Issues
*Note: Your next issue of Cabot Options Trader will arrive next Tuesday, September 2 due to the market holiday next Monday, September 1 in observance of Labor Day.
While it was a highly volatile week, which saw the AI story come under intense pressure, buoyed by the Fed Chairman’s dovish speech on Friday the S&P 500 closed the week at a new all-time high. By week’s end the S&P 500 had gained 0.3%, the Dow had rallied 1.5% and the Nasdaq had fallen 0.6%.
While it was a highly volatile week, which saw the AI story come under intense pressure, buoyed by the Fed Chairman’s dovish speech on Friday the S&P 500 closed the week at a new all-time high. By week’s end the S&P 500 had gained 0.3%, the Dow had rallied 1.5% and the Nasdaq had fallen 0.6%.
*Note: Your next issue of Cabot Options Trader Pro will arrive next Tuesday, September 2 due to the market holiday next Monday, September 1 in observance of Labor Day.
While it was a highly volatile week, which saw the AI story come under intense pressure, buoyed by the Fed Chairman’s dovish speech on Friday the S&P 500 closed the week at a new all-time high. By week’s end the S&P 500 had gained 0.3%, the Dow had rallied 1.5% and the Nasdaq had fallen 0.6%.
While it was a highly volatile week, which saw the AI story come under intense pressure, buoyed by the Fed Chairman’s dovish speech on Friday the S&P 500 closed the week at a new all-time high. By week’s end the S&P 500 had gained 0.3%, the Dow had rallied 1.5% and the Nasdaq had fallen 0.6%.
It’s been a highly unusual market environment, with the overall market grinding slightly higher, but with growth stocks generally under pressure as more leaders crack or test key support. We continue to think great things will happen when looking out a few months, but we also have to deal with the here and now and have been shedding names as they act abnormally, giving us a cash position north of 50%. We’d prefer to have that lower, but are holding it tonight, waiting for at least some support to show up before putting some of it back to work.
A strong earnings season has propelled the broad market to fresh highs, and as we enter mid-August, “rotation” has become the buzzword of the moment.
We’ll respect this action by not pressing too hard on the gas today. But at the same time, with a number of attractive setups floating across my screen, we’re not going to be wildly conservative.
We step up to the plate and take a swing at three new positions today.
We’ll respect this action by not pressing too hard on the gas today. But at the same time, with a number of attractive setups floating across my screen, we’re not going to be wildly conservative.
We step up to the plate and take a swing at three new positions today.
Led higher by the Russell 2000 (IWM), which gained 3% on the week, the leading indexes saw extreme rotation but closed the week higher as the S&P 500 rose by 1%, the Dow added 1.7%, and the Nasdaq gained 0.8%.
As we roll toward Labor Day, it’s pretty much the same story when it comes to the market: Most of the evidence is at least leaning positive and we see many recent positive earnings reactions, which is a plus—but there also remain many crosscurrents out there, with plenty of selling on strength as many sectors chop sideways. We’re sticking with the same stance—holding our strong performers, but tightening stops on names that wobble and being selective on the buy side, aiming for strong entry points in case more air pockets emerge. We’ll once again leave our Market Monitor at a level 7.
This week’s list was affected by last week’s rotation, but our Top Pick is a name that had a big run but has now dipped in an orderly fashion for the past month.
This week’s list was affected by last week’s rotation, but our Top Pick is a name that had a big run but has now dipped in an orderly fashion for the past month.
Stocks inched further into record territory this week. And while there’s another big news event to weather this week (the Fed’s Jackson Hole meeting and Jerome Powell press conference), the market has already motored ahead in the face of a bad July jobs report and escalating inflation. The real test is likely to come in September, historically the worst month for stocks as Wall Street returns from its summer vacation and sells off its laggards. So today, we add a bit of safety in the form of a low-beta, high-yield utility courtesy of Cabot Dividend Investor Chief Analyst Tom Hutchinson. But this utility acts more like a growth stock, thanks to AI and data center buildouts.
Details inside.
Details inside.
Led higher by the Russell 2000 (IWM), which gained 3% on the week, the leading indexes saw extreme rotation, but closed the week higher as the S&P 500 rose by 1%, the Dow added 1.7%, and the Nasdaq gained 0.8%.
Led higher by the Russell 2000 (IWM), which gained 3% on the week, the leading indexes saw extreme rotation, but closed the week higher as the S&P 500 rose by 1%, the Dow added 1.7%, and the Nasdaq gained 0.8%.
All in all, not a bad month. The stock markets had a nice bounce. The unemployment rate held steady at 4.2%; productivity increased (by 2.4%), higher than economists expected; and while home prices continued to rise in certain areas of the country (Northeast and Midwest), nationwide, they fell by 4.9%, to $401,800, on average.
And best of all, the turmoil regarding tariffs doesn’t seem to be affecting earnings much.
FactSet reported that, so far, 90% of S&P 500 companies have announced second-quarter earnings, and 81% have reported a positive EPS surprise and a positive revenue surprise.
That gives us an 11.8% earnings growth year over year—not bad!
And best of all, the turmoil regarding tariffs doesn’t seem to be affecting earnings much.
FactSet reported that, so far, 90% of S&P 500 companies have announced second-quarter earnings, and 81% have reported a positive EPS surprise and a positive revenue surprise.
That gives us an 11.8% earnings growth year over year—not bad!
This was a great week for Explorer stocks.
Coeur Mining (CDE) shares were up 19.6% this week following last week’s 13% gain after quarterly revenue was up 117% year over year. Dutch Bros (BROS) shares were up 16.9% this week. Sea Limited (SE) shares were up 17.3% this week following net income in the second quarter increasing by more than fivefold to $414 million.
Coeur Mining (CDE) shares were up 19.6% this week following last week’s 13% gain after quarterly revenue was up 117% year over year. Dutch Bros (BROS) shares were up 16.9% this week. Sea Limited (SE) shares were up 17.3% this week following net income in the second quarter increasing by more than fivefold to $414 million.
Artificial intelligence is a massive catalyst that is changing the market. It is spreading beyond technology and transforming other industries.
Utilities are companies that provide water, energy, and electricity to homes and businesses. They operate monopolies or near monopolies in their areas and the rates they charge are usually determined by regulatory bodies.
They usually pay strong dividend yields and provide highly defensive earnings that continue in any kind of economy. But, aside from the dividend and defensive characteristics, they’ve typically offered little else. Good stocks tend to outperform the indexes in flat or down markets and underperform them in bull markets. They are the market sector that most closely resembles bonds.
But skyrocketing electricity demand, mostly from data centers supporting AI, is changing that sector for the better. The phenomenon is making electric utilities growth businesses as well. The changing environment is adding another hugely positive dimension to these underrated stocks.
In this issue, I identify a beneficiary of that positive change that’s ahead of the pack. It’s an opportunity that has never existed before in modern times. The combination of defense and growth is the best of both worlds.
Utilities are companies that provide water, energy, and electricity to homes and businesses. They operate monopolies or near monopolies in their areas and the rates they charge are usually determined by regulatory bodies.
They usually pay strong dividend yields and provide highly defensive earnings that continue in any kind of economy. But, aside from the dividend and defensive characteristics, they’ve typically offered little else. Good stocks tend to outperform the indexes in flat or down markets and underperform them in bull markets. They are the market sector that most closely resembles bonds.
But skyrocketing electricity demand, mostly from data centers supporting AI, is changing that sector for the better. The phenomenon is making electric utilities growth businesses as well. The changing environment is adding another hugely positive dimension to these underrated stocks.
In this issue, I identify a beneficiary of that positive change that’s ahead of the pack. It’s an opportunity that has never existed before in modern times. The combination of defense and growth is the best of both worlds.
Updates
The Trump administration’s apparent effort to de-escalate its tariff war with China has been meet with statements from Chinese officials saying there are no ongoing trade talks with the U.S. and that all pronouncements of progress in negotiation are groundless.
Still, the market has begun to factor in a “less bad” outcome than was being contemplated last week.
It has helped significantly that Trump backed away from what seemed like a very clear desire to fire Fed Chair Jerome Powell, which caused another spike in market panic last week.
Still, the market has begun to factor in a “less bad” outcome than was being contemplated last week.
It has helped significantly that Trump backed away from what seemed like a very clear desire to fire Fed Chair Jerome Powell, which caused another spike in market panic last week.
The market took a turn for the better this week as President Trump backed off his criticisms of Fed Chairman Jerome Powell and indicated there may be some wiggle room on his sky-high tariffs on China. Those served as a sigh of relief for investors, and stocks surged on Tuesday and Wednesday, though the S&P 500 is only up about 1% since we last wrote.
Stocks are still below their April highs, and down more than 8.5% year to date, but volatility is declining and it seems increasingly possible that a bottom was formed in early April.
Stocks are still below their April highs, and down more than 8.5% year to date, but volatility is declining and it seems increasingly possible that a bottom was formed in early April.
The wild ride continues. After a crazy first few weeks of April, this week has continued in the same vein, with a big down day on Monday and a big up day on Tuesday. This might last a while longer.
It’s been a tough market. The S&P started this week down about 6% for the month of April, over 10% YTD, and over 14% from the high. And that was before Monday’s selloff. It is entirely possible that the market falls back to a new low and an official bear market.
It’s been a tough market. The S&P started this week down about 6% for the month of April, over 10% YTD, and over 14% from the high. And that was before Monday’s selloff. It is entirely possible that the market falls back to a new low and an official bear market.
In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Agnico Eagle Mines (AEM), Alcoa (AA), Kenvue (KVUE), Pan American Silver (PAAS), Sirius XM Holdings (SIRI) and Toast (TOST).
Precious metals miners Agnico Eagle Mines (AEM) and Pan American Silver (PAAS) continue to lead the portfolio after making yet another series of new highs this week.
Precious metals miners Agnico Eagle Mines (AEM) and Pan American Silver (PAAS) continue to lead the portfolio after making yet another series of new highs this week.
The big macro development of the week is that the Fed is in no rush to rescue the market or the economy.
Speaking yesterday at the Economic Club of Chicago, Fed Chair Jerome Powell sounded a hawkish tune. While he acknowledged that the level of tariff increases announced on Liberation Day is much higher that what was expected, and will likely lead to higher inflation and slower growth (i.e. the dreaded stagflation), he said the Fed is well positioned to wait for greater clarity before considering any adjustments to policy.
Speaking yesterday at the Economic Club of Chicago, Fed Chair Jerome Powell sounded a hawkish tune. While he acknowledged that the level of tariff increases announced on Liberation Day is much higher that what was expected, and will likely lead to higher inflation and slower growth (i.e. the dreaded stagflation), he said the Fed is well positioned to wait for greater clarity before considering any adjustments to policy.
As markets weigh tariff and trade risks, we will continue our efforts to protect assets through portfolio rebalancing while remaining alert to trading opportunities. Our diversified and global Explorer stocks are doing well.
International investors will be important at the margin since they account for 18% of U.S. stock ownership.
The retreat of the U.S. dollar, down 10% in the last six months, and the emerging premium for U.S. bond markets is leading to higher yields (interest rates).
International investors will be important at the margin since they account for 18% of U.S. stock ownership.
The retreat of the U.S. dollar, down 10% in the last six months, and the emerging premium for U.S. bond markets is leading to higher yields (interest rates).
Regardless of your politics, “calm” is not a word you would likely use to describe the stock market under President Trump, at least through the first three months of his second term. But given the extreme tariff-fueled volatility that pervaded this time a week ago, that’s exactly how the last week has felt for investors: calm.
The market has recovered in a big and fast way over the past week. Are we out of the woods?
What a difference a week makes. Things were frog ugly at the beginning of last week. We were approaching a trade war with the whole world. The S&P 500 came within a whisker of bear market territory (down 20% or more from the high on a closing basis). In fact, it hit the 20% mark down from the high on an intraday basis twice. Then last Wednesday happened.
What a difference a week makes. Things were frog ugly at the beginning of last week. We were approaching a trade war with the whole world. The S&P 500 came within a whisker of bear market territory (down 20% or more from the high on a closing basis). In fact, it hit the 20% mark down from the high on an intraday basis twice. Then last Wednesday happened.
The market got a reprieve last week. But we’re probably not out of the woods yet.
The S&P 500 came about as close to a bear market as you can get early last week. In fact, it hit the 20% mark down from the high on an intraday basis twice. But it’s not an official bear market until the closing price falls below 20%. The S&P seemed to have one foot on a bear market and the other foot on a banana peel. Then last Wednesday happened.
The S&P 500 came about as close to a bear market as you can get early last week. In fact, it hit the 20% mark down from the high on an intraday basis twice. But it’s not an official bear market until the closing price falls below 20%. The S&P seemed to have one foot on a bear market and the other foot on a banana peel. Then last Wednesday happened.
In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Agnico Eagle Mines (AEM), Centuri Holdings (CTRI), GE Aerospace (GE), Paramount Global (PARA), SLB Ltd. (SLB), Teladoc Health (TDOC) and UiPath (PATH).
Gold miner Agnico Eagle Mines (AEM) continues to lead the portfolio after making a new record high on Thursday.
The U.S. natural gas outlook should prove supportive for SLB Ltd. (SLB).
Gold miner Agnico Eagle Mines (AEM) continues to lead the portfolio after making a new record high on Thursday.
The U.S. natural gas outlook should prove supportive for SLB Ltd. (SLB).
WHAT TO DO NOW: Remain defensive, but keep your eyes open. Yesterday’s rally was noteworthy and may have started (or will soon start) a process of repairing the damage from the recent selling. That said, the market’s trends are still down and few stocks are in great shape, so the odds favor the repair process taking some time. Of course, we’re flexible, so if the buyers go wild, we’ll act, but tonight we’re again standing pat and seeing how this bounce plays out. Our cash position remains near 87%.
Where to begin.
Let’s start here. I think the idea that the Trump administration had a perfectly executed strategy that included tanking the global equity markets and sending the bond market into utter chaos, to get to the point of announcing 10% tariffs across the board as a major “win,” excluding China, is a stretch.
Let’s start here. I think the idea that the Trump administration had a perfectly executed strategy that included tanking the global equity markets and sending the bond market into utter chaos, to get to the point of announcing 10% tariffs across the board as a major “win,” excluding China, is a stretch.
Alerts
Trump Victory May Spell Higher Costs for SharkNinja (SN); Lock in Gain; Sell UL Solutions (ULS)
UL Solutions (ULS) Reports; HubSpot (HUBS): Sell for Quick Gain
Varonis (VRNS) Moves to Sell. MSFT, FTAI, AAPL, SN up next.
Shares of our silicon battery startup Enovix (ENVX) are trading up nicely today after the company reported Q3 results after the close yesterday. Lots to cover here so I’ll bullet point the most relevant stuff then give my two cents:
We went into the TransMedics (TMDX) Q3 earnings report yesterday afternoon with a quarter of our original position and lingering questions about the underlying trends in the business.
Portfolios
An updated portfolio for Cabot Options Institute – Quant Trader.
An updated portfolio for Cabot Options Institute – Fundamentals Portfolio.
An updated portfolio for Cabot Options Institute – Fundamentals Portfolio.
An updated portfolio for Cabot Options Institute – Quant Trader.
An updated portfolio for Cabot Options Institute – Earnings Trader.
An updated portfolio for Cabot Options Institute – Fundamentals Portfolio.
An updated portfolio for Cabot Options Institute – Earnings Trader.
An updated portfolio for Cabot Options Institute – Income Trader.
An updated portfolio for Cabot Options Institute – Quant Trader.
An updated portfolio for Cabot Options Institute – Earnings Trader.
An updated portfolio for Cabot Options Institute – Income Trader.
An updated portfolio for Cabot Options Institute – Quant Trader.
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.