Issues
This week’s Monday Week in Review is a bit different than most weeks, with a focus on our open positions, as I spent most of my weekend getting caught up on unusual option activity from the previous week while I was in Europe. Let’s dive in …
The overall market continues to look very bullish whether looking at our core indicators or the many unusual signs of strength (that portend higher prices down the road). That said, there are some headwinds near-term, especially in many growth stocks, which have been doing more chopping than advancing in recent weeks. That’s no reason to be negative, but we’re following along with that growth stock evidence, trimming our sails a bit while looking to see what earnings season brings.
Uncertainty is growing while the market is perched at the all-time high.
The S&P 500 soared by a remarkable 29% in just over three months. At the same time, tariffs are back and there is still a high degree of uncertainty regarding the economy.
Sure, the overall market is high. But what is true for the S&P 500 isn’t necessarily true for many individual stocks. Technology drove the S&P 500 index higher. But much of the rest of the market is well below the all-time highs. Some stocks and sectors are barely positive YTD.
Energy has lagged the market all year. At the same time, the fortunes of certain companies are improving. Natural gas volumes are growing at a strong clip as demand for electricity is skyrocketing from data centers. At the same time, overseas demand is expanding with no end in sight.
In this issue, I highlight an energy company with rapidly growing demand for its services that sells at a cheap price and pays a high yield. We don’t have to chase stock prices into the stratosphere. Let’s invest where it’s still April.
The S&P 500 soared by a remarkable 29% in just over three months. At the same time, tariffs are back and there is still a high degree of uncertainty regarding the economy.
Sure, the overall market is high. But what is true for the S&P 500 isn’t necessarily true for many individual stocks. Technology drove the S&P 500 index higher. But much of the rest of the market is well below the all-time highs. Some stocks and sectors are barely positive YTD.
Energy has lagged the market all year. At the same time, the fortunes of certain companies are improving. Natural gas volumes are growing at a strong clip as demand for electricity is skyrocketing from data centers. At the same time, overseas demand is expanding with no end in sight.
In this issue, I highlight an energy company with rapidly growing demand for its services that sells at a cheap price and pays a high yield. We don’t have to chase stock prices into the stratosphere. Let’s invest where it’s still April.
Complacency is creeping back into the market, but we remain vigilant as the earnings season cranks up into full gear. That said, the broad backdrop is still in good shape as evidenced by some of our favorite indicators. We’ve also done some pruning recently (mostly among laggards) as the market’s multi-month run is becoming a bit extended. But we still see opportunities, especially in areas investors have overlooked. All told, near-term wobbles are possible, but we remain bullish as the odds favor the new uptrend bringing us higher over time. We’ll keep our Market Monitor at a level 7, but we’ll stay nimble as earnings come in.
This week’s list contains some formerly out-of-favor stocks that are now in much better shape as industry trends improve. Our Top Pick is an engineering firm that shows all the classic signs of being under strong institutional accumulation. We’re OK using dips to enter.
This week’s list contains some formerly out-of-favor stocks that are now in much better shape as industry trends improve. Our Top Pick is an engineering firm that shows all the classic signs of being under strong institutional accumulation. We’re OK using dips to enter.
Stocks are at all-time highs, continuing to climb a Wall of Worry that’s made of tariff fears, economic worries, political turmoil and overseas conflicts. Eventually, a pullback is probably in order. But for now, the good times are rolling, and we need to keep capitalizing on them. So today, we add a dividend payer that’s really more like a growth stock, a recent recommendation from Cabot Dividend Investor Chief Analyst Tom Hutchinson. The tech stock is getting a major boost from (what else?) AI, but Tom thinks it still has plenty of room to run – even while trading at all-time highs.
Details inside.
Details inside.
The independence of Fed Chair Jerome Powell’s position is important, and uncertainty over his role is impacting market sentiment. Dynamism and stability is America’s golden goose. Stay a bit on the defensive and conservative and keep adding some international stocks through the summer.
Data showed consumer inflation keeping pressure on the 30-year bond’s yield which touched 5% for the first time since early June. And in Japan, the trend is the same, with rising government bond interest rates raising the costs of paying interest on its debt equal to 250% of its GDP.
Data showed consumer inflation keeping pressure on the 30-year bond’s yield which touched 5% for the first time since early June. And in Japan, the trend is the same, with rising government bond interest rates raising the costs of paying interest on its debt equal to 250% of its GDP.
With the broad market making new highs in the face of renewed tariff threats, it seems investors are willing to shrug off macro concerns, at least for now.
We’ll heed the bullish action by stepping into three new positions this month, but hedge our bets by making one of them a half-sized position. We also add two new names to our Watch List.
We’ll heed the bullish action by stepping into three new positions this month, but hedge our bets by making one of them a half-sized position. We also add two new names to our Watch List.
One common market saying is that rotation is the lifeblood of a bull market, but that’s only partly true: If the rotation sees leaders pull in normally while buying pressures broaden out, that is a good thing, giving the market a stronger foundation for future gains. But if the leaders crack intermediate-term support while money chases beaten-down titles, that can lead to trouble as the market (and those laggards) often end up following the leaders lower. Happily, so far, the rotation that began in late June and has carried on since has been more in the former camp. While we’ve pulled in our horns a bit, we remain overall bullish. We’ll move our Market Monitor to a level 7 and see how things go from here.
This week’s list definitely has a value and turnaround flavor, following along with some of the rotation seen in recent weeks. Our Top Pick reacted well to earnings last week (heaviest daily volume since 2020!) after management reinstated bullish guidance. Start small and add on the way up.
This week’s list definitely has a value and turnaround flavor, following along with some of the rotation seen in recent weeks. Our Top Pick reacted well to earnings last week (heaviest daily volume since 2020!) after management reinstated bullish guidance. Start small and add on the way up.
Not much has changed with the market in the two weeks since our last issue. Stocks have largely stagnated, which is no surprise given the calendar and the 20% off-the-bottom rally from April that preceded it. Now comes the hard part: Can stocks continue to climb higher now that they’re hitting new highs and essentially priced for perfection? That could be difficult, especially with tariffs back in the news (in a bad way) and Q2 earnings season underway. So, to prepare for another potential pullback, today we add a value stock that comes from an industry that was left for dead a few short years ago but is now having a moment: movie theaters. It’s a stock I recommended in my Cabot Value Investor advisory last week.
Details inside.
Details inside.
The market’s big-picture outlook remains excellent, and we’re keeping most of our focus on that. However, there’s no doubt that we’re starting to see some growth stock wobbles, as today was the 3rd day of distribution in the group while money rotates into the broader market. That’s no reason to be defensive, but we are selling one name tonight that flashed abnormal action and holding a bit more than 30% cash on the sideline for now. Our goal is to ditch any laggards or names that crack and eventually replace them with big leaders, some of which are in a rest phase that should result in higher-odds entries.
Glad to be back! A lot has happened in the two weeks since I last wrote, with the market reaching new record highs despite the tariff deadline coming and going without a ton of clarity. And now second-quarter earnings season has arrived, which could provide further wind in the market’s sails, though estimates are more tempered (5% growth, vs. 14% growth among large-cap companies in Q1) this time around.
Meanwhile, our portfolio is humming, with TWO of our stocks reaching their price targets today! We’ll “retire” them to make room for today’s new recommendation, from an industry I wrote extensively about in our last update: movie theaters. The hope is that this movie theater stock will follow in the footsteps of United Airlines (UAL) and Carnival Corp. (CCL) and quickly reach our price target as shares play catch-up to their fundamentals due to some post-Covid lag.
Details inside. Enjoy!
Meanwhile, our portfolio is humming, with TWO of our stocks reaching their price targets today! We’ll “retire” them to make room for today’s new recommendation, from an industry I wrote extensively about in our last update: movie theaters. The hope is that this movie theater stock will follow in the footsteps of United Airlines (UAL) and Carnival Corp. (CCL) and quickly reach our price target as shares play catch-up to their fundamentals due to some post-Covid lag.
Details inside. Enjoy!
We don’t yet know what the inflation rate for June will be (report is due July 15), but in the latest Federal Reserve meeting—reading between the lines—it seems economists expect the Fed to lower rates a couple of times during the remainder of the year.
And, just in the last few days, it’s been reported that Goldman Sachs now expects the Fed to cut rates three times.
We’ll see.
And, just in the last few days, it’s been reported that Goldman Sachs now expects the Fed to cut rates three times.
We’ll see.
Updates
In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Alcoa (AA), Janus Henderson Group (JHG), Paramount Global (PARA) and Starbucks (SBUX).
This week’s watch list includes a focus on the suddenly interesting toy market outlook, with two major industry members poised to benefit from it.
This week’s watch list includes a focus on the suddenly interesting toy market outlook, with two major industry members poised to benefit from it.
Before we get to an update on my journey through Asia, let me offer a few thoughts regarding recent market weakness and volatility, driven by rising economic and political uncertainty. Sea Limited (SE) bucked the trend with another strong quarter while American Superconductor (AMSC) shares had another tough week after a great run, down 15.8%.
The tariff on-and-off news is creating some turbulence as are the pivotal Congressional spending and tax negotiations.
The tariff on-and-off news is creating some turbulence as are the pivotal Congressional spending and tax negotiations.
Tariffs have officially arrived. And the market doesn’t like them one bit.
On Tuesday, the Trump administration imposed 25% tariffs on Mexico and Canada and raised the level from 10% to 20% on China. Stocks fell as of midday on Tuesday, but not dramatically. It’s unwelcome news to a market that was already dealing with still-sticky inflation and diminished economic growth expectations.
On Tuesday, the Trump administration imposed 25% tariffs on Mexico and Canada and raised the level from 10% to 20% on China. Stocks fell as of midday on Tuesday, but not dramatically. It’s unwelcome news to a market that was already dealing with still-sticky inflation and diminished economic growth expectations.
After a strong start to the year, February was a down month for the S&P 500. The index is just a little over 1% higher YTD. But the news is better than it may seem.
Sure, the market has been struggling. But it’s only because of technology, which is down over 5% YTD. Nine of the other ten sectors in the S&P are positive for the year. Some sectors are having very good years as Health Care is up over 8% and Consumer Staples and Financials are up over 7% YTD.
Sure, the market has been struggling. But it’s only because of technology, which is down over 5% YTD. Nine of the other ten sectors in the S&P are positive for the year. Some sectors are having very good years as Health Care is up over 8% and Consumer Staples and Financials are up over 7% YTD.
In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Alcoa (AA), Centuri Holdings (CTRI), Janus Henderson Group (JHG), Paramount Global (PARA), Starbucks (SBUX) and Teladoc Health (TDOC).
This month’s catalyst report features a mixed bag of attractive turnaround candidates in several industries, including software, healthcare, luxury retail and chemicals.
This month’s catalyst report features a mixed bag of attractive turnaround candidates in several industries, including software, healthcare, luxury retail and chemicals.
WHAT TO DO NOW: Remain defensive. While there’s a chance the recent selling storm could be the final shakeout of this two-plus-month consolidation, the fact is the intermediate-term evidence (both top-down, and among many growth stocks) is now negative, with a lot of damage done to leaders. We’ve been holding a lot of cash for weeks but have pared back further, selling our remaining AppLovin (APP) stake on a special bulletin yesterday, leaving us with around a 66% cash position in the Model Portfolio. We have no changes tonight but are remaining flexible (buy or sell) for whatever comes next.
While the broad market has stabilized a little over the last couple of days, we are still very much in a risk-off environment. As we all know, the market hates uncertainty. And we’re getting plenty of it these days
On-again, off-again tariff threats are the big story this week with Trump’s latest comments reiterating March 4 as the date for Mexico and Canada tariffs and April 2 as the date for reciprocal tariffs (tariffs that match those levied by other countries on U.S. exports), and an additional 10% tariff on China as of that date.
On-again, off-again tariff threats are the big story this week with Trump’s latest comments reiterating March 4 as the date for Mexico and Canada tariffs and April 2 as the date for reciprocal tariffs (tariffs that match those levied by other countries on U.S. exports), and an additional 10% tariff on China as of that date.
Last Friday on the Cabot Street Check podcast I co-host with my colleague Brad Simmerman, I predicted that a 5% market pullback was forthcoming after a month of stagnation. We’re more than halfway there already: the S&P 500 is 3% off its highs entering Thursday and narrowly halted a four-day losing streak on Wednesday.
My reason for thinking a mini-correction was imminent was simple: a strong fourth-quarter earnings season had been helping to counteract all the bad news (tariffs, escalating inflation, stagnant interest rates, etc.) that’s impacted the market over the past six weeks … and Q4 earnings season is now effectively over. Sprinkle in the fact that the S&P had actually poked its head above new all-time highs just over a week ago, and a pullback of some kind seemed almost inevitable.
My reason for thinking a mini-correction was imminent was simple: a strong fourth-quarter earnings season had been helping to counteract all the bad news (tariffs, escalating inflation, stagnant interest rates, etc.) that’s impacted the market over the past six weeks … and Q4 earnings season is now effectively over. Sprinkle in the fact that the S&P had actually poked its head above new all-time highs just over a week ago, and a pullback of some kind seemed almost inevitable.
Stocks are taking a hit. It was an ugly day last Friday and there was more of the same on Tuesday. Should we expect more?
In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Agnico Eagle Mines (AEM), Alcoa (AA), American Airlines (AAL), Berkshire Hathaway (BRKB), Brookfield Wealth Solutions (BNT), GE Aerospace (GE), Pan American Silver (PAAS), Starbucks (SBUX) and Toast Inc. (TOST).
At the index level, small caps have hardly changed since last Thursday, but it sure feels like there’s a lot of downward drift out there.
I could say the same thing for the broad market. Things seem to be getting a little more tense. But then again, the S&P 500 and Nasdaq just hit fresh all-time highs.
I am a little concerned that it’s going to be harder to ignore all the background noise once earnings season is over. Because there is a lot of noise.
I could say the same thing for the broad market. Things seem to be getting a little more tense. But then again, the S&P 500 and Nasdaq just hit fresh all-time highs.
I am a little concerned that it’s going to be harder to ignore all the background noise once earnings season is over. Because there is a lot of noise.
This week I’m in Cebu, Philippines. While in a shopping mall I spent a couple of hours analyzing a fascinating situation whereby Samsung, Apple and Huawei stores were right next to each other.
I’m not technically proficient enough to tell you which company and product offer the best value, but Huawei’s lower end smartphone was only $450 and seemed to offer everything anyone would need. Its high-end leader was just slightly cheaper relative to Apple’s most recent model, with all the bells and whistles. The store was very polished and in no way seemed to be of lesser quality to Apple or Samsung.
I’m not technically proficient enough to tell you which company and product offer the best value, but Huawei’s lower end smartphone was only $450 and seemed to offer everything anyone would need. Its high-end leader was just slightly cheaper relative to Apple’s most recent model, with all the bells and whistles. The store was very polished and in no way seemed to be of lesser quality to Apple or Samsung.
Alerts
Back on August 28 after the close, I shared bullish commentary on the cannabis group which was melting down at the time.
Yesterday we learned that the Drug Enforcement Agency (DEA) has decided to hold an administrative law judge (ALJ) hearing on rescheduling cannabis. It is set for December 2.
The decision dashes all hopes of rescheduling before the election, sending cannabis stocks much lower.
The decision dashes all hopes of rescheduling before the election, sending cannabis stocks much lower.
Artivion (AORT) Delivers Q2 Beat; Sell Remaining Half of EverQuote (EVER)
Quick Takes: Vertex (VERX), Rivian (RIVN), Apple (AAPL) and Modine (MOD)
EverQuote (EVER) and RxSight (RXST) Deliver; FTAI Infrastructure (FIP) Still a Buy
Portfolios
An updated portfolio for Cabot Options Institute – Earnings Trader.
An updated portfolio for Cabot Options Institute – Quant Trader.
An updated portfolio for Cabot Options Institute – Income Trader.
An updated portfolio for Cabot Options Institute – Earnings Trader.
An updated portfolio for Cabot Options Institute – Fundamentals Portfolio.
An updated portfolio for Cabot Options Institute – Quant Trader.
An updated portfolio for Cabot Options Institute – Income Trader.
An updated portfolio for Cabot Options Institute – Fundamentals Portfolio.
An updated portfolio for Cabot Options Institute – Earnings Trader.
An updated portfolio for Cabot Options Institute – Fundamentals Portfolio.
An updated portfolio for Cabot Options Institute – Earnings Trader.
An updated portfolio for Cabot Options Institute – Income Trader.
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.