Investors’ jitters about the dog fight in Washington, D.C. caused a sharp market correction this week that included emerging market stocks. Our portfolio also sustained a little damage, but, so far at least, it’s under control. The major uptrend in emerging markets has been dulled, but not blunted. In this issue, I look at the performance of emerging vs. developed market stocks. I also bring back a stock from last year that will give us a different take on Chinese retail.

We are still bullish, and as you can see from our Advisor Sentiment Barometer and Market Views section, so are most investment pros. And that’s great news, as it means our contributors continue to find an array of stocks with excellent potential.

Recognizing the risk in today\'s hot market, today’s selection is not a hot stock; it’s a slower grower, a big stock with a heathy and growing dividend that’s technically in the leisure services business.

Current Market Outlook


Nothing about the market really changed last week—small- and mid-cap indexes are lagging and most indexes are still trading tightly with in 10-12 week ranges, but the Nasdaq is in a firm uptrend and leading Top Ten stocks are acting great. The question now is whether the recent push higher that began in mid-April will broaden out; the S&P 500 has been knocking on the door of new highs (above 2,400) and the small- and mid-cap indexes found support at their 50-day lines today. If we see buying pressures strengthen, it could lead to another batch of leaders emerging in the weeks ahead and be a big feather in the bulls’ cap. It’s something to watch for, but right now, we’ll stick with our current stance, keeping our Market Monitor at level 8.

This week’s list has a ton of very attractive growth stories; it was hard to select just one as our Top Pick. But with big-cap growth stocks in favor, we chase Nvidia (NVDA), which has exploded out of a four-month consolidation following a great earnings report.

Stock Name	Price	Buy Range	Loss Limit
Atlassian (TEAM)	182.16	34.5-36.5	32-33
Electronic Arts (EA)	0.00	105-110	97-100
Five Below (FIVE)	134.58	49.5-52	46-47.5
HubSpot (HUBS)	582.89	68-71	63-65
IPG Photonics (IPGP)	0.00	132-138	123-126
NVIDIA Corporation (NVDA)	242.42	127-134	117-120
Ryanair DAC (RYAAY)	0.00	97-101	89.5-91.5
Tesla, Inc. (TSLA)	818.87	307-319	282-289
Trade Desk (TTD)	468.02	48-52	42-45
XPO Logistics (XPO)	0.00	52.5-55	48-49.5

This month, I introduce a new stock that has outshined most stocks in the retail sector. The company will add 100 new stores in 2017, which will surely add significant growth, but there’s much more to the story. Today’s issue describes how this specialty retailer has thrived in a difficult sector.

The overall market is just OK here, as most indexes are still stuck in 10-plus week trading ranges. Our market timing indicators are positive, but it\'s hard to say the bull market is overly powerful here. However, the action among leading growth stocks has been fantastic since mid-April, with most of the stocks we own or are watching racing up the charts.

Our Spotlight Stock this month became a common household name to many investors during the tech revolution. The Internet/mobile chip provider not only managed to survive the boom and bust, but has come out on top of the growing semiconductor sector for low-cost chips for the exploding biometrics identification industry. Nancy’s Feature further explores the tremendous demand for biometrics around the world.

In choosing today’s stock, I leaned toward the growth side, because that’s what’s working best today. Then, to get an element of safety—because somewhere, sometime, a nasty correction is likely to hit the market—I chose a stock with very strong and growing institutional sponsorship, the kind of stock that has the potential to be the last stock standing when this bull market eventually ends.

While flashier, more star-studded teams like Lionel Messi’s Argentina, Kylian Mbappe’s France and Erling Haaland’s Norway garnered most of the headlines at the just-completed World Cup, Spain was the best team. There was nothing flashy about Spain: no mega-stars, not a ton of goals, no relentless attack. Instead, they dominated the tournament with precision passing, immaculate ball control and near-impenetrable (just one goal allowed all tournament!) defense.

High-flying AI-related stocks are facing a high bar of performance. Even what normally would be considered staggering growth is met with a yawn. The backdrop of the Middle East conflict and almost $100 oil is not helpful.

The Philadelphia Semiconductor Index (SOX) has outperformed the S&P 500 by 57% this year, even after a sharp correction. This is basically a macro trade, and there are few industries as cyclical, or as capital-intensive, as semiconductor manufacturing.

The market rolls sideways amidst a slew of conflicting forces.

The S&P 500 has bounced around and is at the same level it was in the middle of May. The primary culprit is technology. That sector has been in a funk. The S&P 500 is hard-pressed to generate any lasting traction while this massive sector, accounting for over 40% of the index, flounders.

The market has gone sideways since May. It seems to be deciding what to do.

It’s encouraging that the resumption of hostilities with Iran has not sent the market lower. It’s also positive that oil prices aren’t rising back to the $100 level earlier in the war, although prices have risen. It’s also another earnings season and analysts expect a big one.

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.

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.