Current Market Outlook


The good news is that the general market has been whacked two or three times during the past couple of weeks, but each time has staged a strong rally, including today’s spirited advance. That said, despite the nice Friday/Monday rebound, the intermediate-term trend is still iffy (most indexes are sitting at or below their 50-day lines and below their highs from last week), so our overall stance hasn’t changed much—you should remain cautious, limiting new buying and holding some cash, though we’re also fine sticking with your strong, profitable names, giving them a chance to resume their uptrends down the road. The game plan from here is simple: If the market fades again, we’ll remain cautious, but should the recent strength continue, we’ll gradually turn more constructive and put money to work.
This week’s list (and the past couple of weeks) are great for getting your ducks in a row should the bulls decisively retake control. Our Top Pick is Appian (APPN), which looks like a new small/mid-cap leader following a massive breakout. Try to buy on dips.

Stock Name	Price	Buy Range	Loss Limit
ACADIA Pharmaceuticals (ACAD)	47.84	28.5-30	25.5-26.5
AngloGold Ashanti (AU)	20.45	19.5-20.5	17-17.5
Appian (APPN)	46.48	55.5-58.5	48-49.5
Dexcom (DXCM)	421.36	160-164	148-150
eHealth (EHTH)	122.74	103-107	91-93
Five9 (FIVN)	78.35	60.5-63	54.5-56
JD.com (JD)	39.58	30-31.5	27-28
KLA Corp. (KLAC)	158.80	135-138	124-126
Q2 Holdings (QTWO)	80.81	87-90	78-80
Universal Display (OLED)	187.54	208-216	182-186

This week’s Cabot Growth Investor issue is two days early, because the rest of the week is filled by the Cabot Wealth Summit, which brings all our analysts to Salem to meet subscribers face-to-face and fix all the world’s problems—or at least help them become better investors.

The market remains news driven, with some soothing U.S.-China trade news sending the major indexes back up. Even so, the intermediate-term trend remains unsupportive, so we’re still playing some defense—we’ve pruned our worst performers and losers, but are also holding our resilient performers. From here, we’re just taking it day to day, willing to buy some fresh leadership if the bulls retake control, but content to sit tight with some cash until that happens.
In tonight’s letter, we write a bit about the type of stocks we’re honing in on for the next sustained advance (early stage), touch on the bottom dropping out of investor sentiment (good for the longer-term outlook) and dive into all our stocks and plenty of new ideas as well.

This week’s update is a day early, because the rest of the week is filled by the Cabot Wealth Summit, which brings all our analysts to Salem to meet subscribers face-to-face and fix all the world’s problems—or at least help them become better investors.

In the meantime, the market remains under pressure, with our intermediate-term market timing now negative. Thus I’m continuing to raise cash, by selling our worst performers, and you should too, so you’ll have ammunition to use on the new leaders when the market turns up again. This week that means selling four stocks.

As for the new recommendation, it’s a small-cap stock in the communications software industry that you probably haven’t heard of, but it’s shrugged off the market volatility lately, trending slowly higher, and its long-term prospects are great.

Current Market Outlook


Last week’s action was encouraging, with the major indexes snapping back decently from Monday’s selloff and with many individual growth stocks either acting resiliently and/or reacting well to earnings. That said, three up days (Tuesday-Thursday last week) are not enough to reverse the prior meltdown—right now, all major indexes are below their 50-day moving averages and, generally speaking, the overall intermediate-term trend is neutral-to-negative. We’re not advising you to hole up in your bunker, but the onus is on the bulls to prove that the tariff-induced decline was a shakeout; until then, it’s best to remain cautious by holding some cash, keeping new buys small and making sure your losers and laggards don’t slip much further.

Going along with the action in growth stocks, this week’s list is chock-full of recent earnings winners. Our Top Pick is TransDigm (TDG), a solid 20%-ish grower in the aerospace field that gapped on earnings and is set to pay a huge one-time dividend.

Stock Name	Price	Buy Range	Loss Limit
Carvana (CVNA)	82.90	75-78.5	64-66
Insulet (PODD)	175.69	144-147	128-131
Lattice Semi (LSCC)	23.92	17.5-18.5	15.5-16.2
Martin Marietta Materials (MLM)	261.52	243-250	218-222
Medpace (MEDP)	76.28	75.5-78.5	67.5-69.5
Roku, Inc. (ROKU)	150.46	124-130	107-110
Shake Shack (SHAK)	92.08	85-88	75-77
SolarEdge Technologies Inc. (SEDG)	124.37	80-84	70-72
TransDigm (TDG)	599.41	525-545	475-485
Wingstop (WING)	121.52	95-98	88-90

The back-and-forth between the US and China rattled markets early this week as our emerging market signal turned negative. But stocks have bounced back with investors taking advantage of some emerging market bargains. Nevertheless, our portfolio is in a conservative posture with sizable cash allocation. We put some of this to work in a high quality idea from the land of the rising sun.

After reaching record highs this past month, volatility set in and we had a few days of losses following the Fed meeting, as well as Trump’s latest Chinese tariff action. But yesterday, markets calmed, regaining some of their losses. Advisor and consumer sentiment remain very bullish, as you’ll see in our Advisor Sentiment Barometer and Market Views.

Since we’re in the midst of a sudden stock market correction, I decided to feature three stocks today that seem to offer the best opportunities while their prices are temporarily low.

Be brave! If you saved up portfolio cash with which to buy low at moments like this, now is the time to buy something! You don’t have to spend it all in one day, of course.

If you are new at buying low during stock market corrections, and you’re feeling excited and scared and tentative and unconfident, send me an email. You’re going to be okay, and I’d love to hear about your experience. Learning to buy low is an important step toward increasing your future stock portfolio success.

The broad market has now begun a well-needed correction, which is likely to go on at least a little longer, and our job is to adjust our portfolio, on a continuing basis, so that we are always invested in a diversified portfolio of stocks that fit your investment needs.

This week that means selling three stocks. But it also means that there are buying opportunities in some of our stocks.

As for the new recommendation, I’m leaning conservative once again, with a low-risk petroleum infrastructure stock that has great recurring business and is decently valued as well.

Note: Because of the Cabot Investors Summit, which will bring all the Cabot analysts together in Salem late next week, the next issue of Cabot Stock of the Week will come out a day early next week, on Monday.

With war being one of the most dominant themes of the last four years, it stands to reason that investors should position their portfolios to account for this conspicuous (and unwelcome) trend.

And lest one be tempted to think that the warfare theme will diminish anytime soon, last week’s article by NPR deflates that illusion: It revealed that global military conflicts are at their highest level since WWII.

Price targets are standard practice on Wall Street. But sometimes, they can act as an artificial ceiling.

For example, say Truist sets a price target on an up-and-coming growth stock that’s 25% higher than its current share price. For a growth stock, a 25% return isn’t much. But then again, the stock could be a total flop, which is the natural boom-or-bust tradeoff growth investors must endure in trading off increased risk for massive upside. So, a price target on a growth stock seems almost like an unnecessary cap on a stock that has the potential to go through the roof.

WHAT TO DO NOW: Continue to trim your sails. In the Model Portfolio, we’ve been getting closer and closer to shore as growth funds and indexes are under pressure and AI stocks cascade lower. Tonight we’re going to further trim Marvell (MRVL) given its ugly action, selling a third of what we have left. That will leave the portfolio with a big 58% cash position. We could put some of that to work if growth names find support, but we want to see key growth measures firm up before buying.

After a brief pause last week, small caps are once again leading the pack.

Through Wednesday’s close, the S&P 600 Small Cap Index is up roughly 21% year to date, compared to gains of about 15% for the S&P 400 MidCap Index, 17% for the Nasdaq and 11% for the S&P 500.

Its earnings season again! That’s a good thing. Earnings just might save the day in an otherwise confusing and uncertain market.

The market is causing whiplash. The Iran peace deal changed things. Stocks held back by high oil prices, and the resulting higher inflation and interest rates, reignited as oil prices came back down after the peace deal. But hostilities with Iran have resumed.

The peace deal may be on hold again. But stocks are hanging in there so far.

The ceasefire with Iran is over and hostilities have resumed. That sounds like a bigger bummer than it’s been in the market so far. Falling oil prices enabled previously beleaguered stocks to soar higher again as the prognosis for inflation and interest rates simultaneously improved. But that rally is over if oil prices spike higher again.

It’s no surprise that summer often brings lower market volatility levels as Wall Street heads to the Hamptons and participation rates diminish.

Indeed, what we’re seeing right now has all the classic symptoms of a low-participation environment, with investor sentiment being remarkably muted. This can be seen across a number of sentiment indicators for several different markets, most of which are flashing decisively “neutral” signals.

The divide between value and growth stocks is widening, as the Nasdaq is now more than 5% off its highs after peaking in early June while the Vanguard Value Index ETF (VTV) is hovering near its late-June apex and is up 3% in the last month.

That can flip in an instant, of course, as we saw in April and May. But the bottom line is that value stocks have risen 15% year to date, compared to an 11% gain in the Nasdaq and a 9.5% boost in the S&P 500.

After a very strong run from the March lows, the market appears to be going through an uncomfortable but healthy rotation. Many of the biggest winners from the AI and semiconductor trade have come under pressure, while value stocks, equal-weight indexes and other areas that had lagged earlier in the year have held up much better.

Markets are facing more inflation as the Iran mess gets messier. Concerns over high AI capital spending are a cloud over a resilient market. On the bright side for our portfolio, however, International Business Machines (IBM) shares were up 7.4% this week following last week’s 8.9% gain. Sea Limited (SE) shares leapt 9.6% this week and are up about 20% over the past month. MercadoLibre (MELI) shares are up 11.6% over the last two weeks.

I remain bullish on stocks, but I am turning more cautious, winding down leverage, and letting some cash build up in my non-marginable accounts.

The reason is that spooky season lies just around the corner. September and October are typically the weakest months of the year. We also often see weakness in July and August, perhaps as investors get nervous about those looming difficult months.

After a very strong run since the March lows, the market appears to be going through a healthy, albeit somewhat uncomfortable, rotation.

The biggest winners from the AI and semiconductor trade are finally seeing some profit-taking, with Goldman Sachs (GS) noting that momentum stocks recently suffered their worst two-day decline since 2020. UBS (UBS) just said that the momentum factor is down roughly 20% from its June peak, marking the seventh-largest drawdown of the last decade and the fastest decline of that magnitude on record.

Right now, my advice is to continue to deploy cash into your favorite stocks.

After a half-hearted mid-week bounce, the stock market had another rough day yesterday. The S&P 500 fell almost 4%, and is now 10% off its all-time high. That means we’re now officially in a correction, although we didn’t really need yesterday to tell us that.

This contributor has concerns about volatility and is recommending a short-term move into this 5-star short-term bond fund.

The major indexes are testing their Tuesday lows, but the intermediate-term trend is clearly down and the sellers are punishing many stocks.

I expect the S&P 500 index to trade between the recent high and low for a while, several weeks or months, before attempting new highs again. Start investing your cash. Lots of the portfolio stocks are down, and I encourage you to buy any of the buy-rated stocks this week. We’re moving one stock from Hold to Strong Buy.

Analysts expect this potash company to grow by triple-digits next year.

An update on a previous recommendation.

This food production technology company beat analysts’ earnings estimates by $0.04 last quarter and is forecast to grow by double-digits annually for the next five years.

Analysts expect this childcare provider to grow at more than 15% annually over the next five years.

The major indexes suffered another huge wave of selling today, with the Dow cascading 1175 points and the Nasdaq losing 273 points.

The recent wave of selling has taken a bite out of the major indexes, and has undercut most of the stocks in our portfolio.

The major indexes collapsed on Friday, with the Dow plunging 666 points and the Nasdaq losing 145 points, capping off the index’s worst week in a couple of years.

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 Momentum 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 Momentum Trader features.