Market sentiment for emerging and global markets improved this week and we are putting some cash to work including a new recommendation that plays on Asia’s thirst for coffee. Sentiment for emerging and global markets improved somewhat this week as our market timer (EEM) turned neutral between its 20-day and 50-day moving averages. Uncertainty regarding China and Mexico is a headwind but institutional flows into emerging markets remains pretty robust.

After a brief decline, due mostly to the China and Mexico tariff issues, we’ve seen a decent rebound in the markets this past month.
Earnings for the quarter look like they are going to come in at a negative growth rate when all the reports are calculated. However, 76% of companies in the S&P 500 reported EPS numbers higher than estimated and 59% posted positive revenue surprises. The lack of growth in earnings is somewhat concerning, and that—plus the tariff issues—seem to be weighing on market prognosticators, turning their sentiment a bit more cautious, as you can see in our Advisor Sentiment Barometer, as well as in our Market Views. In the meantime, our contributors have been knee-deep in research and analysis, and have come up with some very interesting ideas for you this month.

If you don’t know by now, I’m a big fan of diversification; I love having a portfolio that has hot stocks of fast-growing young companies, low-risk stocks of established companies, high-yielding stocks of underappreciated companies, and more—because you never know which way the market is going to zig, but when you’re diversified you’re always winning somewhere.

Current Market Outlook


The market’s correction was in full force a week ago, with the S&P and Nasdaq falling to new correction lows and many resilient stocks beginning to give up the ghost. But since then stocks have turned on a dime—whatever the reason (Fed, less-heated trade rhetoric, Mexico deal), the market has soared amidst a vacuum of selling pressure, with the major indexes, the broad market (most number of stocks hitting new highs in months) and many growth stocks all kicking into gear. That said, the intermediate-term trend has not yet turned positive (it’s very close, but not quite there yet) and many stocks are now either extended or running into resistance, so we don’t advise throwing caution to the wind. But there’s no question that the action is encouraging —we’re bumping up our Market Monitor to a level 7 tonight.

This week’s list has a nice batch of stocks, including a few that are hot and others that are just emerging. Our Top Pick is Zillow (Z), which has changed character over the past few weeks and looks like a leader should the market’s rally continue.

Stock Name	Price	Buy Range	Loss Limit
Ciena (CIEN)	44.25	42.5-44.5	38.5-40
Coupa Software (COUP)	262.20	118-124	104-107
The Walt Disney Company (DIS)	144.76	135-138	125-127
Kirkland Lake Gold (KL)	51.30	36-38	32.5-33.5
MongoDB (MDB)	156.56	165-170	149-152
PagSeguro Digital (PAGS)	35.09	34.5-36	30.5-32
UniQure (QURE)	74.08	72.5-75.5	63-65
Vulcan Materials Company (VMC)	137.10	131-135	121-124
Zillow (Z)	76.64	44.5-46.5	40-41.5
Zoom Communications (ZM)	155.83	95-102	81-85

Today’s Cabot Small-Cap Confidential candidate runs an online marketplace for a different type of market where over $120 billion is spent each year. The trend is strong, and it’s still early days. All the details are inside the June Issue of Cabot Small-Cap Confidential.

The market remains in a correction, and with the intermediate-term trend pointed down, we’re still advising a cautious stance. That said, we do think the pieces are in place for a new advance, from positive longer-term evidence, a big dip in sentiment and bullish action from many leading growth stocks.
In tonight’s issue we review all of our stocks, fine tune our watch list and we also look at the medical sector, which we think could be a leadership area going forward for a few reasons.

Tariff threats for China and Mexico continued to roil the markets this month. But yesterday, we saw a 500+ gain, on the heels of Fed Chairman Powell hinting at a rate reduction. Meanwhile, the economy is holding up well, with auto sales and construction spending rising and employment still strong.

Sentiment has turned a bit more cautious, as you will see in our Market Views, but most advisers think the market is oversold right now. And that’s good news for our pickings!

Within the Growth & Income portfolio, you’ll find a discussion of retail woes. The Buy Low Opportunities Portfolio features a comparison between two of the rare retailers that emerged from first-quarter earnings season unscathed. I was simply focused on retail stores throughout May. Lots of investors own these stocks, and I figured some of you might find the assessment interesting.

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.

The shares of this drug distribution company have recently crossed over their 50-day moving average, a bullish indicator.

One stock moves from Buy to Hold, another moves from Strong Buy to Buy, and a third joins the Growth Portfolio as a Strong Buy.

Here are two Top Picks, both Chinese companies who are growing at double-digit rates.

Here is the second of two Top Picks, both Chinese companies who are growing at double-digit rates.

This homebuilder is enjoying a busy housing market, and beat analysts’ earnings estimates by $0.07 last quarter

Our first idea, a specialty retailer, beat analysts’ EPS estimates by five cents a share last quarter, and 16 analysts have increased their earnings forecasts in the past 30 days.

Our second recommendation is partial profit-taking.

Analysts are expecting this healthcare tech company to grow by 16.53% annually for the next five years.

This health insurer beat Wall Street’s estimates by $0.11 last quarter.

While not yet profitable, this Chinese data center business is growing exponentially.

With recent U.S. anti-dumping investigations against China, particularly for aluminum sheets, as well as China’s clampdown on illegal and polluting facilities that could reduce production, things might be looking up for U.S. aluminum producers.

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.