Weekly Update-June 4, 2012

By: Michael Vodicka

“Looking forward, the market will struggle to find a bullish catalyst. The situation is Europe has never looked worse and the economic data continues to show signs of weakness.”

Last week wasn’t a good one for stocks, with the averages posting their worst performance of the year on more weakness in Europe and a disappointing jobs report. For the notoriously weak month of May, the Dow Jones fell 6.2%, the S&P 500 dropped 6.3% and the NASDAQ lagged with a 7.2% decline.

The losing week made it four out of the last five that stocks have closed in the red, pushing the averages into correction territory with a 10% decline from 2012 highs. As usual, that bearish movement is being fueled by uncertainty in Europe, where larger and more economically important countries like Spain, Italy and Portugal seem to be following in Greece’s footsteps.

But beyond the usual psycho drama out of Europe, the market also fielded an awful jobs report on Friday, coming in well short of expectations and sending stocks to their worst single day performance in six months. Jobs had been a source of confidence early in the year, but with a third weak month in a row, its becoming a source of pain for the Street.

Looking forward, the market will struggle to find a bullish catalyst. The situation is Europe has never looked worse and the economic data continues to show signs of weakness. The only point of salvation, as usual per nauseum, is government bailouts and backdoor deals.

Domestically that takes the form of the Fed, with an absolutely huge meeting on tap for June 20-22. The most powerful central bank in the world played it cool during its last meeting, hinting that strong economic data and soaring stock prices would keep it at bay. That tone took a $100 bite out of gold in one day. Yikes. But now, the situation has quickly changed. Jobs look weak and stocks are taking it on the chin. The market will be looking for the Fed to throw it some kind of bone.

But that could be a risky bet, because with the core problems of the global economy firmly planted in Europe, the Fed may find itself confronted with an opponent with which it is so infrequently if ever outmatched.

Beyond the Fed, it’s all about bailouts and news flow related to Europe, which changes on a daily basis. So expect a bumpy ride.

Let’s get into some updates.

Updates:

Bad economic data gives the Fed more leniency to work its Keynesian magic. So with a terrible jobs report from Friday killing stocks, there were huge inflows into gold betting the central bank would have to get active and stimulate. That sent Double Gold (DGP) to a monster 7.7% gain and Junior Gold Miners (GDXJ) up an equally impressive 6.94%. Gold has been in a general decline for three month so this could be a short-term catalyst to reverse the trend as the market looks to protect itself from currency devaluation.

With the market losing its appetite for risk, it didn’t take long for oil to get pounded, with Power shares Oil (DBO) falling 8.37% on the week. Energy is one of the most economically sensitive sectors, so when the market takes a bearish turn, it’s one the first and hardest places that gets hit. Longer-term, the energy trades looks promising because of demand growth, but in the short run, energy has been one of the toughest places to invest for more than a year.

Small caps were also under pressure, with pawn and payday specialist EZCorp, Inc. (EZPW) falling 6/94% on the week and hitting a new 52-week low at $22.36.

Shifting into a leader, we saw a solid performance from our best friend Apple, Inc. (AAPL), closing the week with a marginal .23% loss. Anyone who has owned this stock has to just love it. It rips higher in a strong market but stays defensive in a weak one. I’ve heard chatter that AAPL is overpriced at $575. But its important to remember this company is projected to make more than $60 a share next year, so from that perspective, this high-flier and leading tech stock is on sale.

That’s all for this week. Until next time, here is an article with some more info on the week ahead and the primary events driving the market. Enjoy!

Europe, Fed Watching to Dominate Next Week

Your Investment Partner,

Mike

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.