Issues
As markets closed the year largely treading water, one might ask why prices of stocks, gold, and just about everything are leaving 2025 higher than they started 2025.
One simple answer is that there is a lot of money sloshing around the world looking for opportunities. Governments and central banks injected trillions of dollars in stimulus during and after the pandemic. Much of that continues to drive momentum trades. Americans alone hold over $7 trillion in money market mutual funds.
One simple answer is that there is a lot of money sloshing around the world looking for opportunities. Governments and central banks injected trillions of dollars in stimulus during and after the pandemic. Much of that continues to drive momentum trades. Americans alone hold over $7 trillion in money market mutual funds.
If there was a dominant investment theme for the Cabot Turnaround Letter in 2025, it was the focus on defensiveness, in which we showed a penchant for companies in the consumer staples arena. This, I believe, was—and still is, from a long-term perspective—justified in view of the many headwinds faced by the U.S. economy over the last 12 months.
Now that we’re about to enter a new year, however, the economic winds have started to shift in a more favorable direction. With the Fed’s embrace of a looser monetary policy, sectors that were out of favor or not very strong in 2025 are poised to become better performers in 2026. I’m referring particularly to some of the more economically sensitive industries within the broader consumer discretionary sector.
Now that we’re about to enter a new year, however, the economic winds have started to shift in a more favorable direction. With the Fed’s embrace of a looser monetary policy, sectors that were out of favor or not very strong in 2025 are poised to become better performers in 2026. I’m referring particularly to some of the more economically sensitive industries within the broader consumer discretionary sector.
As I do from time to time around the major holidays, I spent much of the weekend hanging with family and traveling. That means this week’s Monday Week in Review will be focused on our open positions.
Of note, I am working the full week, outside of Thursday, when the market will be closed for New Year’s.
Of note, I am working the full week, outside of Thursday, when the market will be closed for New Year’s.
As I do from time to time around the major holidays, I spent much of the weekend hanging with family and traveling. That means this week’s Monday Week in Review will be focused on our open positions.
Of note, I am working the full week, outside of Thursday, when the market will be closed for New Year’s.
Of note, I am working the full week, outside of Thursday, when the market will be closed for New Year’s.
First and foremost, all of us here at Cabot wish you and your family a Merry Christmas, Happy Holidays and a prosperous New Year. Our offices will close early today and be closed tomorrow, but we’ll be back at it next week.
As for the evidence, it remains in a similar place as it has been: Market-wide, most of what we look at is positive, and bigger picture, the odds continue to favor the major indexes having solid upside in the months ahead. That said, growth stocks and funds are much more mixed, and near term, some crosscurrents are likely due to the calendar and elevated sentiment. All in all, with growth stocks, we’re continuing to take it step-by-step, emphasizing the positive while pruning names that are weak. Tonight we’re filling out our stake in one recent purchase, leaving us with 45% on the sideline.
As for the evidence, it remains in a similar place as it has been: Market-wide, most of what we look at is positive, and bigger picture, the odds continue to favor the major indexes having solid upside in the months ahead. That said, growth stocks and funds are much more mixed, and near term, some crosscurrents are likely due to the calendar and elevated sentiment. All in all, with growth stocks, we’re continuing to take it step-by-step, emphasizing the positive while pruning names that are weak. Tonight we’re filling out our stake in one recent purchase, leaving us with 45% on the sideline.
Despite a mid-week wobble in tech (especially AI stocks), the bulls stepped up Thursday and Friday, and by week’s end the indexes finished mostly mixed. The S&P 500 gained 0.1%, the Dow lost 0.7%, the Nasdaq rose by 0.5% and the Russell fell 0.9%.
The market has been spectacular. Can we expect more of the same in 2026?
The S&P is up a staggering 95% since this bull market began in October of 2022. It’s up 128% this decade, for an average annual return of about 15%, 50% higher than the historical average.
The huge returns have been all technology. Without technology, market returns for the past few years would be rather uninspired. But there is growing investor angst regarding the sustainability of technology valuations and whether all this massive AI investment will deliver tangible payoffs. The sector could have a tougher year in 2026.
Fortunately, there are a lot of stocks that aren’t technology. The rest of the market cares more about interest rates and the economy, and those things are shaping up well. The Fed is in a rate-cutting cycle, inflation is subdued, oil is cheap, and a higher level of economic growth is expected in 2026.
The rally is broadening, and 2026 may be a year for non-technology stocks to shine. Overall earnings are expected to grow 14% next year, with much of the growth over last year coming from other sectors. Many stocks in other industries sell at cheaper valuations than the market, and performance is improving as investors seek to diversify beyond technology.
The bull market has been lopsided toward technology so far. But 2026 is shaping up to be a year for other stocks to catch up. In this issue, I highlight a stock poised to do just that in the year ahead.
The S&P is up a staggering 95% since this bull market began in October of 2022. It’s up 128% this decade, for an average annual return of about 15%, 50% higher than the historical average.
The huge returns have been all technology. Without technology, market returns for the past few years would be rather uninspired. But there is growing investor angst regarding the sustainability of technology valuations and whether all this massive AI investment will deliver tangible payoffs. The sector could have a tougher year in 2026.
Fortunately, there are a lot of stocks that aren’t technology. The rest of the market cares more about interest rates and the economy, and those things are shaping up well. The Fed is in a rate-cutting cycle, inflation is subdued, oil is cheap, and a higher level of economic growth is expected in 2026.
The rally is broadening, and 2026 may be a year for non-technology stocks to shine. Overall earnings are expected to grow 14% next year, with much of the growth over last year coming from other sectors. Many stocks in other industries sell at cheaper valuations than the market, and performance is improving as investors seek to diversify beyond technology.
The bull market has been lopsided toward technology so far. But 2026 is shaping up to be a year for other stocks to catch up. In this issue, I highlight a stock poised to do just that in the year ahead.
First off, some housekeeping: This is our last Top Ten issue of the year, as next Monday is the second of two “off” weeks we have all year. We will, however, send out a full Movers & Shakers update next Monday (December 29) to keep you up to date. Most important, we wish you and your family a very Merry Christmas and Happy Holidays.
As for the market, the five-day dip into last Wednesday was a downer, but it looks like a year-end rally is underway, with the indexes and many stocks lifting nicely of late. Of course, looking ahead, early January is usually very tricky, though as always, we’ll just take it as it comes: Today, we continue to see more good than bad out there, though it does depend on where you look, with cyclical and financial areas doing well while growth areas are picking up steam but lagging. We’ll nudge our Market Monitor up to a level 7, respecting the action, but focusing on what’s working remains paramount.
This week’s list is again well balanced, with some strong names continuing their moves and other titles emerging after long rest periods. Our Top Pick has many industry-wide and company-specific tailwinds, and the stock looks to be changing character as it discounts a much brighter future.
As for the market, the five-day dip into last Wednesday was a downer, but it looks like a year-end rally is underway, with the indexes and many stocks lifting nicely of late. Of course, looking ahead, early January is usually very tricky, though as always, we’ll just take it as it comes: Today, we continue to see more good than bad out there, though it does depend on where you look, with cyclical and financial areas doing well while growth areas are picking up steam but lagging. We’ll nudge our Market Monitor up to a level 7, respecting the action, but focusing on what’s working remains paramount.
This week’s list is again well balanced, with some strong names continuing their moves and other titles emerging after long rest periods. Our Top Pick has many industry-wide and company-specific tailwinds, and the stock looks to be changing character as it discounts a much brighter future.
In our final issue of 2025, we close out what has been another extremely profitable year for the market and the Stock of the Week portfolio by adding one more risk-on stock that will hopefully take flight in the new year. It’s a mid-cap nuclear energy play that was recently recommended by Tyler Laundon to his Cabot Early Opportunities audience. We will be back with our next issue in two weeks, on January 5, 2026. In the meantime, enjoy today’s issue – and Happy Holidays!
Please note, here is the schedule for the holiday-shortened week:
You will receive the Daily Option Order Flow email Monday through Thursday mornings, and then again starting the following Tuesday.
Have a great holiday!
Despite a mid-week wobble in tech (especially AI stocks), the bulls stepped up Thursday and Friday, and by week’s end the indexes finished mostly mixed. The S&P 500 gained 0.1%, the Dow lost 0.7%, the Nasdaq rose by 0.5% and the Russell fell 0.9%.
- The stock market will be open Monday through Wednesday until 1 eastern.
- Closed Wednesday afternoon and Thursday.
- Open on Friday.
You will receive the Daily Option Order Flow email Monday through Thursday mornings, and then again starting the following Tuesday.
Have a great holiday!
Despite a mid-week wobble in tech (especially AI stocks), the bulls stepped up Thursday and Friday, and by week’s end the indexes finished mostly mixed. The S&P 500 gained 0.1%, the Dow lost 0.7%, the Nasdaq rose by 0.5% and the Russell fell 0.9%.
Please note, here is the schedule for the holiday-shortened week:
You will receive the Daily Option Order Flow email Monday through Thursday mornings, and then again starting the following Tuesday.
Have a great holiday!
Despite a mid-week wobble in tech (especially AI stocks), the bulls stepped up Thursday and Friday, and by week’s end the indexes finished mostly mixed. The S&P 500 gained 0.1%, the Dow lost 0.7%, the Nasdaq rose by 0.5% and the Russell fell 0.9%.
- The stock market will be open Monday through Wednesday until 1 eastern.
- Closed Wednesday afternoon and Thursday.
- Open on Friday.
You will receive the Daily Option Order Flow email Monday through Thursday mornings, and then again starting the following Tuesday.
Have a great holiday!
Despite a mid-week wobble in tech (especially AI stocks), the bulls stepped up Thursday and Friday, and by week’s end the indexes finished mostly mixed. The S&P 500 gained 0.1%, the Dow lost 0.7%, the Nasdaq rose by 0.5% and the Russell fell 0.9%.
Amid all the noise, you may have missed that Microsoft (MSFT) is investing $5.4 billion over the next two years to expand its existing data center capacity in Canada. The investment is primarily aimed at strengthening Canada’s AI and cloud infrastructure in Toronto and Quebec City.
Microsoft has pledged to keep Canadian data on Canadian soil and is launching a new “Threat Intelligence Hub” in Ottawa. This hub will allow experts to work closely with the Canadian government on cybersecurity threat monitoring.
This is a big win for Canada and is likely tied to one of the country’s secret weapons: cheap, dependable hydro power. This is where we go for this week’s new recommendation.
Microsoft has pledged to keep Canadian data on Canadian soil and is launching a new “Threat Intelligence Hub” in Ottawa. This hub will allow experts to work closely with the Canadian government on cybersecurity threat monitoring.
This is a big win for Canada and is likely tied to one of the country’s secret weapons: cheap, dependable hydro power. This is where we go for this week’s new recommendation.
Updates
Both the S&P 600 SmallCap Index and the Russell 2000 are trading higher than they were a week ago, making the ugly selloff last Friday look like a one-off event.
That said, it’s totally valid to be at least a little concerned about the trade war heating up again. And while it sounds like progress could soon be made in the government shutdown (Senate Majority Leader Thune is rumored to be talking with Democrats about extending ACA subsidies in exchange for reopening the government), there’s little doubt that the longer the shutdown goes on the greater the risks are to the market.
That said, it’s totally valid to be at least a little concerned about the trade war heating up again. And while it sounds like progress could soon be made in the government shutdown (Senate Majority Leader Thune is rumored to be talking with Democrats about extending ACA subsidies in exchange for reopening the government), there’s little doubt that the longer the shutdown goes on the greater the risks are to the market.
Explorer stocks were mixed this week as Asian stocks struggled amidst increased U.S.-China economic tensions and concern over Chinese economic growth.
Commodities are back but something to keep in mind was mentioned to me by a friend in the energy business: “America is running out of shale oil.” This has big implications for world oil markets and America’s energy mix since if we are running out of the shale oil that can be extracted at about $60/barrel, higher oil and energy prices are around the corner.
Commodities are back but something to keep in mind was mentioned to me by a friend in the energy business: “America is running out of shale oil.” This has big implications for world oil markets and America’s energy mix since if we are running out of the shale oil that can be extracted at about $60/barrel, higher oil and energy prices are around the corner.
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.
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.
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.
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%).
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.
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.
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.
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.
Alerts
Enovix Warrant (ENVXW) Follow Up. Exercise Enovix Warrants (ENVXW)
We added a half position in Freshworks (FRSH) back in March and another half in May.
Heading into mid-day shares of BYRN are down about 20%, canceling out our paper gain that accumulated over the last five weeks. Here are a few thoughts after digesting commentary on this morning’s conference call.
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.
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.
The management team at Enovix (ENVX) has been busy.
Late last week, the company announced a $60 million share buyback program. Then yesterday, the company released preliminary Q2 results that came in slightly better than management guidance.
Late last week, the company announced a $60 million share buyback program. Then yesterday, the company released preliminary Q2 results that came in slightly better than management guidance.
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.
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.
Right on the heels of yesterday’s Issue featuring new addition Byrna Technologies (BYRN) management released preliminary Q2 revenue. The press release came just after the closing bell yesterday.
Portfolios
Strategy
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 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.