The calendar has flipped, and so far the early-January effect has been in effect, with some volatile ups and downs, as well as some sharp rotation into and out of certain areas. Still, we always go with the evidence, and stepping back, not much has changed: For the overall market, the evidence is tilted higher, though growth stocks look worse, still in intermediate-term sideways-to-down phases for most names, but it depends where you look. Overall, we’ll leave our Market Monitor at a level 7 from here, but we’re flexible and will be keying off any breakouts or breakdowns among individual stocks.

Our first list of the New Year is a mix between strong growth titles, aerospace/defense-related names and cyclical stocks. Our Top Pick is a blue-chip growth name that has a history of stair-stepping higher over time—and whose stock just broke out from a three-month range last week.

The bull market marches into a fourth year. On the heels of three straight years of double-digit gains, can the S&P 500 make it four in a row? Wall Street thinks it can come close, with the average predicted return among 21 analysts surveyed by Bloomberg coming it at 9% in 2026. And not one of those analysts thinks stocks will be down this year.

So to kick off the new year in style,let’s stay in growth mode by adding a new pick from Mike Cintolo in his Cabot Growth Investor newsletter.

Details inside.

Despite a holiday-shortened week and light volume, U.S. stocks pulled back from recent highs last week as year-end positioning and lack of fresh catalysts weighed on sentiment. The S&P 500 and Nasdaq slipped after failing to sustain record levels, while tech and small caps bore the brunt of profit-taking amid mixed breadth. For the week, the S&P 500 fell about 1%, the Dow lost roughly 0.7%, the Nasdaq slid near 1.5%, and the Russell 2000 dropped by around 2.1%.

Despite a holiday-shortened week and light volume, U.S. stocks pulled back from recent highs last week as year-end positioning and lack of fresh catalysts weighed on sentiment. The S&P 500 and Nasdaq slipped after failing to sustain record levels, while tech and small caps bore the brunt of profit-taking amid mixed breadth. For the week, the S&P 500 fell about 1%, the Dow lost roughly 0.7%, the Nasdaq slid near 1.5%, and the Russell 2000 dropped by around 2.1%.

Cannabis stocks are down sharply ever since the group got its best news in decades – President Donald Trump’s December 18 executive order to reschedule the plant.

Using the AdvisorShares Pure US Cannabis exchange-traded fund (MSOS) as a proxy, the group is off 32%.

As markets closed the year largely treading water, one might ask why prices of stocks, gold, and just about everything are leaving 2025 higher than they started 2025.

One simple answer is that there is a lot of money sloshing around the world looking for opportunities. Governments and central banks injected trillions of dollars in stimulus during and after the pandemic. Much of that continues to drive momentum trades. Americans alone hold over $7 trillion in money market mutual funds.

If there was a dominant investment theme for the Cabot Turnaround Letter in 2025, it was the focus on defensiveness, in which we showed a penchant for companies in the consumer staples arena. This, I believe, was—and still is, from a long-term perspective—justified in view of the many headwinds faced by the U.S. economy over the last 12 months.

Now that we’re about to enter a new year, however, the economic winds have started to shift in a more favorable direction. With the Fed’s embrace of a looser monetary policy, sectors that were out of favor or not very strong in 2025 are poised to become better performers in 2026. I’m referring particularly to some of the more economically sensitive industries within the broader consumer discretionary sector.

As I do from time to time around the major holidays, I spent much of the weekend hanging with family and traveling. That means this week’s Monday Week in Review will be focused on our open positions.

Of note, I am working the full week, outside of Thursday, when the market will be closed for New Year’s.

As I do from time to time around the major holidays, I spent much of the weekend hanging with family and traveling. That means this week’s Monday Week in Review will be focused on our open positions.

Of note, I am working the full week, outside of Thursday, when the market will be closed for New Year’s.

First and foremost, all of us here at Cabot wish you and your family a Merry Christmas, Happy Holidays and a prosperous New Year. Our offices will close early today and be closed tomorrow, but we’ll be back at it next week.

As for the evidence, it remains in a similar place as it has been: Market-wide, most of what we look at is positive, and bigger picture, the odds continue to favor the major indexes having solid upside in the months ahead. That said, growth stocks and funds are much more mixed, and near term, some crosscurrents are likely due to the calendar and elevated sentiment. All in all, with growth stocks, we’re continuing to take it step-by-step, emphasizing the positive while pruning names that are weak. Tonight we’re filling out our stake in one recent purchase, leaving us with 45% on the sideline.

Despite a mid-week wobble in tech (especially AI stocks), the bulls stepped up Thursday and Friday, and by week’s end the indexes finished mostly mixed. The S&P 500 gained 0.1%, the Dow lost 0.7%, the Nasdaq rose by 0.5% and the Russell fell 0.9%.

The market has been spectacular. Can we expect more of the same in 2026?

The S&P is up a staggering 95% since this bull market began in October of 2022. It’s up 128% this decade, for an average annual return of about 15%, 50% higher than the historical average.

The huge returns have been all technology. Without technology, market returns for the past few years would be rather uninspired. But there is growing investor angst regarding the sustainability of technology valuations and whether all this massive AI investment will deliver tangible payoffs. The sector could have a tougher year in 2026.

Fortunately, there are a lot of stocks that aren’t technology. The rest of the market cares more about interest rates and the economy, and those things are shaping up well. The Fed is in a rate-cutting cycle, inflation is subdued, oil is cheap, and a higher level of economic growth is expected in 2026.

The rally is broadening, and 2026 may be a year for non-technology stocks to shine. Overall earnings are expected to grow 14% next year, with much of the growth over last year coming from other sectors. Many stocks in other industries sell at cheaper valuations than the market, and performance is improving as investors seek to diversify beyond technology.

The bull market has been lopsided toward technology so far. But 2026 is shaping up to be a year for other stocks to catch up. In this issue, I highlight a stock poised to do just that in the year ahead.

Technology is getting a comeuppance. But other sectors are getting a boost.

The artificial intelligence trade was under pressure last month. But it recovered over the last three weeks. The back and forth has again taken a negative turn after AI bellwethers Oracle (ORCL) and Broadcom (AVGO) reported earnings that didn’t impress investors.

It’s no secret that a conspicuous presence of activist investors in an ailing company has proven to be one of the most powerful, and reliable, catalysts for a successful turnaround. For that reason, I’m always on the lookout for companies that have recently become the target of activism.

But if the Trump Administration gets its way, the activist investor catalyst could soon be of diminished importance.

This week was all about the Fed. But those of us watching small caps noticed some major news too – the S&P 600 has broken out to its highest level in just over a year.

The catalyst was the Fed’s fully expected 25 bps cut yesterday. It was less of a hawkish cut than expected and included a commitment to buy $40 billion in short-term Treasuries to ease money-market strains that emerged after halting balance-sheet runoff.

Prior to that announcement, the index was toying with a breakout, but afterward it shot up and closed 2.4% higher on the day.

As expected, the Fed cut interest rates for the third time this year on Wednesday, but officials remain divided over the future and signaled that cuts next year are likely to be limited.

Two Explorer stocks stand out. Those are Banco Santander (SAN), up 153% so far this year so I recommend taking partial profits if you have not already done so. And there’s Coeur Mining (CDE), whose shares that are now up 179% so far in 2025.

The law of averages is a powerful thing … especially when it comes to investing.

Stocks and sectors that outperform for an extended period of time often regress to the mean, sometimes violently, when people least expect it. On the flip side, stocks and sectors that have underperformed for months or even years start to get noticed by bargain hunters and play catch-up, even if it’s a bit more gradual.

Circle December 15 on your calendar. That’s the day the Supreme Court will likely let us know whether it decides to hear a major cannabis lawsuit. If it says yes, cannabis stocks will rally hard. Cannabis stocks may well even rally in the run-up to that date.

The suit challenges federal jurisdiction over cannabis in states where it is legal. We still won’t know the final outcome if the court decides to take up the case. So, any rally might be sellable for very short-term traders. Personally, I will continue to hold through, because the timing of any rescheduling news is uncertain.

The market is close to the high, and all eyes are on the Fed.

The market has priced in a 0.25% fed funds rate cut already. It could get ugly if the Fed doesn’t cut the rate on Wednesday. But that is unlikely. The rally in interest rate-sensitive stocks took place over the past few weeks. Now, those stocks are pulling back as investors fret over what the Chairman might say about future rate cuts in the minutes following the rate cut announcement.

It’s that time of the year when economists and market mavens spill an abundance of ink making year-ahead stock forecasts and boom/bust warnings. As there seems to be an abnormal amount of recession predictions for the year ahead—including a few from some reputable sources—I think we should examine the question: Will the U.S. witness a major economic shock in 2026?

WHAT TO DO NOW: The evidence has improved of late, though we haven’t seen many decisive green lights from our indicators. Still, with so much cash, we’ll dip a couple of toes in tonight and then follow up … if the good vibes continue. Tonight, we’ll add half-sized positions (5% of the account) in Eli Lilly (LLY) and JFrog (FROG), leaving us with a still-big 55% cash hoard. Details below.

The resilient market forges on. After the biggest market dip since April in the middle of last month, the S&P has gained it all back in the last couple of weeks.

Stocks weakened last month as investors worried that tech stock valuations were too high, as the artificial intelligence trade may be overdone. They also worried that the Fed would not cut rates in December. But stocks were rejuvenated after some positive statements by Fed members greatly increased the odds of a December fed funds rate cut.

This is one confusing market. It’s doom and gloom one day and then optimism the next. Investors can’t seem to make up their minds about whether the world is going to Hell in a handbag or it’s time to buy. What’s going on?

Last week was confounding to say the least. Two events promised to address the market’s chief concerns: the sustainability of the AI trade and the state of the economy. Last week’s earnings report from the ultimate AI bellwether Nvidia (NVDA) and the long-awaited jobs numbers could answer both questions. Both the earnings report and the jobs report were everything investors could have hoped for. Stocks tanked anyway.

Natural Grocers (NGVC) delivered a Q4 FY25 report and guidance for next year that “should” be good enough to stabilize the stock and get it moving higher again. That said, we have a half-sized position, and if shares don’t stabilize here (KR and SFM have recently done so), then we’re more likely to exit the position than fill the other half. Next week will be important for NGVC.

WHAT TO DO NOW: Despite the indexes holding up today, lots of growth stocks are again coming under pressure, continuing a wave of late-week distribution. We’re already holding a lot of cash, but today we’re selling one more position—Vertiv (VRT), which had been trying to hold up but the late-week selling pressure has been too much, cracking the stock. We’ll sell our half-sized position and hold the cash, leaving us with around two-thirds on the sideline in the Model Portfolio.

Today, a whopping eight Profit Booster positions will expire. Most are “slam-dunk,” full-profit trades, while others will go down to the wire.

The big takeaway, before we dive in, is we are going to let the situation play itself out, and come Monday/Tuesday of next week we will revisit our profits, as well as how we will manage the remaining positions.

Sell Warrior Met Coal (HCC). Buy Second Half of Life360 (LIF)

Lighten up a Little

WHAT TO DO NOW: The market remains very mixed, as we continue to see some tempting names but also more than a few that are hitting potholes, as well as rotation into safe areas. Yesterday, we sold Life360 (LIF) after that stock fell apart on earnings—and now we’re going to sell our half-sized stake in AppLovin (APP), with Friday’s and Monday’s encouraging action going up in smoke since. That will leave us with a high-50% cash position, which is a lot; if the market stabilizes, we’ll probably start a couple of new positions, but for the moment we’ll sit with that cash and see how things play out.

WHAT TO DO NOW: The market has bounced back decently, though our market timing indicators are still looking iffy for now. Today’s bulletin is about Life360 (LIF), which is falling hard today despite a solid quarterly report. Given the abnormal action, we’re forced to sell and take what’s left of our profit. Our cash position will now be around 50%.

Life360 (LIF) Delivers Q3 Report

Karman Holding (KRMN) got whacked this morning after reporting a mixed quarter but has climbed back somewhat through the early afternoon. We’re standing by it, for now.

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