It’s been a tricky environment for months, with an ever-larger number of crosscurrents popping up in the news (oil prices and interest rates versus accelerating AI investment) and the market itself (weak broad market, though big-cap indexes are actually kissing new high ground). Thus, we thought it’d be a good get Mike Cintolo, Cabot’s Chief Investment Strategist, on the horn and see what he’s making of all this mixed messaging.
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Brad: Mike–good to talk to you again. Let’s start with the overall picture and what your general view is of where we are and where you think things might be headed.
Mike: Frankly, it’s been as mixed a market as I can remember in my 27-plus years here, with the evidence pointing in all different directions. Recently, we saw our Cabot Tides, which measures the market’s intermediate-term trend, turn down, and just days later, our Aggression Index, which measures growth stocks vs. defensive stocks, turn bullish.
Even beyond the market action, many things that usually swim together aren’t doing so now. For instance, very few stocks have been hitting 52-week highs for weeks and weeks, which is an indirect sign of negative sentiment—but if you look at most sentiment measures, they’re not showing much panic, with a few even showing investor optimism.
All that said, I am encouraged overall because of the setup and the growth evidence—I still expect the next big move to be up, and that could be starting now, as we’ve seen the S&P and Nasdaq perk up. We did do some buying in Cabot Growth Investor’s Model Portfolio this week for the first time in many weeks, but we’re also still holding a good amount of cash, waiting for a broader, clearer liftoff.
Brad: Can you talk more about that last point, specifically the setup? What’s looking encouraging now versus, say, a few months ago?
Mike: It’s really the interplay of growth and risk-on names compared to stodgy areas of the market. A few months ago, the Nasdaq was fading after a huge April-May run, while the Dow Industrials were hitting new highs and the broad market was strong—a lot of market pundits said that action is good, that “rotation is the lifeblood of a bull market,” but in reality that setup rarely works. What was really happening was that big investors were selling leaders and buying laggards, and sure enough, those gains everyone was excited about in June and July evaporated in August and September.
Today, though, the situation is the opposite: The Nasdaq is the strongest major index, growth funds are outperforming the broad market and the Dow Industrials is relatively weak—all while there’s plenty of worrisome news. Don’t misunderstand me, I’m not rooting for a weak broad market, but this sort of setup usually leads to far better performance going ahead than the opposite.
Brad: I understand what you’re saying. But my bigger question is, given this setup, what action would have you turning fully bullish?
Mike: That’s easy—simply more strength in the market as a whole, as well as the stocks I own and am watching. I mentioned the small number of new highs earlier; on the S&P 500 and NYSE, the 50-day moving average is at 16-month lows. I’d like to see the general new high list pick up, led by growth stocks that have spent many months building fresh launching pads. I’ve seen a bit of that, but for every name or two that perks up, there are at least that many still seeing selling on strength.
Brad: Before we dive into stocks and sectors, I have to ask you about interest rates, which are obviously moving up and in the headlines most days. Any thoughts?
Mike: In terms of rates themselves, all I’ll really say is the trend is clearly up, though there’s so much attention being paid to rates that I do wonder if it’s time for a rest, at least for a few weeks. But other than that, I’m really focused more on the market itself.
Brad: OK, let’s get into the good stuff—where are you seeing opportunities these days, and what looks ready to lead if this market really gets going?
Mike: Well, AI has been the leader since 2023, and I don’t think that’s set to change—however, what does change is the names, as different subgroups have taken the baton. Right now, I’m increasingly excited about agentic AI, which has been gaining traction with businesses all year, but now, with Meta’s Muse [a personal AI agent launched in September that’s become the most downloaded app], seems to have hit the mainstream with consumers. That has big investors discounting the future where millions of these agents will be figuratively running around to research, notify and transact in the months ahead.
Brad: What stocks or sectors are in favor with agentic AI?
Mike: I just wrote about this last week in Cabot Growth Investor, so I don’t want to give away the store—but I’ll say that cybersecurity in general will be important to prevent agents from going where they’re not supposed to; web traffic should boom as agents constantly and automatically scour the web; and CPUs will be key on the infrastructure side. There are many names in each theme acting well, and that’s just for agentic AI, though I do think that is positioned to be the leading theme here if we get a bull run.
Brad: Fair enough, but can you at least throw a couple of names our way?
Mike: Well, Cloudflare (NET) is a name we’ve owned in the Model Portfolio for a while and continues to act well, and should play into both web traffic and security for agentic AI. Moreover, with all things chips still doing well, a name like Taiwan Semi (TSM) is doing well—actually moving to new highs last week ahead of most things.
Brad: Great, thanks. Any final words of wisdom before we finish up?
Mike: Only that I think we’re getting close to “decision time” for the market, simply because it’s spent most of the past year doing nothing—from last November through March, and then from June through today, the indexes have been net losers; the April-May boomlet had all the net gains and more. Thus, while I do think we could have another wobble or two, my guess is a big move is coming—and the odds favor it being up. So have your shopping list ready.
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