*Note: Your next issue of Cabot Options Trader Pro will arrive next Tuesday, May 27 due to the market holiday next Monday, May 26 in observance of Memorial Day.

Sparked by positive trade developments, the stock market raced higher last week as the S&P 500 rallied 5%, the Dow gained 3.4%, and the Nasdaq added 6%.

*Note: Your next issue of Cabot Options Trader will arrive next Tuesday, May 27 due to the market holiday next Monday, May 26 in observance of Memorial Day.

Sparked by positive trade developments, the stock market raced higher last week as the S&P 500 rallied 5%, the Dow gained 3.4%, and the Nasdaq added 6%.

From a top-down perspective, the market’s action over the past few weeks is about as good as you could have hoped for -- our Cabot Tides, Two-Second Indicator and Aggression Index have turned positive, and combined with the negative sentiment and blastoff-type indicators, we think the path of least resistance has turned up and solid gains are likely, at least when looking out many months.

The holdup is growth stock leadership, which has been tricky to this point, with many strong stocks getting hit while beaten-down names rally. That situation has improved some this week, but we want to see more fresh leadership kick off in the weeks ahead.

Still, we’ve reacted to the improvement in the evidence by making a few moves, some on the sell side (kicking out laggards), but a bunch on the buy side -- we still have 55% cash and are hoping to put some of that work if and as new leaders emerge. We review all our thoughts and some names we’re watching closely for purchase in tonight’s issue.

Just a little over a month ago, stocks were crashing. But things are changing fast.

The tariff uncertainty has vastly improved with the announcement of trade deals with the U.K. and positive negotiations with China. The S&P has soared 22% from the intraday low on April 7. The index is now in positive territory YTD and within 5% of the all-time high. The technology-laden Nasdaq index is up 28% from the April low.

But the market tends to overreact in the near term. Tariff trouble isn’t over yet. There could still be setbacks. A negative headline can roil the market on any day. There’s also the economy. Growth is slowing. It may pick up or slow further. What will be waiting beyond the tariffs?

Fortunately, there is a trend to bank on that will thrive regardless of the near-term gyrations of the market or economy.

Artificial intelligence is a massive growth catalyst that will endure and thrive in any environment. It is a generational phenomenon that will drive certain stocks to huge gains. The dominant trend has sold down and consolidated in recent months. Such a move was overdue. But technology is coming back strong. It’s the hottest sector again.

In this issue, I highlight a goliath in the technology industry that is poised for a huge growth windfall from artificial intelligence in the years ahead. The stock has fallen far from the high. But the AI trend is revving up again and will likely transcend the current unpredictable environment.

The Federal Reserve event came and passed without much volatility last week as stocks were mostly quiet. For the week, the S&P 500 fell 0.5%, the Dow lost 0.2%, and the Nasdaq declined by 0.3%. But yesterday’s 3% run-up in the S&P 500 and nearly 4% in the Nasdaq – fueled by a 90-day pause on U.S.-China tariffs – may have signaled a turning point for the market. Stay tuned.

There’s no question that, from a top-down perspective, the evidence has continued to improve over the past few weeks, with today seeing the market surge as the U.S. and China slashed tariffs on each other. That said, even with today’s run in the indexes, leadership is hard to spot—many names that approach old highs are rejected, with the buying focused on beaten-down names for the most part. Don’t get us wrong: We’re encouraged and extending our line, but we’re doing so slowly until some real leadership develops. Our Market Monitor stands at a level 6.

This week’s list has a mix of names from different sectors and with some at different areas on their charts. Our Top Pick staged a classic gap to new highs after earnings last week. We’re fine starting small here or on dips.

Tariff fears have eased, or are at least on extended hold, and the market feels jubilant for the first time in months. Is it the start of an extended rally that could get us back to new highs? Probably too early to tell. But it’s been a boon for our portfolio, led by Tesla (TSLA), which is up 14% in the last week. Today we add an undervalued travel stock to the portfolio that’s a household name that got hammered during Covid but has come out the other side with flying colors – and yet shares are still playing catch-up. It’s a stock I recommended to my Cabot Value Investor audience earlier this month.

Details inside.

The Federal Reserve event came and passed without much volatility last week as stocks were mostly quiet. For the week the S&P 500 fell 0.5%, the Dow lost 0.2%, and the Nasdaq declined by 0.3%

The Federal Reserve event came and passed without much volatility last week as stocks were mostly quiet. For the week the S&P 500 fell 0.5%, the Dow lost 0.2%, and the Nasdaq declined by 0.3%

While the volatility continues, the markets made some upward progress since our last issue, with all the broad indexes rising—although both Growth and Value stocks are still negative, year to date.

Sector-wise, all sectors— except for Energy (-6.02%), Technology (-7.34%) and Consumer Discretionary (-11.17%)—are in the black, led by Utilities (+5.10%), Consumer Staples (+3.66%), and Real Estate (+2.98%).

The Federal Reserve meets this week, but most economists expect no change in interest rates (for now). We’ll see how inflation is faring next week, which should give us some insight as to future Fed action and whether or not we can anticipate any rate relief this summer.

Japan is back as a place to invest some capital for a number of reasons.

Japanese retail investors have cash positions above 50% versus about 15% for Americans.

Japanese corporates have long been criticized for hoarding cash on their balance sheets and low capital expenditures due to cross-shareholdings with sister companies. But over the past 12 months, share buybacks are on track to increase 96% year-over-year, and the reduction in cross-shareholdings has increased by 75% in the last fiscal year.

All this leads us to consider today a second Japanese stock as an Explorer recommendation.

The market continued its strong rebound from its early-April lows as the indexes rose all five days last week. The S&P 500 gained 2.9%, the Dow rallied 3% and the Nasdaq advanced by 3.4%.

The two-year-old bull market is about to meet third-quarter earnings. And things look good.

The bull market is alive and well and shows no signs of stopping. Since the bear market low in October of 2022, the S&P 500 has risen over 60%. It has been powered by the artificial intelligence catalyst, a surprisingly resilient economy, and the peaking of interest rates. The current “soft landing” expectation means we are getting rate cuts but no economic pain. That’s good news.

The bull market is now two years old and shows no signs of stopping.

Since the bear market low in October of 2022, the S&P 500 has risen more than 60%. It has been powered by the artificial intelligence catalyst, a surprisingly resilient economy, and the peaking of interest rates. Overall earnings are projected to be strong, and the market could get a further boost from AI-specific earnings this quarter.

In today’s note, we discuss the acceleration—and potential for overcrowding—of the China stock momentum trend, specifically how it relates to our position in Alibaba Group Holding (BABA).

The small-cap indices (Russell 2000 and S&P 600) have been totally uninspiring over the last three weeks, which is sort of odd given that the Fed cut interest rates by 50 basis points almost exactly three weeks ago.

Theoretically, lower rates should benefit small caps given higher exposure to variable rate debt, which requires lower interest payments as rates decline.

WHAT TO DO NOW: Continue to lean bullish. The market’s overall position remains in a similar position—far more good than bad, though still a few flies in the ointment—so we continue to look to add exposure, but to do so carefully, as many stocks and indexes are battling with resistance. Tonight, we’re going to fill out our position in Flutter Entertainment (FLUT), adding another half-sized stake (5% of the portfolio). We’re also placing Argenx (ARGX) on Hold given its recent action. Our cash position will now stand near 25%.

Stocks have barely budged for three months.

The S&P 500 is a mere 1.5% above its mid-July highs, while the Nasdaq is actually down 2.5% since its July 10 peak. The Dow has made the most headway, up 2.1% since its July 17 apex. This type of multi-month lethargy is nothing new for an election year.

Cannabis now has its highest election-year profile ever.

Both presidential candidates have highlighted their favorable positions on cannabis reform, obviously because voters in all the key swing states favor reform. Cannabis reform appears on the ballot in referenda in several states – most notably Florida.

After another up week and a record close last Friday, the market is grappling with mixed signals.

Last week’s highly anticipated jobs report came in much better than expected. The previous two weak jobs reports had roiled the market as they stoked recession fears. But not this one. The market was initially thrilled but is now thinking twice about the situation.

In today’s note, we discuss the recent developments concerning Barrick Gold (GOLD) and V.F. Corp. (VFC), while taking a nice profit in the latter stock.

China’s benchmark CSI 300 index has surged 25% in the five days following Beijing’s stimulus measures to unleash its economy and financial markets. This has led to some catch-up growth for Explorer stock and fund recommendations.

The action was not limited to just Chinese stocks but also stocks looking to China for growth. I mentioned commodities last week, but another winner was the luxury business.

The third quarter ended with the market looking good. The S&P 500 was up 2% in September after a rough start, 4.3% for the third quarter and over 20% YTD. Can the good times last?

The market is wrapping up another good month and quarter. The S&P posted strong gains in September, after three straight winning weeks in a row, following a rough first week. The index is also up nicely for the third quarter and near the all-time high with a better than 20% gain year-to-date.

The latest upward leg is being driven by cooling inflation, falling interest rates, and a still-resilient economy. We’re getting the rate cuts without the economic pain and an expected soft landing. What’s not to like?

Alerts- VNQ, EEM, IBM

Sell Braze (BRZE)

Sell Gen Digital (GEN) and Part of Elastic (ESTC)

WHAT TO DO NOW: The story remains the same, with the primary evidence in good shape, though many leaders are extended and more are starting to wobble. Last Friday, we sold half of Elastic (ESTC), which got walloped on earnings, and today we’ll sell the rest, as the stock has continued to show weakness. That will leave us with 37% in cash, which is more than we’d prefer—we’ll hold on to it for the moment but could re-deploy some in the very near future.

GitLab (GTLB): Good Quarter, Questionable Guidance. Book The Gain

In Income Trader, we’ve managed to lock in a return of over 45% in BITO. Not many can say they’ve made money in BITO on a more consistent basis, or any other crypto-related asset, since the beginning of June 2022. Just another reason why more and more individual investors are flocking to the tried-and-true, mechanically driven, income wheel approach.

GLD has pushed through our short call strike and the deltas of our LEAPS and short call contract are at parity. As a result, let’s buy back our short call and sell more going out to the April expiration cycle. As a reminder to those with an established position, I will be selling our LEAPS contract the next time around and initiating a new LEAPS position going out to the January 2026 expiration cycle. Our position is up over 22%, while the individual ETF, by comparison, is only up 10% over the same time frame.

WHAT TO DO NOW: Not much has changed today vs. our update last night when it comes to the market, but after a couple of positive earnings reactions this week, today brought a downer—Elastic (ESTC) is getting hit after a good-not-great report. It’s not a complete meltdown given the recent move, but we’re going to sell half our position and see how the stock acts from here. Our cash position will now be around 33%.

My “plan” to enter the weekend patting myself on the back for a week of decent stock performance in our portfolio might be foiled by Elastic (ESTC).

For those who are new and wish to enter a trade, all of the details are listed in the alert (as always) for those wanting to initiate a position. As always, if you have any questions, please do not hesitate to email me at andy@cabotwealth.com.

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