of SectorCast: Consumer Non-Durables, Finance, Energy, Basic Industries and Technology. Below are four stock ideas worth considering:

Amtech Systems, Inc. (NASDAQ:ASYS) – Technology
CTI Industries Corporation (NASDAQ:CTIB) – Consumer Non-durables
UFP Technologies, Inc. (NASDAQ:UFPT) – Basic Industries
World Acceptance Corporation (NASDAQ:WRLD) – Finance