It’s been a tough market. The S&P has moved lower for four consecutive weeks. Uncertainty regarding the Iran war and oil prices is dragging stocks lower. The war could end tomorrow or drag on for another month or longer.

Today could be a great buying opportunity. But the turmoil could also drag on. It’s tough to buy stocks in this uncertainty. Fortunately, there is a way to benefit if the market takes off, but without adding any risk.

Eli Lilly (LLY) has been one of the most successful large stocks on the market in recent years. A covered call was sold on LLY when it was selling near the high before the Iran war. But the stock price has since fallen. The covered calls that were sold at $60 per call are now selling under $4. You can buy back the calls and gain upside exposure for just a small fraction of the sale price and a mere blip in the returns of the high call premium.

It’s worth gaining the upside exposure. The war could end this week, and stock prices could soar. Beyond that, there is a huge FDA decision coming in April. The FDA will decide on approval for Lilly’s potentially game-changing oral weight-loss drug. It could offer big upside for the stock.

Before we dive into this week’s covered call idea, we need to sell our stock positions coming out of March expiration as the calls we sold expired worthless, leaving us with the stock positions.

The market had a welcome bounce today after a hairy end to last week, which is certainly encouraging and comes with some other positives we’ve been writing about. But after a tough few weeks and months, we’ll need to see more than one up day to conclude the multi-month sideways phase (and recently, downturn) is over. We’re staying flexible, but we’ll keep our Market Monitor at level 5 and see how things play out from here.

This week’s list is again heavy on tech plays and energy, though we’re going with a special situation for our Top Pick, a firm who’s had a rough road but a huge acceleration in growth is coming this year and possibly beyond.

The Fed and the Iran war conspired to send stocks tumbling another 1.5% to 2% since we last wrote, though some easing of tensions on the latter front is giving the market at least a temporary jolt of energy today. But it’s still a risk-off market overall, and thus today we are adding another lower-risk position in the form of a high-yield REIT that’s the newest recommendation from Cabot Dividend Investor Chief Analyst Tom Hutchinson.

Details inside.

There’s been lots of news and volatility of late--but the evidence hasn’t changed much, which keeps us in a defensive stance. Tonight, in fact, we’re trimming two of our names based on their action. That said, we’re not hunkered down in our storm cellar--there are many rays of light out there, and we’re not just talking about secondary measures. Many growth stocks are acting just fine, holding near their highs, while even beaten-down areas have held well above their lows from weeks ago, a clear sign of relative strength. Thus, we’re remaining flexible in the face of bad news--but until the bulls put up a fight, we advise remaining heavily in cash.

The war in the Middle East continued to tighten its grip on financial markets last week as U.S. and Israeli airstrikes on Iran showed no signs of letting up, keeping oil prices at an uncomfortable level for the market. Against that backdrop, by week’s end—the third straight week of losses for U.S. equities—the S&P 500 had shed 1.6%, the Dow had dropped 2%, the Nasdaq had declined by 1.3%, and the Russell 2000 had fallen a mere 0.4%.

The market has had a good amount thrown at it of late, though so far, the big-cap indexes have mostly hung in there and more than a few growth stocks have done the same, which are certainly rays of light. At this point, though, that doesn’t outweigh all the other evidence that tells us to be cautious—the intermediate-term trend remains sideways-to-down and most stocks and sectors are firmly in correction territory. All told, we continue with our cautious-but-flexible stance: Right now, we favor only small positions and plenty of cash, though we’re willing to quickly change our tune. We’ll leave our Market Monitor at a level 5.

This week’s list is mostly energy and AI related, though as has been the case lately, there’s something for everyone. For our Top Pick we’re going with a little-known networking play that’s showing excellent strength and looks well suited for the emerging agentic AI boom.

The war in the Middle East continued to tighten its grip on financial markets last week as U.S. and Israeli airstrikes on Iran showed no signs of letting up, keeping oil prices at an uncomfortable level for the market. Against that backdrop, by week’s end — the third straight week of losses for U.S. equities — the S&P 500 had shed 1.6%, the Dow had dropped 2%, the Nasdaq had declined by 1.3%, and the Russell 2000 had fallen a mere 0.4%.

The market slump continues against the backdrop of the Iran war and sky-high oil prices, but there are signs of optimism if you look closely enough: a bitcoin bounce-back, slowing growth stock selling, and declining volatility. Do investors know something? Or is it mere speculation that it’s in everyone’s self-interests for the fighting in the Middle East to be short-lived? We’ll see. Meanwhile, it’s a good time to invest in a country that’s not directly involved in the Iran war: China. For that, we go to Cabot Explorer Chief Analyst Carl Delfeld, who recommends one of the fastest-growing companies in China.

Details inside.

The war in the Middle East continued to tighten its grip on financial markets last week as U.S. and Israeli airstrikes on Iran showed no signs of letting up, keeping oil prices at an uncomfortable level for the market. Against that backdrop, by week’s end — the third straight week of losses for U.S. equities — the S&P 500 had shed 1.6%, the Dow had dropped 2%, the Nasdaq had declined by 1.3%, and the Russell 2000 had fallen a mere 0.4%.

The war in the Middle East continued to tighten its grip on financial markets last week as U.S. and Israeli airstrikes on Iran showed no signs of letting up, keeping oil prices at an uncomfortable level for the market. Against that backdrop, by week’s end — the third straight week of losses for U.S. equities — the S&P 500 had shed 1.6%, the Dow had dropped 2%, the Nasdaq had declined by 1.3%, and the Russell 2000 had fallen a mere 0.4%.

Let’s begin in Davos, Switzerland where the world’s financial and political bigwigs are gathering at the World Economic Forum to do deals and await the fate of Greenland. Markets rebounded yesterday as President Trump softened his position on Greenland a bit, thus raising hopes of reaching an amicable agreement.

Gold was a hot topic as investors continue to seek a hedge on uncertainty. Central banks have been significant net buyers of gold every year since 2011.

Tariffs are back in the news. And the stock market doesn’t like it.

Investors shrug off a lot of things these days – geopolitical turmoil (lots of it), flagging jobs growth, a record-long government shutdown, wars, etc. But tariffs, and tariff threats, are still a four-letter word on Wall Street. So it was no surprise that stocks had their worst day of the young year on Tuesday after President Trump threatened high tariffs on Europe over the Greenland situation, and European leaders responded in kind.

Perhaps the whole kerfuffle will be settled over a catered lunch at the World Economic Forum in Davos this week. Or maybe tensions will escalate further. Either way, this feels like a pivotal week for stocks.

The broadening market rally has been usurped by the return of tariffs, at least for now.

The market is unnerved to start this week after President Trump threatened the European Union (EU) with additional tariffs and the EU is threatening retaliatory measures. The issue caught investors by surprise and is threatening to derail the ascending market.

It’s been a good start to the year so far with the S&P up 1.38%. But the bigger story is under the hood.

Most sectors are outperforming the S&P 500. Seven of the eleven S&P stock sectors are outperforming the index in January. And none of them are technology. This is in sharp contrast to performance through most of this bull market, with technology driving the market higher while most other stocks sputter around.

It’s a thorny subject, but one that I think merits at least a brief discussion: direct government intervention as it pertains to the private defense sector—and by extension, to our holding in GE Aerospace (GE).

On January 7, the White House issued an executive order (EO) that prohibited defense companies from making share repurchases and paying dividends to shareholders. It also placed restrictions on executive compensation, except for companies making investments to modernize weapons production facilities.

WHAT TO DO NOW: Remain cautious with growth stocks. While the broad market is in decent shape, growth stocks continue to bring up the rear, with our Growth Tides and Aggression Index having trouble while some setups begin to sag. In the Model Portfolio, we cut our loss in JFrog (FROG) this week and today are placing Lilly (LLY) on Hold as that stock cracked near-term support. That said, given our big cash position, we are adding one half-sized new position tonight—Axsome Therapeutics (AXSM), which is in a clear uptrend and has rapid growth in the pipeline for years to come. Our cash position will still be around 60%, which is a bit high, though we’re content to go slow until growth stocks kick into gear.

Halfway through January and one of the big stories of the year is the continued outperformance of small-cap stocks. Along with the strength in the equal-weight S&P 500 (the Invesco S&P 500 EW ETF (RSP) is an easy option to track this), this is part of the “market is broadening out” theme that you’ve likely been hearing about.

As I stated several times in the waning months of last year, small caps benefit from (1) an early cycle backdrop, (2) stabilizing earnings revisions, (3) positive operating leverage, and (4) lower rates. These conditions are materializing right now. Analysts expect small-cap earnings to grow 15% in 2026, only slightly ahead of the 14.8% expected for large caps but a massive improvement from the small-cap earnings contractions in 2023 and 2024, and above the expected 2025 earnings growth rate of 13.4%. By the way, mid‑cap earnings are expected to grow by 19.3% in 2026. This is helping to draw more attention to the small and mid-cap (SMID) asset class, which is actually what a lot of small-cap ETFs and mutual funds really have exposure to.

Value stocks are outperforming growth stocks right now.

That’s not a sentence that’s been uttered (or written) often over the past decade and a half. But for the past three months, it’s definitely true. Growth stocks – as measured by the Investors’ Business Daily 50 ETF (FFTY) – peaked in late October and are still 10% off their pre-Halloween apex. Value stocks – as measured by the Vanguard Value Index ETF (VTV) – have risen more than 4% during that time and have really come on since the calendar flipped to 2026, advancing nearly 3%.

Cannabis investors should see a significant catalyst inside the next six weeks. That’s a reasonable time frame to expect Attorney General Pam Bondi to implement President Donald Trump’s executive order to reschedule cannabis.

The news would spark a sellable rally for traders. Long-term investors should hold through.

The background: Rescheduling means moving cannabis to Schedule III from Schedule I under the Controlled Substances Act. That will save the larger publicly traded cannabis companies like the ones in our portfolio tens of millions of dollars each in annual tax expenses. That’s because rescheduling neutralizes an IRS rule that bars the deduction of operating expenses against the sale of Schedule I substances.

So far, so good. On just the seventh trading day of the year, the S&P 500 is already about 2% higher. Early 2026 performance is indicative that stocks want to go higher.

A look under the hood tells an interesting story. Cyclical stocks are booming. The sectors are killing it so far in 2026 with materials, consumer discretionary, and industrials leading the pack, with stunning YTD returns of 6.78%, 5.82%, and 4.43% respectively. Investors are betting on a strong economy in the new year.

For anyone engaged in the forecasting business, the temptation is always present to make a sensational claim about the future in order to stand out from the crowd and garner mainstream media attention. And truth be told, for those of us whose livelihoods involve predicting financial markets, that temptation must often be suppressed in the interest of professionalism.

Big oil and oil services like Halliburton (HAL) have moved upward in the wake of the Venezuela situation. The world is now awash in oil, but the sector was already looking interesting as technology has greatly outperformed energy. The Energy Select Sector SPDR ETF (XLE) has treaded water for the past three years while the Technology Select Sector SPDR ETF (XLK) has surged almost 240%.

Sector rotation can be a winning strategy both in terms of returns and managing overall risk. We will be looking for these opportunities throughout the year.

Sportradar (SRAD), Unity (U) and Triple Flag (TFPM) Report

Shares of Xometry (XMTR) are up double digits to new highs today after the company smashed Q3 expectations and raised full-year guidance. Here are the headline numbers:

Sensient Technologies (SXT) Reports: Moving to Sell

FTAI Infrastructure (FIP) Reports

Microsoft (MSFT) and Alamos Gold (AGI) Report

WHAT TO DO NOW: As we write about in tonight’s issue, there are many crosscurrents out there, with some growth names cracking while others emerge on the upside, so we’re selling laggards while aiming to add fresher, stronger names. In the Model Portfolio, we sold MP and GEV last week, and today we’re going to sell Oracle (ORCL), which tripped our mental stop today. That said, we’re also going to fill out our position in CrowdStrike (CRWD), adding another half-sized stake, and start a new half position in Vertiv Holding (VRT), all of which will leave us with around 38% in cash.

Shares of Perpetua Resources (PPTA) are bucking the weak day for gold this Monday on news that the company has secured a $225 equity investment from JPMorgan Chase (JPM) and Agnico Eagle Mines (AEM).

We’re going to take a modest profit of around 8% on Doximity (DOCS) today

GE Vernova (GEV) reported this morning, with revenue, EBITDA, margins and Free Cash Flow all coming in ahead of expectations, while GAAP EPS missed. Management reaffirmed full-year guidance and said its Power and Electrification segments continue to lead growth while Wind remains soft but is improving on an operational level. Orders and backlog hit records with 20 gas turbines sold in Q3. The company acquired the remaining 50% stake in Prolec GE for $5.275 billion (expected to close mid-2026).

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.