A fragile two-week ceasefire between the U.S. and Iran — announced barely an hour before President Trump’s self-imposed deadline to “obliterate” Tehran — transformed what looked like another brutal week for Wall Street into one of the best rallies of the year. Oil plunged, fear evaporated (in the short term), and the indexes snapped a five-week losing streak in dramatic fashion.

A fragile two-week ceasefire between the U.S. and Iran — announced barely an hour before President Trump’s self-imposed deadline to “obliterate” Tehran — transformed what looked like another brutal week for Wall Street into one of the best rallies of the year. Oil plunged, fear evaporated (in the short term), and the indexes snapped a five-week losing streak in dramatic fashion.

As I write this, the Dow Jones Industrial Average futures are up more than 1,000 points for today’s trading—due to the two-week ceasefire announced overnight between the U.S. and Iran.

Will it last? Who knows. It’s probably going to take at least a few weeks to determine that.

In the meantime, expect markets to continue their volatility.

Markets responded enthusiastically yesterday to the fragile ceasefire and expectation of reopening the Strait of Hormuz. The price of West Texas crude oil fell by more than 16% to $94 per barrel. Alphabet (GOOG) shares were up 9.4% this past week and Banco Santander (SAN) shares were up 8%.

But the economic fallout from five weeks of conflict closure will be with us for a while.

These are tricky times in the market. Recent events have made the direction of stock prices over the remainder of this year particularly uncertain.

The Iran war and ensuing rise in oil prices have been by far the dominant market force recently. The timeline for the war is hard to predict. But even after the war ends, the high oil prices could persist, driving inflationary pressures higher and cowing the Fed.

In times like this it makes sense to go back to basics. We don’t know the future direction of the economy or interest rates or the next phase of the AI trade. But regardless of what happens with any of those market-driving issues, you can bank on the fact that people will still get sick, and older, and need medications.

At the same time, many healthcare stocks are cheap after a recent selloff. Buying stocks that are both defensive and cheap while also able to thrive in a strong market is a great way to play the uncertainty from the Iran war and beyond.

In this issue I highlight three of the very best healthcare stocks on the market. After a rare selloff, these stocks are at bargain prices usually only seen in turbulent markets.

Markets delivered a strong week last week despite the constant Middle East noise, as a massive Tuesday relief rally and further gains on Wednesday helped the indexes finally break their recent downtrend.

Net/net for the shortened four-day week, the S&P 500 advanced 3.4%, the Dow Jones rose nearly 3%, and the Nasdaq outperformed with a gain of 4.4% while the Russell 2000 added 1.2%.

The market has had a nice bounce since last Monday, with most major indexes approaching their 25-day moving averages for the first time in nearly a month. Combined with obvious war-related happenings, the next few days should be telling: Usually in bad markets, the 25-day line will often be enough to repel a rally and prompt a new downtrend, but a decisive push above that line would be another constructive sign. We’ll be on the horn if the evidence changes, but tonight we’ll leave our Market Monitor at a level 4 tonight and see what comes later this week.

This week’s list is well rounded though is a bit heavier on the commodity side of things. Still, for our Top Pick, we’re going with a chip maker with its hands in many cookie jars, but it looks like it’s finally catching a hold of the AI bandwagon, which should drive margins higher. Shares broke out today.

Stocks finally had a good week, and our portfolio fared even better, with most of our names up 4-5% at a minimum, and several of them closer to (or exceeding) double-digit percentages. It’s just one week, but after a miserable March, the buying was a welcome change. We’ll see if it lasts. Bad news out of the Middle East or an eye-popping number from this week’s inflation report could send shares tumbling all over again. But let’s be optimists and add a big-name AI play that is hitting new 52-week highs and has enough momentum that it captured the attention of Mike Cintolo, who recommended the stock to his Cabot Top Ten Trader audience last week.

Details inside.

Markets delivered a strong week despite the constant Middle East noise, as a massive Tuesday relief rally and further gains on Wednesday helped the indexes finally break their recent downtrend.

Markets delivered a strong week despite the constant Middle East noise, as a massive Tuesday relief rally and further gains on Wednesday helped the indexes finally break their recent downtrend.

Markets delivered a strong week despite the constant Middle East noise, as a massive Tuesday relief rally and further gains on Wednesday helped the indexes finally break their recent downtrend.

It’s been an extremely volatile and news-driven past few sessions, but nothing has changed at this point with the evidence--it’s still pointing down, so we remain mostly in cash. That said, we actually think there’s a decent setup forming: Whereas two months go everyone was complacent but yellow flags were popping up, today many are worried but there are some green shoots, such as the resilient action from growth stocks and the Nasdaq holding its own. Of course, setups aren’t a reason to buy, so we’re standing pat tonight--but we remain flexible and have more than a few names we’d like to own if the market can get going.

For value-focused investors, this year’s prologue has been a welcome change from the turmoil experienced in early 2025.

In just the past few weeks, some of last year’s most ignored or underappreciated laggards have posted outsized gains, with rallies that have made even momentum-driven tech stock traders envious. Even more remarkable is the fact that much of that strength has been concentrated in ultra-defensive areas of the market like consumer staples, utilities and healthcare.

The market rotation continues to be the main story out there this week, though rumblings of a potential strike on Iran, an update from the January FOMC meeting, and a slew of earnings reports and economic data releases have been giving investors plenty to think about.

In terms of the rotation, the equal‑weight S&P 500 ETF (RSP) is up 5.5% so far this year, illustrating that leadership is broadening beyond the narrow group of mega‑cap stocks that drove much of last year’s performance.

Year to date, the S&P 600 SmallCap Index is up 8.3% and the S&P 400 Mid‑Cap Index is up 7.9%. Both are comfortably outperforming the S&P 500, which is up just 0.1%, and the Nasdaq, which is down 2.1%.

Happy Chinese New Year! The year of the horse is upon us.

China is expecting an incredible 9.5 billion trips to be made during the 40-day Lunar New Year travel period. Chinese automakers are also on the move as the country’s numerous brands sold nearly 200,000 vehicles in Britain last year, doubling their market share to almost 10%.

As U.S. investors have shifted from risk-on to risk-off mode in recent months, a clear disparity between the “haves” and the “have-nots” has materialized.

Let’s start with the “have-nots.” Financials have fared the worst so far this year (-4.7%), followed by technology (-3.1%), communication services and consumer discretionary (-2.8% each). The downturn in the two tech-related sectors in particular is a stark departure from recent years, when technology led the charge of the current bull market.

Cyclical stocks are soaring and technology is floundering in the transformed market.

The bull market is turned upside down. For most of the first three years, technology, and particularly AI stocks, soared while most other stocks did very little. Now, previously meandering stocks are killing it while technology sinks.

Strong fourth-quarter earnings are confirming what the market was already doing.

Current estimates based on earnings reported so far are for 13.2% overall S&P earnings growth for the quarter. It’s a solid quarter and the fifth straight quarter of double-digit earnings growth. In terms of sector performance, cyclical companies are killing it, and technology is floundering, just like before earnings.

Like many coffee aficionados, I have something of a love/hate relationship with Starbucks (SBUX). My main gripe is that the company’s food and beverage offerings have always been pricey compared to the fare served in most fast-food restaurants and run-of-the-mill coffee houses.

The outperformance of small caps continues.

Through Tuesday’s close, the S&P 600 is up 10% year to date versus just 1.6% for the S&P 500.

All but three small-cap sectors are outperforming their large-cap counterpart. The strongest small-cap sectors are materials (+20%), energy (+23%), industrials (+17%), and tech (+11.4%).

Let’s talk about the power of staying invested.

Sure, when the market turns south – and I’m not even sure last week’s mini-dip qualifies – it makes sense to pare back on your weakest stocks and put a larger portion of your portfolio in cash. But taking your ball and going home – selling out of all of your stocks when times are tough – is not a winning strategy. Here’s why.

NOTE: We’re sending this a day early as I’m soon to embark on a trip with the kiddos over the next week. I will be working a good amount from the road, though, and will have updates if need be. Also, next week’s issue will be published as scheduled.

==

WHAT TO DO NOW: The market remains very mixed, with growth measures still generally pointed sideways to down, while the broad market remains in solid shape. What’s interesting, though, is that we’re seeing more growth stocks kick into gear, along with some huge buying action in a few “cyclical growth” names. Tonight we’re making one move—adding a half-sized stake in Macom Tech (MTSI)—but are keeping our eyes open for a broader character change among growth stocks. Our cash position will be around 53%.

Today could be a big day for cannabis stocks.

The reason: We may get an important update on the rescheduling timeline.

Cannabis investors will be watching closely today to see whether Attorney General Pam Bondi offers a rescheduling update when she appears before the House Judiciary Committee. Upbeat comments could spark a sharp cannabis sector rally. The hearing starts at 10 a.m. EST.

I’m excited to share a couple of enhancements to Cabot Early Opportunities —improvements designed to sharpen our focus and better help you stay on top of the stocks we own.

We’re going to take a swing at Natural Grocers (NGVC) today by filling the second half of our position. It’s foolish to think you can time a “bottom” perfectly, but there’s enough evidence here to suggest we can buy the stock at a solid discount now and, hopefully, catch a significant updraft in the weeks and months ahead.

Sell Life360 (LIF)

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.

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 are some common questions we’re received about Cabot Dividend Investor.

Today, we take a look back at every sale made from the Cabot Dividend Investor portfolio from inception in February 2014 to the end of April 2015 to see how our sold stocks have fared.

Diversification is usually one of the first risk management principles investors learn. It’s simple enough to understand. At its most basic, diversification is simply an extrapolation of the old advice not to put all your eggs in one basket. And it’s good advice.

MLPs (short for master limited partnership) are exempt from U.S. corporate taxes in exchange for passing on most of their income to investors, who are called unitholders. As a result of this unusual situation, unitholders accept the tax burden on the distributions they receive from the MLP.

One of the things many investors like best about dividend income is that it can qualify for the lower Federal capital gains tax rate. For investors in the 25% to 35% marginal tax bracket, that’s 15%, and for those in lower brackets, it’s 0%. But not all dividends and distributions qualify.

Real estate investment trusts are special-purpose entities, with special tax status, that own real estate and pass along most of the income from the real estate (rents or mortgage payments) to shareholders. They can own any type of real estate, and many specialize in one type.

This month, I’m considering making the first sale from our portfolio, to cut our losses in Seadrill (SDRL). I think now is a good time to address our approach to selling, which stems from our focus on long-term, income-oriented returns.

Guide to Options Trading

Even if you’ve been investing for decades, income investing can introduce a lot of new lingo and acronyms, which are not always well explained. Here are some of the key terms I use in Cabot Dividend Investor or that you may see as you research your investments further.

Using Options to Hedge a Portfolio


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.