The Quant View: Small Caps on a 12-Month Winning Streak

This week's economic calendar features two bellwethers of consumer confidence (one on Tuesday and one on Friday), the FOMC announcement on interest rates on Wednesday, the weekly jobless claims on Thursday, and the quarterly GDP growth rate on Friday.  But it is unlikely that these numbers will have much of an impact on the market this week.

Last week, we had a bevy of economic releases, at least half of which werefairly negative, and the market continued to move ahead broadly on the plethora of positive corporate earnings releases. Today Caterpillar (NYSE: CAT) and Whirlpool (NYSE: WHR) had excellent earnings releases which positively affected their stock prices (CAT, up +4.17%; WHR, up +9.98%). Humana (NYSE: HUM) also beat estimates handily and issued strong guidance for the year ahead, but closed down -4.33%, joining the lagging Healthcare Sector, which came in dead last this past week in our sector performance stats.

The S&P 500 is showing significant resistance in the 1215 area, stemming from long-term resistance at this level going back to July-Oct 2008. The S&P 500 has butted heads with 1215 for nearly 10 days now.

Small is better.  We have an interesting "alignment of the stars" on our cap/styles table. Note that that over the past week, month, quarter and year, Small-cap Value has been the leader and Large-cap Growth has been the trailer. (Last week, Small-cap Value was up nearly 5% for the week, and Large-cap Growth trailed but was still up 1.7%.) In fact, this perfect alignment allows us to say with confidence that the smaller you were this past year, the better you did. And of course, value did better than growth from a style viewpoint.

Despite rather poor scores in our 30-day sector outlook, Consumer Discretionary led the sectors last week, fueled by the remarkably strong numbers from the housing industry  and strong performance by retail stores over the past month. Energy is predicted to lead for the next 30 days, and we continue to have the most confidence in that sector and the Financials and Information Technology sectors, and the least confidence in Consumer Staples and Materials. Recall, however, that the Materials Sector is heavily influenced by the direction of the dollar.

Stocks to consider are below the market stat tables.

Cap/Style Overview

Current Sector Performance

Best & Worst Industries

The Sabrient SectorCast  

4 Stock Ideas for this Week

Due to the interesting alignment of cap/styles, it would be foolhardy to ignore this long-lasting preference for small caps and value stocks. So this week I ran the preset GARP search on MyStockFinder, but limited the search to small caps and up-weighted the value style and recent upgrades by analysts. Here are four stock ideas from that search.

Epiq Systems, Inc. (Nasdaq:  EPIQ)  Technology (Software)

GMX Resources Inc. (Nasdaq: GMXR) Energy (Oil, Gas & Consumable Fuels)

Hallmark Financial Services, Inc. (Nasdaq:  HALL)  Financials (Insurance)

Jos. A. Bank Clothiers, Inc. (Nasdaq:  JOSB)  Consumer Discretionary (Specialty Retail)