Current Market Outlook


Bigger picture, nothing has changed with the market’s stance—the intermediate- and longer-term trends of the major indexes and most leading stocks look solid, sentiment (while heating up a bit) isn’t stretched and many background measures (like our 7.5% Rule) bode well for the months ahead. Short-term, though, things continue to look tricky, as earnings season combined with all the news/rumors out there surrounding the Fed, trade negotiations and even Iran is leading to daily wiggles and a ton of under-the-surface rotation. As we’ve been writing for a while, you shouldn’t get caught up in the day-to-day gyrations, but taking partial profits when offered and being choosy on the buy side (keeping positions small ahead of earnings, looking for good setups near support) makes sense as the myriad crosscurrents continue.

Reflecting the environment, this week’s list produced much more diverse than in recent weeks. Our Top Pick is ASML Inc. (ASML), a chip equipment maker that just broke out on earnings from a year-long base.

Stock Name	Price	Buy Range	Loss Limit
Ally Financial (ALLY)	30.44	32-33.5	29-30
Arrowhead Pharmaceuticals (ARWR)	32.16	28-30	24-25
ASML Holding (ASML)	350.01	222-229	200-204
CrowdStrike (CRWD)	105.02	84-88	70-72.5
EPAM Systems (EPAM)	188.24	190-195	173-175
Generac Holdings (GNRC)	86.60	69.5-72	63-64.5
Lululemon Athletica (LULU)	304.69	185-190	172-174
Match (MTCH)	0.00	75-78	67.5-69
Proofpoint (PFPT)	113.79	122-127	112-114
Wheaton Precious Metals (WPM)	34.43	26-27.5	23-23.5

In tonight’s letter, we share a couple of ideas for those of you that don’t like to hold all your stocks though earnings; we review a couple of new names that are on our watch list (ESTC is one we’re very intrigued by) and go over all our current Model Portfolio stocks as many are set to report earnings during the next two weeks.

The broad market remains in fine health, with all major indexes trending higher and sentiment measures still bullish. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks that fit your investment needs.

Today’s recommendation is a leader in its field, with great long-term growth prospects—as well as dependable recurring revenue—as the U.S. transitions away from fossil fuels to renewable energy sources.

As for the current portfolio, most of our stocks are doing great, but we’ve got to sell one, and it’s a tough choice. Details inside.

Current Market Outlook


The most bullish thing the stock market can do is go up, so by that measure, the market looks pretty bullish right here—most major indexes, advance-decline lines and a bunch of leading stocks have hit new highs in recent days, keeping the major trends pointed up. Short-term, things are a bit too quiet, so some wobbles wouldn’t shock us, but the next two or three weeks will likely see stocks being pushed and pulled by earnings season, which is getting underway now. All in all, our advice remains the same: Hold your strong stocks (though booking partial profits on the way up makes sense) and remain mostly invested, but for new buying, focus on stocks that have shown strong recent accumulation and look for decent entry points, especially if the firm is reporting earnings soon.

This week’s list has a bevy of potential leaders, including a few names that are trying to emerge from multi-month rest periods. Our Top Pick is Elastic (ESTC), an IPO from last year that’s racing up the right-hand side of a four-month consolidation. Start small and look for dips.

Stock Name	Price	Buy Range	Loss Limit
Beyond Meat (BYND)	132.87	155-162	124-129
Blackstone Group (BX)	49.12	43.5-46	40-41.5
Boston Beer Company (SAM)	459.16	370-380	340-346
Carvana (CVNA)	82.90	63-67	55.5-56.5
Cornerstone OnDemand (CSOD)	51.01	60-62	55.5-56.5
Dexcom (DXCM)	421.36	147.5-152.5	134-137
Elastic (ESTC)	86.17	90-93	81-83
Haemonetics (HAE)	136.59	117-121	107.5-109.5
Sarepta Therapeutics (SRPT)	120.93	149-154	134-137
Yeti Holdings (YETI)	42.80	30.5-32.5	27-28

Emerging and global markets had a good week with some standout performers such as NIO and SEA. Zero progress on U.S.-China talks was overshadowed by anticipated interest rate cuts. Today we recommend a stock from the Watch List and upgrade an idea in the portfolio.

Congratulations to our Top Picks for 2019! For the first half of the year, the Dow Jones Industrial Average was up 11.8%; the S&P 500 gained 14.3%, and the NASDAQ has returned 16.1%. Our Top Five picks averaged gains of 68.02%!

The broad market remains in fine health, with all major indexes trending higher and sentiment measures still telling us this market has not yet reached the stage where amateurs are sucked in to buying at the top. Thus I continue to recommend that you be heavily invested in a diversified portfolio of stocks that fit your investment needs.

However, I will note that the fact that the Cabot Stock of the Week portfolio is now full, and that it is difficult to choose a stock to sell, is a sign that, at least in the short term, the market is high and thus ripe for a correction. If that makes sense to you, you might want to hold off on new investments.

In any case, today’s recommendation is a true diversification play, a small but high-potential Indian company that is destined to benefit from that country’s growth and the growth of tourism in the years ahead.

Current Market Outlook


There remain some imperfections in the market’s armor, including a continued lack of pep from small- and mid-cap indexes. And there are still plenty of uncertainties, including the upcoming earnings season and the ongoing U.S.-China trade negotiation/battle. But you can always find things to worry about in the stock market—the key is to focus on a handful of time-tested indicators and let them guide you. For us, that involves the trends of the major indexes (intermediate- and longer-term trends are pointed up), the action of Top Ten stocks (vast majority look solid) and, to a lesser extent, sentiment (which remains neutral at best). You should still be following your loss limits and stops, and on the buy side, picking your stocks (and your spots) carefully, especially if something has earnings coming up in a couple of weeks. But overall, you should remain in a constructive stance.

Impressively, this week’s list has a nice batch of growth-oriented stocks with solid stories. Our Top Pick is Sunrun (RUN), which is a bit thin and wild, but has shown fantastic action lately and has a solid growth story.

Stock Name	Price	Buy Range	Loss Limit
Amarin (AMRN)	14.06	21.5-23.5	18-19.5
Arconic (ARNC)	17.00	24-25	22.5-23
Avalara (AVLR)	102.00	75-78	67.5-69
Baozun (BZUN)	44.24	50-52	43-45
First Solar (FSLR)	83.74	64.5-67	58.5-60.5
Illumina Inc. (ILMN)	289.74	360-370	330-335
MercadoLibre, Inc. (MELI)	980.83	605-630	545-565
Royal Gold, Inc. (RGLD)	129.66	99-102.5	90-92
Sunrun (RUN)	38.40	18.5-20	16-17
Zscaler (ZS)	126.22	80.5-83.5	71.5-73.5

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 excited to share a couple of enhancements to Cabot Early Opportunities —improvements designed to sharpen our focus and better help you stay on top of the stocks we own.

The market had a solid setup a few weeks ago, with the major indexes successfully retesting their February lows and many positive divergences showing up in the broad market. We’re not going to predict what comes next, but with the rally starting to fail, we’re going to raise a little more cash by selling one position.

The iShares MSCI EM ETF (EEM) has been under quite a bit of selling pressure over the past four days, dropping it from a close above its 25-day moving average last Wednesday to within shouting distance of its 200-day moving average today.

One of our stocks reported EPS that missed estimates and lowered its guidance range this morning, and the stock opened 4% lower. We’ll look for an opportunity to unload the rest of our shares over the coming few days.

Leading its market of critical event management, this tech company is expected to grow at a rate of 37.3% next year.

Just as Tesla is synonymous with electric vehicles, so Bitcoin is to blockchain technology.

One of the stocks in our portfolio reported first quarter results yesterday afternoon, with both earnings per share (EPS) and revenue coming in slightly above analysts’ estimates.

The shares of this healthcare technology company were recently upgraded by Goldman Sachs and SunTrust Robinson Humphrey, to ‘Buy’.

Two stocks have earnings beats, and we’re selling a third stock after gaining 20% since January.

This tech giant beat analysts’ estimates by $0.05 last quarter.

The following is a quick update to show you that the road forward for marijuana investments continues to improve.

One of the stocks in our portfolio reported a huge first quarter earnings beat and many of our other portfolio stocks are rising.

This tech company is expected to grow by 35% on average, in the next five years.

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.