Issues
The bull market marches into a fourth year. On the heels of three straight years of double-digit gains, can the S&P 500 make it four in a row? Wall Street thinks it can come close, with the average predicted return among 21 analysts surveyed by Bloomberg coming it at 9% in 2026. And not one of those analysts thinks stocks will be down this year.
So to kick off the new year in style,let’s stay in growth mode by adding a new pick from Mike Cintolo in his Cabot Growth Investor newsletter.
Details inside.
So to kick off the new year in style,let’s stay in growth mode by adding a new pick from Mike Cintolo in his Cabot Growth Investor newsletter.
Details inside.
Despite a holiday-shortened week and light volume, U.S. stocks pulled back from recent highs last week as year-end positioning and lack of fresh catalysts weighed on sentiment. The S&P 500 and Nasdaq slipped after failing to sustain record levels, while tech and small caps bore the brunt of profit-taking amid mixed breadth. For the week, the S&P 500 fell about 1%, the Dow lost roughly 0.7%, the Nasdaq slid near 1.5%, and the Russell 2000 dropped by around 2.1%.
Despite a holiday-shortened week and light volume, U.S. stocks pulled back from recent highs last week as year-end positioning and lack of fresh catalysts weighed on sentiment. The S&P 500 and Nasdaq slipped after failing to sustain record levels, while tech and small caps bore the brunt of profit-taking amid mixed breadth. For the week, the S&P 500 fell about 1%, the Dow lost roughly 0.7%, the Nasdaq slid near 1.5%, and the Russell 2000 dropped by around 2.1%.
Cannabis stocks are down sharply ever since the group got its best news in decades – President Donald Trump’s December 18 executive order to reschedule the plant.
Using the AdvisorShares Pure US Cannabis exchange-traded fund (MSOS) as a proxy, the group is off 32%.
Using the AdvisorShares Pure US Cannabis exchange-traded fund (MSOS) as a proxy, the group is off 32%.
As markets closed the year largely treading water, one might ask why prices of stocks, gold, and just about everything are leaving 2025 higher than they started 2025.
One simple answer is that there is a lot of money sloshing around the world looking for opportunities. Governments and central banks injected trillions of dollars in stimulus during and after the pandemic. Much of that continues to drive momentum trades. Americans alone hold over $7 trillion in money market mutual funds.
One simple answer is that there is a lot of money sloshing around the world looking for opportunities. Governments and central banks injected trillions of dollars in stimulus during and after the pandemic. Much of that continues to drive momentum trades. Americans alone hold over $7 trillion in money market mutual funds.
If there was a dominant investment theme for the Cabot Turnaround Letter in 2025, it was the focus on defensiveness, in which we showed a penchant for companies in the consumer staples arena. This, I believe, was—and still is, from a long-term perspective—justified in view of the many headwinds faced by the U.S. economy over the last 12 months.
Now that we’re about to enter a new year, however, the economic winds have started to shift in a more favorable direction. With the Fed’s embrace of a looser monetary policy, sectors that were out of favor or not very strong in 2025 are poised to become better performers in 2026. I’m referring particularly to some of the more economically sensitive industries within the broader consumer discretionary sector.
Now that we’re about to enter a new year, however, the economic winds have started to shift in a more favorable direction. With the Fed’s embrace of a looser monetary policy, sectors that were out of favor or not very strong in 2025 are poised to become better performers in 2026. I’m referring particularly to some of the more economically sensitive industries within the broader consumer discretionary sector.
As I do from time to time around the major holidays, I spent much of the weekend hanging with family and traveling. That means this week’s Monday Week in Review will be focused on our open positions.
Of note, I am working the full week, outside of Thursday, when the market will be closed for New Year’s.
Of note, I am working the full week, outside of Thursday, when the market will be closed for New Year’s.
As I do from time to time around the major holidays, I spent much of the weekend hanging with family and traveling. That means this week’s Monday Week in Review will be focused on our open positions.
Of note, I am working the full week, outside of Thursday, when the market will be closed for New Year’s.
Of note, I am working the full week, outside of Thursday, when the market will be closed for New Year’s.
First and foremost, all of us here at Cabot wish you and your family a Merry Christmas, Happy Holidays and a prosperous New Year. Our offices will close early today and be closed tomorrow, but we’ll be back at it next week.
As for the evidence, it remains in a similar place as it has been: Market-wide, most of what we look at is positive, and bigger picture, the odds continue to favor the major indexes having solid upside in the months ahead. That said, growth stocks and funds are much more mixed, and near term, some crosscurrents are likely due to the calendar and elevated sentiment. All in all, with growth stocks, we’re continuing to take it step-by-step, emphasizing the positive while pruning names that are weak. Tonight we’re filling out our stake in one recent purchase, leaving us with 45% on the sideline.
As for the evidence, it remains in a similar place as it has been: Market-wide, most of what we look at is positive, and bigger picture, the odds continue to favor the major indexes having solid upside in the months ahead. That said, growth stocks and funds are much more mixed, and near term, some crosscurrents are likely due to the calendar and elevated sentiment. All in all, with growth stocks, we’re continuing to take it step-by-step, emphasizing the positive while pruning names that are weak. Tonight we’re filling out our stake in one recent purchase, leaving us with 45% on the sideline.
Despite a mid-week wobble in tech (especially AI stocks), the bulls stepped up Thursday and Friday, and by week’s end the indexes finished mostly mixed. The S&P 500 gained 0.1%, the Dow lost 0.7%, the Nasdaq rose by 0.5% and the Russell fell 0.9%.
The market has been spectacular. Can we expect more of the same in 2026?
The S&P is up a staggering 95% since this bull market began in October of 2022. It’s up 128% this decade, for an average annual return of about 15%, 50% higher than the historical average.
The huge returns have been all technology. Without technology, market returns for the past few years would be rather uninspired. But there is growing investor angst regarding the sustainability of technology valuations and whether all this massive AI investment will deliver tangible payoffs. The sector could have a tougher year in 2026.
Fortunately, there are a lot of stocks that aren’t technology. The rest of the market cares more about interest rates and the economy, and those things are shaping up well. The Fed is in a rate-cutting cycle, inflation is subdued, oil is cheap, and a higher level of economic growth is expected in 2026.
The rally is broadening, and 2026 may be a year for non-technology stocks to shine. Overall earnings are expected to grow 14% next year, with much of the growth over last year coming from other sectors. Many stocks in other industries sell at cheaper valuations than the market, and performance is improving as investors seek to diversify beyond technology.
The bull market has been lopsided toward technology so far. But 2026 is shaping up to be a year for other stocks to catch up. In this issue, I highlight a stock poised to do just that in the year ahead.
The S&P is up a staggering 95% since this bull market began in October of 2022. It’s up 128% this decade, for an average annual return of about 15%, 50% higher than the historical average.
The huge returns have been all technology. Without technology, market returns for the past few years would be rather uninspired. But there is growing investor angst regarding the sustainability of technology valuations and whether all this massive AI investment will deliver tangible payoffs. The sector could have a tougher year in 2026.
Fortunately, there are a lot of stocks that aren’t technology. The rest of the market cares more about interest rates and the economy, and those things are shaping up well. The Fed is in a rate-cutting cycle, inflation is subdued, oil is cheap, and a higher level of economic growth is expected in 2026.
The rally is broadening, and 2026 may be a year for non-technology stocks to shine. Overall earnings are expected to grow 14% next year, with much of the growth over last year coming from other sectors. Many stocks in other industries sell at cheaper valuations than the market, and performance is improving as investors seek to diversify beyond technology.
The bull market has been lopsided toward technology so far. But 2026 is shaping up to be a year for other stocks to catch up. In this issue, I highlight a stock poised to do just that in the year ahead.
First off, some housekeeping: This is our last Top Ten issue of the year, as next Monday is the second of two “off” weeks we have all year. We will, however, send out a full Movers & Shakers update next Monday (December 29) to keep you up to date. Most important, we wish you and your family a very Merry Christmas and Happy Holidays.
As for the market, the five-day dip into last Wednesday was a downer, but it looks like a year-end rally is underway, with the indexes and many stocks lifting nicely of late. Of course, looking ahead, early January is usually very tricky, though as always, we’ll just take it as it comes: Today, we continue to see more good than bad out there, though it does depend on where you look, with cyclical and financial areas doing well while growth areas are picking up steam but lagging. We’ll nudge our Market Monitor up to a level 7, respecting the action, but focusing on what’s working remains paramount.
This week’s list is again well balanced, with some strong names continuing their moves and other titles emerging after long rest periods. Our Top Pick has many industry-wide and company-specific tailwinds, and the stock looks to be changing character as it discounts a much brighter future.
As for the market, the five-day dip into last Wednesday was a downer, but it looks like a year-end rally is underway, with the indexes and many stocks lifting nicely of late. Of course, looking ahead, early January is usually very tricky, though as always, we’ll just take it as it comes: Today, we continue to see more good than bad out there, though it does depend on where you look, with cyclical and financial areas doing well while growth areas are picking up steam but lagging. We’ll nudge our Market Monitor up to a level 7, respecting the action, but focusing on what’s working remains paramount.
This week’s list is again well balanced, with some strong names continuing their moves and other titles emerging after long rest periods. Our Top Pick has many industry-wide and company-specific tailwinds, and the stock looks to be changing character as it discounts a much brighter future.
Updates
The S&P 500 started the week on another up note. But the index return is deceiving.
The S&P is being pulled higher by a handful of technology stocks. But 400 of the 500 stocks and nine of the 11 sectors were lower on Monday at midday. The earnings season so far has reaffirmed a positive outlook for artificial intelligence investments. That helps drive the index higher as technology stocks represent more than a third.
The S&P is being pulled higher by a handful of technology stocks. But 400 of the 500 stocks and nine of the 11 sectors were lower on Monday at midday. The earnings season so far has reaffirmed a positive outlook for artificial intelligence investments. That helps drive the index higher as technology stocks represent more than a third.
It’s not always that the market outperforms in October, but this year’s “jinx month” came and went on a positive note (albeit with a minor setback earlier in the month).
Granted, there was some volatility on the political front, but as far as the equity market was concerned, it wasn’t too bad. The S&P 500 index stood at a record high as recently as Wednesday, and Wall Street’s favorite stocks and ETFs are mainly trending higher as we exit the month.
Granted, there was some volatility on the political front, but as far as the equity market was concerned, it wasn’t too bad. The S&P 500 index stood at a record high as recently as Wednesday, and Wall Street’s favorite stocks and ETFs are mainly trending higher as we exit the month.
The Russell 2000 and S&P 600 SmallCap Index have pulled back from recent highs, but the data suggests they’ll go higher in the weeks ahead.
Bank of America’s seasonality analysis shows November tends to be a strong month for the market. The Russell 2000 is up 70% of the time, with an average gain of 2.64%. Small-cap industrials tend to be particularly strong, up by 6.1% on average, and rising 79% of the time.
Bank of America’s seasonality analysis shows November tends to be a strong month for the market. The Russell 2000 is up 70% of the time, with an average gain of 2.64%. Small-cap industrials tend to be particularly strong, up by 6.1% on average, and rising 79% of the time.
As expected, the Federal Reserve cut interest rates by a quarter point yesterday. This was largely already baked into the market. Looking ahead, Fed Chairman Jerome Powell had an impactful comment: “What do you do if you are driving in the fog? You slow down.”
This comment is consistent with our strategy of alternating aggressive and conservative stocks, taking partial profits to build cash, and seeking international diversification.
This comment is consistent with our strategy of alternating aggressive and conservative stocks, taking partial profits to build cash, and seeking international diversification.
This Halloween, there’s nothing to fear. At least not for investors.
OK, nothing is a bit of an exaggeration. Today’s anticipated meetup between President Trump and Chinese President Xi Jinping could go sideways, putting high tariffs between the two mega-powers back on the menu. There could be some key earnings blowups ahead as we remain in the thick of third-quarter reporting season. And the government shutdown is more than a month old at this point, which could take a toll on the market.
OK, nothing is a bit of an exaggeration. Today’s anticipated meetup between President Trump and Chinese President Xi Jinping could go sideways, putting high tariffs between the two mega-powers back on the menu. There could be some key earnings blowups ahead as we remain in the thick of third-quarter reporting season. And the government shutdown is more than a month old at this point, which could take a toll on the market.
The market just keeps on going. So far this week, the S&P 500 has hit a new high on both Monday and Tuesday.
The S&P 500 is now up about 17% year to date with more than two months left in 2025. There is a good chance that the index delivers another 20%-plus return year, which would make it three consecutive years of such returns for the first time in nearly 30 years. Sure, we’re in a Fed rate-cutting cycle. Investors love that. But artificial intelligence is the main force driving the market higher.
The S&P 500 is now up about 17% year to date with more than two months left in 2025. There is a good chance that the index delivers another 20%-plus return year, which would make it three consecutive years of such returns for the first time in nearly 30 years. Sure, we’re in a Fed rate-cutting cycle. Investors love that. But artificial intelligence is the main force driving the market higher.
One of the most attractive industries right now for turnaround-focused investors is chemicals, with the share prices for many major producers in this group hovering at or near multi-year lows.
The reasons for this collective underperformance vary, and while not all chemical companies are in a classic turnaround situation, many of them are under serious margin pressures and are implementing strategic plans aimed at improving their company’s fortunes and reversing the stock price declines.
The reasons for this collective underperformance vary, and while not all chemical companies are in a classic turnaround situation, many of them are under serious margin pressures and are implementing strategic plans aimed at improving their company’s fortunes and reversing the stock price declines.
WHAT TO DO NOW: The market continues to hang in there, but growth stocks have been far trickier, with many pulling back sharply, others testing support and a few breaking down. Still, it’s mostly mixed, with some names perking up, so we’re staying flexible, especially as earnings season plows ahead. This week we sold two names that cracked—MP Materials (MP) and GE Vernova (GEV)—which leaves us with 43% in cash. We’ll stand pat tonight, though we could redeploy some of the money into stronger names if growth stocks continue to stabilize.
There’s been a jump in volatility among individual stocks and some sectors (gold, oil, retail investor favorites, etc.), but at an index level, things continue to be pretty smooth. The S&P 600 SmallCap Index is trading higher than it was a week ago.
Let’s talk about bubbles.
There’s been a whole lot of investor speculation of late over whether we’re near an artificial intelligence bubble, akin to what we saw from the dot-com bubble at the turn of the century or the housing bubble that led to the 2008-09 Great Recession. Indeed, with AI spending (an estimated $300 to $400 billion this year) outpacing revenue (an estimated $60 billion this year) by roughly a 6-to-1 ratio – about double the capital expenditures-to-revenue ratio just before the dot-com bubble burst – the angst over an AI bubble is understandable, and perhaps warranted.
There’s been a whole lot of investor speculation of late over whether we’re near an artificial intelligence bubble, akin to what we saw from the dot-com bubble at the turn of the century or the housing bubble that led to the 2008-09 Great Recession. Indeed, with AI spending (an estimated $300 to $400 billion this year) outpacing revenue (an estimated $60 billion this year) by roughly a 6-to-1 ratio – about double the capital expenditures-to-revenue ratio just before the dot-com bubble burst – the angst over an AI bubble is understandable, and perhaps warranted.
Looking good. The bull market is enduring the historically troubling months of September and October with nary a sign of resistance.
The S&P 500 is up about 15% year to date and within a whisker of the all-time high, as investors are more excited about earnings than worried about tariffs or the government shutdown. And why shouldn’t they be? Government shutdowns are always temporary. And tariff negotiations always culminate in an arrangement that satisfies the market.
The S&P 500 is up about 15% year to date and within a whisker of the all-time high, as investors are more excited about earnings than worried about tariffs or the government shutdown. And why shouldn’t they be? Government shutdowns are always temporary. And tariff negotiations always culminate in an arrangement that satisfies the market.
Stocks started this week on a strong note. After sluggish performance over the past month, the S&P 500 is gaining steam.
Investors are focusing on the promising earnings season and a tamping down of tensions with China. The Trump administration has moderated its stance on China and will meet with them in the weeks ahead. Meanwhile, earnings season is heating up with Tesla (TSLA), Intel (INTC), Netflix (NFLX), and Coca-Cola (KO) reporting this week.
Investors are focusing on the promising earnings season and a tamping down of tensions with China. The Trump administration has moderated its stance on China and will meet with them in the weeks ahead. Meanwhile, earnings season is heating up with Tesla (TSLA), Intel (INTC), Netflix (NFLX), and Coca-Cola (KO) reporting this week.
Alerts
WHAT TO DO NOW: The indexes continue to look good, and the big-picture (months down the road) outlook is very favorable. But growth stocks remain hit and miss, with some newer names perking up but many potholes out there, too. Today, we’re going to sell one-third of our stake in GE Aerospace (GE), which has been a fine performer, but it’s been lagging a bit, got hit today and many in the group have topped. We’ll take a few chips off the table and hold the rest, leaving us with around 42% in cash.
National Grocers (NGVC) stock should have a good day after posting a solid Q3 FY 25 and raising guidance for the rest of the year. Revenue in Q3 grew 6.3% to $328.7, daily average comparable store sales grew 7.4%, net income grew 26% to $11.6 million and adjusted EPS grew 34% to $0.54. The company declared a $0.12 dividend, payable on September 17.
Primo Brands (PRMB), Dynatrace (DT) and Dutch Bros (BROS) Report
Sell Remaining Quarter of Paramount Global (PARA). Bloomin’ Brands (BLMN) Earnings Update.
Shares of A10 Networks (ATEN) are trading higher today after the company beat Q2 expectations on both the top and bottom lines. Revenue grew 15.5% to $69.4 million (beating by $3.3 million) while adjusted EPS grew almost 17% to $0.21, beating by $0.02.
ThredUp (TDUP), Sportradar (SRAD) and Alamos Gold (AGI) Report
WHAT TO DO NOW: The market has finally seen some selling this week, with two downside reversals and then today’s big drop on tariff and economic fears. Our Cabot Tides are now on the fence as the broad indexes have sagged, though with 30% cash already on the sideline, we’re taking things on a stock-by-stock basis. Today that means pulling the plug on Snowflake (SNOW), which is cracking support today. This will raise our cash level to 39%—some of which we might redeploy into a stronger name when the indexes find support. Details below.
Enovix (ENVX) reported Q2 results after the closing bell yesterday. Results were generally in line with the pre-announced results (from early July), with $7.5 million in revenue and an EBITDA loss of $20.1 million ($1.3 million less than the pre-announced amount).
Portfolios
Strategy
A few Cabot Options Trader subscribers have asked me about ways to protect gains in their portfolios, so I thought I would write to everyone with a couple of strategies using options to hedge your portfolio.
A subscriber recently asked me if I keep a journal of my trades. Many traders keep journals so they can look back at their trades and evaluate what they did right and what they did wrong.
Want to know how the big institutional investors use options? Here is an example of how one trader spent $132 million on three technology stocks.
Options trading has its own vernacular. To know how to do it, you need to know what every options term means. Here are some of the basics.
Our Cabot Top Ten Trader’s market timing system consists of two parts—one based on the action of three select, growth-oriented market indexes, and the other based on the action of the fast-moving stocks Cabot Top Ten features.