Current Market Outlook


The market had another constructive week, and today, the S&P 500 actually nosed out to new highs, with the Nasdaq close behind. While small- and mid-cap indexes are still further behind, the tenor of the overall market continues to improve—it’s likely not up and away, but the odds continue to favor the next big move being up. Individual stocks remain far trickier, with rotation occurring daily, but our thoughts from last week haven’t changed much: Given the many solid setups out there, a positive earnings season could launch a bunch of new leaders we can hop on (we think we’ve already highlighted some of them), but it’s still up to the bulls to produce a bunch more powerful breakouts in the indexes and individual stocks.

This week’s list is a mix of recent earnings winners and others that are set up nicely ahead of reports this week. Our Top Pick is Vertex Pharmaceuticals (VRTX), which might finally be getting going after years of ups and downs. Earnings are due Wednesday evening so handle with care.

Stock Name	Price	Buy Range	Loss Limit
ACADIA Pharmaceuticals (ACAD)	47.84	40-42.5	35-36.5
Allegiant Travel (ALGT)	170.65	164-168	151-153
Fortune Brands Home & Security (FBHS)	81.02	58-60	53.5-54.5
Lam Research (LRCX)	268.47	260-270	240-245
Pinduoduo (PDD)	87.53	39.5-41.5	35-36
Reliance Steel & Aluminum Co. (RS)	117.45	114-118.5	103-105
Seattle Genetics (SGEN)	150.85	99-103	89-91
Teladoc, Inc. (TDOC)	127.95	69-72	62-63.5
Valero Energy (VLO)	97.40	95-98.5	86-88
Vertex Pharmaceuticals (VRTX)	230.36	191-196	178-180

The overall market continues to chop sideways, with some cyclical areas finding buyers. But growth stocks have just suffered another sharp leg lower, led by the former leaders of this year (cloud software, etc.) but spreading to other areas, too. We’ve been holding cash for a while and have sold stuff that’s broken down, including Snap, Coupa and RingCentral, and are now sitting on a massive 66% cash position.

The economy is humming, interest rates are falling, and stocks are rising. All in all, therefore, conditions are great, and our diversified portfolio—currently weighted toward lower-risk dividend-payers—is doing well.

This week we sell one growth stock, downgrade two portfolio stocks to hold—because they’ve done so well—and add a new growth stock, a high-tech communications company whose name harkens back to an earlier era.

Details in the issue.

Current Market Outlook


The market had another decent week, with the major indexes finishing above key moving averages, though all are still stuck in multi-month ranges. But the calm action hid another round of vicious rotation beneath the surface, with most growth-oriented stocks at least taking on water, if not unraveling altogether. With few stocks in sustained uptrends and the major indexes effectively trending sideways, we continue to advise a mostly cautious stance, with small new positions and plenty of cash on the sideline. That said, you shouldn’t stick your head in the sand, either—we continue to see a good number of setups out there, and we believe a lot will come down to earnings season. A spate of breakouts would be encouraging, but as usual, we have to see it first.

This week’s list is mostly full of the steady growers and special situations that the market is favoring these days. Our Top Pick is Tempur Sealy (TPX), which looks like a solid turnaround situation, with surprisingly big growth numbers to boot.

Stock Name	Price	Buy Range	Loss Limit
Arconic (ARNC)	17.00	26-27	24-24.5
Cabot Microelectronics (CCMP)	156.17	143-148	129-131
Fastenal (FAST)	37.08	35-36	32-32.5
Kansas City Southern (KSU)	176.54	140-144	129-131
Nike (NKE)	89.77	92.5-94.5	85-86
Taiwan Semiconductor (TSM)	78.41	48-50	44-45
TAL Education (TAL)	50.49	38-39.5	34.5-36
Target (TGT)	124.77	109-112	100-102
Tempur Sealy (TPX)	85.53	79-82	71.5-73.5
TJX Co. (TJX)	59.24	58-60	53.5-54.5

Last week’s U.S.-China trade truce fell flat but the tone of emerging market and international stocks remains positive. The EEM began 2019 at 40 and moved nicely to 44 in late spring before coming back to 39 in late summer. Since then, EEM has been in a choppy uptrend to reach 42. Today we move south of the border for a new recommendation in a strong uptrend and way off its high.

October markets are living up to their reputations! As I said in my recently published book, Make Money Buying and Selling Stocks, “October is a Scary Month (many market crashes have occurred in October—Panic of 1907, Black Tuesday (1929), Black Thursday (1929), Black Monday (1929) and Black Monday (1987). The truth: October is on record for the most volatile month. According to CFRA Research from 1950 to present day, “the S&P 500 on average registers more daily moves of at least 1% in October than in any other month.” On the flip side, however, going back to 1950, the S&P 500 has averaged a gain of 0.7% in October, according to The Stock Trader’s Almanac.” And this October has certainly been volatile; yet, in terms of market action, we are about even for the last 30 days.

The market is looking a little healthier, but it’s too early to call the all-clear yet. Still, many of our stocks are looking better, with several hitting new highs in recent days.
This week’s recommendation is an oil-patch giant that pays a good dividend, is undervalued, and is going up—what’s not to like?

Current Market Outlook


Last Friday’s surge higher by the broad market was a powerful sign that the lack of progress by growth stocks in recent months might be over, and for that reason alone, we are raising our market gauge one notch above neutral to the 6 level. But until we see true follow-through, and numerous growth stocks hitting new highs, we can’t be sure. In the meantime, however, there are still plenty of individual stocks acting well, with the potential to make big moves if the broad market cooperates.

Our Top Pick this week is the world leader in electronic signature technology, DocuSign (DOCU), which is making it easier to do business securely as the world turns increasingly digital.

Stock Name	Price	Buy Range	Loss Limit
Aaron’s (AAN)	74.35	66-69	59-61
ASML Holding (ASML)	350.01	253-260	228-232
Chipotle Mexican Grill (CMG)	773.32	795-825	730-745
Crocs (CROX)	0.00	29.5-32.3	25-26
DocuSign (DOCU)	107.98	64-66.5	56-57.5
Lululemon Athletica (LULU)	304.69	200-202	190-192
Quanta Services (PWR)	91.45	37-39	34-35
Saia Inc. (SAIA)	129.19	93-97	85-87
SolarEdge Technologies Inc. (SEDG)	124.37	87-89.5	78-80
Trex Company (TREX)	117.56	87-90	79-81

Stocks look to enter summer near all-time highs, but leadership has narrowed and volatility has ticked up thanks to renewed scrutiny on the AI trade and open-ended questions about valuations in some of the hottest areas of the market.

There’s also been more focus on the evolving macro landscape, which features a resilient U.S. economy but stubbornly high energy prices due to the ongoing Iran conflict, and somewhat elevated yields. We’re now looking at a higher likelihood of a Fed rate hike, with the odds of a hike by December now well over 50%.

The high-flying AI stocks got crushed on Friday. But those stocks started this week higher. Where do we go from here?

The technology-heavy Nasdaq index fell 4% on Friday, and the S&P 500 fell for the week for the first time in 10 weeks. A couple of things spooked investors. The AI trade turned sour after Broadcom (AVGO) reported earnings that included slightly lower revenue projections for its AI chips than were expected. Also, a blowout jobs report strengthened the case for a Fed rate hike by the end of the year.

A major economic narrative that took shape in recent years was the decline and (presumptive) inevitable death of the so-called “petrodollar,” as a growing number of countries diversified their foreign exchange reserves away from the U.S. dollar and toward gold and alternative currencies like the Chinese yuan.

WHAT TO DO NOW: The overall market remains in good shape, though we are seeing some exuberance on the upside and also a few leaders begin to act sloppy. Near term, then, it’s still a coin flip as to what comes, but the vast majority of intermediate-term evidence remains bullish. In the Model Portfolio, we took partial profits in Marvell (MRVL) earlier this week; tonight, we’re buying a half-sized position (5% of the account) in Bloom Energy (BE), which is extremely volatile but also strong and coming off a few weeks of rest. Our cash position will now be around 28%.

This market just keeps going higher.

Sure, there’s uncertainty out there. The war isn’t over. Inflation and interest rates are still too high. But stocks didn’t get the memo. After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30 and are continuing to make new highs this week.

Despite the negative headlines and volatility, stocks just keep going.

After a strong April, the S&P 500 rose 5% and the Nasdaq soared 8% in May. The indexes are up 20% and 30%, respectively, since March 30. It’s also worth noting that despite the ongoing Iran war, the price per barrel of West Texas Intermediate crude oil closed down 17% for the month of May.

This week’s Memorial Day observance marked the traditional onset of the summer vacation season for millions of Americans. It’s a time of traveling, sightseeing, picnics and parties. It’s also the peak season for enjoying cold, carbonated beverages like soda pop and energy drinks.

With this dynamic in play, I think it’s time that we give some attention to our holding in PepsiCo (PEP), which is entering a critical period of its sales year.

On the heels of a miserable March and a euphoric April, I wrote several weeks ago in this space that I thought May would determine which direction the market is truly headed, at least in the intermediate term. We have our answer, and it’s a definitive “up.”

All three major U.S. indexes are touching record highs as of this writing, with the S&P 500 up 4.3% in May, the Nasdaq up 7%, and the slower-moving Dow Jones Industrial inching higher by 1.6%. That’s despite the ongoing Iran war and the accompanying sky-high oil and gas prices, escalating inflation, bond yields at multi-year highs, possible Fed rate hikes later this year, and record-low consumer sentiment.

Stocks have largely shrugged off this week’s dust‑ups in the Middle East as investors continue to bet on a near‑term memorandum of understanding (MOU) that would reopen the Strait of Hormuz and push bigger sticking points between the U.S. and Iran down the road.

Yields have cooled off this week and continue to do so this morning, thanks to a slightly lower‑than‑expected core PCE reading. April core PCE rose 0.2% month over month, below both March’s 0.3% reading and consensus, giving the Fed some breathing room as policymakers weigh the competing forces of inflation and growth.

The $145 trillion global bond market is under some stress due to runaway debt. The 30-year U.S. Treasury bond yielded over 5% last week, up from 4.63% at the end of February. Americans are struggling to keep up with their debt payments, as the cost of borrowing money increases. This is a global story. In Japan, the 30-year government bond yield just hit a record of 4.15%, and U.K. government debt jumped to 5.85% earlier this month.

Nothing stops this market. The S&P 500 hit another new high this week.

The spectacular earnings season helped power the rally. Average earnings growth on the S&P 500 is over 28% in the first quarter. That is far better than the expected 13.1% and the highest level of growth for any quarter since 2021.

We’ve all seen it before: the owner of a home in dire need of structural repair decides to “flip” the house for a quick profit by contracting a restoration service. Instead of making sorely needed foundational repairs, the cleanup crew focuses on superficial fixes like painting, tiling, flooring, etc., in hopes that a shiny new veneer will hide the problems that exist beneath the home’s exterior.

Crude though the analogy may be, I think it’s an apt description of what we sometimes encounter as turnaround investors.

The shares of this cloud-based storage company are getting lots of new analyst coverage: ‘Overweight’ at KeyBanc’ ‘Buy’ atDeutsche Bank; and ‘Overweight’ at PiperJaffray.

The market had a solid setup a few weeks ago, with the major indexes successfully retesting their February lows and many positive divergences showing up in the broad market. We’re not going to predict what comes next, but with the rally starting to fail, we’re going to raise a little more cash by selling one position.

The iShares MSCI EM ETF (EEM) has been under quite a bit of selling pressure over the past four days, dropping it from a close above its 25-day moving average last Wednesday to within shouting distance of its 200-day moving average today.

One of our stocks reported EPS that missed estimates and lowered its guidance range this morning, and the stock opened 4% lower. We’ll look for an opportunity to unload the rest of our shares over the coming few days.

Leading its market of critical event management, this tech company is expected to grow at a rate of 37.3% next year.

Just as Tesla is synonymous with electric vehicles, so Bitcoin is to blockchain technology.

One of the stocks in our portfolio reported first quarter results yesterday afternoon, with both earnings per share (EPS) and revenue coming in slightly above analysts’ estimates.

The shares of this healthcare technology company were recently upgraded by Goldman Sachs and SunTrust Robinson Humphrey, to ‘Buy’.

Two stocks have earnings beats, and we’re selling a third stock after gaining 20% since January.

This tech giant beat analysts’ estimates by $0.05 last quarter.

The following is a quick update to show you that the road forward for marijuana investments continues to improve.

One of the stocks in our portfolio reported a huge first quarter earnings beat and many of our other portfolio stocks are rising.

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