Despite the worries surrounding the government shutdown the market continued its winning ways last week as the S&P 500 and Dow both rallied 1.1%, and the Nasdaq added 1.3%.

Despite the worries surrounding the government shutdown the market continued its winning ways last week as the S&P 500 and Dow both rallied 1.1%, and the Nasdaq added 1.3%.

Remember fintech? It was one of the biggest buzzwords on Wall Street a couple years ago until AI came in and gobbled up all investors’ attention. But the nascent sector never stopped growing, and now share prices are well below their apex as investors have largely ignored the sector the last couple years. In fact, this month’s new fintech addition to the Cabot Value Investor portfolio has almost never been cheaper since coming public in 2020. And yet, the company is still expanding both sales and earnings by more than 25% annually.

It’s a classic growth-at-value-prices story. And we think it has 45% upside in the short-to-intermediate term. Details inside.

The market remains mostly in the same position it has been, with the big-cap indexes trending nicely higher and, based on historical studies, the outlook for the indexes very bullish looking out 3 to 12 months. That said, the broad market is borderline iffy (our Two-Second Indicator is negative) and the chop factor is still with us for growth stocks, so we’re still not cannon-balling into the pool ... though we do see many setups (as so many stocks have marked time for the past 1 to 3 months) out there. Tonight we’re adding another new half-sized position but are still holding about one-third in cash as the next couple of weeks will be telling.

Today we’re wading into the sports betting market, which is evolving into a duopoly where two players hold most of the data that provides a vast network of sportsbooks access to the world’s biggest sporting events.

There is, however, more to the story than just placing a wager on your favorite team.

The October Issue of Cabot Small-Cap Confidential explains it all, and which of these global tech companies we’re teaming up with.

The story of last week was under-the-surface weakness in growth stocks, while money rotated into “everything else.” And by week’s end the S&P 500 had lost 0.3%, the Dow fell 0.1%, and the Nasdaq declined by 0.7%.

The market is still in fine overall shape, but under the hood, it’s becoming more and more of a mixed situation. To be clear, there remains a lot more good than bad when examining the evidence, but for the here and now, we advise simply taking things on a stock-by-stock basis—holding your strong performers (albeit also raising stops and potentially booking a partial profit here or there), while cutting bait with those that lag or crack support and keeping some powder dry. We’ll again leave our Market Monitor at a level 7—we’ve had good success finding winners but don’t advise flooring the accelerator at this point.

This week’s list is growth-ier despite some potholes seen last week, which is a plus. For our Top Pick, we’re going with a blue chip in the AI theme, with its recent post-earnings pullback setting up an opportunity.

Stocks finally took on some water last week, though the damage was minimal. Under the surface, there are a few more cracks, with the number of stocks hitting 52-week lows on the rise. Still, there’s no cause for concern yet. Just in case there is a more extended pullback in the offing, however, today we add a “boring” insurance play, but one that pays a high dividend and whose share price has been on steady uptick for the last couple months. It’s a recommendation from Tom Hutchinson to his Cabot Dividend Investor readers.

Details inside.

The story of last week was under-the-surface weakness in growth stocks, while money rotated into “everything else.” And by week’s end the S&P 500 had lost 0.3%, the Dow fell 0.1%, and the Nasdaq declined by 0.7%.

The story of last week was under-the-surface weakness in growth stocks, while money rotated into “everything else.” And by week’s end the S&P 500 had lost 0.3%, the Dow fell 0.1%, and the Nasdaq declined by 0.7%.

To begin, I would like to highlight that I have decided to omit the brief company review section that followed our weekly stock updates. This section caused some confusion and the information about each company is widely available. Likewise, I’m ending the Explorer watch list. If you own the stocks on the list right now, I see no reason to sell them.

Moving on to the market, the debates regarding the market’s direction seem endless.

While investor-friendly cannabis reform marches ahead at the state level, it’s still a “wait and see” game in Washington, D.C.

Rescheduling by the Trump administration remains the big potential near-term federal catalyst. If it happens, it will be a “sell the news” event for at least part of your cannabis exposure over the subsequent two or three trading days, for these reasons:

WHAT TO DO NOW: The market remains in good shape as we roll into the long weekend, and we’re happy to see some growth stocks rebound in recent days, with today being a solid performance. That’s not a signal to cannonball into the pool, but with a huge cash position, we’re doing some buying tonight, buying another 3% position in GE Vernova (GEV) and starting a half-sized stake in MP Materials (MP). We’re close to adding some other names, too, but we’ll start with these moves and go from there. Our cash position will be around 49%.

Small caps shot higher last Friday after Fed Chair Jerome Powell indicated his willingness to consider a September rate cut.

On Friday, the S&P 600 SmallCap Index jumped by 3.8%, blasting through the 1,400 level that has served as intermittent overhead resistance in July and August. The index also broke through the 1,424 level, which the index jumped to following the weak jobs report a couple weeks ago.

It’s been a rough few years for the housing sector.

Ever since the Fed raised interest rates to multi-decade highs in 2022/2023, both housing starts and existing home sales have fallen off a cliff in the U.S. Housing starts peaked at 1.82 million in April 2022; they dipped as low as 1.28 million this May, a 30% dropoff. Existing home sales have fallen even further, from a 6.6-million-unit peak in January 2021 to a 3.9-million-unit nadir this June – a 41% haircut.

The market is solid. It is within a whisker of the high. But this is the last week of August. What will it do when investors start really paying attention again after Labor Day?

There has been some back and forth recently. The indexes pulled back as technology and the AI trade ran out of gas. But then stocks rallied again after the Fed Chairman indicated at the Jackson Hole speech last week that the central bank would finally cut the fed funds rate in September. Wall Street loves rate cuts.

A theme that has emerged in the last couple of weeks is rotation out of this summer’s high-flyers and into some of the market’s biggest laggards of recent months. While this is encouraging from our perspective, especially since it bodes well for some of the turnarounds in our portfolio, it’s also a reason for embracing a measure of caution, as it shows that the broad market still isn’t firing on all cylinders.

Small caps raced to multi-month highs early last week and, despite the weakness in the tech-heavy Nasdaq this week, small caps are holding up relatively well.

The iShares Core S&P Small-Cap ETF (IJR) is trading right around 114, which was the zone of overhead resistance in July that the index punched through last Wednesday.

Historically, small caps – and especially small-cap value stocks – have tended to do well during the beginning of rate-cutting periods. This puts a lot of pressure on Fed Chair Jerome Powell’s speech tomorrow in Jackson Hole.

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” -Sir John Templeton

Tech stocks and a couple of Explorer stocks are having a tough week, but the rest of the market is calm as investors await Federal Reserve Chair Jerome Powell’s speech on Friday at the central bank powwow in Jackson Hole, Wyoming.

The market’s tectonic plates are shifting.

Last week, I wrote that big tech – namely, the top 20 stocks in the S&P 500 by market cap – had led the way as the market emerged from a sharp late-March/early-April downturn and stretched to new all-time highs earlier this month. Now they’re retreating, with growth stocks – as measured by the Investors’ Business Daily 50 (FFTY) – off roughly 8% in the last week, with some big names (CRWV, -55%; PLTR, -22%; APP, -17%; SMCI, -31%, etc.) plummeting much further than that.

Just when the market appeared vulnerable to selling pressure, news from an unexpected source rode to the rescue, lifting stocks.

On Tuesday, the Labor Department announced that inflation rose 2.7% in July from a year earlier, which was the same as the previous month and up from a post-pandemic low of 2.3% in April. “Excluding the volatile food and energy categories, core prices rose 3.1%, up from 2.9% in June,” according to the Associated Press.

The bull market has become top-heavy again.

Since the early-April lows, the top 20 stocks in the S&P 500 by market cap – nearly all of which are in the technology sector, and fueled in some way by the artificial intelligence bonanza – are up an average of 40.6%, versus a net gain of 27.9% for the index itself in that time, according to DataTrek Research co-founder Jessica Rabe.

WHAT TO DO NOW: The market is still singing a similar tune, with the big-cap indexes looking fine (and, now, some broader indexes looking better), but growth stocks remain tricky, with many names marking time and more looking iffy. In a special bulletin yesterday, we took partial profits in GE Aerospace (GE), and tonight we are moving Rubrik (RBRK) back to Hold as it’s been unable to escape the weak sector action. That will leave us with 43% cash, which we’ll sit with for now, though we could put some to work in some of our strong performers if growth stocks can perk up.

With a slew of fresh ideas coming in tomorrow’s August Issue and a portfolio that may soon have too many ideas to stay on top of, I’m trimming one position today.

Sell a Quarter Position in Intel (INTC)

Most of our cannabis companies reported earnings in the past week.

Here are some of the key sector insights, followed by company updates.

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.

WHAT TO DO NOW: The indexes continue to look good, and the big-picture (months down the road) outlook is very favorable. But growth stocks remain hit and miss, with some newer names perking up but many potholes out there, too. Today, we’re going to sell one-third of our stake in GE Aerospace (GE), which has been a fine performer, but it’s been lagging a bit, got hit today and many in the group have topped. We’ll take a few chips off the table and hold the rest, leaving us with around 42% in cash.

Doximity (DOCS) Delivers

National Grocers (NGVC) stock should have a good day after posting a solid Q3 FY 25 and raising guidance for the rest of the year. Revenue in Q3 grew 6.3% to $328.7, daily average comparable store sales grew 7.4%, net income grew 26% to $11.6 million and adjusted EPS grew 34% to $0.54. The company declared a $0.12 dividend, payable on September 17.

Primo Brands (PRMB), Dynatrace (DT) and Dutch Bros (BROS) Report

Sell Remaining Quarter of Paramount Global (PARA). Bloomin’ Brands (BLMN) Earnings Update.

Shares of A10 Networks (ATEN) are trading higher today after the company beat Q2 expectations on both the top and bottom lines. Revenue grew 15.5% to $69.4 million (beating by $3.3 million) while adjusted EPS grew almost 17% to $0.21, beating by $0.02.

The Cabot Dividend Investor portfolio currently holds three ETFs, one in each tier of our portfolio. Their distributions come from a variety of sources, including qualified stock dividends, non-qualified stock dividends, preferred stock dividends, MLP and CEF distributions, and possibly some fixed income distributions. That affects how you will pay taxes on the income, since ETF distributions are taxed based on their original source—i.e., how the fund earned them. So it’s important to know what your ETFs hold and what types of dividends those securities pay.

Our market timing indicators are discussed in every issue of Cabot Growth Investor. Here are detailed explanations of what they are and how we use them.

Changing interest rates affect all income investors, but since they can have a wide variety of effects, figuring out whether changes in rates are going to help you or hurt you can be a complex problem.

These rules are the foundation of the Cabot Market Letter investment philosophy.

If you follow these rules, you’re sure to boost your portfolio’s results.

My stock-picking strategy has been refined over the course of 28 years, and has been quite stable for the last six years. My investment goals are (1) minimize stock market risk, (2) achieve capital gains, with dividends as a welcome addition to total return and (3) outperform the U.S. stock markets.

More than six years after the Fed lowered the Federal Funds rate to 0%-0.25% in December 2008, the economy has strengthened to the point that the Fed is considering raising rates to prevent inflation.

Our sell rules demand we sell under a number of conditions, which can be roughly dividend into two broad categories: fundamental weakness or unacceptable risk.

Here are some ways you can use options to hedge or create additional yield in your portfolio. In addition to covered calls, which generate additional income on stocks you already own, I also share hedging strategies using puts and spreads.

Here’s the criteria we use to select stocks for the Cabot Emerging Markets Investor.

Remaining invested in high-quality dividend paying stocks means your investments will continue to reward you even during bear markets.

Chief Analyst Paul Goodwin answers questions about the Cabot Emerging Markets Investor.