I have to admit, a couple of weeks ago, on our Cabot Street Check podcast, Chris Preston, host and Chief Analyst for Cabot Value Investor, and I discussed the possibility of a recession and I commented that I thought recession fears were mostly over.

Well, I’m going to reconsider that (a bit) after Monday’s 1,000+ point loss in the Dow. Last week’s jobs report came in at 114,000 jobs—considerably less than the 185,000 expected—spooking the markets and causing economic gurus to once again bring up the possibility of the dreaded “R” word. Additionally, the unemployment rate edged up to 4.3% and manufacturing and construction spending were also less than expected, furthering economic worries.

The dramatic decline in the stock market of the last couple weeks has pushed two of our positions through our stops. And because of that we are going to exit those positions …

Please note, S&P 500 futures are indicated lower by approximately 4.5% this morning, while the Nasdaq is looking down 5.5%. I go into some of the reasons why below.

Regardless of the reasons, I do not expect to buy or sell many positions today. Instead, as I’ve said for weeks as the trading action had become murkier, I continue to preach patience.

Moving on to our Week in Review …

Please note, S&P 500 futures are indicated lower by approximately 4.5% this morning, while the Nasdaq is looking down 5.5%. I go into some of the reasons why below.

Regardless of the reasons, I do not expect to buy or sell many positions today. Instead, as I’ve said for weeks as the trading action had become murkier, I continue to preach patience.

Moving on to our Week in Review …

It looked like the bulls were ready to put up a fight last Wednesday, but it’s been all down since then, lowlighted by today’s action. Stepping back, we have two thoughts: Short term, there was definitely some panic today, and the fact that we saw a solid intraday bounce (closed well off the lows) implies some sort of bounce is possible. That said, the sharp, straight-down action from the market peak less than four weeks ago tells us a good amount of repair work is needed even if we do bounce. In terms of actions, we haven’t been pushing the envelope for many weeks, so if you have a good-sized cash position, we wouldn’t necessarily sell wholesale. That said, you should honor most stops (simply holding everything and hoping isn’t advised) while remaining patient. We’ll drop our Market Monitor to a level 4 (from 6) given the damage.

This week’s list has a lot of proper charts even after the latest selling storm. For our Top Pick, we’re going with a well-situated biotech firm that popped on positive drug trial results that will dramatically expand the opportunity for the big-selling drugs already on the market.

It’s become a full-blown market correction. When will the selling stop? No one knows. But as always, when it does, there will be ample opportunities to make huge profits on the other end of it. In the meantime, we prune a few of our hardest-hit positions today and add a new position designed to capture growth in the fastest-rising economic power in the world, India. It’s a brand-new recommendation from Carl Delfeld in his Cabot Explorer advisory.

Details inside.

Going into last week we knew it had the potential to be a wild five-day stretch, and the market didn’t disappoint as the indexes swung violently, and sector rotation was intense. By week’s end the S&P 500 had fallen 1.55%, the Dow had rallied 0.5%, and the Nasdaq had lost 3.8%.

Going into last week we knew it had the potential to be a wild five-day stretch, and the market didn’t disappoint as the indexes swung violently, and sector rotation was intense. By week’s end the S&P 500 had fallen 1.55%, the Dow had rallied 0.5%, and the Nasdaq had lost 3.8%.

Infrastructure has been a hot topic for the last couple of years given passage of a bipartisan bill to finally spruce up the U.S. and try and address climate change.

This month we’re jumping into a pure-play infrastructure company that owns railroads and deep-water ports supporting crude oil and clean fuel shipments, as well as a modern power plant that’s getting tons of calls from AI data centers.

One thing – the company reports quarterly results after the bell today!

Two years after the yield curve inverted, there’s still no U.S. recession in sight. As a result, financials – beaten to a pulp during the double whammy of the 2022 bear market and the March 2023 bank collapse – have become the fastest-growing non-tech sector of the market. It’s also one of the most undervalued. So in this month’s issue, we add a very recognizable big bank that does a little bit of everything – and seems to be everywhere. It’s growing at a healthy clip and yet is cheaper than even the average financial at the moment.

Details inside.

Explorer stocks gained ground this week as market sentiment improved along with the odds of a Fed rate cut this fall.

I’ve been encouraging you to lighten up on some of the Magnificent Seven stocks over the last month or so. In just the last two weeks, these stocks have lost over $1.6 trillion in market value as market enthusiasm has waned and insiders have sold some stock.

What’s behind this trend?

Here are three possible reasons why big tech is facing a tough market.

Cannabis is a highly politicized sector because it is extensively regulated.

The political news has been very good for cannabis. But cannabis investors have been slow to recognize this.

A late-July Fox News poll showed that Vice President Kamila Harris has caught up to and surpassed Donald Trump in five key swing states.

Cannabis stocks should have advanced on the news. Not only is Harris a better cannabis advocate than President Joe Biden, she’d obviously be more favorable to the sector than Trump.

The market has been on edge since the Fed’s hawkish tone and updated Summary of Economic Projections (SEP) last week. But if we can get oil and interest rates to back off a little and some stock-specific catalysts during the upcoming Q3 earnings season maybe we can finally take our macroeconomist hats off and get back to doing what we’d rather do. Which is talk about some of the great small growth stories out there!

The market and most Explorer positions struggled a bit this week except Conoco (COP), which is benefitting from crude oil hitting 2023 highs. Consumers and businesses are looking forward to the Fed ending interest rate increases as the inflation fight continues. Food inflation slowed to about 3% year-over-year in August, down from a troubling 13% a year earlier. Those topics, plus Japan, China and the electric vehicle arms race, in today’s Cabot Explorer update.

This market is officially flirting with ugly. The S&P is now down about 7% from the 52-week high and not far from correction territory, down 10% from the high.

The selling intensified over the last week after the Fed struck an unexpectedly hawkish tone at last week’s meeting. The gist of the Fed’s message is that rates may well go higher and will stay higher for longer. The statement pours cold water on the notion that rates will be cut in the near future and reinforces the realization that higher rates are here to stay.

Cisco Systems (CSCO) announced a huge $28 billion deal for security software specialist Splunk (SPLK). Regardless of concerns over the economy, rising interest rates, the incipient tech-driven Cold War II, rising government focus on anti-trust and other macro issues, there will always be blockbuster deals. We dig into the deal in our comments below on Cisco.

This week there were no earnings reports or ratings changes.

The highlight of my week so far just might be waking up this morning and realizing I can count the remaining days in September just using my fingers. That’s not because the weather hasn’t mostly been beautiful in Rhode Island. It has. It’s because, as you know, the market has struggled this month.

The surprisingly strong market of 2023 has been sputtering. The S&P 500 moved lower in August and is lower so far in September. But there’s no alarming selloff. The index is 3.6% lower than it was at the end of July. It’s mostly just a pause so far.

As readers may know, we are generally not the biggest fans of private equity. Our biggest concern is that, while earlier private equity and venture capital funds were remarkably successful in identifying and capturing highly profitable investments for their clients, more recent vintages, going back perhaps 10-20 years, have mostly produced large profits for the fund managers. News that many Johnny-Come-Lately funds will actually lose significant money on the Instacart IPO highlights this problem. High-quality and early movers will likely post enormous profits.

The market is always uncertain. No one ever really knows in which direction the next 5% or 10% move will be. But this is a much higher level of uncertainty than usual.

The good year so far has been a surprise. Most pundits were forecasting more gloom and doom at the beginning of the year. But the S&P 500 is up 15% YTD. It rallied on the promise of a soft landing and then got a further boost as artificial intelligence spending promises to be a strong growth catalyst for the market’s largest sector for years to come. After sputtering for the last six weeks, where does it go from here?

After the close Friday, we learned that the Senate banking committee has scheduled a vote on key cannabis sector banking reform on September 27.

Of course, we do not know that the committee will stick to its schedule. But it is likely, so I will assume that will be the case. This timing suggests a possible course of action for cannabis holdings.

This week there were no earnings reports or ratings changes.

WHAT TO DO NOW: Remain cautious. Most stocks, sectors and indexes are still stuck in the throes of a corrective phase, though we do like some things like our resilient Aggression Index and (relatedly) some sturdy action among growth stocks. While we could add another small position if the market firms up a bit, we’re comfortable with the stocks we have in the Model Portfolio and our positioning right now. Thus, we’ll stand pat tonight and practice more patience—our cash position is in the low 40% range.

On Holding (ONON) is in full retreat mode since reporting what appeared to be mostly good earnings on Tuesday this week.

Our BITO May 19, 2023 puts are essentially worthless, so we can lock in some decent profits and immediately sell more puts.

Moving M/I Homes (MHO) to Sell

I will be exiting the Walmart (WMT) trade today.

Walmart (WMT) is due to announce earnings Thursday before the opening bell.

WHAT TO DO NOW: The overall market remains mixed, but the under-the-surface action remains a meat grinder, with numerous stocks getting chewed up after making big swings. Today, we’re cutting loose On Holdings (ONON), which had a great Q1 but has nevertheless seen sellers swarm. This will leave us with more than 70% in cash, which is too high given the evidence, so we may have a new addition or two in tomorrow’s issue, though we’ll have to see how it goes given the continued air pockets among potential leaders.

We have one short call position left in May that needs to be rolled, SPY. There is little to no value left in our May 19, 2023, 420 calls, so as a result, I want to buy back our 420 calls and immediately sell more calls. This should help to bring our deltas back in line as well.

Disney (DIS) is due to announce earnings today (Wednesday) after the closing bell.

Disney (DIS) is due to announce earnings today (Wednesday) after the closing bell.

Airbnb (ABNB) and Rivian (RIVN) Report

Expensify (EXFY) reported underwhelming Q1 2023 results after the bell yesterday. Our goal here was to get into what seems like a promising long-term opportunity with a small specialist (expense management and other financial tools for small and very small businesses) before the trends turned more positive.

With 37 days until the June 16, 2023, expiration, I want to lock in another profitable trade today, this time in DIA. We can take well over 50% of the original premium sold for a nice gain.

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.