Issues
The overall bull market remains in good shape, but the big event of the past two weeks has been the sharp selloff seen in many leading growth stocks that featured a bunch of abnormal selling. Could this dip be another shorter-term shakeout? Sure, and we’re certainly not sticking our heads in the sand. But the selling has been enough for us to trim our sails, raise some cash and see if the buyers can show some support.
Last week’s “surprise” failure by Facebook to meet growth expectations has kicked off a correction in growth stocks that will likely run for a while, while allowing other types of stocks to come to the fore. This is natural. Our job is to follow the leaders, and to discard stocks that are no longer doing what we hired them to do.
Current Market OutlookThe last week has been brutal, as the sellers have come out of the woodwork and driven most leading stocks down sharply. And this isn’t just a couple of bad days, either—the action since mid June has been spotty, with sharp pullbacks and low-volume, narrow rallies preceding this drop, which has seen a fair amount of abnormal action. The rest of the market isn’t nearly as bad off, and in fact we’ve seen rotation into beaten-down areas like industrials, financials and transports. But our focus is on the leaders, and given the widespread breakdowns, it’s vital to honor your stops and cut back on new buying. If the buyers return soon, we’re not ruling out this being one big shakeout, but the onus is on the bulls at this point, at least when it comes to leading stocks. We’re dropping our Market Monitor back to neutral.
Encouragingly, even amid the recent selling, we saw plenty of positive reactions to earnings and other pieces of news last week, many of which made it into this week’s list. Our Top Pick is Advanced Micro Devices (AMD), which is one of the strongest stocks in the market. Given the environment, start small and buy on dips.
| Stock Name | Price | ||
|---|---|---|---|
| Advanced Micro Devices (AMD) | 82.24 | ||
| Atlassian (TEAM) | 182.16 | ||
| GrubHub (GRUB) | 140.03 | ||
| HCA Healthcare (HCA) | 137.60 | ||
| Hi-Crush Partners LP (HCLP) | 12.18 | ||
| IQVIA Holdings (IQV) | 157.93 | ||
| Robert Half (RHI) | 78.58 | ||
| Stitch Fix (SFIX) | 36.79 | ||
| USANA Health (USNA) | 133.03 | ||
| Yext Inc. (YEXT) | 21.32 |
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.
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 OutlookThe 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 | ||
|---|---|---|---|
| Green Dot (GDOT) | 85.11 | ||
| Keurig Dr Pepper (KDP) | 25.35 | ||
| Madison Square Garden (MSG) | 298.38 | ||
| Sarepta Therapeutics (SRPT) | 120.93 | ||
| SiteOne Landscape Supply (SITE) | 98.49 | ||
| Square, Inc. (SQ) | 91.04 | ||
| Trex Company (TREX) | 117.56 | ||
| TripAdvisor (TRIP) | 55.14 | ||
| VF Corp. (VFC) | 92.46 | ||
| Zogenix (ZGNX) | 46.50 |
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.
Updates
What a difference a month can make! What an April! The S&P rose 9.6% in April, making it the best single month for the market in six years. It hit an all-time high on Friday.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of some skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings. And for good reasons.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of some skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings. And for good reasons.
The results are in for the month of April. It was fabulous. The S&P rose 9.6%, making it the best single month for the market in six years. It hit an all-time high on Friday.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of minor skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings.
Sure, the war isn’t over. But the market doesn’t really seem to regard it as a war anymore, more like a blockade situation with the possibility of minor skirmishes. While there is still headline risk, investors have moved beyond this war and are focusing on earnings.
Now before you call me crazy concerning today’s newsletter headline, hear me out.
Even though large-cap names have garnered more than a fair share of attention among investors this year, I think a case can be made that companies with big capitalizations have a lot more room to run higher before they can be truly regarded as “overbought” or “played out.”
Even though large-cap names have garnered more than a fair share of attention among investors this year, I think a case can be made that companies with big capitalizations have a lot more room to run higher before they can be truly regarded as “overbought” or “played out.”
The market is digesting the push and pull of higher oil prices, a deeply divided Federal Reserve, prospects for a prolonged blockade of the Strait of Hormuz and fading momentum from the AI trade that helped push markets to all‑time highs earlier this month.
Despite the crosscurrents, the overall tone still tilts bullish, supported by investor comfort (for the time being) with the geopolitical tension, resilience in the U.S. economy, and improving visibility into earnings growth over the coming quarters.
Despite the crosscurrents, the overall tone still tilts bullish, supported by investor comfort (for the time being) with the geopolitical tension, resilience in the U.S. economy, and improving visibility into earnings growth over the coming quarters.
Yesterday, four tech giants, Alphabet, Amazon, Meta and Microsoft, representing 22% of the S&P 500’s market value, reported strong quarterly earnings that highlighted the importance of AI.
You might think the above companies and their AI brethren are “asset light” companies but you would be very wrong.
You might think the above companies and their AI brethren are “asset light” companies but you would be very wrong.
It’s been a glorious April following a miserable March for the market. What happens in May may determine which direction stocks are headed for the rest of the year.
That’s probably overstating things a bit, but May should be crucial for the reasons we discussed last week: namely, the fate of the Iran war, but also the bulk of first-quarter earnings season and the introduction of a new Fed chair.
That’s probably overstating things a bit, but May should be crucial for the reasons we discussed last week: namely, the fate of the Iran war, but also the bulk of first-quarter earnings season and the introduction of a new Fed chair.
What war? This market is moving on. We may not be out of the woods yet, but investors are looking beyond the Iran war.
Stocks have already made up all losses from a rough March and then some. The S&P 500 had fallen 7.7% in the month of March by the 30th. Since then, the index has rallied over 13%. The S&P is now at a higher level than before the war began and is hitting new all-time highs.
Stocks have already made up all losses from a rough March and then some. The S&P 500 had fallen 7.7% in the month of March by the 30th. Since then, the index has rallied over 13%. The S&P is now at a higher level than before the war began and is hitting new all-time highs.
The other day I was paid a visit by a roving ISP salesman who was pitching his company’s fledgling internet service over the local monopoly’s. We struck up a conversation and he asked what I did for a living. When I told him, his eyes lit up and he asked, “Got any good stocks you can recommend?”
Without thinking I blurted out, “Anything AI-related. You can’t go wrong.” The advice was only semi-facetious, for there’s undeniably a degree of truth behind it. My instinctive response to that question also prompted me to consider the question: just how long can the broad market continue its “all things AI” run without broader sector participation
Without thinking I blurted out, “Anything AI-related. You can’t go wrong.” The advice was only semi-facetious, for there’s undeniably a degree of truth behind it. My instinctive response to that question also prompted me to consider the question: just how long can the broad market continue its “all things AI” run without broader sector participation
Note: I’m out of town this week, so I’ll be a bit briefer on the update today—but I’m still checking my laptop a couple of times a day if you have any questions or comments. I’ll be back at my desk come Monday. Cheers.
WHAT TO DO NOW: Remain optimistic. The market and some leaders have hesitated, but all of our market timing indicators are bullish, and most stocks we own or are watching are working. Last Friday, we bought a half-sized stake in Nebius (NBIS) and added a 3% additional stake in ProShares S&P 500 Fund (SSO); earlier this week, we sold our small remaining position in GE Aerospace (GE); and tonight, we’ll buy a half-sized position (5% of the portfolio ) in Cava (CAVA). We’ll still have 46% in cash or so after these moves.
WHAT TO DO NOW: Remain optimistic. The market and some leaders have hesitated, but all of our market timing indicators are bullish, and most stocks we own or are watching are working. Last Friday, we bought a half-sized stake in Nebius (NBIS) and added a 3% additional stake in ProShares S&P 500 Fund (SSO); earlier this week, we sold our small remaining position in GE Aerospace (GE); and tonight, we’ll buy a half-sized position (5% of the portfolio ) in Cava (CAVA). We’ll still have 46% in cash or so after these moves.
Despite all the headline noise lately we’re marching deeper into first‑quarter earnings season with the market’s path of least resistance still pointing higher.
Optimism around the extension of the tentative ceasefire in the Middle East has reduced geopolitical anxiety to a seemingly manageable level. The U.S. economy continues to show resilience, and the corporate earnings outlook points toward meaningful growth in the coming quarters and years.
Optimism around the extension of the tentative ceasefire in the Middle East has reduced geopolitical anxiety to a seemingly manageable level. The U.S. economy continues to show resilience, and the corporate earnings outlook points toward meaningful growth in the coming quarters and years.
The old saying, “History doesn’t repeat itself, but it rhymes,” is an apt one for the stock market these last two years.
In early 2025, the S&P 500 raced to new all-time highs before peaking in late January/early February, only to get dragged down in March and April by a geopolitical crisis (tariffs/Liberation Day), before rallying in a V-shaped pattern as the severity of the crisis abated.
In early 2025, the S&P 500 raced to new all-time highs before peaking in late January/early February, only to get dragged down in March and April by a geopolitical crisis (tariffs/Liberation Day), before rallying in a V-shaped pattern as the severity of the crisis abated.
The market turned on the afterburners. The S&P 500 made up all the March losses and catapulted to a brand new high in a remarkably short time. It’s a market that sure looks like it wants to go higher. But stocks are being held back this week by more war uncertainty.
The current ceasefire with Iran expires on Wenesday night. Talks may not happen, and war talk is growing. The resumption of the war will almost certainly prompt a decline in the market. Aside from that near-term threat, investors are clearly looking past this war. Hopefully, it won’t last much longer.
The current ceasefire with Iran expires on Wenesday night. Talks may not happen, and war talk is growing. The resumption of the war will almost certainly prompt a decline in the market. Aside from that near-term threat, investors are clearly looking past this war. Hopefully, it won’t last much longer.
Alerts
This medical device company beat analysts’ estimates by $0.07 last quarter.
This pool-based business beat analysts’ estimates by $0.12 last quarter.
For the first time in months, we’re seeing a few signs of abnormal action from a variety of growth stocks, though on a positive note, few have actually broken down through key support.
Here’s my assessment of the high flying technology stocks, which now look vulnerable.
I’m selling one of our stocks and adding a new bank stock to the Growth Portfolio. I also describe a big June catalyst for banks’ share prices and highlight 11 other bank stocks.
The top five holdings of this fund are: iShares Russell 2000 Growth (IWO, 3.16%); Six Flags Entertainment Corp (SIX, 2.40%); j2 Global Inc (JCOM, 2.39%); FirstCash Inc (FCFS, 2.02%) and Ligand Pharmaceuticals Inc (LGND, 1.96%).
Analysts are forecasting double-digit growth for this turnaround auto company in the next five years.
Crista is selling one stock, moving another from Hold to Strong Buy, and names 15 great stocks to buy today.
This fund’s top five holdings are: Apple Inc (AAPL, 7.57% of assets); Alphabet Inc A (GOOGL, 6.45%); Amazon.com Inc (AMZN, 6.07%); Facebook Inc A (FB, 4.25%) and Tesla Inc (TSLA, 3.56%).
Seasonal cycles make this healthcare company a buy.
Our second recommendation is profit-taking on a previous idea.
This miner is expanding and recently acquired a silver stream from Taseko Mines Ltd.
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.