Current Market Outlook


Last week was another constructive week, as the major indexes and leading stocks gave back just a smidgen of their prior two weeks of gains. Plus, of course, today’s action offered more encouragement, with the big-cap indexes spiking back toward all-time highs and many individual stocks notching good gains. We can’t conclude we’re completely out of the woods, especially as volume remains light (today’s volume on the Nasdaq was below average) and the broad market is still so-so (small- and mid-cap indexes are still in the middle of multi-month ranges). Still, the evidence has grown steadily more bullish recently, so we’re following along—we’re bumping our Market Monitor up to level 7 (out of 10), and continued strength would have us getting aggressively invested.

This week’s list is a mixed bag, with some special situations, many different sectors and a few recent breakouts. Our Top Pick is ST Microelectronics (STM), a fast-growing chip maker with a good story and chart. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
AbbVie Inc. (ABBV)	93.53	81-85	74-76
ASML Holding (ASML)	350.01	158-162	147-150
Guidewire (GWRE)	90.60	76-79	71-73
Ligand Pharmaceuticals (LGND)	267.14	131-134	121-124
Lumber Liquidators Holdings, Inc. (LL)	0.00	36-38.5	32.5-31.5
Owens Corning (OC)	0.00	71-74	67-68.5
Pure Storage (PSTG)	25.64	13.5-14.5	12.4-12.9
Barrick Gold (GOLD)	27.20	101-105	93-95
STMicroelectronics (STM)	30.09	17.5-19	16.3-16.8
Summit Materials (SUM)	0.00	29-30.5	27-28

A few of our stocks have been taking a breather, but the Cabot Emerging Markets Timer remains resolutely positive. Investors have remained optimistic despite a truckload of negative news and the fundamentals are solid for the stocks in the portfolio. I also have an overlooked Indian stock to recommend that ties in with the recent improvement in commodity prices.

I add another Canadian company to the Model this month. Canadian stocks are more undervalued than U.S. stocks, and the Canadian economy is now improving noticeably for the first time in a long while.

With August in the rear-view window, it’s time for Wall Street to get back to full-time work. At present, trends continue to look good (but not great). Still, there are plenty of candidates to choose from, and this week’s comes from an emerging market that is not China; I think you’ll like it.

Current Market Outlook


After lots of sloppy and weak action in June, July and the first half of August, the past two weeks have certainly been an improvement—the major indexes have popped higher, often in the face of bad news and uncertainties, and many of the resilient growth stocks did the same. We can’t conclude the market is out of the woods, as the broad market is still iffy, the intermediate-term trend is mostly sideways and relatively few stocks have actually broken out on good volume. Still, this is probably the best action by growth stocks (which have led the way higher this year) since June, so we’re not complaining. We’re moving our Market Monitor up one notch to a level 6 (out of 10); you can put a little more money to work, though we need more upside confirmation before getting bullish.

This week’s list contains a mix of familiar and newer names, all of which are showing great strength. For our Top Pick, we’re going with Match Group (MTCH), which has exploded to new highs; it’s a bit thin, but we like the overall growth story and the recent power. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
BeiGene (BGNE)	170.20	71-75	64-66
Catalent Inc (CTLT)	0.00	41-39	37-36
Franco-Nevada (FNV)	125.51	80-83	74-76
Match (MTCH)	0.00	21-22.5	19.5-20.5
Shopify (SHOP)	585.00	105-110	94-96
SolarEdge Technologies Inc. (SEDG)	124.37	25-27	23-24
TowerJazz (TSEM)	0.00	28-30	25.5-26.5
Universal Display (OLED)	187.54	123-129	113-116
Werner Enterprises (WERN)	0.00	31.5-33	29.5-30.5
Wynn Resorts (WYNN)	121.08	137-143	129-132

Today’s featured stocks include four companies that should benefit from the post-Hurricane Harvey rebuilding process.

Today’s candidate provides at-home health care solutions to people with vascular disease. These are often chronic conditions, which account for up to 80% of every healthcare dollar spent in the U.S. The company is growing quickly, with average annual growth since 2013 is over 30%!

This month’s Cabot Value Model contains a diversified list of high-quality buy recommendations. Many of these stocks have been neglected by investors in 2017 and are now poised to rise dramatically. Buying blue-chip companies is prudent when the stock market is noticeably overvalued!

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.

We have many stocks moving right now. I thought you’d like a quick, brief update so that you’re not wondering what to do. One Sell: Big Lots (BIG).

Toll Brothers (TOL) reported earnings blowout and the stock is rising; maintain Buy. BorgWarner (BWA) stock is rising; rating change to Hold. Also, brief notes on Applied Materials (AMAT), Archer Daniels Midland (ADM), Big Lots (BIG) and Tesoro (TSO).

Brokerage firm Jefferies also likes our first idea—a media company, saying it’s a great buy, based on valuation and international growth prospects. Our second recommendation is a sale of a pharmacy stock.

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.