While the market mourns the misfortunes of poor Mark Zuckerberg, we actually have a little ray of light in emerging markets, as the Cabot Emerging Markets Timer is showing a very new green light. New buy signals are pretty delicate, but we’re taking this one seriously, doing a little new buying and shifting another stock from a Hold to a Buy rating. As the artillery of the trade war rumbles, it’s nice to have something to celebrate. Read on for details.

In today’s letter, I’m adding a consumer staples stock to the Safe Income Tier, positioning the portfolio to take advantage of a possible rebound in the sector. If it doesn’t come to pass, we’ll still be happy to own the stock, a Dividend Aristocrat with near-perfect Dividend Safety and Growth scores.
Elsewhere, I’m selling half of a laggard in the Dividend Growth Tier, and have included earnings expectations for all of our stocks. And at the end of the issue, you’ll find a fresh explanation of a tried-and-true method for boosting your yield.

The overall bull market remains in good shape, with most indexes and stocks trending up. But earnings season, which is now underway, will likely have a big impact—even today we saw lots of distribution among growth stocks ahead of their reports this week and next.

Current Market Outlook


The major indexes didn’t do much last week, as big investors seemed content to wait for the deluge of earnings report in the days ahead to hit the wires. We continue to think the majority of the evidence is positive (trends are up, most leading stocks are in good shape), which is why we’re still bullish; the odds continue to favor higher prices down the road. But, clearly, it’s not 1999 out there—relatively few stocks are hitting new highs and we’ve seen a lack of upside follow-through on the names that did reach virgin turf. Thus, be sure to pick your spots and to have a plan as earnings season ramps up—our guess is that the market’s reaction to the reports of leading stocks will determine whether a new leg up is underway or whether the market has more consolidating to do.

This week’s list is again heavy on growth stocks, though a couple of turnarounds make the list, too. Our Top Pick is one of the first earnings winners of the season—V.F. Corporation (VFC) is a steady-eddy type of company that just lifted from a six-month consolidation after topping estimates.

Stock Name	Price	Buy Range	Loss Limit
Green Dot (GDOT)	85.11	79-82	72-74
Keurig Dr Pepper (KDP)	25.35	23.5-25	21-22
Madison Square Garden (MSG)	298.38	309-319	280-287
Sarepta Therapeutics (SRPT)	120.93	125-135	109-115
SiteOne Landscape Supply (SITE)	98.49	87-90	80-82
Square, Inc. (SQ)	91.04	67-70	59-61
Trex Company (TREX)	117.56	65-67	60-61
TripAdvisor (TRIP)	55.14	57.5-60	52-54
VF Corp. (VFC)	92.46	89-92	83-84.5
Zogenix (ZGNX)	46.50	55-58	48-50

The economy continues to strengthen—rising retail sales, lower jobless claims and steady unemployment. Consequently, it’s no surprise that the broad markets are holding their own. Of course, volatility this year has risen, creating a bit of seesawing in the markets, with the Dow Jones Industrial Average gaining just 1.4% so far in 2018, but sentiment—as you’ll see in our Market Barometer—remains bullish.

The market’s action since its late-June shakeout has been solid, with the major indexes and many leading stocks pushing back toward new high ground. Granted, not everything looks perfect, but the majority of evidence remains positive, including our trend-following indicators, so we remain mostly bullish.

The market’s main trend remains up, with many major indexes hitting new highs in recent days—and many of our stocks doing the same. Those are the stocks you should hang onto tightly—because there’s no telling how far they’ll run.

Current Market Outlook


The strength that began around July 4 continued last week as big investors returned to their desks, pushing most major indexes to marginal new recovery highs. There’s still plenty of news-driven action (volume was light even through last week), and earnings season, which is beginning to get underway in earnest, is sure to have an impact. But the intermediate-term trend (which was iffy in late June) has rejoined the longer-term trend on the upside, and many leading stocks have either snapped back to new highs or are building sound launching pads. We’re always on the lookout for renewed selling pressure, but the evidence has improved, so we’re moving our Market Monitor back to a level 8.

This week’s list is again heavy on growth stocks, though there are a couple of special situations presented as well. Our Top Pick is ZTO Express (ZTO), a young, volatile Chinese stocks with huge growth and a very strong chart. Start small, ideally on dips.

Stock Name	Price	Buy Range	Loss Limit
Energen (EGN)	77.04	72-75	65-67
Etsy (ETSY)	112.97	40.5-43	35.5-37
GDS Holdings Limited (GDS)	80.15	41.5-43.5	37-38
Grand Canyon Education (LOPE)	121.03	114-117	106-108
Madrigal Pharmaceuticals (MDGL)	234.07	270-290	230-240
Palo Alto Networks (PANW)	236.92	212-217	198-201
Roku, Inc. (ROKU)	150.46	45.5-47.5	40.5-42
Sonic Corp. (SONC)	35.22	34-36	31.5-32.5
Workday (WDAY)	194.88	130-134	121-124
ZTO Express (ZTO)	28.84	21-22	18.5-19

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.

In the last 30 days, four analysts have boosted their EPS forecasts for this industrial company. But the shares are still trading at bargain levels.

Two of our stocks report second-quarter earnings beats, one stock moves from Buy to Hold, and a good buying opportunity.

The shares of this cosmetics company were initiated at Jefferies as a ‘Buy’ last month. In the company’s recent quarter, it beat analysts’ estimates by $0.04.

One of our stocks reported a second-quarter earnings beat, there’s strength in steel stocks today, and one stock moves from Buy to Hold.

One stocks moves to Hold, and updates on two other stocks.

This payments company beat analysts’ estimates by $0.09 last quarter. Wall Street expects the company to grow by double-digits in the next five years.

Estimates are rising for this cyber security company, and the valuation remains attractive.

Our first idea is a tech company whose shares just crossed over their 50-day moving average—a bullish indicator. Our second recommendation is profit-taking on a previous pick.

Our second recommendation is profit-taking on a previous pick.

Updates on three of our stocks, including one rating change. Also, three excellent stocks to buy now.

While this Fidelity fund falls into the large-cap growth category, the fund’s mandate is quite different from that of most of its peers.

Updates on Vertex Pharmaceuticals (VRTX) following the July 18 breakthrough drug announcement, and Chipotle Mexican Grill (CMG), which is in the news again due to the closing of a Virginia restaurant location.

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.