The Market’s Biggest Gains are in These Unlikely Stocks

Here’s some news that can only crush any hopes you have for the future. From the Financial Times:

Goldman Sachs attracted more than a quarter of a million applications from students and graduates for jobs this summer, suggesting fears of a “brain drain” in the sector may be exaggerated as banks introduce more employee-friendly policies.

The number of applications from students and graduates globally have risen more than 40 per cent since 2012, according to figures provided to the Financial Times.

By the way, when we talk about crushing any hope you have for the future, we’re not just talking about the wasted young lives that end up swilling around in corporate finance.

Our greatest fear is that these students and graduates have had it drummed into their brain that they should try to ‘make a difference’ in the world.

No. Please don’t ‘make a difference’. Mind your own business instead.

Not to mention that their brains have become addled by the textbook notions of economics…and that they may try to take what they’ve learned and apply it to the real world.

Last week we issued a plea for three graduates at the stockbrokers’ conference to save themselves. This week, we issue another plea: May the Lord have mercy on our souls, and save us from a tidal wave of graduates who are determined to ‘make a difference’.

What is there to gain?

There is nothing to be gained by telling investors to not do something.

Your editor had that epiphany yesterday. It may not be strictly true, but it’s how I feel at present.

Yesterday, the VanEck Vectors Gold Miners ETF [ASX:GDX] was up a whopping 9.17%.

Gold stock Newcrest Mining Ltd [ASX:NCM] was up 11%.

Northern Star Resources Ltd [ASX:NST] was up 15.21%.

St Barbara Ltd [ASX:SBM] was up 14.89%. And Evolution Mining Ltd [ASX:EVN] was up 13.68%.

What explains the rapid rise of gold, and in particular, gold stocks?

As you may have guessed or know by now, it’s all down to the news on Wall Street from Friday night. Or rather, the news from the US Bureau of Labor Statistics.

As Bloomberg reports:

The argument for a June interest-rate hike from the Federal Reserve has evaporated.

Economists and investors largely agreed that Friday’s disappointing employment report for May — the U.S. economy added just 38,000 new jobs — all but eliminated the chance that Fed officials would tighten policy when they meet June 14–15 in Washington, and may make it difficult for them to raise in July.

Bloomberg went on to quote US Federal Reserve governor Lael Brainard, who said that ‘Today’s labor market report is sobering and suggests that the labor market has slowed.


The numbers may not have been so bad. After all, a 38,000 gain in jobs is still a 38,000 gain in jobs. The trouble is that economists had predicted a 160,000 gain in jobs.

Now that the jobs number has missed by such a large margin, investors are less certain about the Fed raising rates. And if the Fed doesn’t raise rates, in all likelihood it will mean a weaker US dollar, and a stronger gold price.

That has already begun to play out. After falling to US$1,200 late last week, the gold price rebounded on Friday night. The following chart gives you a clue about the timing of the release of the BLS jobs numbers:

gold price

Source: Bloomberg
[Click to enlarge]

That is a Harrier jump-jet style vertical lift-off.

And as we noted before, it has had a follow-on impact on the price of gold stocks and the Aussie dollar.

After trading below 72 US cents early last week, the Aussie dollar has jumped strongly, trading above 73 US cents. That’s a big move in the currency markets, and highlights just how significant the miss in the jobs numbers was.

The next question is whether that gives the Reserve Bank of Australia (RBA) an incentive to cut rates at today’s meeting.

The last rate cut caught the market by surprise. This time, based on prices in the futures market, investors have priced in a 92.2% certainty that the RBA won’t cut rates.

The market is less certain about July, pricing in a cut of only 74.4%.

But that may not mean anything. The RBA has shown in the past that it doesn’t mind issuing the odd surprise or two with an unexpected rate cut.

Following on from the US jobs numbers, and the rally in the Aussie dollar, could that be enough to convince the RBA that a cut to a new record low of 1.5% is necessary?

We’ll both find out today.

Tiny stocks

On any given day, the market’s biggest movers are the stocks you’ve likely never heard of.

They aren’t stocks like BHP Billiton Ltd [ASX:BHP], Telstra Corporation Ltd [ASX:TLS], or Commonwealth Bank of Australia [ASX:CBA].

They aren’t stocks with multi-billion-dollar market capitalisations. They aren’t stocks priced in big dollar numbers.

The market’s biggest movers, day in and day out, are ‘tiny stocks’. They’re stocks that are mostly priced under a dollar…mostly under 50 cents…actually, mostly under 20 cents, if we’re being honest.

They are stocks with market capitalisations just a fraction the size of the market’s big blue-chip stocks.

In the world of ‘tiny stocks’, a market cap of $50 million is a ‘blue-chip’ stock compared to most of the stocks in this sector.

See for yourself. Below is a list of the biggest percentage movers on the stock market yesterday:

stock market

Source: Bloomberg
[Click to enlarge]

How many of those stock codes do you recognise? Not many, I’d wager.

How familiar are you with Northern Manganese Ltd [ASX:NTM]? It was up 410% yesterday. When it last traded on Thursday last week, it closed at one cent.

Yesterday, it was trading at 5.2 cents — a 410% gain. And, even after the gain, the stock still only has a market cap of $10.5 million.

Of course, even in this market, that type of gain is rare. You can see that in the list above. One stock is up 410% in one day, while the next best gainer is up ‘just’ 125%.

After that, the gains fall off pretty quickly. But here’s the thing, while you can’t expect these ‘tiny stocks’ to put in the same kind of gains as Northern Manganese, big single-day gains do happen.

And when they do, your aim should be to get on board before the gains take place. How do you do that? We’ll explain more over the next couple of weeks in Port Phillip Insider.

Kris Sayce,

Editor, Port Phillip Insider

Ed Note: This article was originally published in Port Phillip Insider.

Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Markets and Money e-newsletter in 2005. He is the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service, Markets & Money.

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