Current Market Outlook


During the past two-plus weeks, we’ve seen the Nasdaq and most leading growth stocks lag most other indexes, and things came to a head today, with the sellers unloading on many of the market’s biggest winners this year. As for the overall market, there are plenty of areas of strength as money rotates into both turnaround situations and some growth-oriented ones, too. So what should you do? For the stocks you own, follow your plan and honor your stops; it’s OK to take a couple of partial profits, too, if you are holding some long-time winners. As for new buying, you should focus on areas that are working and stocks that have shown good-volume buying recently. We’re moving our Market Monitor back down to a level 7 tonight.

This week’s list has many such possibilities, including a few with solid stories. Our Top Pick is Guess? (GES), which looks like a solid turnaround story as it’s seeing excellent growth overseas.

Stock Name	Price	Buy Range	Loss Limit
Alnylam Pharmaceuticals (ALNY)	143.58	107-113	97-99
Blue Buffalo Pet Products (BUFF)	0.00	26.5-27.5	24.5-25.5
Guess (GES)	0.00	15.6-16.4	14.2-14.8
Juno Therapeutics (JUNO)	0.00	40.5-44	35-37.5
Lending Tree (TREE)	411.51	230-240	215-220
Navistar International (NAV)	0.00	38-40	35-37
RPC Inc. (RES)	0.00	22.5-23.5	20.5-21.5
Sociedad Quimica (SQM)	0.00	51-54	46-48
Ultra Clean Holdings, Inc. (UCTT)	0.00	26.5-28.5	23.5-24.5
Weibo (WB)	98.16	94-97	85-87

Despite a hiccup in the past couple of days from Chinese stocks, the U.S. market and the emerging markets continue to outpace their moving averages by comfortable margins. In today\'s issue, I talk about how little profit taking in a couple of our strongest stocks can protect your portfolio while maintaining your exposure.

This month’s Spotlight Stock is a technology company that is a leader in the all-important cloud business, and Nancy’s Feature further explores that cloud industry and the up-and-coming applications that should see it expand greatly in the near future.

Today’s featured recommendation is a low-risk financial stock that will give the portfolio some stability (and income). And since the portfolio doesn’t currently own a bank stock, this will provide some healthy diversification.

Current Market Outlook


The market’s gradual improvement since mid-August continued last week, with the intermediate-term trend of the major indexes turning back up and individual stocks (including both leading growth stocks, as well as many sectors bouncing strongly off prolonged corrections) acting well. We’ve even seen an impressive rebound in the broad market, with the number of stocks hitting new lows drying up drastically. We can’t say the major indexes are incredibly powerful, as many are at or just above their prior highs, but overall, the most bullish thing a market can do is go up, and that’s what we’re seeing. We’ll push our Market Monitor up another notch this week to a level 8 (out of 10) and will continue to put money to work as the evidence improves.

This week’s list has a bunch of strong charts from a variety of industries, including three chip names as that sector reasserts itself. For our Top Pick, we’ll keep it simple and go with one of the market’s liquid leaders—Nvidia (NVDA) has exploded out of a tight base on big volume over the past two days. You could start a position here or on dips.

Stock Name	Price	Buy Range	Loss Limit
Adient (ADNT)	0.00	76-79	71-73
Allegheny Technologies (ATI)	27.78	21.5-22.5	19-19.5
Bitauto Holdings (BITA)	0.00	42-45	36.5-38.5
Celgene (CELG)	0.00	139-143	131-133
Lear Corp. (LEA)	0.00	160-166	149-152
Micron Technology, Inc. (MU)	43.31	33-35	30.5-31.5
NVIDIA Corporation (NVDA)	242.42	177-188	164-170
ON Semiconductor (ON)	24.07	16.7-17.4	15.2-16.
Square, Inc. (SQ)	91.04	27-28.5	24.5-25.5
Terex (TEX)	0.00	41.5-43.5	37.5-39

Our contributors are staying mostly on the safe side this month—with recommendations paying solid and rising dividends, but we also offer several stocks with a more adventurous bent.

Today’s recommendation is a fast-growing mass market stock that has the leading market share in the online food ordering business. The stock has been trading sideways for five weeks and I think it’s ready for a breakout.

Given the still-iffy broad market, we\'re not advising you to dive in with both feet, but we are adding one new stock to the Model Portfolio tonight and will look to put more cash to work should the bulls continue to make headway.

It’s the same basic market story as it has been for the last four months. Technology is floundering while other sectors are killing it. But a couple of events occurring this week could potentially change the dynamic.

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 adding Mattel (MAT) to the Buy Low Opportunities Portfolio, and selling Carnival (CCL) from the Growth & Income Portfolio.

The rotation out of growth stocks and into cyclical stocks continues to take a toll on emerging market stocks, and we’re selling two of the portfolio’s holdings that have taken turns for the worse: Tencent Holdings (TCEHY) and Melco Crown (MPEL).

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.