The market bounced back very nicely from the previous week’s losses, ahead of the big Federal Reserve announcement this week. By week’s end the S&P 500 had rallied 3.2%, the Dow added 1.9%, and the Nasdaq rebounded 4.9%.

The market bounced back very nicely from the previous week’s losses, ahead of the big Federal Reserve announcement this week. By week’s end the S&P 500 had rallied 3.2%, the Dow added 1.9%, and the Nasdaq rebounded 4.9%.

What a month! Markets have had some pretty wild moves since last month, gyrating with significant volatility, and that looks like it may continue for a while. But that’s OK as the volatility is now serving up some pretty exciting discounted opportunities for investing.

Economically speaking, inflation abated somewhat, with core inflation falling to 3.2% for August, its lowest point in three years. And that sets the stage for an estimated 25 basis point reduction in interest rates when the Federal Reserve meets next week, according to the latest economist polls. The rate gurus now think that we may see a total of three rate cuts before the end of the year.

Lower inflation numbers yesterday made interest rate cuts inevitable which moved the market, led by Nvidia (NVDA), which surged 8%. I intended to recommend Nvidia at a price of 100 so I will patiently watch this bellwether stock closely.

To be a good, patient and calculating investor, one needs to do two things at once: Be aware of big macro issues and trends and focus attention on micro issues. That is, closely watch specific companies and stocks, especially smaller, micro stocks offering the biggest upside and risk demanding closer attention.

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We are in the early stages of a new cycle in the market.

The environment is changing from one of high inflation and high interest rates to one of falling inflation and interest rates in a weakening economy. And it is unlikely to be a mere short-term gyration but rather the beginning of a new environment that should last for some time.

Interest rates may fall quickly or more slowly depending on whether the economy remains buoyant or slips towards recession. But rates will fall much more significantly than they have in years.

The cycle reversal will create new winners and losers. Certain interest rate-sensitive stocks have been laggards for a long time and have a lot of catching up to do. They are still cheap, high yielding, and now have momentum.

In this issue, I highlight a great monthly income stock. The yield is massive, and it provides a high income in an uncertain market. The stock also can provide great price performance when the interest rate cycle goes its way. This point in the cycle provides a great opportunity to get a high income and total return on the right side of a pronounced market shift ahead.

Led by an awful week for the Semiconductors (down 11%), the S&P 500 fell 3.62% last week, while the Dow lost 2.42%, and the Nasdaq dropped another 5.5%.

The overriding question coming into last week was whether, after the V-bottom and strong rally for much of August, the market could keep going or would it fall back into a longer bottom-building process. After last week, it’s looking like stocks need more time to set up, as big investors returned from the long weekend and sold stocks basically every day. Of course, today saw a bounce, and a strong-volume rally with fresh breakouts among potential leaders would be very bullish -- but until we see that, we have to assume the market correction that began in mid July is still ongoing. Long story short, we continue to play things relatively cautiously, sticking with small positions and a chunk of cash on the sideline as we wait for more stocks to emerge on the upside. We’ll leave our Market Monitor at a level 6.

This week’s list has a lot of familiar names that are (or are close to) offering decent entry points. Our Top Pick is a consistent grower with a big story that’s trying to emerge from a three-plus-month rest.

The predictable September selloff got underway last week, though thankfully only one holding in the Stock of the Week portfolio was a true casualty of Wall Street’s usual post-Labor Day foul mood. This week, likely the last before the Fed (finally) starts to cut interest rates, we add a company that should benefit directly from the cuts: a mortgage lender and real estate firm. It’s a new recommendation from Mike Cintolo in his Cabot Top Ten Trader newsletter, and it’s a stock that’s already having a nice year – but could have way more upside once the Fed starts to cut rates.

Details inside.

Led by an awful week for the Semiconductors (down 11%), the S&P 500 fell 3.62% last week, while the Dow lost 2.42%, and the Nasdaq dropped another 5.5%.

Led by an awful week for the Semiconductors (down 11%), the S&P 500 fell 3.62% last week, while the Dow lost 2.42%, and the Nasdaq dropped another 5.5%.

The market’s rally off the August lows was impressive, and the market’s big picture outlook remains bullish. But growth stocks never quite kicked into gear, which is why we retained a good chunk of cash on the sideline. Now we see the sellers showing up this week, which we see as a key test--if the market and growth stocks can rally from here, this could be a needed shakeout that paves the way to higher prices ... but if not, more time and consolidation may be needed in the traditionally tricky September/October time frame.

In the meantime, we’re taking things on a stock-by-stock basis, giving our names (most of which are acting fine) a chance to rest and set up--but we’re also willing to dump things that flash abnormal action. Recently one of our stocks has done that, so we’re taking our small profit and holding the cash tonight.

The Fed is on the precipice of cutting interest rates for the first time in years; when that happens, homebuilder stocks tend to benefit first. But that’s not the only reason to be bullish on the sector. Homebuilders have changed the way they do business in recent years to become more like car makers, only with greater upside and higher internal rates of return. With both those short- and long-term winds at their sails, homebuilder stocks are a good – and still undervalued – bet. And today, we add a big name in the space that has the best combination of growth and value.

Enjoy!

Other than the buyout of Kaman (KAMN), it’s been a relatively quiet week for company-specific news.


Regarding Kaman, the company announced that it will be taken private for $1.8 billion, or $46/share, a huge 100%-plus premium over the prior day’s closing price. The market has had little confidence in Kaman’s turnaround, despite what we saw as evidence that impressive changes are underway, led by its capable new CEO. The huge premium is at a discount to our $57 price target, but we’re fine with the deal as it produces a reasonable return, in cash, today, compared to a slog for a year or more while the turnaround plays out.

With the market bouncing around in the first two weeks of the year on more speculation about Fed rate cut magnitude/cadence (economists are now thinking slower and fewer of them) and mounting geopolitical risks, small caps as an asset class have begun to trail the broader market.

That said, on a stock-specific basis there’s been a lot of positive motion in small caps in the MedTech and software space, which is where we concentrate.

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It’s earnings season again! And this one should be more important than most.

Earnings are, of course, a big deal for the individual company. But in addition to company-specific fundamentals, Wall Street will be carefully watching what company earnings indicate about the macro environment.

Earnings season has arrived, and with it could be a recalibration of investor expectations for stocks broadly.

The S&P 500 Index seems reasonably priced at 19.5x estimated 2024 earnings. But nearly 30% of the index’s weight comprises Magnificent Seven stocks, whose average multiple is 33x. Estimated earnings growth rates for these Mag Seven stocks, which average 19% for each of the next five years, set a high bar. When high expectations meet less-high reality… well, investors know what can happen to stock prices. And, any wobbling in the largest stocks can send the market broadly lower. As Dennis Gartman, the legendary and now-retired writer of The Gartman Letter, frequently said, “When the generals leave the field, the rest of the army follows.”

The market surge has leveled off. The expectation debate about peak interest rates, inflation, and recession continues. And now, it’s another earnings season.

The S&P 500 pulled back during the first trading week of the year after a two-month, 15% spike. In the second week, the index gained back everything it lost the first week. He we are again on the cusp of the all-time high set about two years ago.

In today’s note, we discuss the earnings reports from Wells Fargo (WFC). Please note that our comments on Well’s earnings didn’t make it into the podcast.

The first two weeks of 2024 have been a bit sloppy with the markets down the first week, strengthening a bit this week then back down again today as this morning’s inflation numbers (CPI) came in a little higher than expected.

Thus far small caps have lagged large caps this year at the index level, though it’s not worth overthinking it too much just 11 days into the year.

WHAT TO DO NOW: In yesterday’s update we wrote that the market still had a lot to prove, and indeed, the market is down further today despite a dip in interest rates—and more important to us is that some of the resilient names are getting hit with the market. One of those is Uber (UBER), which is cracking support on no news. We’re not craving more cash, but we’ll respect the action and sell one-third of our stake in Uber (UBER) this afternoon and see how it goes from here. Our cash position will now be in the upper 60% range.

Today I want to buy back our PFE October calls and immediately sell more call premium.

I will be exiting the JP Morgan (JPM) trade today. I will discuss the trade in greater detail in our upcoming weekly issue.

Okay, everyone, earnings season is finally upon us. I suspect we are in for an interesting earnings season, and to get us started, I will be holding a subscriber-only webinar tomorrow at 12 p.m. ET. Click here to sign-up. No worries if you can’t make it, we archive everything here at Cabot. You can find all the archived recordings here.

We have numerous positions to roll prior to the October 20, 2023. I’m going to start today with GOOGL an AMGN. I’ll be sending out several alerts over the coming days. Stay tuned!

After being tested on the upside and downside over the past month, we finally have an opportunity to close our October 20, 2023 iron condor in IWM for a nice profit. For those of you that wish to hold on for greater profits, please make sure you are fully aware of the risks.

With the SPDR S&P 500 ETF (SPY) trading for 429.69, I want to place a short-term bull put going out 42 days. As always, my intent is to take off the trade well before the November 17, 2023, expiration date. I’ll discuss the trade in greater detail in our upcoming weekly issue.

The broad market was taken down a notch yesterday, supposedly because job openings increased in August. I’m not buying it.

We’ll get average hourly earnings for September on Friday, which will probably show wage inflation continues to ease and the labor market isn’t as tight as yesterday’s market reaction implies.

WHAT TO DO NOW: The market’s action of late is encouraging for sure, but there’s still more work to do with our Cabot Tides and growth funds. Today we’re going to sell our small remaining position in DoubleVerify (DV) and hold the cash—with an eye toward redeploying the funds in the near future should the market and individual stocks continue to firm up. Our cash level will now be around 45%.

The broad market is getting whacked today after holding up relatively well in the face of rising bond yields. The reasons behind why bonds are selling off and yields are rising is beyond the scope of our discussion today. But suffice to say there are forces at work that are more complex and nuanced than a simple “Fed says higher for longer so yields are rising.” The recent spike in the 10-year yield may well have more to do with the federal deficit and supply/demand dynamics. So yeah, beyond the scope.

We allowed our BITO calls to expire worthless last week. As a result, we locked in a return of 3.4%. Now it’s time to sell more call premium against our BITO shares. We have managed to reap a total return of just over 105% since introducing Income Trader 16 months ago.

With November expiration only 49 days away, and with implied volatility kicking up over the past week, at least a little, I want to sell some premium. So, I’m going to start with another bear call spread in SPY and add some additional positions over the coming week.

Our Cabot Top Ten 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 Top Ten features.