Current Market Outlook


The first three weeks of December were a complete disaster for the market, with most major indexes falling 16% to 19% during that time. The good news is that, after some historic oversold extremes (we saw three straight days of more than 1,000 stocks hitting new lows on both the NYSE and Nasdaq!), stocks have finally begun to bounce; ideally this upmove lasts for at least a couple more weeks and gives the market a low to work from, while some new leadership takes pole position for the next sustained uptrend. Still, as we have all year, we advise just taking things as they come—right now, the trends of the major indexes and the vast majority of stocks are pointed down (just 15% or so of stocks are north of their 200-day lines), so we’re sticking with a defensive stance and waiting patiently for the bulls to make a stand.

That said, we’re still seeing a good number of resilient ideas, including many with great growth stories. If you’re looking to nibble, our Top Pick this week is Planet Fitness (PLNT), which has a unique, independent growth story that continues to attract big investors.

Stock Name	Price	Buy Range	Loss Limit
Alteryx (AYX)	132.78	56-60	49-51
Atlassian (TEAM)	182.16	85-90	75-78
Broadcom Limited (AVGO)	266.26	244-250	220-225
Crocs (CROX)	0.00	25-36.5	22-23
Deckers Outdoor Corp. (DECK)	141.68	123-128	111-113
Elastic (ESTC)	86.17	67-71	58-60
Planet Fitness (PLNT)	0.00	51.5-54	46-47.5
ServiceNow (NOW)	341.86	173-180	157-161
Tencent Music Entertainment (TME)	18.41	12.7-13.5	11-11.5
Zscaler (ZS)	126.22	37-39.5	33.5-35

Like the broad market, many of the stocks in the portfolio have had a rough time over the past month, as investors have been spooked by fears of inflation and trade wars. But as the end of the year approaches, so does the incentive to take losses for tax purposes, and my optimistic reading is that most of the marijuana stocks have bottomed—though it may take a while for uptrends to be reestablished

The way the markets have been acting, it won’t be a chore to say goodbye to 2018. We’ve avoided the worst of the declines of the second half of the year, but the bears have definitely had the upper hand for months. That’s why I’m featuring an unaccustomed defensive stock in today’s issue.

I launched Cabot Dividend Investor five years ago to help investors like you build a balanced portfolio of reliable dividend-paying stocks. It’s been a great journey, and I hope you’ve learned a lot and have made some money.
Cabot Dividend Investor isn’t going anywhere, but it’s time for me to move on. I’m excited to pursue new opportunities in the New Year, and I’ll be leaving you in great hands. Tom Hutchinson, the new Chief Analyst of Cabot Dividend Investor, will introduce himself in this month’s issue, with his take on the market and an exciting new stock pick.
But before I turn everything over to Tom, I’m going to wrap up a few loose ends in the portfolio—some things have unraveled a bit over the past month.

This volatility is out of sync with the strong economy. Job openings are up, housing starts and building permits are still healthy, and retail sales are enjoying a good holiday romp. But it seems to be politics (as usual) that is driving the market’s gyrations, including the ‘wall’, with Trump threatening to shut the government down due to lack of funding, China’s continued exposure as an international hacker and spy, and the continuing investigation into our leader’s affairs, especially as regards to Russia.

Nevertheless, while short-term sentiment has turned more bearish, long-term, market mavens continue to be bullish, yet expect the volatility to continue.

While there are an endless number of things being talked about and analyzed, keeping it simple is usually better. And with the trends of the major indexes and most stocks pointed down, we remain in a defensive posture—in fact, we’ve had at least 70% cash on the sideline for the past two months.

That said, we’re ready and waiting for the next upturn. In tonight’s issue we continue to massage our watch list, review our three holdings, write about two names that are leaders of new growth “theme” and review a couple of secondary market timing indicators. When the next sustained upmove comes, there will be lots to sink our teeth into, but until then, stay patient.

Last but not least: If you celebrate, have a very Merry Christmas!

One of the things I want you to remember, as the market falls lower and lower and bad news about politics and the economy multiplies, is this: Market tops occur when the news is best, and market bottoms occur when the news is worst. Thus, somewhere ahead is an absolutely terrible news day that will mark the market bottom—but I don’t know where.

What I do know is that it will come, and that the bull market that follows it will be very rewarding, particularly for investors who are prepared for the bull—and I hope that’s you.

Current Market Outlook


The downtrend continues, with the major indexes extending their latest leg lower, with most reaching new lows this morning and some (like the S&P 600 SmallCap) falling more than 20% from their all-time peaks. We continue to keep a very open mind, especially given the horrific sentiment environment that’s emerged—various measures tell us investors are beginning to throw in the towel, which, combined with the fact that we still see many resilient growth stocks means it wouldn’t shock us to see another rally attempt unfold. But that’s speculation at this point—with the trends pointed down for the market and most stocks and sectors, you should remain in a defensive stance, with most of your portfolio in cash and, if you buy, buying just small positions.

This week’s list is another that’s full of stocks we think can do very well if the market can get going. Our Top Pick is Tableau Software (DATA), one of the strongest growth stocks in the market today as big investors buy into its transition to the cloud.

Stock Name	Price	Buy Range	Loss Limit
Ciena (CIEN)	44.25	32-33.5	29-30.5
Cree, Inc. (CREE)	67.96	42-44	39-40
CyberArk (CYBR)	111.74	68-71	63-64.5
Franco-Nevada (FNV)	125.51	69.5-72	63-64
MarketAxess (MKTX)	439.96	213-218	200-204
PayPal (PYPL)	147.00	82.5-85	77-78
Pinduoduo (PDD)	87.53	21-22.5	17.5-19
Tableau Software (DATA)	126.42	116.5-121	107-109
Twilio (TWLO)	183.39	85-89	75-77
Twitter (TWTR)	40.37	32-34	29-30.5

For value-focused investors, this year’s prologue has been a welcome change from the turmoil experienced in early 2025.

In just the past few weeks, some of last year’s most ignored or underappreciated laggards have posted outsized gains, with rallies that have made even momentum-driven tech stock traders envious. Even more remarkable is the fact that much of that strength has been concentrated in ultra-defensive areas of the market like consumer staples, utilities and healthcare.

The market rotation continues to be the main story out there this week, though rumblings of a potential strike on Iran, an update from the January FOMC meeting, and a slew of earnings reports and economic data releases have been giving investors plenty to think about.

In terms of the rotation, the equal‑weight S&P 500 ETF (RSP) is up 5.5% so far this year, illustrating that leadership is broadening beyond the narrow group of mega‑cap stocks that drove much of last year’s performance.

Year to date, the S&P 600 SmallCap Index is up 8.3% and the S&P 400 Mid‑Cap Index is up 7.9%. Both are comfortably outperforming the S&P 500, which is up just 0.1%, and the Nasdaq, which is down 2.1%.

Happy Chinese New Year! The year of the horse is upon us.

China is expecting an incredible 9.5 billion trips to be made during the 40-day Lunar New Year travel period. Chinese automakers are also on the move as the country’s numerous brands sold nearly 200,000 vehicles in Britain last year, doubling their market share to almost 10%.

As U.S. investors have shifted from risk-on to risk-off mode in recent months, a clear disparity between the “haves” and the “have-nots” has materialized.

Let’s start with the “have-nots.” Financials have fared the worst so far this year (-4.7%), followed by technology (-3.1%), communication services and consumer discretionary (-2.8% each). The downturn in the two tech-related sectors in particular is a stark departure from recent years, when technology led the charge of the current bull market.

Cyclical stocks are soaring and technology is floundering in the transformed market.

The bull market is turned upside down. For most of the first three years, technology, and particularly AI stocks, soared while most other stocks did very little. Now, previously meandering stocks are killing it while technology sinks.

Strong fourth-quarter earnings are confirming what the market was already doing.

Current estimates based on earnings reported so far are for 13.2% overall S&P earnings growth for the quarter. It’s a solid quarter and the fifth straight quarter of double-digit earnings growth. In terms of sector performance, cyclical companies are killing it, and technology is floundering, just like before earnings.

Like many coffee aficionados, I have something of a love/hate relationship with Starbucks (SBUX). My main gripe is that the company’s food and beverage offerings have always been pricey compared to the fare served in most fast-food restaurants and run-of-the-mill coffee houses.

The outperformance of small caps continues.

Through Tuesday’s close, the S&P 600 is up 10% year to date versus just 1.6% for the S&P 500.

All but three small-cap sectors are outperforming their large-cap counterpart. The strongest small-cap sectors are materials (+20%), energy (+23%), industrials (+17%), and tech (+11.4%).

Let’s talk about the power of staying invested.

Sure, when the market turns south – and I’m not even sure last week’s mini-dip qualifies – it makes sense to pare back on your weakest stocks and put a larger portion of your portfolio in cash. But taking your ball and going home – selling out of all of your stocks when times are tough – is not a winning strategy. Here’s why.

NOTE: We’re sending this a day early as I’m soon to embark on a trip with the kiddos over the next week. I will be working a good amount from the road, though, and will have updates if need be. Also, next week’s issue will be published as scheduled.

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WHAT TO DO NOW: The market remains very mixed, with growth measures still generally pointed sideways to down, while the broad market remains in solid shape. What’s interesting, though, is that we’re seeing more growth stocks kick into gear, along with some huge buying action in a few “cyclical growth” names. Tonight we’re making one move—adding a half-sized stake in Macom Tech (MTSI)—but are keeping our eyes open for a broader character change among growth stocks. Our cash position will be around 53%.

Today could be a big day for cannabis stocks.

The reason: We may get an important update on the rescheduling timeline.

Cannabis investors will be watching closely today to see whether Attorney General Pam Bondi offers a rescheduling update when she appears before the House Judiciary Committee. Upbeat comments could spark a sharp cannabis sector rally. The hearing starts at 10 a.m. EST.

I’m excited to share a couple of enhancements to Cabot Early Opportunities —improvements designed to sharpen our focus and better help you stay on top of the stocks we own.

Eight analysts are forecasting a rise in EPS for this outsourcing company.

Eight analysts have raised their EPS forecasts for this outdoor apparel company in the past 30 days.

The top five holdings of this fund are Adidas AG (ADDDF.DE, 5.39% of assets); Adobe Systems Inc (ADBE, 5.34%); CBOE Global Markets Inc (CBOE, 5.08%); Caterpillar Inc (CAT, 4.90%) and Amgen Inc (AMGN, 4.88%).

One of our stocks reported a solid quarter this week that prompted a fresh wave of buying and drove the stock up over 10% yesterday.

Three analysts have increased their EPS estimates in the past 30 days for this spin-off.

Rumors are racing about that Hasbro (HAS) might attempt to purchase Mattel (MAT). There are absolutely no details to discuss at this time. Considering that these are the two largest U.S. toy companies, I would anticipate a serious amount of antitrust drama surrounding a potential merger.

Although this gold miner is experiencing operations difficulties at one of its locations, Wall Street is bullish, forecasting growth of more than 34% annually over the next five years.

Although competition is beginning to cut into this electric vehicle’s numbers, the market in China continues to be strong, with new energy vehicle (NEV) production forecast at 700,000 vehicles this year.

Although this pharma company is still in the loss stage, rising forecasts and new analyst coverage are pushing the shares up.

Three earning updates - Two Holds and a Sell.

Analysts look for this tech company to grow by triple digits over the next five years.

Two of our stocks reported beat-and-raise quarters.

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.