The market’s momentum continued last week as a benign inflation print and another round of solid earnings backed up bullish sentiment—with virtually all of the major indexes moving higher. For the week the S&P 500 rose 0.7%, the Dow Jones Industrial Average advanced 0.8%, the Nasdaq Composite jumped 2.2%, but the Russell 2000 slipped 1.4%.

We’re seeing lots of crosscurrents in the market right now, especially when it comes to the evidence -- the big-cap indexes are in good shape and we’ve seen a few more breakouts from growth stocks ... but the broad market is very iffy and most other indexes are stuck in the mud. We think it’s best to go with the flow--ditching stocks that break down but selectively adding stronger, fresher names, all while holding some cash for future buying power (if more breakouts come during earnings season) and for cushion (if the market weakens again). We’ve had a few changes in the past two weeks (including some in our special bulletin today), and we go over all the details in tonight’s issue.

Cannabis investors have turned into bored apes.

After President Donald Trump said on August 11 he’d get around to cannabis reform “in a few weeks,” cannabis speculators concluded making money was as simple as pulling out a calendar, counting forward three weeks, and buying ahead of the expected big pop on that date – which was in early September.

It goes without saying that a big part of being a turnaround investor is having a contrarian bent. Let’s face it, we’re a hardy bunch who typically shun the crowd and buy what are, in most cases, stocks that are completely out of vogue with the typical market participant.

Stocks made yet another new high this week.

The S&P 500 has returned 17% this year and is well on its way to another 20%-plus return year, making it three consecutive years of such returns for the first time in nearly 30 years. Sure, the market likes rate cuts, but artificial intelligence is the main force driving the market higher.

Technology stocks, which now comprise more than a third of the S&P index, have driven the market higher for most of this three-year-old bull market. While AI is the primary driver of the market, it isn’t about just technology stocks anymore. The AI catalyst is driving other sectors higher.

AI is transforming the utility sector. The best stocks now offer strong growth in addition to defense. After being stagnant for decades, electricity demand is exploding. AI requires enormous amounts of electricity for the data centers that house the computer components. Electric vehicle proliferation and rapidly growing onshoring of manufacturing are also juicing demand.

In this issue, I highlight one of the best utility stocks on the market. This unprecedented environment is transforming the market’s most defensive sector into one that also offers exciting growth. The combination of defense and growth is unbeatable.

Despite some mid-week wobbles for stocks, especially in the growth sector, the market once again closed the week at new highs as the S&P 500 gained 1.9%, the Dow rallied 2.2% and the Nasdaq advanced by 2.3%.

While there are new headlines each week that push and pull the overall market and individual sectors, the overall picture mostly remains the same: From a top-down perspective, the buyers continue to show up where they “should” after every pullback, keeping the intermediate-term trend of the major indexes up. Individual stocks remain trickier, and with earnings coming for most, that will probably tell the tale. We have seen a couple more breakouts of late, which is encouraging, but tonight we’ll stick with our level 7 on the Market Monitor and monitor how the gaggle of earnings reports are received in the days ahead.

This week’s list has something for everyone, including recent earnings winners, setups heading into quarterly reports and pullbacks in names that are already in strong uptrends. Our Top Pick rested in the summer and fall and has re-emerged on the upside.

Strong earnings results, Fed rate cuts, and easing trade tensions with China. It’s no wonder stocks are stretching to new all-time highs! Of course, it’s been a bit topsy-turvy getting there these last few weeks. But Wall Street is ultimately a sucker for a strong economy, and that’s essentially what we have until further notice. And in strong economies, it makes sense to invest in financials. So today, we add one of the biggest-name U.S. banks – a stock that made the cut in last week’s Cabot Top Ten Trader issue.

Details inside.

Despite some mid-week wobbles for stocks, especially in the growth sector, the market once again closed the week at new highs as the S&P 500 gained 1.9%, the Dow rallied 2.2% and the Nasdaq advanced by 2.3%.

Despite some mid-week wobbles for stocks, especially in the growth sector, the market once again closed the week at new highs as the S&P 500 gained 1.9%, the Dow rallied 2.2% and the Nasdaq advanced by 2.3%.

To begin, just a heads up that there will be no Cabot Wealth Explorer issue on November 13 as I will be in transit for a mining and resource conference in Senegal.

Morgan Stanley (MS) notes that stock picking is back, with single-stock activity as opposed to funds and ETFs seeing a significant rise in recent months. This is interesting as there are now more ETFs trading on exchanges than stocks. Blending the two together is the optimal strategy for most.

Before we dive into this week’s covered call idea, we need to clean up a couple positions from the October expiration cycle.

Volatility is back, with the VIX spiking above 20 for the first time since early August and above 21 for the first time since June.

Tariffs are the reason. Specifically, escalating tariff rhetoric between the U.S. and China, which spooked the market into its worst one-day selloff since April last Friday, and has prompted wild intraday swings every trading session since. So far, the damage to the major indexes has been fairly limited (the S&P 500 is less than 2% off its highs, as of this writing), but under the surface, a few yellow flags have emerged, including the number of 52-week lows among NYSE-listed stocks topping the magic number of 40 (it’s up to 63) that typically precludes a more pronounced market pullback. We’ll see how much the just-underway third-quarter earnings season can act as a yin to tariffs’ yang and hopefully provide a relatively high floor for stocks in the coming weeks. As I wrote in this space last week, that may depend on whether companies can cross the relatively high bar of 8% earnings estimates.

China could be a problem.

After spending most of the summer and September making a series of new highs, stocks suddenly tumbled on Friday. The S&P 500 fell 2.71% and the Nasdaq fell 3.56% in one day. It was tariff news that caused the carnage.

The market took a big hit for the first time in quite a while last week. But it is recovering nicely so far this week.

After spending most of the summer and September making a series of new highs, stocks suddenly reverted to last April’s form on Friday. The S&P 500 fell 2.71% and the Nasdaq fell 3.56% in one day. It was tariff news that caused the carnage.

In a raging bull market that has benefited virtually every one of the S&P’s 11 sectors, the conspicuous laggard among them has been the consumer staples.


The staples sector is down 2.4% year-to-date, compared to positive net returns on the other 10 sectors. Leadership in recent quarters, which is illustrated in the following chart, includes: info tech (up 13%), communications services (up 12%), consumer discretionary (up 10%) and utilities (up 8%).

WHAT TO DO NOW: The market’s trends remain in good shape, though the broad market is still a bit iffy and growth stocks are up and down—though, encouragingly, we have seen some solid snapback action this week, with a few names we own and are watching re-testing resistance. All told, the plan remains the same: Give our names some rope and look to add exposure in names as they get going, all while being selective. Tonight, we’re placing AppLovin (APP) on Hold due to its news-driven air pocket, but we’re adding another 3% stake in Arista (ANET), which is perking up. Our cash position will be around 29%.

Third-quarter earnings season gets underway next week, and expectations are high. Economists are expecting 8% earnings growth among S&P 500 companies, according to data compiled by FactSet. It would be the eighth consecutive quarter of at least 8% profit growth among U.S. companies – perhaps the biggest reason stocks have been on a tear the last two years.

The S&P 500, Nasdaq and Russell 2000 are all up modestly compared to a week ago, while the S&P 600 is roughly flat.

Between the two small-cap indices, the Russell 2000 has been the stronger performer lately. It has a higher proportion of more speculative, lower quality stocks (i.e., those with lower or negative earnings), which have attracted more attention than the comparatively higher-quality (i.e., those with higher or positive earnings) stocks in the S&P 600 index.

While President Donald Trump hangs fire on rescheduling cannabis, we continue to get signs that support what I call the inexorable march towards greater acceptance of cannabis use and legal reform that will help public companies in the space.

We see momentum for cannabis acceptance and reform in: Ongoing federal-level evidence that Trump may actually follow through on his campaign promise to reschedule cannabis; ongoing robust state-level sales growth; opinion polls; and scientific evidence that cannabis has medical benefits.

What shutdown? What tariffs? The market couldn’t care less. It just keeps moving higher.

After making a series of new highs throughout the summer, the S&P had a great September. October looks good so far, too. Stocks are being driven higher by technology and the artificial intelligence trade. The technology sector is up 9% over the past month.

I was recently asked, “Why are there so few small-cap stocks in the Cabot Turnaround Letter portfolio?” That’s a fair question—a timely one at that—so I’ll address it here.

This week, about half of the Federal government shut down, causing stocks to waver and gold prices to spike due to uncertainty over how and when the budget duel might end. There are few winners in this tug-of-war scenario. This is not a good time for this showdown given weak business spending, a weak dollar, and weak job growth. The market normally takes these political fights in stride depending how long they last. Stay positive but cautious, and as always look for some profits to take off the table.

The market continues to hover near the high. The S&P is up over 13% year to date and about 38% from the April low.

Sportradar (SRAD), Unity (U) and Triple Flag (TFPM) Report

Shares of Xometry (XMTR) are up double digits to new highs today after the company smashed Q3 expectations and raised full-year guidance. Here are the headline numbers:

Sensient Technologies (SXT) Reports: Moving to Sell

FTAI Infrastructure (FIP) Reports

Microsoft (MSFT) and Alamos Gold (AGI) Report

WHAT TO DO NOW: As we write about in tonight’s issue, there are many crosscurrents out there, with some growth names cracking while others emerge on the upside, so we’re selling laggards while aiming to add fresher, stronger names. In the Model Portfolio, we sold MP and GEV last week, and today we’re going to sell Oracle (ORCL), which tripped our mental stop today. That said, we’re also going to fill out our position in CrowdStrike (CRWD), adding another half-sized stake, and start a new half position in Vertiv Holding (VRT), all of which will leave us with around 38% in cash.

Shares of Perpetua Resources (PPTA) are bucking the weak day for gold this Monday on news that the company has secured a $225 equity investment from JPMorgan Chase (JPM) and Agnico Eagle Mines (AEM).

We’re going to take a modest profit of around 8% on Doximity (DOCS) today

GE Vernova (GEV) reported this morning, with revenue, EBITDA, margins and Free Cash Flow all coming in ahead of expectations, while GAAP EPS missed. Management reaffirmed full-year guidance and said its Power and Electrification segments continue to lead growth while Wind remains soft but is improving on an operational level. Orders and backlog hit records with 20 gas turbines sold in Q3. The company acquired the remaining 50% stake in Prolec GE for $5.275 billion (expected to close mid-2026).

WHAT TO DO NOW: Yesterday we took our tiny profit MP as that stock has continued to tumble, and now we’re going to sell our stake in GE Vernova (GEV), which reported a very solid quarter this morning—but investors took the opportunity to sell into the move, creating a breakdown from a big double top. We’ll sell and hold the cash, leaving us with around 43% on the sideline.

This report explains my buy, hold and sell opinions for the Standard & Poor’s 11 sectors. In summary, seven sectors should fare quite well during the remainder of 2017, but other sectors will likely perform poorly in the months ahead.

Writing covered calls is a great way to boost your yield on stocks you already own, and involves a lot less risk than most investors think.

Dividend reinvestment is one of the most powerful weapons in the income investor’s toolbox.

The Cabot Emerging Markets Timer measures the intermediate-term trend of emerging markets-related stocks.

If you like the idea of buying low and calmly hanging on...this is the right advisory for you.

Here’s a list of the attributes I seek for any stock I consider for inclusion in Cabot Dividend Investor.

SNaC is the method chief analyst Paul Goodwin uses to choose stocks for the Cabot Emerging Markets Investor

Guidelines to improve your investment results with Cabot Top Ten Trader.

The Cabot Top Ten Trader system evaluates price and relative performance of 8,000 charts each week to select the strongest momentum stocks.

By following thse guidelines, we’ve always been able to get on board relatively early in each new bull cycle.

A brief guide on using the Cabot Top Ten Trader.

Here are five tips to help you manage your Cabot Small-Cap Confidential stocks.