Issues
This was a challenging week for investors with little movement either way in Explorer stocks.
The Iranian conflict has expanded into a Mideast pressure cooker with wider repercussions for energy markets. Opening the Strait of Hormuz is crucial as higher energy and oil prices impact not just Americans but our allies and partners that depend on imports for almost all their energy. The challenge is that the situation is volatile and overall security and economic goals collide with day-to-day actions.
The Iranian conflict has expanded into a Mideast pressure cooker with wider repercussions for energy markets. Opening the Strait of Hormuz is crucial as higher energy and oil prices impact not just Americans but our allies and partners that depend on imports for almost all their energy. The challenge is that the situation is volatile and overall security and economic goals collide with day-to-day actions.
It’s been a wild ride this past month, hasn’t it? The war in Iran has created tremendous volatility in the markets, with the Dow Jones Industrial Average hitting all-time highs—above 50,000—only to fall back to the 47,000+ level.
Investors have retreated to value stocks, pushing small caps up 5.59% year to date, midcaps, 5.32%, and large caps, 3.98%. Growth stocks are mostly negative right now.
Sector-wise, as expected with a war in a major oil-producing region and worries about the possible closure of the Strait of Hormuz, it’s no surprise that energy company stocks are flying high, up 25.97% so far in 2026.
Investors have retreated to value stocks, pushing small caps up 5.59% year to date, midcaps, 5.32%, and large caps, 3.98%. Growth stocks are mostly negative right now.
Sector-wise, as expected with a war in a major oil-producing region and worries about the possible closure of the Strait of Hormuz, it’s no surprise that energy company stocks are flying high, up 25.97% so far in 2026.
Artificial intelligence is transforming the world, just not yet.
Ultimately, AI will create new industries that deliver noticeable changes in daily life. And it will happen much faster than with past technologies. But there are companies, outside the actual technology generators themselves, that benefit after the initial launch of a new technology and before new industries develop.
The next phase of AI is likely in companies that enable and service the technology. This new phase is already evident in the stronger performance of previously lackluster utilities as they accommodate the huge electricity demand increase from AI data centers. AI profits are spreading toward companies that service the equipment and massive data management needs of AI.
In this issue, I highlight a REIT that is experiencing massive demand growth servicing the equipment and records generated by the burgeoning technology. It is making an already reliable income-generating security a growth investment as well.
The AI trade isn’t dead. It’s shifting. And this security is in the new sweet spot.
Ultimately, AI will create new industries that deliver noticeable changes in daily life. And it will happen much faster than with past technologies. But there are companies, outside the actual technology generators themselves, that benefit after the initial launch of a new technology and before new industries develop.
The next phase of AI is likely in companies that enable and service the technology. This new phase is already evident in the stronger performance of previously lackluster utilities as they accommodate the huge electricity demand increase from AI data centers. AI profits are spreading toward companies that service the equipment and massive data management needs of AI.
In this issue, I highlight a REIT that is experiencing massive demand growth servicing the equipment and records generated by the burgeoning technology. It is making an already reliable income-generating security a growth investment as well.
The AI trade isn’t dead. It’s shifting. And this security is in the new sweet spot.
Last week was Wall Street’s worst in months as the military conflict in the Middle East sent oil prices soaring higher, and Friday morning the February jobs report revealed the economy shed 92,000 non-farm payroll jobs, well below estimates that called for gains. By week’s end, the S&P 500 had dropped 2%, the Dow had fallen 3%, the Nasdaq had tumbled 1.2%, and the Russell 2000 had declined by 2.6%.
The market initially took the Iran attacks in stride early last week, but as oil prices elevated, the sellers took the upper hand, pushing the overall intermediate-term trend to negative and, of course, doing a lot of damage to many stocks. Now, given that the reason for the selling is fairly obvious at this point (oil prices, Iran, etc.), could things reverse with some good news? Yes, and we obviously saw some of that today, with hopes the attacks may be near an end helping the market recover nicely by day’s end. Thus, we do remain flexible should the buyers flex their muscle—but we also always go with the evidence, and while today’s bounce was nice, most indexes and stocks are still sitting below key levels. We have our Market Monitor at a level 5, though we could change that (up or down) depending on what comes.
This week’s list is well-rounded, with some growth, precious metals, oil and even some AI infrastructure, which we do find encouraging given what’s going on in the market. Our Top Pick is has rested for two years but recently gapped up on earnings as its AI servers see huge growth. A follow-through on the earnings move would be enticing.
This week’s list is well-rounded, with some growth, precious metals, oil and even some AI infrastructure, which we do find encouraging given what’s going on in the market. Our Top Pick is has rested for two years but recently gapped up on earnings as its AI servers see huge growth. A follow-through on the earnings move would be enticing.
The nascent war (conflict?) in the Middle East is taking a toll on U.S. markets, with the S&P 500 down 2% this week and the Dow off more than 3%. Under the market’s hood, there’s even more selling, prompting us to sell five positions in this week’s issue. However, we also add a potential turnaround story in the healthcare space that has huge upside, according to Cabot Turnaround Letter Chief Analyst Clif Droke.
Details inside on a busy week for the Stock of the Week portfolio.
Details inside on a busy week for the Stock of the Week portfolio.
Last week was Wall Street’s worst in months as the military conflict in the Middle East sent oil prices soaring higher, and Friday morning the February jobs report revealed the economy shed 92,000 non-farm payroll jobs, well below estimates that called for gains. By week’s end, the S&P 500 had dropped 2%, the Dow had fallen 3%, the Nasdaq had tumbled 1.2%, and the Russell 2000 had declined by 2.6%.
Last week was Wall Street’s worst in months as the military conflict in the Middle East sent oil prices soaring higher, and Friday morning the February jobs report revealed the economy shed 92,000 non-farm payroll jobs, well below estimates that called for gains. By week’s end, the S&P 500 had dropped 2%, the Dow had fallen 3%, the Nasdaq had tumbled 1.2%, and the Russell 2000 had declined by 2.6%.
Last week was Wall Street’s worst in months as the military conflict in the Middle East sent oil prices soaring higher, and Friday morning the February jobs report revealed the economy shed 92,000 non-farm payroll jobs, well below estimates that called for gains. By week’s end, the S&P 500 had dropped 2%, the Dow had fallen 3%, the Nasdaq had tumbled 1.2%, and the Russell 2000 had declined by 2.6%.
The market has been full of yellow flags for a while, and with the Iran attacks (and uncertainty) going on, the sellers continue to lean on much of the market, including growth stocks. To be fair, the market has bent but not broken--our Cabot Tides are on the fence and many recent breakouts are pulling back normally so far. Still, given the poor evidence for growth stocks, we’re sticking with a cautious stance (we’re selling one name tonight, giving us more than 60% in cash) and think the market is near a make-or-break period--either support holds and the market can rally briskly (possibly on an Iran resolution), or support cracks and we enter a real correction. We’ll take it as it comes, but right here we continue to stay close to shore.
America’s housing market has been in a deep freeze for years, thanks to high borrowing costs and skyrocketing prices. But signs of hope are starting to emerge, and it’s possible a long-anticipated thaw is coming now that mortgage rates have dipped below 6%.
Could 2026 be the year of the U.S. housing turnaround? Possibly. But even if it isn’t, today we add a housing-adjacent stock that should fare well either way – especially since it’s trading at a deep discount. I see 36% upside, possibly within a matter of months. It’s a name you know well – whose products you’ve almost surely used and likely have in your garage right now.
Details inside.
Could 2026 be the year of the U.S. housing turnaround? Possibly. But even if it isn’t, today we add a housing-adjacent stock that should fare well either way – especially since it’s trading at a deep discount. I see 36% upside, possibly within a matter of months. It’s a name you know well – whose products you’ve almost surely used and likely have in your garage right now.
Details inside.
Today, we are moving into the aerospace and defense sector to profile a company that has successfully navigated a complex multi-year recovery and is now entering a higher-growth phase.
After ending 2025 with a record-breaking fourth quarter and its highest backlog in history, the business is now pivoting from “recovery mode” into a period of significant operating leverage.
All the details are inside the March Issue of Cabot Small‑Cap Confidential.
After ending 2025 with a record-breaking fourth quarter and its highest backlog in history, the business is now pivoting from “recovery mode” into a period of significant operating leverage.
All the details are inside the March Issue of Cabot Small‑Cap Confidential.
Updates
Welcome to 2026! The new year promises more good returns and a broadening rally.
The S&P 500 was up over 16% in 2025 after back-to-back 20%-plus return years in 2023 and 2024. It’s been the best three-year run of the century so far. But the future is what matters now. And the market seems pricey after all these good years.
The S&P 500 was up over 16% in 2025 after back-to-back 20%-plus return years in 2023 and 2024. It’s been the best three-year run of the century so far. But the future is what matters now. And the market seems pricey after all these good years.
Welcome to 2026! Sure, the year technically began on Friday. But nobody cared. The Monday after New Year’s is when the rubber really hits the road. And the year is beginning on a positive note.
This is hopefully the year when the bull market broadens beyond technology and AI. The stage is set for that to happen. The rest of the market is a lot cheaper. The economy is forecasted to strengthen. The Fed is in a rate-cutting cycle. Inflation is benign. And earnings growth is expected to improve.
This is hopefully the year when the bull market broadens beyond technology and AI. The stage is set for that to happen. The rest of the market is a lot cheaper. The economy is forecasted to strengthen. The Fed is in a rate-cutting cycle. Inflation is benign. And earnings growth is expected to improve.
Despite a tumultuous start to 2025, the S&P 500 index finished the year with an impressive 18% gain (including dividends), trouncing widespread expectations for an overall negative performance.
Leading the charge, of course, were the Magnificent Seven stocks, with the AI boom acting as a major catalyst for the market’s strong showing. Analysts seem to be divided as to whether the “all things AI” investing trend will persist into 2026, but many of the leading Wall Street prognosticators nonetheless still expect the bulls to maintain their control of the market in the new year.
Leading the charge, of course, were the Magnificent Seven stocks, with the AI boom acting as a major catalyst for the market’s strong showing. Analysts seem to be divided as to whether the “all things AI” investing trend will persist into 2026, but many of the leading Wall Street prognosticators nonetheless still expect the bulls to maintain their control of the market in the new year.
Housekeeping: We’re sending out this update a day ahead of time, given tomorrow’s holiday. We hope you have a great end to the holiday season and, of course, a healthy and prosperous new year. Our office will be open Friday, and we’ll be back at it in full next week. Cheers!
WHAT TO DO NOW: Stay flexible. The market’s overall evidence is positive but not powerful, though growth stocks continue to lag, with our growth measures (such as the Growth Tides and Aggression Index) neutral-ish here. We expect volatility over the next few days as the calendar flips, which could provide some opportunities. For now, with most names we own or watch marking time, we’ll hold what we have and see what comes as we hit January. We have no changes tonight.
WHAT TO DO NOW: Stay flexible. The market’s overall evidence is positive but not powerful, though growth stocks continue to lag, with our growth measures (such as the Growth Tides and Aggression Index) neutral-ish here. We expect volatility over the next few days as the calendar flips, which could provide some opportunities. For now, with most names we own or watch marking time, we’ll hold what we have and see what comes as we hit January. We have no changes tonight.
It was another stellar year for the market. The S&P is up between 17% and 18% with just a couple of trading days left. After two years of 20%-plus returns in 2023 and 2024, the S&P has put together the best three-year run this century.
*Note: Due to the New Year’s holiday, there will be no Cabot Dividend Investor update next Wednesday, December 31. I will be back with our next weekly update on Wednesday, January 7. Have a safe and happy holiday season!
Another strong year in the market is closing out. The S&P 500 is up over 17% for 2025 with about a week to go. This follows two straight years of 20%-plus returns for the market in 2023 and 2024. That’s the best three-year run this century.
Of course, the upside has been overwhelming due to technology. Without that sector, market returns would be rather lame. Now that technology is sputtering, what can we expect in 2026?
Another strong year in the market is closing out. The S&P 500 is up over 17% for 2025 with about a week to go. This follows two straight years of 20%-plus returns for the market in 2023 and 2024. That’s the best three-year run this century.
Of course, the upside has been overwhelming due to technology. Without that sector, market returns would be rather lame. Now that technology is sputtering, what can we expect in 2026?
It’s been another productive year for the market, with the S&P 500 up more than 17% with a few trading days to spare. Growth stocks continue to carry the day despite recent weakness, advancing more than 22% this year. Value stocks have held their own, up more than 13% and picking up the slack of late as momentum in the growth space has waned. But ultimately, it was yet another year of growth outpacing value.
[Note: Due to the Christmas holiday, there will be no Cabot Turnaround Letter weekly update next Friday. The next monthly issue of the newsletter will be published on December 31.]
The Fed has reversed a long-standing balance sheet tightening phase with its recent decision to expand its balance sheet—a move that has largely fallen under the news radar.
The Fed has reversed a long-standing balance sheet tightening phase with its recent decision to expand its balance sheet—a move that has largely fallen under the news radar.
Housekeeping: As the holidays get underway, just a heads up that we’re going to send the next issue of Cabot Growth Investor next Wednesday, Christmas Eve, December 24, likely midday.
WHAT TO DO NOW: Remain cautious. Growth stocks tried to come out of their corrective phase following the mid-November low—but that bounce has faded, with our Growth Tides and Aggression Index still struggling. We’ve gone slow of late, holding half the portfolio in cash, and tonight we’re going to mostly stand pat and look for signs the correction will end. Our only change tonight is placing CrowdStrike (CRWD) on Hold.
WHAT TO DO NOW: Remain cautious. Growth stocks tried to come out of their corrective phase following the mid-November low—but that bounce has faded, with our Growth Tides and Aggression Index still struggling. We’ve gone slow of late, holding half the portfolio in cash, and tonight we’re going to mostly stand pat and look for signs the correction will end. Our only change tonight is placing CrowdStrike (CRWD) on Hold.
A quick Holiday schedule note. We won’t publish our regular weekly update next Thursday since it will be Christmas and our office will be closed. Also, with the New Year’s holiday the following Thursday – and the first Thursday of January – we will push the January 2026 issue of Cabot Small Cap Confidential back a week, to January 8.
Happy Holidays! On to the market.
Happy Holidays! On to the market.
For a second straight fall, the Federal Reserve has slashed interest rates three times from September through December. The result? What was a two-decade-high federal funds rate (5.25%-5.5%) 15 months ago is now down to a far more palatable 3.50-3.75% range. That’s still higher than at any point since before the Great Recession, so from a 21st-century perspective, interest rates aren’t exactly “low.” Usually, when interest rates are this high, stocks underperform their historical norm. In fact, prior to this recent stretch, it had only occurred two other times this century. Here were the results …
The artificial intelligence trade was under pressure last month. But it recovered over the last three weeks. The back and forth has again taken a negative turn after AI bellwethers Oracle (ORCL) and Broadcom (AVGO) reported earnings that didn’t impress investors.
Alerts
WHAT TO DO NOW: Yesterday we took our tiny profit MP as that stock has continued to tumble, and now we’re going to sell our stake in GE Vernova (GEV), which reported a very solid quarter this morning—but investors took the opportunity to sell into the move, creating a breakdown from a big double top. We’ll sell and hold the cash, leaving us with around 43% on the sideline.
WHAT TO DO NOW: The indexes continue to act fine, but individual growth stocks remain hit or miss based on the news of the day. Today we’re going to sell our position in MP Materials (MP), taking a tiny gain and holding the cash (which will now be around 35%). Details below.
Today, a whopping eight Profit Booster positions will expire. Most are “slam-dunk,” full-profit trades, while others will go down to the wire.
The big takeaway, before we dive in, is we are going to let the situation play itself out, and come Monday/Tuesday of next week we will revisit our profits, as well as how we will manage the remaining positions.
The big takeaway, before we dive in, is we are going to let the situation play itself out, and come Monday/Tuesday of next week we will revisit our profits, as well as how we will manage the remaining positions.
I’m recommending that we sell our position in Helen of Troy (HELE).
We’re going to step aside from Byrna Technologies (BYRN) today.
Helen of Troy (HELE) is imploding on earnings today, despite beating estimates on both the top and bottom lines. Revenue, however, declined 9% year over year, while earnings per share of 59 cents were less than half the $1.21 the company earned in the same quarter a year ago, though they were north of the 54-cent estimate
Today, a whopping eight Profit Booster positions will expire. Most are “slam-dunk,” full-profit trades, while others will go down to the wire.
The big takeaway, before we dive in, is we are going to let the situation play itself out, and come Monday/Tuesday of next week we will revisit our profits, as well as how we will manage the remaining positions.
The big takeaway, before we dive in, is we are going to let the situation play itself out, and come Monday/Tuesday of next week we will revisit our profits, as well as how we will manage the remaining positions.
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.