Small-Caps Remain The Leaders

NEWS: The major indices closed with small gains, but closed the week slightly lower. The Dow finished the session with a gain of 43points or 0.4%, but lost about 100 points on the week. The S&P 500 gained 5 points or 0.4% today and was flat on the week. The NASDAQ gave back one point today, but for the week the index was up 1.6% as technology drove stock higher. The Russell 2000 lost 0.1% on the day, but had a great week with a gain of 2.6%.

THE BOTTOMLINE: Today the market was boosted by lower commodity prices, which were spurred on by another rally in the US Dollar. As long as the greenback continues to move higher we will see the commodities have trouble finding a bottom. That being said, the US Dollar Index has not been this overbought in years and is overdue for a short-term pullback. When this occurs it will be an opportunity for investors to lighten up their exposure to the commodity stocks when they rally.

Also lending a bullish hand to the market today was another big push by the Retail stocks. The S&P Retail Index closed at the best level in 2 months after earnings from a handful of retailers spurred on buying. The interesting thing is that most retailers did not report strong guidance and we saw an unusually high number of companies warn for the remainder of the year. It did not make a difference as the big money was flowing into the sector.

RANDOM THOUGHTS FOR THE WEEKEND

#1 - The strength in the US Dollar has changed my investment approach for the second half of 2008 and sectors such as Retail, Technology, Medical Devices, Biotech, and even Financials are at the top of the list.

#2 - This was supposed to be the year of the large-cap. However, the Russell 2000 is down less than 2% and the S&P 500 is off nearly 12%. Looks like the street had this one wrong again.

#3 - Bringing the first two thoughts together leaves us with the small-cap stocks taking advantage of the stronger US Dollar because it will help those companies with a majority of their sales in the US. The multi-nationals that benefited from a weak greenback are typically large-caps and the “little guys” are back in favor in a big way.

#4 - Speaking of the US, I believe you will see the US stock market outperform their European counterparts in the upcoming 12 months.

#5 - I cannot leave for the weekend without touching on commodities. I suggest you do not overreact and use an overdue rally to sell into and begin to diversify more broadly into the sectors mentioned in numero uno.

#6 - Have a safe and wonderful weekend and do not forget to tune into Fox New Channel’s business block on Saturday morning. I will be featured on Neil Cavuto’s show from 10:30 to 11:00 AM EST. I am joined by an all-star cast that features Ben Stein.

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