Current Market Outlook


Not much has changed with the market’s tenor during the past week. The major trends are still positive, but not powerful, with many indexes not making much headway during the past two months. And for individual stocks, again, there’s more good than bad, but the advance is narrow and news driven, and we’re seeing more buying of defensive stocks. Overall, we’re still more positive than not because most of the evidence favors the bull side—and it’s worth noting that it wouldn’t take more than a couple of good days to get all the major indexes to all-time highs! But we also think it’s a good idea to go slow, look for solid entry points and, of course, honor your stops. We’re keeping our Market Monitor at a level 7.
This week’s list has a nice mix of solid stories from a few different industries. Our Top Pick is a stock that’s been a leader all year—Coupa Software (COUP), which has tightened up after a couple of months of consolidation. Start small and see what comes on earnings early next month.

Stock Name	Price	Buy Range	Loss Limit
CenturyLink (CTL)	22.88	22.5-24	19.8-20.3
Chipotle Mexican Grill (CMG)	773.32	490-505	455-460
Coupa Software (COUP)	262.20	64.5-67.5	58-60
Dexcom (DXCM)	421.36	124-130	107-111
Five9 (FIVN)	78.35	41.5-44	37.5-39
The Flowserve Corporation (FLS)	54.70	49-51	44-47
Ligand Pharmaceuticals (LGND)	267.14	232-242	206-216
Sendgrid (SEND)	33.32	30-32	28-29
Trade Desk (TTD)	468.02	120-130	104-109
Trex Company (TREX)	117.56	76-80	70-72

The market is positive, but it’s not powerful, with a generally choppy, narrow and rotational environment in recent weeks. Even so, we’re encouraged by the action in some growth stocks, so after getting knocked out of a few names during earnings season, we’ve begun to put some money back to work.

The market’s main trends remain up, and thus I remain bullish. But there are some serious crosscurrents out there making investing a bit more challenging.

Our Spotlight Stock, a company that is taking the market of used cars to places that no one expected. The growth of the company is tremendous! In my Feature article, I report on the company’s stunning second quarter, as well as the catalysts keeping this market growing at significant rates.

Current Market Outlook


Turkey’s currency crisis is the latest of what seems like a never-ending string of worries this year (volatility implosions, trade wars, rate hikes, etc.) that have hit the market to some extent. That said, we’re relatively encouraged by what we’ve seen during the past couple of weeks, with the major indexes holding and bouncing off important support, some new leadership emerging on earnings and other leading names forming solid bases. It’s still a tricky, narrow and choppy environment, which is a good reason to pick your spots, honor your stops and hold some cash. But we’re nudging our Market Monitor up another notch, as we see a healthy number of good-looking leading stocks and the market’s major trends remain up.

For the second week in a row, we have a growth-oriented list, a positive sign after the late-July selloff. Our Top Pick is Roku (ROKU), a very volatile name with a very big story. Keep it small, try to buy on dips and expect plenty of wiggles.

Stock Name	Price	Buy Range	Loss Limit
Alteryx (AYX)	132.78	51-54	44-46
Carvana (CVNA)	82.90	49-52	42-43.5
CF Industries (CF)	45.23	46.5-48.5	43-44
CyberArk (CYBR)	111.74	68-71	62-64
Match (MTCH)	0.00	47-49.5	43.5-45.5
Michael Kors Holdings Limited (KORS)	73.22	70-72.5	65-66.5
Roku, Inc. (ROKU)	150.46	53.5-56.5	47-49
Seattle Genetics (SGEN)	150.85	71-74	64.5-66.5
Teladoc, Inc. (TDOC)	127.95	67.5-71	59.5-62
Wingstop (WING)	121.52	58-60	53-54.5

While emerging market stocks (especially Chinese stocks) remain under pressure, we’re starting to see some signs that things may be turning around. Our stocks have been knocked around a bit by earnings season, but we’ve also had some good winners. And we continue to build a watch list of companies with excellent stories and intriguing charts that we will be ready to buy when the general tone of the market improves. Read on for my view on what’s happening right now and why it’s a good time for optimism.

The Dow Jones Industrial Average continues its upward trend, gaining about 900 points since our last issue, helped by another great quarter of corporate earnings. With 81% of the companies in the S&P 500 index reporting, 80% beat earnings estimates and 74% surpassed sales forecasts. Those are the highest numbers since FactSet began reporting in Q3 2008.

In doing this month’s research, I was struck by the preponderance of excellent investment opportunities within the banking industry – so many that I could fairly easily create a mutual fund entirely devoted to bank stocks!

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.

We’ve had a small pullback in the U.S. stock market averages. It’s a little too early to tell if they might fall further, which could easily happen if the recent increase in hostility that’s coming from North Korea continues to escalate.

The market suffered a major selloff yesterday; the Dow declined nearly 1%, the S&P 500 lost 1.5%, and the Nasdaq closed over 2% lower. I’m not entirely surprised, there have been red flags popping up under the surface of the market for weeks, as discussed in our regular updates.

This emerging market stock took off yesterday, after a great earnings beat.

While the Dow Industrials put on a good show in recent weeks and grabbed the headlines, many growth stocks struggled, as did the Nasdaq and small- and mid-cap indexes.

This restaurant company is seeing double-digit revenue and earnings increases, and is growing rapidly via acquisition.

Here are earnings updates on two of our stocks.

This aero-structure company’s EPS forecasts were increased by 13 analysts in the past 30 days.

Here are earnings updates on three of our stocks, and there’s drama at another.

This optic company beat earnings estimates, posting earnings of $1.54 per share, compared to the estimate of $1.32, but shares fell when the company’s third quarter guidance fell short of analysts’ forecasts.

Three stocks move to Hold, one stock moves to the Growth & Income Portfolio, and one stock moves to Strong Buy.

A huge milestone payment added to the winning results for this biotech in its last quarter, and a healthy pipeline and new president promises to keep the company in a fast-growth mode.

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.